Physician's Financial News

By Matthew Mahady
Published: Wednesday, May 26, 2010
Physician’s Financial News

Merger Announcement Is the Latest Chapter in Compelling ImClone Story

Over the past several weeks, the oncology sector of the biotechnology industry has been buzzing about the on-again, off-again merger between Bristol-Myers Squibb (BMS) and ImClone Systems (NASDAQ: IMCL). The saga being spun by the two companies has taken numerous twists and turns over the past several news cycles and may or may not remain unresolved by press time.


On July 31st, in yet another illustration of the growing appetite of big pharmaceutical companies for smaller biotechs that boast successful drugs, BMS made an unsolicited $60-per-share offer, equivalent in value to roughly $4.5 billion, for the remainder of ImClone that it does not already own (currently BMS holds a 17% minority stake in ImClone, acquired in 2001). The offer for the remaining 83% of the company would allow BMS to purchase the remainder of ImClone, as well as rights to the cancer drug Erbitux (cetuximab) and five products in the ImClone development pipeline. The cash offer represents a premium of about 30% over ImClone’s closing share price on the day the offer was made. Investors, however, apparently believe the sale price of ImClone could go even higher, bidding up the company’s shares by almost 38% on the day following the offer. Indeed, since the first batch of BMS-related rumors hit the Street, ImClone shares have become an increasingly hot property. In a recent period spanning less than one month (from late June to late July 2008), the per-share price of the equity jumped from the high $30s to the mid $60s.

Moving Forward

An ImClone spokesperson said that the company is in the process of studying the BMS offer, which was delivered by letter to the chairman of ImClone, Carl C. Icahn. For nearly seven years, BMS and ImClone have had a relationship centered on Erbitux. BMS and ImClone co-promote Erbitux in the United States and Canada, while Germany’s Merck KGaA co-markets the drug with BMS in Japan and holds the rights to the product in other countries.

Mr. Icahn, known as an activist investor, is the chairman of ImClone’s board of directors and the biggest single ImClone shareholder with the exception of BMS. Mr. Icahn had established a 13% stake in the company and stands to pocket $390 million if he sells his 11.67 million shares at BMS’s offer price.

When contacted by Oncology & Biotech News about the potential transaction, both ImClone and BMS officials were tight-lipped. In other periodicals, James M. Cornelius, chairman and chief executive, BMS, has cited the company’s previous problems with the Securities and Exchange Commission as reasons for his muted level of communication.

Mr. Cornelius did say in a recent statement that BMS and ImClone were natural partners. Several analysts have lauded the proposed merger as a smart move. As of press time, however, the deal was far from sealed. ImClone is on record as stating that the $60-per-share takeover bid from BMS may be too low. Mr. Icahn told his colleagues on the ImClone board that he opposed BMS’s offer because he believes it “greatly undervalues the company.” As the days of negotiations between the two companies drag into weeks and months, even the once optimistic Mr. Cornelius has stated that he is “not absolutely confident” that the acquisition will move forward as planned.

Numerous industry experts have suggested that ImClone can fetch much more than what BMS has offered. Analysts have speculated that ImClone might ultimately sell for more than $65 a share. The final price may be even higher if the companies factor in rising sales of Erbitux. In addition, “Buying ImClone makes BMS a more sellable company itself. It strengthens the company’s overall cancer franchise by having full control of Erbitux in the U.S. and by gaining access to ImClone’s drugs in development,” argued Tim Anderson, an analyst at Sanford C. Bernstein & Co., New York City, in a note to Sanford C. Bernstein investors that was disclosed to the media. In an interview with Bloomberg television, Jeffrey Kraws, chief executive officer, Crystal Research Associates, New York City, explained, “Any one of the largecap pharmaceutical companies could step up (with a competing offer).”

Also, the possibility exists that ImClone might add significant variables to the purchasing equation. An ImClone spokesperson said that its board of directors has been discussing the possibility of splitting the company in two, separating its Erbitux cancer treatment from its drugdevelopment pipeline businesses. The ImClone spokesperson said that the company believes its pipeline business “may be extremely valuable and significantly increase stockholder value as a separate business.” In what may prove to be a further hurdle to the ImClone–BMS marriage, Mr. Icahn has expressed dismay that one of the directors on ImClone’s board was a BMS designee who was privy to discussions about potentially separating the company. As a result, ImClone said its board is reviewing whether BMS had access to confidential information about the company and its pipeline.

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