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Curious about why

ImClone Systems'


stock price appears strapped to a rocket? It could have something to do with the quiet chats CEO Harlan Waksal is holding with institutional investors.

After the

scandalsof the past year, Waksal is trying to get ImClone back in the good graces of Wall Street for two main reasons, say fund managers who have met with him: To convince skeptical Wall Street that ImClone can get Erbitux approved, and to lay the groundwork for future financing because the company needs to raise cash.

To accomplish this, Waksal has been meeting privately with some of the company's largest shareholders, as well as other institutional fund managers. People who have attended these meetings -- held over the past two weeks and still ongoing -- say Waksal's message is simple: ImClone and partner

Bristol-Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report

are making slow but steady progress toward getting the long-delayed cancer drug Erbitux back in front of U.S. drug regulators.

Rethinking Erbitux

During these one-on-one meetings, three fund managers all say Waksal suggested that ImClone is moving away from its publicly stated first priority for Erbitux: getting the drug approved next year as a colon-cancer treatment used in combination with existing chemotherapy drugs.

Instead, the company is leaning more toward a Plan B: Getting Erbitux approved as a stand-alone treatment for colon cancer. This effort, if successful, means ImClone must wait for the completion of an additional clinical study, which likely pushes the drug's approval back into 2004. The three fund managers, who requested anonymity, are either long or have no current position in ImClone.

ImClone's Climb
Since late October, ImClone's jumped 64%

But Waksal has been spinning this change of strategy into a positive, and it's apparently resonating with some institutional investors, although many might just be covering their short positions.

Waksal's Wall Street get-togethers coincide with the stock's recent success. ImClone shares have soared 64% since the end of October. ImClone closed Friday at $11.77, still well off its 52-week high of $75.45. (The persistent -- albeit far-fetched -- rumor that has ImClone being taken over by Bristol-Myers also helped the stock.)

"I think Waksal is trying to make the best of the situation to prepare us for bad news coming from the

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study," says one fund manager who met with ImClone's chief executive, referring to a key trial of the drug. "ImClone needs to raise money so he's trying to reassure us that the company is doing everything it can to get Erbitux approved."

ImClone spokesman Andrew Merrill said company executives, including Waksal, are "engaging in an ordinary course of investor relations." He wouldn't comment further.

reported on Oct. 29 that a European trial of Erbitux that ImClone was counting on likely has


According to those who have attended these recent meetings, Waksal is telling fund managers that the final analysis of this study -- run by the German drugmaker Merck KGaA -- won't be finished until early next year. But when asked for more detail, he has conceded odds are slim that the study will meet its primary endpoint, which is to show that colon cancer patients who take a combination of Erbitux and the chemotherapy drug irinotecan respond better than similar patients who take Erbitux by itself.

Submitting Erbitux as part of a combination therapy was the company's first choice because most of the drug's earlier test data were gathered under that assumption, and because it represents a larger market.

In August, ImClone and Bristol-Myers began a 250-patient study in the U.S. of Erbitux as a stand-alone treatment for colon cancer patients who have exhausted all other medical options. The results of this study, combined with other data, will likely form the basis for Erbitux's second shot at U.S. approval. Last December, the FDA refused to accept ImClone's first approval application.

According to two fund managers who met with Waksal, ImClone expects this monotherapy study -- known as IMCL-144 -- to be completed in the third quarter of 2003. The fund managers say Waksal told them that a response rate of 10% or greater in this study will be enough for the FDA to grant approval to Erbitux, although that decision will be made by the FDA.

Effect on Liquidity

ImClone warned in its most recent 10-Q, filed with the

Securities and Exchange Commission

Thursday night, that it has enough cash on hand to last through the end of 2003. This is a potential problem if Erbitux doesn't have a chance to reach the market until 2004, and might partially explain why Waksal is trying to once again get cozy with Wall Street.

During the private meetings of the last two weeks, Waksal and ImClone CFO Dan Lynch have explained to fund managers that ImClone wants to raise a relatively small amount of money to act as bridge financing between the end of 2003 and an Erbitux approval. It's not known how ImClone intends to raise the cash, although some form of convertible-bond offering or debt swap is being considered, according to fund managers who met with Waksal.

At the end of the third quarter, ImClone had $293.1 million in cash, cash equivalents and marketable securities, although $240 million of that is in the form of convertible debt due in March 2005 and exercisable at $55.09 per share.

The fact that ImClone is taking a measure of Wall Street's appetite for some fund-raising also suggests that the rumor of a Bristol-Myers takeout is unlikely. After all, why would ImClone raise money if it's about to be acquired?

If and when Erbitux is approved, Bristol-Myers will pay ImClone $250 million, per its partnership agreement. Another $250 million payment will be made by Bristol-Myers if and when Erbitux receives approval for a second cancer indication.