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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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October 27, 2005

Imclone Revisited

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Posted by Derek

One among the flood of earnings reports this week was Imclone. Their 3Q earnings press release was one of those good news/bad news documents familiar to readers of the financial pages. Revenues weren't too bad, with higher royalties coming in, although there was a decline in manufacturing revenue which was blamed on lower prices being paid by Bristol-Meyers Squibb for Imclone's sole product, Erbitux. As they hastened to add, though, "Purchases by Bristol-Myers Squibb are timed at their discretion to accommodate forecasts and safety stock needs, and are not necessarily indicative of historical in-market sales or future sales expectations." They'd better hope so.

If you go back to their second quarter 10-Q statement, though, you won't find much mention of these things in the "Outlook" section. They do point out that the price of Erbitux for the partners has gone down, but there's no mention of the possibility of BMS deciding not to buy much of it for a while.

At the same time, expenses were higher than expected. The biggest component of the increase was under the R&D heading. In Imclone's words: "the increase is principally attributable to expenses associated with clinical supplies sold to the Company's partners which are reimbursed as a component of collaborative agreement revenue." Unless they somehow have the clinical supplies of Erbitux completely separated out financially from the commercial ones, this would seem to mean that they're spending more money to deliver the drug to their partners, and getting less back for it.

Imclone has a special place in my heart. Since their return from the grave, I've written about them several times, and today's earnings report prompted me to revisit a few of those posts. Back on April 28 of last year, I wrote: ""Today's buyers can only hope for people who can't do math to come along and relieve them of their shares. More likely, the mathematically impaired are already in there buying right now, which will gradually limit the target audience for a profitable resale to either pretechnological tribesmen or the crews of recently arrived UFOs." Very intemperate of me. IMCL shares were heading toward $70 at the time.

After an incoming burst of testy e-mails, I followed up the next day with these conciliatory words: "Go on and hold that IMCL, guys, go ahead and mortgage the house to buy some more. Maybe you'll watch it go to $150; stupider things have happened. But I think that the odds are that you're going to wish you'd taken your profits in 2004."

I revisited the company and its never-boring stock on June 6: "Even with sizable market penetration, I still think that Imclone stock is no bargain at 70-odd dollars a share. Mind you, that's what it was on Friday. It'll be worth taking a look during Monday's trading to see what it's been inflated to since this news came out. My advice to IMCL shareholders continues to be: cash in and run laughing to the bank." Another round of peeved comments and mail messages followed.

The stock, I should mention here, peaked in early July of 2004, a bit shy of $90/share. Altitude sickness set in, though, and I said later that month, as the price fell steeply through the $60s: "In light of all this, I'd like to take a moment to address the Imclone-boosting stock cult, those few of them who might have read this far, anyway. Get out. Take the money and run. The alarm bell has sounded, and more than once. If you bought Imclone when it was in the dumper, you've had a great run. Celebrate and cash in! But if you bought it when I was ranting on the subject back in late June, you're in the red, and I fear that it's going to be even worse in the long run. Flee!"

I really hope that someone took that advice. It's been just about exactly a year since Imclone's stock was as high as $50. It wandered through $40 this spring. Today it finished up at just short of $34. And do you know something? I still wouldn't buy it. I'm not telling everyone to run away screaming, but there have to be better places to put your money. The price they're getting for Erbitux is not going to improve much. They're trying for new markets, such as head and neck cancer, but these are small ones, and you have to figure that there's off-label use going on already in these areas. And every year there's more competition from cheaper therapies which may well be as good or better. Would someone who owns IMCL please tell me why they do?

Comments (8) + TrackBacks (0) | Category: Business and Markets


1. George Wilkinson on October 28, 2005 10:03 AM writes...

I own this stock because Erbitux is a really effective drug and keeps patients alive. Consequently, its use in colorectal cancer will continue to increase, especially when it moves to second and first line, as it will in the future. Phase two trial data is very impressive first line, and it doesn't have the wound healing side effects of avastin so it will become antibody of choice in combination with chemo for patients with solely hepatic disease considering liver surgery. How much would they need to sell per year for you to feel that this stock was good value? $600 million per year? or more. Erbitux has been badly marketed in the US, but not so in Europe where sales are increasing more rapidly. It will take some time for US doctors to catch up but when they do this will be rapid. The competition of drugs like Panitumumab is significant but the trial portfolio of Erbitux is much larger and robust data will come out much earlier.

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2. Derek Lowe on October 28, 2005 10:10 AM writes...

I'm glad that a reasonable owner of the stock took me up on this. We disagree, but that's what the market is about.

I really don't see how Erbitux can ever move up as far as first-line therapy for colorectal cancer. That's a very heterogeneous disease, and a monoclonal antibody therapy can only hit its one target, which will not be enough for the great majority of cases. I can see how Erbitux might eventually be added to various treatment regimens, but by the time all this gets well worked out, I think that cheaper and easier to administer drugs will be ready to compete.

