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Excluding Freak Detour, ImClone's Gain is Modest

The shares inch up on news its cancer drug, Erbitux, won FDA approval.

Updated from 8:25 a.m. EST



drifted higher Friday, one day after the FDA approved its Erbitux for treatment of advanced colorectal cancer.

The shares were recently fetching $44.98 on Instinet, up $10.98, or 32% from their Thursday close -- although the size of the gain is being exaggerated because of freak trading in the shares Thursday. Erbitux was cleared under the FDA's accelerated review program, which allows the approval of products for life-threatening diseases based on early evidence of their effectiveness. ImClone said it expects the drug to be available to patients in two weeks.

Howard Liang, one of a handful of analysts who follow ImClone, said Friday that Erbitux should get a boost from the FDA's approving it as a single therapy for colorectal cancer as well as for a combined therapy with the chemotherapy drug irinotecan. In both cases, the drug was approved for treating colorectal patients whose cancer had spread and/or who hadn't responded to other therapies.

The extra approval is "significant and not necessarily expected," Liang said in a research report to his clients. Liang of JMP Securities, predicts Erbitux could produce more than $150 million in sales this year and break the $1 billion sales mark in 2007.

Liang began tracking the stock in late January, and on Friday he maintained his market outperform rating on ImClone. He doesn't own shares; his firm is a market maker in the stock.

ImClone found itself engulfed in another controversy Thursday when its shares plunged more than $10 in the four minutes before the FDA's approval was disseminated and trading halted at about 1:34 p.m. EST. The

Securities and Exchange Commission

has directed the


to investigate the plunge, which was eventually reversed when ImClone opened in Thursday's after-hours session.

Since ImClone wasn't reopened for trading before Thursday's close, Friday's 32% gain is from its level just after the plunge -- a fall that was immediately corrected when the shares reopened in the aftermarket. The shares are currently trading only about a dollar above where they were for most of yesterday's session.

Nasdaq characterized Thursday's trading halt as routine and said trades carried out before its enactment were valid. Asked if the Nasdaq believed trading occurred on its systems or any other platform after the halt, Nasdaq spokeswoman Betsy Sherman said "no," adding: "This is a routine halt due to company news pending."

A person close to Nasdaq, speaking on condition of anonymity, said 12 trades that were made after the halt would be canceled. Both the spokeswoman and the source said no Nasdaq systems errors played a role in any late trade.

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Approval of the drug was widely expected in the market and many traders had professed an intention to "sell the news" when formal word of it hit. Still, Thursday's plunge was too extreme to be chalked up to normal market dynamics, and indeed occurred before the FDA posted the press release on its site.

Timothy Ghriskey, president of Ghriskey Capital Management, called ImClone a "cult stock" that often gets whipped around by rumors. The problem with rumors is they're not always right. That appears to be what happened Thursday.

SEC spokesman Herb Perone said whenever a stock drops that dramatically it prompts an investigation by the market's surveillance team, and such an investigation is underway. He said such a big drop in a stock in such a short time is rare, although at this time, there is no indication of anything nefarious.


Bristol-Myers Squibb

(BMY) - Get Bristol-Myers Squibb Company Report

, which owns about 20% of ImClone and will be Erbitux's distributor, was recently trading for $29.92 on Instinet, up 3 cents from its Thursday close.

The dustup is only the latest for ImClone, whose founder, Sam Waksal, is currently serving seven years in prison for insider trading and whose frantic efforts to get out of the stock in December 2001 set off events that led to the Martha Stewart scandal.

It's also the second go-round for ImClone, Erbitux and the FDA. In December 2001, the agency rejected the company's application, saying the data were incomplete. It was before news of that setback became public that Waksal brazenly tried to unload his shares and, prosecutors allege, tip off family members the stock was about to tank.

Waksal later pleaded guilty to bank fraud, securities fraud and conspiracy to obstruct justice. He was given an 87-month prison sentence and ordered to pay a fine of $4.2 million.

Stewart, the former CEO of

Martha Stewart Living Omnimedia


, sold a 4,000-share slug of ImClone on Dec. 27, 2001, the same day Waksal tried to make his sales. She's currently on trial in federal court in Manhattan for allegedly concocting a story with her broker about the circumstances of the sale, which she claims was carried out under an informal agreement to sell the stock when it fell below $60.

Despite the sideshows, ImClone pressed on with Bristol-Myers, and the two companies requested an accelerated review from the FDA in August 2003. It was granted in October 2003.

This time, the FDA approved the drug to treat patients with advanced colon cancer whose disease has spread to other parts of the body. The FDA approved Erbitux as a treatment with another colorectal cancer drug, irinotecan, or as a single treatment if patients cannot tolerate the other medication.

The FDA pointed out Thursday that although Erbitux has not been shown to extend patients' lives, tests say the drug can shrink tumors in some patients and delay tumor growth in other patients, especially when the drug is used with other cancer medications.

Colorectal cancer is the third most common cancer affecting U.S. men and women, says the federal Centers for Disease Control and Prevention. About 147,500 new cases were diagnosed last year. The agency says cancer of the colon and rectum is the second biggest cancer killer.

"FDA believes it is crucial for cancer patients to have many proven treatment options in their battle against this disease," said Mark B. McClellan, the FDA commissioner in announcing his agency's approval of the drug.

The FDA said the original Erbitux application -- in which results of several tests were submitted to the agency between June 28, 2001 and Oct. 31, 2001 -- was rejected because certain data about the drug's safety and effectiveness was missing. The agency also said that about half the patients in the original tests had not failed the approved treatments for colon cancer.

When ImClone resubmitted its request, the agency said the company provided the results of a "large, well-run trial" as well as results from the earlier tests. The agency said ImClone was able to successfully collect "substantial amounts" of the missing data related to its first application.

Two other studies are under way to assess Erbitux's ability to stop the progression of colorectal cancer and to extend the lives of patienets with advanced colon cancer.

Erbitux appears to work by targeting a natural protein called epidermal growth factor receptor (EGFR) on the surface of cancer cells, interfering with their growth.

For patients with tumors that produce EGFR and who don't respond to existing colon cancer treatments, the FDA says the combination of Erbitux and the standard treatment irinotecan shrank tumors in 22.9% of patients and delayed tumor growth by 4.1 months. Erbitux alone led to tumor shrinkage in 10.8% of patients and delayed tumor growth by 1.5 months.

Erbitux was first approved in Switzerland on Dec. 1, 2003, for colorectal cancer patients who no longer responded to traditional chemotherapy.

The application to Swiss medical authorities was made by ImClone and its partner, Merck KGaA, of Germany, which licensed the rights in 1998 from ImClone to market the drug outside of the United States and Canada. The German company is not related to


in the United States.