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DBL%20Hendrix%20small.png College chemistry, 1983

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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November 20, 2006

Sell! (It's Not Just Me)

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Posted by Derek

Since I mentioned a little while ago that I'd gone short Imclone stock (at $29 and change), it was heartening to see Gretchen Morgensen make the exact same case against them in the New York Times on Sunday. (Subscriber link). The article makes much of the company's recent patent troubles, and the competition for their lone drug, Erbitux:

But neither the new competition from Amgen nor the legal ruling on the Yeda matter seems to worry the hopefuls who have bid up ImClone shares in recent weeks. These speculators also appear undaunted by results earlier this month from a drug trial in patients with midstage colorectal cancer. ImClone had hoped that the trial would show a survival benefit; it did not.

Two analysts, at Merrill Lynch and Citigroup, predicted that the trial results would mean stagnant market share for Erbitux and growth prospects for Vectibix. Both analysts rate ImClone a “sell.” Bristol-Myers Squibb, which owns 17 percent of ImClone, said in its most recent quarterly filing that Yeda might seek damages for infringement on past Erbitux sales and royalties on future sales of the drug. If Yeda licenses its patent to other companies, Bristol-Myers acknowledged that new competition for Erbitux would arise, but added that it was too early to tell what impact such a development would have on its business.

Investors are going to have to catch up with therapeutic reality here: Erbitux is a drug of limited utility. All cancer drugs are, unfortunately. "Cancer" is a catch-all term for hundreds of distinct disorders of cell division and growth, and no one drug is likely to be efficacious across much of that range. Even in its best applications, though, Imclone's drug is only fair-to-good. Meanwhile, progress in the field (though incremental) is very real, and every slightly better compound that comes along is going to capture a lot of market share.

So when I hear Carl Icahn going on about how he wants the company to step up its marketing efforts, I have to roll my eyes. The thing is, to some extent cancer drugs market themselves. They already sell much more than a purely rational calculation would predict. That's because many clinicians try them all, against all sorts of things, no matter what the label says. And it's not like no one's heard of Imclone or Erbitux, so there's only so much that a whiz-bang selling campaign can accomplish. Icahn is trying to apply the lessons he's learned from other industries to pharmaceuticals, a tempting idea that has sent more than one R&D-based organization rolling off the edge of the table.

I know that I've linked to this post of mine several times - it's the one where I talk about all the times I've told people to sell Imclone. But you know, it's been good advice. After all, I took it myself, and I didn't even own the stock. . .

Comments (6) + TrackBacks (0) | Category: Business and Markets | Cancer


1. Chrispy on November 20, 2006 3:24 PM writes...


I think this stock was bid up due to the involvement of Icahn, who has rock-star status among investors, and Imclone's assertion that it was recently offered $36 a share by some unnamed biotech.

Biotech valuations are clearly nutty. I have no doubt that you're right about a pending correction, but you have to have the stomach for covering shorts when bozo investors spike up the price in the meantime. (Clearly you do, as IMCL is now at 32!)

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2. Derek Lowe on November 20, 2006 5:00 PM writes...

Oh, back in 1999 I shorted Viropharma and watched the stuff go up another 60% before it collapsed. That took a strong stomach, though, I have to admit, and a similar early-90s short position of that kind really cleaned me out. I'm not into IMCL for too much money, fortunately.

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3. Paul on November 20, 2006 10:17 PM writes...

Willing to bet you're not short this for very long. NYT Gretchen and your analysis is naive. Is there anything that she or you cite that at this point is unknown? Yeda patent issue -- known. Vectibix competitive threat -- known. The market is a discounting mechanism and the weight of the evidence suggests that what you and Gretchen cite is discounted in the stock. If anything positive occurred, like a semi-decent outcome in its lung or pancreatic trials or else if it merely maintained its current market share or grew modestly from current levels, the stock would rise precipitously (look at the analyst's estimates on the company).

You were right on Imclone in the past when the market discounted that Erbitux would be an instant blockbuster. But now, the markets only discount the likelihood of it being an utter failure, it's a perfect closed system trade -- i.e. all conclusions lead to the same outcome -- a disaster. Generally, such situations provide for terrific investment opportunities. Good luck!

