ImClone, Bristol Had Discussed Vague Disclosure of FDA Ruling
By GEETA ANAND and GARDINER HARRIS
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- A document released by a congressional panel indicates ImClone Systems Inc. and Bristol-Myers Squibb Co. discussed being deliberately vague in their public disclosures about a year-end decision by the Food and Drug Administration to reject ImClone's application for a new cancer drug.
On Dec. 27, with the Food and Drug Administration likely to turn away their promising cancer drug Erbitux, Daniel S. Lynch, ImClone's chief financial officer, made notes of a telephone call with partner Bristol-Myers in which he said, "No press release by BMS. ... Our press release should be as vague as possible."
The staff of the House Energy and Commerce investigations subcommittee distributed copies of the handwritten note and an internal Bristol-Myers e-mail at a hearing Thursday that explored how investors' expectations -- that Erbitux would be approved early this year -- proved so incorrect. The FDA on Dec. 28 refused to even review the application, sending ImClone stock into a free fall and triggering investigations by federal authorities that culminated in the arrest Wednesday of ImClone's former Chief Executive Samuel Waksal.
At the hearing Thursday, Rep. W.J. "Billy" Tauzin (R., La.) said the documents indicate ImClone and Bristol-Myers may not have been entirely forthcoming with investors and the public in the days after the FDA turned away their drug. ImClone intends to refile its application, based largely on the results of a trial under way in Europe.
"These two documents show that they intended to mislead the public at a time of great stress," Mr. Tauzin said.
A spokesman for ImClone said, "The company in no way intended to mislead investors." A person close to the company said it didn't follow the course of action discussed in the Dec. 27 phone call and "did issue a press release that was anything but vague." An ImClone spokesman said Mr. Lynch wasn't available for comment.
The committee focused in part during the six-hour hearing Thursday on the question of how the companies responded to the news that the FDA had refused to review their drug application. They also prodded Bristol-Myers executives on why the company invested $2 billion in a company and drug that would so quickly run into a wall.
Among those who testified were Dr. Waksal's brother, Harlan, who is now ImClone's CEO; two Bristol-Myers executives; and five FDA officials.
Thursday, Dr. Waksal, looking pale and frail as he walked to his seat in front of a small group of advisers, invoked the Fifth Amendment when asked to testify. He had been arrested on federal criminal charges of attempting to sell his own ImClone stock and tipping off family members after learning that regulators would soon reject the drug. He was released on a $10 million personal-recognizance bond, and his lawyer said the Justice Department, at the urging of the congressional subcommittee, had allowed him to travel to Washington to appear before the committee and personally take the Fifth.
During the few minutes Dr. Waksal sat in the witness chair, Rep. Jim Greenwood (R., Pa.), chairman of the subcommittee, expressed his feelings. Was ImClone's strategy "to put personal profiteering ahead of patients?" he asked rhetorically.
Mark Pomerantz, Dr. Waksal's attorney, said that no lawyer would have allowed a client under federal investigation to testify and that the subcommittee was well aware that Dr. Waksal would take the Fifth. Mr. Pomerantz said the subcommittee insisted Dr. Waksal show up at the hearing "so they could pursue the spectacle of having him invoke his constitutional right in front of Congress." That, Mr. Pomerantz said, was "an aspect of grandstanding that is inappropriate."
Bristol-Myers and ImClone have been partners in developing the drug, called Erbitux, since mid-September, when Bristol-Myers agreed to pay as much as $2 billion for 40% of the drug's profits and 20% of ImClone's shares. Until the FDA decision, the drug was viewed as one of the hottest properties in the oncology market, based in part on a 138-patient study showing that, in combination with chemotherapy, it reduced tumors by at least 50% in 23% of patients.
But problems with the design and execution of the study as well as the quality of ImClone's application led the FDA to turn away the application, sending ImClone's shares tumbling 16% to $46.46 Dec. 31, the first day of trading after the FDA decision. As of 4 p.m. in Nasdaq Stock Market trading Thursday, ImClone rose 25 cents to $8.08.
Another document released by lawmakers Thursday raised questions about how forthright the companies were in providing details about the FDA's decision even after the agency had made the news public. The committee publicly released copies of an e-mail between two Bristol-Myers officials about public statements Samuel Waksal made in the days following the FDA decision. The e-mail read, "I agree some [or] a lot of Sam's comments are misleading and at this point we should continue to be silent," lawmakers said.
Rep. Tauzin said that Dr. Waksal minimized the problems the FDA had discovered in the drug application in the days after the agency took official action and that the letter was evidence Bristol-Myers didn't take action to set the record straight.
Asked about the communication during the hearing, Brian Markison, head of Bristol-Myers's oncology business, said he wasn't sure why the e-mail was written. But he added, "We were going through a period of trying to determine the best course of action."
A Bristol-Myers spokesman, John Skule, said it was the first he had heard of the e-mail and couldn't confirm or deny its validity.
In other testimony, Laurie Smaldone, senior vice president of global regulatory sciences at Bristol-Myers, said that in conducting due diligence in advance of agreeing to its $2 billion partnership, the company did a worst-case-scenario evaluation of the results of the 138-patient study. It determined data might be insufficient on 11 of the 27 patients that ImClone had said responded favorably to the drug. Even so, that amounted to a 13% response rate -- which Bristol-Myers believed was good enough to go through with the deal and support the drug.
In the end, though, Dr. Waksal's arrest could prove a boon to Bristol-Myers by giving the New York drug maker further leverage to squeeze a better deal out of ImClone.
After the FDA's rejection of Erbitux's application, Bristol-Myers Chairman and CEO Peter Dolan demanded that ImClone change the terms of the deal. ImClone relented somewhat, and the two partners reached a new pact in March that cut Bristol-Myers's payments to ImClone by $100 million. Still, Bristol-Myers is on the hook for $560 million in additional payments to ImClone and will, in return, still receive only 40% of the drug's eventual profits.
ImClone's entire market capitalization is only slightly higher than Bristol-Myers's promised payments. But the two partners have a "standstill" agreement in which Bristol-Myers can't buy more of ImClone without ImClone's permission. ImClone also has a "poison pill" that makes it prohibitively expensive for anyone to buy more than 15% of the company.
The troubles facing Dr. Waksal could help Bristol-Myers if ImClone's board decides that the small concern needs a rescue, analysts say. Meanwhile, the arrest has done nothing to change the prospects of the drug the two partners are trying to develop.
"I don't think Dr. Waksal's arrest has anything to do with the outlook for Erbitux," said Jami Rubin, an analyst for Morgan Stanley. "In fact, I think it'll strengthen Bristol's hand. They should just buy the whole company."
Mara Goldstein, an analyst with CIBC World Markets, agreed: "All this may give Bristol-Myers better leverage to renegotiate their deal."
Write to Geeta Anand at geeta.anand@wsj.com and Gardiner Harris at gardiner.harris@wsj.com
Updated June 14, 2002
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