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Investors in

ImClone Systems


Wednesday seemed to shrug off the

move by

Bristol-Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report

to gain greater control over the experimental cancer drug Erbitux and oust, at least temporarily, ImClone's two top executives.

One possible reason: Forcing ImClone's CEO Sam Waksal and COO Harlan Waksal to resign might help ImClone regain a small measure of credibility with Wall Street, but it does little to change the fact that there's a great deal of work to be done before Erbitux is approved, if ever.

And to some biotech mavens, the draconian demands made by Bristol-Myers on Tuesday -- implying that the drug giant wears the white hat in this debacle because it was misled by ImClone -- smells a bit disingenuous. Both companies own a piece of the problem and have something to gain from working together. Bristol-Myers conducted its own due diligence on Erbitux before it inked the ImClone deal, so the cancer drug's problems were either ignored or missed entirely. Either way, Bristol-Myers looks just as guilty as its partner, which it's now slamming publicly.

Shares of ImClone closed down $1.53, or 9.01%, to $15.45 Wednesday; while Bristol-Myers was off 90 cents, or 2.06%, to $42.80.

Bristol-Myers and ImClone executives are not talking publicly, other than what's been released so far. Bristol-Myers wants complete control over efforts to get Erbitux approved by the Food and Drug Administration, and is seeking to rework the economics of its existing $2 billion ImClone partnership. ImClone says it's reviewing the drugmaker's proposals and will respond soon.

Let the posturing and negotiations begin.

"I think this is just some games both sides are playing right now," says Jason Zhang, biotech analyst at Stephens. "It doesn't really change anything with the drug because, at the very minimum, a new clinical trial is going to be needed."

Zhang doesn't see a decision on Erbitux's approval before late 2003 or early 2004. He rates ImClone a neutral, although he sees the possible temporary resignation of the Waksal brothers as a short-term positive because it would assure investors that Erbitux is in more capable hands. Stephens doesn't have a banking relationship with ImClone.

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Muscle or Flab?

Bristol-Myers has reportedly threatened to walk away from ImClone if the biotech firm doesn't agree to its demands. That's quite a threat. Is there any real muscle behind it?

"I don't see how Bristol-Myers can afford to tear up its deal with ImClone," said one hedge fund manager who's been playing ImClone long at these depressed levels. "The company already looks stupid, so if they walk away and Erbitux gets approved, they look stupid twice."

In many ways, Bristol-Myers and ImClone are like two drunks trying to prop each other up so they don't fall down. They need each other. Bristol-Myers' reputation as the pre-eminent cancer drug company is badly tarnished. The company desperately needs a drug with the potential of Erbitux to get back in the game, let alone to help it boost a bleak earnings growth picture over the next few years.

Bristol-Myers has lost $16 billion in market value since Dec. 28, when the FDA issued its refuse-to-file letter on Erbitux. That's put CEO Peter Dolan on the hot seat, especially because he was the biggest proponent of the ImClone deal in the first place.

"Dolan is on an extraordinarily short leash with his board," says Barbara Ryan, drug analyst with Deutsche Banc Alex. Brown. She rates Bristol-Myers a strong buy, but admits ruefully that she's been "long and wrong" on the stock for a while. Ryan's firm doesn't have a banking relationship with Bristol-Myers.

ImClone shares, already down 70% since the Erbitux mess started Dec. 28, will take a further beating if the biotech doesn't agree to let the more experienced team at Bristol-Myers take over the drug's approval process. ImClone has zero credibility right now because it continues to insist that the FDA's concerns with Erbitux won't take much effort to fix. In fact, the agency's refuse-to-file letter is chock full of major issues and clearly spells out that new clinical trials are a necessity.

Another Mate?

Can ImClone find a new partner? Sure, it's possible.



was rumored to be interested in Erbitux before Bristol-Myers stepped up. But negotiating a new deal, considering the current uncertainties, would take a Herculean effort and certainly would not bring as favorable terms. Also, there are

competing drugs already undergoing testing.

Another hedge fund manager, short ImClone, agrees that Bristol-Myers is certainly culpable in the Erbitux mess, but it still probably holds the upper hand. After all, it's ImClone and its executives, not Bristol-Myers, which is the target of three governmental investigations and countless shareholder lawsuits.

"I don't think Sam and Harlan

Waksal are going to step down voluntarily. So at some point, ImClone's board is going to have to make a decision," he says. "Is it better for shareholders if we dump Sam and Harlan

Waksal and get Erbitux back on track, or do we stick by these guys and step into the void?"

A question investors are clearly waiting to be answered.