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4. Chrispy on November 21, 2006 12:25 AM writes...


Efficient market theory does not apply to biotech except over the long term. These companies sell dreams. I am not convinced that the people who buy and sell these securities have a clue about drugs.

From a scientific point of view, Erbitux is dead unless Vectibix goes horribly wrong. Amgen's Vectibix is sold at a 20% discount to Erbitux and is a fully human antibody as opposed to the "humanized" Erbitux, which has an uncomfortably high level of immunoreactivity (3% infusion reaction despite prophylactic antihistamines).

Yeah, well, so their valuation is low (for a biotech) with a P/E down around 9, they have a load-o-cash and are still raking in dollars off Erbitux. 50% profit margin. Hey -- they look good in many ways to the investment-minded.

Vectibix was just released. The market share it could pull from Erbitux is still conjecture, but it could really be much more than analysts expect. Who wouldn't want the cheaper, better Vectibix?

And what is Imclone's plan for the future?

Imclone is overvalued by the finance people because it looks good on paper. But there is nothing beyond declining sales of Erbitux to look forward to.

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5. jbog on November 22, 2006 7:14 AM writes...

Derek and Paul;

I guess when we don’t have all the facts; we always have an option to look at the glass being half-full or half-empty. Because of Imclone’s checkered past, (I can’t believe Martha or Sam weren’t mentioned in GM’s Story) you can easily tilt whatever you know to support your position.

GM’s article leads the normal reader to believe that Yeda owns the rights to Cetuximab and nothing is further from the truth. GM then goes on to quote a couple of clowns who think that what’s “bad” for cetuximab will be “good” for panitumumab when the scientific proof so far says that what’s “bad” for cet should be “bad-bad” for pani. There’s not one trial that’s shown panitumumab to be equivalent yet, close maybe but not equal.

As of right now we know the Epic trial failed it’s primary goal of OS, but it seems that the way the trial evolved, the patients received Erbitux in the 2nd line and if they were in the control arm they got it in the 3rd line, so of course OS wasn’t the metric that should have been used. (erby wasn’t commercially available when the trial started so they never thought the 3rd line patient would see it). This is the exact reason the FDA now uses PFS as a goal instead of OS when subsequent therapies can effect the trial outcome.

As far as the half-full point I made, I found it interesting that before the Yeda decision was rendered every analyst stated that the “patent” itself was useless, unenforceable and silly, but the minute Imclone lost in court the patent then became Imclones “lifeline”.

Treatment for mCRC has been such evolving story for the last 6 years I don’t think we still know all the treatment answers and as of now everything’s still on the table. The standard 1st line treatment used worldwide has been a combination of Folfox-Avastin yet the “only” phIII trial every performed on that combination came out last month. And it failed its primary goal. Hmmmmmmm

We’re only in the 3rd inning here and I don’t know if Cet will be part of the final answer but let’s let the game play out. Oh by the way, did you guys hear Erby’s 3rd line survival trial was positive? I never did know what good a PFS or RR number meant for a salvage indication.

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6. Paul on November 22, 2006 10:50 PM writes...

All I can say is, I'm glad none of you folks manage my money. While all of you may understand biotech better than me and clearly read the financial press more than I do, you clearly don't understand the basis for determining value. Imclone is not an example of market efficieny but inefficiency. If the market had a clue, it would value this company for significantly more than it trades at present. But then that is the nature of finding value, to go through what people discard because of fashion or the need to agree with the consensus. Its preposterous to believe that cancer patients or oncologists will suddenly turn to vectibix just because it has become available. Anyone with sense would see that it would depend on the experience of the patient and the doctor. If one was having good experience with a treatment, one would continue it. If not, one would look for an alternative. The analysts have already modelled a disaster as expressed by estimates which decline from $2.94 to $1.49 next year -- a 50% decline. The company has $11 in cash per share and has 8 registration magnitude trials coming over the next 6 months. With over 60% of the stock locked up by folks with no inclination to sell, if anything half-decent occurred, it's going to be one hell of a ride for shorts in 2007. One would need to be seriously lacking in imagination to not see that this can trade for 2X just on erbitux maintaining its market shares and severalX if anything went right with all the other things I mentioned.

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