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3. REL on October 28, 2005 10:47 AM writes...

As investors we buy stocks to make money. Goldman Sachs summed up the risk reward profile the best with this recent recommedation:

"We initiated IMCL w/ Outperform rating based on favorable risk reward for long term
investors. IMCL underperformed in 2005 due to concerns about slowing growth of
Erbitux & release of Phase 3 data on a competitive agent, panitumumab, in Q4/05. We
believe these concerns are mostly reflected in the shares. We estimate downside risk to
IMCL to be 10%. On the other hand, IMCL could trade in the $50s (60+%
appreciation) if Phase 3 data on several new indications of Erbitux are positive in
2006/07. In 2005-08, CAGR for Erbitux sales should be 35%. "

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4. George Wilkinson on October 28, 2005 12:43 PM writes...

Derek - I don't think Erbitux will be first line monotherapy, but first line in combination with chemotherapy with Folfox or Folfiri (or capox, capiri). Avastin will be in there too but I think that Erbitux will be licensed for first line in combination with chemotherapy and I believe that Erbitux will show increase in efficacy in combination with chemotherapy in the way that Avastin has and possibly more and won't increase the chemo toxicity as much, and consequently will get a license to be used first line with chemo. Then docs will have a choice of first line treatment antibody with chemo. I also think there is a very good chance that adjuvant trials of erbitux plus chemo will show a survival advantage compared to chemo alone, as herceptin has in breast cancer. I am not sure what you mean when you say that Colorectal cancer is a heterogenous disease. Patients and disease patterns tend to be very similar. Phase 2 trials of Erbitux plus Folfox give a 73 to 81 % Response rate with a minor response/ stable disease rate of 10 to 20% on top of that. Admittedly phase two with 40 to 100 patients, but that is much higher than with chemo alone. I expect the EPIC trial to be positive as well as COIN and for sales of the drug to increase. The cheaper and easier drugs you talk about presumably relate to fully humanized antibodies. Panitumumab can be given two weekly so that is better, but the number of trials and data will be far less robust than erbitux and so erbitux has a head start. Also, I expect that Erbitux will end up being two weekly too. The half life is 5 days and patients don't become symptomatic when the drug is stopped until week 3 after the drug is stopped.

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5. jbog2001 on October 28, 2005 2:53 PM writes...

I own this stock because I LOVE IT. IMCL just rolls off the tongue nicely. I bought at $70 and will hold into the pink sheets.

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6. Derek Lowe on October 28, 2005 3:44 PM writes...

GW - you're a responsible investor in this stuff, definitely, much above the run of Imclonites I've had show up in the past.

You're right to mention survival rates, because that's the real key in oncology. The clinicians are getting tired of hearing about the tumor stasis, tumor shrinkage markers. And the problem is, so far Erbitux hasn't demonstrated any survival advantage. (See the overview in Clinical Therapeutics, 27(6), p684 if you have access.)

The Phase II trial results with the Folfox4 and Folfiri treatment regimes that you mention also are based on tumor shrinkage, not survival, and the Phase III results (as far as I know!) aren't available. Small sample sizes, as you mention, are a real problem in interpreting what's going on. The ASCO presentation in May of the EXPLORE trial is a case in point. But as I mentioned above, the larger studies that Imclone did for the FDA didn't show much (if any) survival benefit. I'm not hopeful.

The competing therapies I'm talking about aren't antibodies as much as they are small molecules. I think the less selective kinase inhibitors that are on their way now may provide more benefit than the highly targeted antibodies.

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7. George on October 28, 2005 4:45 PM writes...

DL- Good points and the principle of what you are saying is right but there is a correlation with increased response rates due to the addition of antibodies to chemo regimens and increase in overall survival. You need to get signficantly greater response rates to increase survival usually with cytotoxic chemotherapy drugs as an addition to existing chemo regimens, but because of the way that monoclonals work and the lack of toxicity comparatively (to chemo agents), increases in overall survival with an active synergistic monoclonal is common- as with Avastin, herceptin. The small molecules have been very disappointing in oncology in general and have not so far shown anything like the improvement in response rates and survival that the monoclonals have so far - I don't think the TKIs will have any significant role to play in the treatment of metastatic colon cancer in the next 5 years. The PTK/ZK plus Folfox trial was really disappointing. Why should other similar TKIs be any more effective? Also TKIs have been disappointing in general for other cancers. The Tarcevas and Iressas of this world really haven't set the world alight. Not saying they don't have a role; just don't see as much progress in the way that the monoclonals have. I think Erbitux's competition is the like of Panitumuab personally.

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8. j bogdan on October 28, 2005 5:50 PM writes...

It looks like someones Spoofing with my yahoo id. I post on the yahoo boards as jbog2001 and I did not post the above article.

good luck

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