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nypost.com
THE STORY OF IMCLONE
By CHRISTOPHER BYRON
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January 14, 2002 -- LET'S see if I've got this right: A company comes up with what it claims to be a cure for cancer, and asks for permission from the Federal Drug Administration to market it.
But the FDA says, first you've got to do some tests to see if the stuff works. So the company proposes a series of tests and the FDA says, nope, those tests won't be good enough, you've got to do more.
But the company just goes ahead and announces to the world that everything is great, and proceeds with the tests that the FDA had already said were inadequate.
Meanwhile, the stock takes off for the moon, and the CEO sells $50-plus million worth of his shares at the top of the market. Then the FDA says, "Hey, we told you those tests were no good. Now go back and do the tests all over again the right way." The stock collapses, lawsuits erupt in all directions, and the CEO, now more than $50 million richer, simply shrugs and says, "We screwed up."
What we're talking about, folks, is the newest scandal to sweep Wall Street. At the center of the action: a New York business world social climber named Sam Waksal. Now Sam and his company - a 272-employee biotech outfit named ImClone Systems, Inc., which is headquartered on Varick Street not far from Ground Zero - are facing multiplying lawsuits by furious investors. The investors are claiming that he defrauded them out of maybe as much as $4 billion, of which at least $57 million wound up in Sam's own pocket, plus another $54 million in the pocket of his brother.
ImClone didn't return a call for comment.
Sam has been loitering at the fringes of the New York society crowd for two decades, leaving an oil slick behind him that has been colorful to say the least.
From 1982 to 1985, he worked as a departmental head at the Mount Sinai School of Medicine, departing amid rumors, which he has denied, that he was forced to resign.
In 1993, "Barron's" newspaper published an extraordinary profile of Sam, in which colleagues told, among other things, of a bizarre incident in which he made the bedside rounds at the New England Medical Center, impersonating a doctor, his brother.
Sam says it was all just a big misunderstanding.
It gets weirder. In 1981, Sam's younger brother Harlan was busted while attempting to smuggle two pounds of cocaine through Ft. Lauderdale International Airport in his underwear in a carry-on.
He was convicted at trial and sentenced to nine years in prison, but the case was overturned on appeal because he had not consented to being searched.
In 1984, while on leave of absence from Mt. Sinai, Sam founded ImClone to research and develop various sorts of treatments for afflictions ranging from cancer to AIDS to hepatitis. Some disputes erupted between ImClone and Mt. Sinai over who owned the rights to what research, and Sam did not return to Mt. Sinai.
By 1989, Sam was playing the celebrity dating game - though he got on base with what looks to have been a bunt single, appearing in a photograph necking with Alexis Stewart, the daughter of domestic arts doyenne Martha Stewart. Martha strangely enough published the photograph in one of her cookbooks. Thereafter, Sam traded up from Alexis to mom and began squiring Martha around town instead of Alexis.
What's more, to live like the crowd he aspired to hang with, by 1992 he had borrowed more than half a million dollars from ImClone to trick out a swanky, 7,000 square foot SoHo apartment that he proceeded to fill with expensive art.
When Barron's reported this in 1993, the company's chairman, a fellow named Goldhammer, retorted huffily, "The money is being paid back. It will not be loaned to him again."
Seems reasonable enough when you consider that for the last 10 years ImClone hasn't exactly been rolling in dough, taking in cumulative gross revenues of a mere $54 million, while running up expenses of roughly $350 million.
What's more, a lot of those expenses consist of the roughly $2.5 million in salary and bonuses that Sam and Harlan, who works under Sam as ImClone's second-in-command, have been collectively paying themselves annually as of late to run the place.
For years now, ImClone's main focus has been something it calls its "C225 Cancer Therapeutic," which supposedly shrinks cancer tumors.
SINCE 1995, the company has been involved in various clinical trials of this stuff, but the most important one is what is known as a so-called Phase III trial.
In 1999 ImClone filed a report with the Securities & Exchange Commission saying that the FDA had given the company approval to conduct such a trial. Thereafter, ImClone conducted its trials and sent the results to the FDA, seeking permission to begin selling the C225 drug, under the name Erbitux.
Now, remember that bit in Barron's from back in 1993 about there being no more loans for Sam? Well, in July of 2001, Sam borrowed just under $18.2 million from ImClone, and Harlan borrowed $15.7 million more, which the two of them used to buy roughly 4.2 million shares of ImClone stock from the company at an option price of around $8 per share, when the shares were trading on the open market at close to $45.
The company's chairman and other directors did the same thing.
Within weeks thereafter the stock began to climb, and the reason became clear on Sept. 19 when the company announced that Bristol Myers Squibb, anticipating a big killing from C225, agreed to invest $1 billion in a joint development deal to promote and market the drug.
How would Bristol Myers share in the profits from C225? By buying a 20 percent stake in ImClone, or 14.4 million shares of its stock. Where would Bristol Myers get the shares? By buying them from existing ImClone shareholders, offering $70 per share, or an astonishing 40 percent premium over the Sept. 18 market price of $50.
Nifty or what! After all, Sam and Harlan had already set themselves up with 4.2 million of those shares, which had cost them $8 per share in borrowed money from ImClone, which they could now sell to Bristol Myers Squibb for $70.
And that is exactly what they did, unloading roughly 25 percent of their stash in late October to Bristol Myers for a total of roughly $111 million.
Eight weeks after that, on Dec. 28, the FDA sent ImClone a letter refusing to accept their filing application for C225. Why the FDA did that seemed a big mystery to stock analysts since the company had already repeatedly said everything with the FDA had long since been squared away.
BUT the mystery cleared on Jan. 6 when a Washington D.C. newsletter that covers the cancer field, obtained a copy of the FDA letter and quoted from it extensively. The astonishing revelation: that as long ago as August of 2000, the FDA had expressed concerns about the manner in which ImClone had proposed to conduct the trials, but that ImClone had simply gone ahead and conducted them as it saw fit anyway.
So, when ImClone submitted the results, the FDA had simply bounced them back, declaring the trials not "adequate and well controlled," and pointing out, among other things, that although ImClone had claimed only three patients had died within a month of taking C225, the FDA had found that the true number was 21 patients - or seven times the number that ImClone had claimed.
What's more, somebody obviously knew the FDA letter was coming because ImClone's stock price topped at $74 per share on Dec. 5 and instantly began falling for no apparent reason, losing more than a third of its value by the time the FDA news broke three weeks later. Since then, the shares have plunged another 41percent and are now selling at $34.
And they could be falling for a long time to come. At least eight separate class action law suits have been filed against Sam, Harlan, and their company in the last week, and it now looks like the company may have to go through a whole new set of trials.
What's worse, some experts now say that if the trials are structured the way the FDA wants them structured, ImClone could wind up losing its patent protection on the drug.
All in all, a horrid mess for a company that currently shows only about 25 cents per share of book value on its balance sheet. Play it again, Sam? I don't think so.
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