ImClone Searches for Potential Buyer

In an attempt to increase shareholder value, ImClone Systems Inc has opened itself up to a potential sale or merger. Best known to the public for its shares’ role in the Martha Stewart insider-trading scandal, the embattled company retained investment bank Lazard Ltd to explore its options. But industry observers are skeptical that ImClone will find a buyer at its current $3 billion valuation.

    “The decision to sell is definitely out of weakness,” said Peter Young, president of specialized investment-banking firm Young & Partners.

    The company has only one marketed product, colorectal cancer drug Erbitux (cetuximab), which will face new competition if Amgen and Abgenix’s panitumumab is approved as expected. The new drug would have a dosing advantage over Erbitux, because it is taken biweekly rather than every week.  

    ImClone’s desire to sell just as panitumumab emerges from the pipeline suggests that the company fears Amgen, and also that it is devaluing Erbitux, said Walter Birch, director of Michael Kelly Associates, a managerial recruiting company that specializes in healthcare and financial services.

    In addition, a marketing agreement for Erbitux gives Bristol-Myers Squibb 61 percent of sales. The company also owns 17 percent of ImClone stock. Merck KGaA owns the rights to market Erbitux outside of the United States.

Because so much of ImClone’s value is tied up in this agreement to market its only product, the company does not have much to offer a potential buyer, according to Young.

    “No one is going to buy it for Erbitux,” Young said.

    As a result, Young believes, ImClone will have to convince potential buyers of the strength of its pipeline, a feat many consider difficult.

    “There’s nothing in the pipeline worth $3 billion,” Birch said.

    One possibility is to stress the likely approval of Erbitux for other indications, said Ben Bonifant, head of the Business Development practice at Campbell Alliance, a biotech and pharma management-consulting firm. It is expected to gain approval for head and neck cancer this year.

    Morningstar analyst Karen Andersen believes expanding Erbitux’s label will keep sales strong.

    Another selling point could be ImClone’s research capability, according to Birch. Likewise, Andersen emphasized that a recently constructed manufacturing plant could also hold value for potential buyers.

    “Biologic manufacturing capacity could be highly valuable to the right partner, and the additional support should help ImClone ride out and possibly shorten the awkward stretch between panitumumab’s launch and it’s next drug approval,” she wrote in a Jan. 26 report.

    But Bonifant said the field of potential buyers is probably limited to companies that already have relationships with ImClone.

    Many believe BMS is the obvious buyer in this situation. In a recent report, WR Hambrecht analyst Patrick Flanigan guessed that the company already declined to purchase ImClone.

    Young agreed that this was a strong possibility. He also speculated that BMS might still be interested but wants ImClone’s value to be decided by the market, rather than negotiations.

    Birch said this was possible, but would probably indicate that two companies had been unsuccessfully negotiating for a long time.

    Although many of the problems ImClone faces are unique to its situation, others are common to specialty pharma and biotech companies. Flanigan compared ImClone’s situation to Serono and Sepracor, which have not been able to find buyers for almost a year.

    Richard Vanderveer, chief executive officer of market research firm GfK V2 said mergers and acquisitions are too frequently used in an attempt to revive problem-ridden companies. But this solution only creates more problems in the long run.

    “I think it’s time to return to a time when companies prided themselves on growing within their own culture,” Vanderveer said.