Sam Waksal, CEO of

ImClone Systems


, has predicted manytimes in public that his company's highly publicized but stillexperimental cancer drug, Erbitux, "is going to be one of the biggestdrugs in the history of oncology."

Friday night, that boast was put on ice -- at least temporarily.

In a stunning rebuke to Imclone and its partner


(BMY) - Get Report

, the Food and Drug Administration refused toaccept the application for approval of Erbitux, which the companiesfiled on Oct. 31.

The approval and launch of Erbitux to treat colon cancer patientswas ballyhooed as the biggest biotech success story of early 2002. Notanymore. The FDA has thrown that timeline out the window, raisingthe real possibility that this potential blockbuster of a drugdoesn't see pharmacy shelves until well into 2003 or beyond.

ImClone issued a public statement about the FDA rejection at 7:14p.m. EST Friday night, confirming almost

two weeks of negative rumors that had driven shares of the biotech company lower by 21%.

ImClone closed Friday at $55.25 pershare. The stock fell another $5.25, or 9.5%, to $50 per share, inafter-hours trading.

Waksal was quick to start damage control, telling


Friday night that the FDA refused to accept the Erbitux applicationbecause the agency wanted more "annotation and measurement" informationabout how Imclone conducted its clinical trials.

Specifically, Waksaltold


, the FDA wants ImClone to shed more light on how the company verified that patients in its clinical trials had failedprevious drug therapies. Regulators also want to verify that Erbitux was actually responsible for shrinking patients' tumors.

Waksal insisted that Erbitux's safety and efficacy are not beingcalled into question, and that the additional information will takeonly six weeks to 10 weeks to compile. The company's hoped for April 2002 approval and subsequent May launch of the drug will now likely bedelayed only until the third quarter, he told


. (Companyofficials did not return calls for comment from

Friday night.)

But all this might be wishful thinking on Waksal's part.

The ImClone CEO has been very vocal about not only Erbitux'spotential as a multibillion dollar drug, but in how quickly the FDAwould issue an approval. Beginning in June, ImClone filed what is knownas a Rolling Biologic License Application for Erbitux, meaning thecompany submitted its application piecemeal as each section wascompleted. By doing that, ImClone executives told

atthat time, the company would get continuous feedback from the FDA on thestatus of the application, thereby avoiding unforeseen problems andspeeding up the approval process.

But if ImClone was working so closely with the FDA on Erbitux'sapplication, why are regulators now surprising ImClone and itsshareholders with new requests for information?

Waksal's statement that the FDA is now looking deeper into the wayImClone conducted its clinical trial for Erbitux and apparentlyquestioning the company's results, suggests regulators are, in fact,concerned about Erbitux's safety and efficacy. Simply put, the FDA wantsto make sure that Erbitux does what ImClone claims it does.

This supports the long-standing bear case against the drug. ImClonecritics concede Erbitux appears to be a real drug, but they say thecompany has taken short cuts in its clinical trials and hasn't providedenough evidence to support its approval. The FDA, they believe, islikely to ask Imclone to submit additional testing data for Erbitux, aprocess that could dramatically delay the drug's approval.

One hedge fund manager who's been shorting ImClone says his sourcestell him that there's a power struggle within the FDA concerningErbitux. More risk-tolerant regulators within the agency were pushing to accept the drug's application as-is, but their risk-averse colleagueswere not impressed and wanted to wait until ImClone completed moreextensive and robust clinical trials of Erbitux, some of which havestarted, and others which are expected to start soon.


Friday's decision by the FDA lends credence to what I washearing, and tells me that the slow-moving, bureaucratic side of the FDAwon out," he says. "This could be very bad for Imclone," he adds,because regardless of what the FDA requests from Imclone to get itsapplication accepted, regulators could be signaling that they will wantstill more clinical trial data before they actually approve the drug.

If that happens, Erbitux might not be approved until well into 2003 or beyond.

And, of course, what's bad for ImClone is bad for Bristol-MyersSquibb, the struggling drug giant that bet $2 billion on Erbitux inSeptember to resurrect its flagging cancer drug franchise. Bristol-Myers took a 20% stake in ImClone and secured marketing rights to Erbitux, giving it 40% of the drug's eventual profits. Some Wall Street drug analysts questioned the high cost of the deal when it was announced, but Bristol-Myers defended the move, insisting that its own due diligence led it to believe that Erbitux would be approved early in 2002.

Oh well, so much for that due diligence.

"How stupid does Bristol-Myers look now," says another hedge fundmanager. "Investors believed that Bristol-Myers and ImClone were goingto stroll right into the FDA and get Erbitux approved without anyquestions. Well, what the FDA made clear

Friday is that it's not aboutto just bend over." This hedge fund manager is short ImClone and has noposition in Bristol-Myers.

As ImClone shares sink because of the Erbitux delay -- no matterhow long it ends up being -- investors who are losing money also aregoing to be reminded that Sam Waksal, his brother and company COO HarlanWaksal, as well as other Imclone executives, already have hit the bestkind of jackpot -- tens of millions of dollars in cash that isn'timpacted one bit by Erbitux's problems.

As part of Bristol-Myers' tender offer for 20% of ImClone, thecompany's executives were able to cash out a significant portion oftheir shares -- something

first reported by

in September. Sam Waksal's take:approximately $36 million, according to company documents filed by the


. Harlan Waksal cashed out to the tune of $54 million, whilecompany chairman Robert Goldhammer netted $25.5 million.

Ordinary investors also won because they were able to sell roughly20% of their ImClone stake to Bristol-Myers, and at a healthy premium.But investors didn't get their ImClone shares for free, as did theWaksal brothers and other company executives -- who benefited mightilyfrom stock purchases last summer financed with loans from the company -- at the same time they were negotiating the Bristol-Myers deal.

ImClone executives scheduled a conference call for analysts andinvestors Monday morning to discuss the Erbitux delay in more detail,and hopefully, to end the rampant speculation that has dogged thecompany for two weeks.

CIBC World Markets biotech analyst Matt Gellersaid he believes any delay will be short and will not require additionalclinical trials. Of course, Geller said earlier that he believed the FDA would accept the Erbitux application. (Geller rates ImClone a strong buy and his firm hasn't done underwriting for the company.)

Merrill Lynch biotech analyst Eric Hecht also downplayed problems.In a research note written Thursday, Hecht said FDA "refuse to file"letters are common and that any problems ImClone might be having wouldlikely be minor and easily corrected. (Hecht rates Imclone buy and hisfirm has done underwriting for the company.)

Another source -- someone familiar with the Erbitux clinical trialsand who correctly predicted the delay before the rumors hit Wall Street-- told

he also believes the delay is relatively minor. The source has no position in Imclone.

"ImClone was not able to audit some of its clinical trial data ontime, as it was supposed to be," he says. The company can get this donerelatively quickly, which should satisfy FDA concerns and allow theErbitux application to be accepted, he added.