ImClone Systems

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ImClone Systems Incorporated (NASDAQ: IMCL) is a biopharmaceutical company dedicated to developing biologic medicines in the area of oncology. It was founded in 1984 and is headquartered in New York City. It is traded on the NASDAQ stock exchange under the symbol IMCL.

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[edit] Insider trading scandal

ImClone's stock price dropped sharply at the end of 2001 when its drug Erbitux, an experimental monoclonal antibody failed to get the expected Food and Drug Administration (FDA) approval. It was later revealed by the U.S. Securities and Exchange Commission that numerous executives sold their stock before the announcement of the decision after the close of trading on December 28.

Its founder, Samuel D. Waksal, was arrested in 2002 on insider trading charges for informing friends and family to sell their stock, and attempting to sell his own. His daughter, Aliza Waksal, sold $2.5 million in shares on December 27. His father, Jack Waksal, sold $8.1 million in shares over the 27th and 28th. Company executives followed the suit too. John B. Landes, the general counsel, sold $2.5 million in shares on December 6. Ronald A. Martell, the vice president for marketing and sales, sold $2.1 million in shares on December 11. Four other executives sold shares in the following weeks as well. Later, founder Waksal pleaded guilty to various charges, including securities fraud, and on June 10, 2003, was sentenced to seven years and three months in prison.

Martha Stewart, the founder of Martha Stewart Living Omnimedia (Waksal had dated Stewart's daughter) also became embroiled in the scandal after emerging that she sold about $230,000 in ImClone shares on December 27, just a day before the announcement of FDA decision. Although Stewart maintained her innocence, she was found guilty and sentenced on July 16, 2004 to five months in prison, five months of home confinement, and two years probation for lying about a stock sale, conspiracy, and obstruction of justice.

Ultimately a new clinical trial and FDA filing prepared by Imclone's partner Merck KGaA ("German Merck," not to be confused with the US company of similar name) resulted in an FDA approval of Erbitux in 2004 for use in colon cancer.

A Congressional hearing on improprieties at ImClone, held in October 2002, unveiled a culture of corruption dating back to 1986. This was the year that ImClone CEO Waksal first forged the signature of the company's general counsel John Landes (one of the three original employees of the company) for financial gain. Nonetheless, Landes defended Waksal's illegal actions at the hearings before the Subcommittee on Oversight and Investigations, portraying the forgery as "a good-faith misunderstanding," to which Representative James Greenwood replied "My children know better than that, Mr. Landes." Further questioning about this and subsequent forgeries on Waksal's part revealed that neither Landes, the chief legal officer of the company, or the company's outside directors reported Waksal's actions to proper authorities or made any moves to have Waksal removed as CEO. Instead, testimony revealed that they initiated their own internal investigation, which was never concluded. The decades-long tolerance for Waksal's fraud, starting from the company's earliest days, provoked Representative Peter Deutsch to refer to the ongoing misconduct as "wacky."

The FDA's February 2004 announcement of approval for use of Erbitux for treatment of colrectal cancer reported that conclusions were drawn from a trial involving 329 patients, of which 10.8% responded when Erbitux was used by itself, delaying tumor growth by 1.5 months. When used in conjunction with a standard treatment irinotecan, 22.9% of patients responded and tumor growth was delayed by approximately 4.1 months.

In September 2001, Bristol-Meyers Squibb committed $2 billion (including a $1 billion up-front cash payment) for less than 20% of ImClone due to what was called at the time the drug's "blockbuster" potential.

In January 2006, the company was put up for sale but failed to find any buyers, likely due to the fact that Erbitux by that time faced significant competition in the medical marketplace. ImClone directors withdrew the sale of the company in mid-2006.


[edit] Compassionate use controversy

The FDA approved the aforementioned colorectal cancer drug, Erbitux, on February 12, 2004. In May 2001, while ImClone was still seeking approval for the drug (then known as IMC-C255), the CBS news program "60 Minutes" aired a story about two cancer patients' struggles to obtain "compassionate use" of the drug. One ultimately succeeded; the other failed despite repeated pleas to ImClone officials. It was alleged in the story that ImClone was arbitrary in who received the drug and had no written criteria for compassionate use.

[edit] Carl Icahn acquisition

On October 25, 2006, a group led by billionaire investor Carl Icahn acquired a majority of stock thereby giving him control of the board. Within hours of the announcement, interim CEO Joseph Fischer resigned, and Icahn announced that other members of the Board of Directors would not be re-elected.

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