SAN FRANCISCO -- ImClone Systems ( IMCL) knew as early as 1999 that U.S. drug regulators had concerns about its approval application for its highly anticipated Erbitux cancer drug but did nothing to address the issues.

This acknowledgment of a massive blunder was the highlight of ImClone CEO Sam Waksal's presentation to a packed house of Wall Street fund managers at the JPMorgan H&Q health care conference Wednesday morning.

Bottom line: ImClone is trying its best to fix the Erbitux mess, but it has no confidence it can do so. If everything goes right, the biotech could refile its Erbitux application in a few months. If not, the company will have to start from scratch, forcing a delay of at least a year.

If that sounds exactly like what Waksal said nearly two weeks ago, you're right. That's why some fund managers who attended a presentation and breakout session were dissatisfied.

"It was a complete circus," said one hedge fund manager who has no position in ImClone right now. "It's clear they don't know what they're doing."

Said another fund manager, someone who until recently was an ImClone bull but has sold his stake: "ImClone still hasn't come clean; they're still glossing over major issues."

Shares of ImClone fell $5, or 13.6%, to $31.85 Wednesday. ImClone was trading fairly flat until the presentation began at 1:30 pm EST, then the stock sold off aggressively.

A tired-looking Waksal cracked a few jokes during his 30-minute presentation but acknowledged sleeping little since the Food and Drug Administration rejected Erbitux on Dec. 28. And who can blame him when you have to stand up in front of thousands of professional investors (there were two overflow rooms where the presentation was piped in) and say: "We put together a faulty BLA biologic license application package, and we screwed up."

Waksal says the FDA issued its refuse-to-file letter for Erbitux because the agency was not provided with complete documentation -- mainly annotated patient X-rays -- that would conclusively prove that colon cancer patients in its clinical trial were refractory, that is, that other drug therapies had failed them.

This disclosure wasn't new, but what followed was: Waksal acknowledged the FDA made it very clear to ImClone -- as early as 1999 when the company was getting ready to start its pivotal clinical trial -- that the absence of this documentation of patient "refractory-ness" (Waksal's term) was an absolute deal-breaker. In other words, if ImClone didn't provide this information, the FDA was not going to accept the Erbitux application.

ImClone began its clinical trial in the third quarter of 1999 and completed it in March 2001. But instead of making sure ImClone's doctors and an independent panel of radiologists and oncologists put together the necessary documentation for the FDA, the company did nothing.

ImClone had several follow-up conversations with the FDA, starting in August 2000, during which this issue came up, says Waksal. But again, ImClone did nothing.

The Crucial Question

Why? Waksal didn't say.

The lack of that answer is what has fund managers scratching their heads -- and selling ImClone stock. The company had ample warning and time to make sure that it could satisfy FDA regulators, but, for some mysterious reason, it failed to do so.

Waksal, instead, tried to explain how ImClone is going to fix the problem.

First, the company expects to meet with the FDA within the month to clarify all the outstanding issues. Then it will attempt to reconstruct the necessary documentation from the raw files, says Waksal. A new panel of independent doctors will go over the original X-rays and determine whether patients were refractory to existing chemo treatments, and whether they actually responded to Erbitux.

But Waksal made it clear that ImClone was not sure this backward approach was possible, or if the FDA would allow it.

"If we can't put together the information that the FDA requires, we will have to do new clinical trials," he said.

This raises the possibility that ImClone will be forced to drop its plan to get Erbitux approved for colon cancer patients. Instead, the company could use data from completed trials in head and neck cancer to file an entirely new approval application with the FDA. But if this alternate plan becomes necessary, ImClone won't be in a position to refile until the end of 2002.

During ImClone's breakout session with fund managers, Waksal was asked about this scenario. He didn't rule it out, although he said the company's focus now was on trying to fix the Erbitux application for colon cancer.

The 30-minute breakout session was jammed, and fund managers were clearly ready to challenge Waksal's statements. Questions were asked about the role of Bristol-Myers Squibb ( BMY), ImClone's Erbitux partner.

One question was whether Bristol-Myers had access to the complete approval application before it was filed; the CEO said he didn't know.

Waksal was also asked about the appropriateness of his sale of $36 million of ImClone stock as part of the Bristol-Myers deal. The same questioner asked, too, about the insider-selling activities of the CEO's brother and company COO Harlan Waksal, who has now sold more than $100 million in ImClone shares.

Sam Waksal defended himself and his brother, calling the stock deals "appropriate."

Harlan Waksal was not present to speak for himself. His absence was noted by many fund managers in the audience, especially because, as ImClone's COO, he would be the executive responsible for making sure that the Erbitux application process was completed correctly. While Sam Waksal insisted that Bristol-Myers was still very much on board, executives from the drug giant also were missing in action.

At one point during the Q&A session, the CEO peered out into the audience and asked a questioner to identify himself.

"Who am I talking to?" Waksal asked.

"You're talking to all of us," someone yelled out.

At this point, no one likes what they're hearing.