How ImClone Picked Up the Pieces


When ImClone Systems made two major announcements on Feb. 11, the first grabbed all the attention: At long last, the U.S. Food & Drug Administration had approved ImClone's controversial cancer drug, Erbitux, for patient use. Yet the company also announced the appointment of Daniel Lynch as its new CEO -- making him the first ImClone (IMCL) chief executive not named Waksal.

Lynch, formerly ImClone's chief financial officer, assumed the role of acting chief executive in April, 2003, when company co-founder Harlan Waksal stepped down amid questions about the handling of taxes on stock options granted to company officers. Harlan himself had assumed the helm in the spring of 2002 from his brother and co-founder, Sam Waksal, now serving a seven-year prison term for insider trading and other securities violations.

Lynch, who spent 15 years at Bristol-Myers Squibb (BMY), arrived at ImClone in April, 2001 -- eight months before it became embroiled in a regulatory and financial scandal sparked by the FDA's refusal to accept its initial application for approval of Erbitux. The FDA cited a poor clinical trial design and missing patient data at the time as the reason for the refusal.

The announcement put the stock into a tailspin, leading to charges of insider trading by Sam Waksal and allegations that Martha Stewart unloaded her ImClone shares prior to the announcement but tried to conceal her actions from investigators. The domestic doyenne is now on trial in U.S. District Court in Manhattan.

After the latest batch of good news, Lynch talked to BusinessWeek Senior Writer Catherine Arnst about what it took to get Erbitux approved and his plans for keeping ImClone moving forward. Here are edited excerpts from their conversation:

Q:hat now?

A: We have a terrific drug with strategic assets. We have top biological manufacturing capabilities. We have a field force of 18. We have capital. We have a very interesting pipeline that we're looking to move forward. I'm very excited. I've had no second thoughts about staying here.

Q:Why did you remain at ImClone after the FDA's refusal in December, 2001, to review the Erbitux application?

A: I always felt that this drug worked. Even after the [initial FDA] refusal, I had a high degree of confidence that the drug would be approved. Sure, it was challenging to keep our eye on the ball, but we did everything we could to win approval...everyone at the company really believed that this drug worked.

Q: Did many employees leave after the refusal and ensuing scandals?

A: Before we got the refusal-to-file, we had half the average turnover rate of the biotech industry [which is about 5% to 6%]. Afterwards, the turnover remained the same. There was incredible loyalty. In fact, the entire senior management team has remained the same throughout, except for Sam and Harlan.

That said, it was clearly a challenge to deal with [the insider-trading scandal]. Most people focused on trying to move the company forward. The distractions were frustrating, but they didn't change how people felt about the drug.

Q: How did you get the drug back on track?

A: We and the FDA wanted to make sure all communications were clear and well understood. We started a very good and open dialogue [after the refusal-to-file]. We listened to what they said. The FDA told us exactly the clinical trial design required for us to reapply, and we knew that Merck [ImClone's German partner, and no relationship to Merck & Co.] was conducting a trial that was exactly what they wanted.

Merck has been great. I really have a lot of kudos to pass in their direction. It was their trial, and they executed it very well. They supported the requirements that we needed to fulfill for the FDA, and we helped them with the European filings. It worked very well in both directions.

Q: Bristol-Myers, which paid about $1 billion in October, 2001, for 20% of ImClone and marketing rights to Erbitux, tried to pull out of the deal after the FDA refusal. How did ImClone handle that relationship?

A: I was probably the person most involved in the original negotiations with Bristol-Myers [where Lynch had worked previously]...the deal was a deal. Their demands in the first quarter of 2002 were not consistent with the deal they signed. We made relatively minor changes in the contract. Once we got through that difficult period, I must say the relationship between ImClone and Bristol is working very well now. We both had an interest in the continued development of Erbitux.

Q: There has been speculation that Bristol, with its vast regulatory experience, took over the process of moving Erbitux through the approval process in 2002. Is that true?

A: I don't think Bristol took over. ImClone was always the sponsor. It was our drug and our filing with the FDA. We have always remained the lead company in determining strategy and execution.

Having said that, Bristol was a very important and valued partner. And there has been agreement on how we move forward. It was clear from the FDA letter [detailing its reasons for refusing the application] what they wanted. Fortunately, Merck had already started a trial in Europe that satisfied those requirements. We all agreed that we would move forward based on the European trial. All three companies worked together to develop the FDA filing, which overlapped with Merck's European filing by about 90%.

Q: Your stock sank from a high in the $70 range in December, 2001, to less than $10 in 2002. Now it's back up in the $40 to $45 range. How were you able to keep the company -- and Erbitux' development -- afloat?

A: Money in a biotech company is a constant issue and challenge. Still, ImClone was fortunate -- we didn't have to scale back during that time, in part because of the milestone payments we received from Bristol.

From the time we signed the deal until now, we've received $400 million in milestone payments, and that has funded Erbitux and our drug pipeline over the past three years. Bristol owes us another $250 million now that the drug has been approved, and we will get another $250 million if it's approved for another tumor type [besides colorectal cancer]. On top of that, when the drug starts to be sold in the next two weeks, we will get 39% of the revenues.


Later, Baby
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