ImClone CEO Under Increasing Scrutiny


The highly public meltdown of ImClone Systems Inc. is casting the spotlight on Samuel Waksal, an immunologist and erstwhile film producer as comfortable with celebrities as with cells.

The lanky chief executive, whose company is under investigation for allegedly misleading investors about its cancer drug, is a regular on Manhattan’s social circuit, where he has been spotted with Martha Stewart, home decorating queen and mother of his former girlfriend, Alexis. A recent issue of New York magazine showed Waksal posing alongside rock star Mick Jagger.

Now, Waksal’s social life has become a lightning rod for investors, who have started to wonder whether there is more style than substance to ImClone.


At an investment conference sponsored by JP Morgan H&Q; two weeks ago, professional stock pickers shouted, “Stop playing around in the Hamptons,” when Waksal took the podium before a standing-room-only crowd.

“We screwed up,” he admitted.

Waksal, 54, has lowered his profile since trial lawyers began circling several weeks ago, bombarding his unprofitable New York company with shareholder suits. They claim ImClone hid important information from investors, including serious concerns expressed by the Food and Drug Administration more than a year ago about the cancer drug Erbitux. The FDA rejected the drug Dec. 28.

“He is devoting all this time to addressing the situation with the FDA,” said spokeswoman Andrea Rabney, adding that Waksal is not available for interviews.

But claims on Waksal’s time are mounting. On Friday, the company disclosed that it has received inquiries from the Securities and Exchange Commission and the Justice Department.

The House Energy and Commerce Committee last week said it is investigating ImClone, including lucrative stock sales by Waksal and his brother that took place before the FDA rejection.

Bristol-Myers Squibb Co., which has invested $1.2 billion in ImClone since October, last week wrote off $735 million of its investment and said it is considering unspecified actions to protect shareholders.


Analysts speculated that the pharmaceutical company might sue ImClone or negotiate a deal to get some of its money back.

“We couldn’t be more disappointed in this turn of events,” Bristol-Myers Chairman and Chief Executive Peter Dolan said in a conference call last week.

ImClone’s problems started with the FDA’s rejection of an application to market Erbitux. ImClone blamed record-keeping mistakes that it hoped to correct by the end of March.

On Jan. 4, an industry publication reported that the FDA’s confidential rejection letter showed that the agency had many concerns about Erbitux, some of which dated to August 2000. The Cancer Letter report raised questions about ImClone’s truthfulness with investors.

The FDA, according to the Cancer Letter, said the clinical trials that ImClone conducted to test Erbitux in cancer patients were not “adequate and well controlled.” The agency told ImClone that new trials would be needed to show whether Erbitux works. That would delay any sale of the drug until at least next year; ImClone expected to sell Erbitux this year.

The company’s shares, which traded as high as $75 on Dec. 6 as the deadline for an FDA decision on Erbitux neared, have been battered by the continual stream of bad news. ImClone’s shares closed Friday at $16.49 on Nasdaq.


Adding to the controversy is a series of insider transactions. Last summer, according to regulatory filings, the company lent Waksal and other insiders $35.2 million so they could exercise stock options. Talks with Bristol-Myers were well underway at that time but had not been publicly disclosed.

On July 12, regulatory filings show, Waksal exercised 2.06 million options at an average of $8.82 a share. His brother, Dr. Harlan Waksal, who is ImClone’s chief operating officer, converted 2.08 million shares that same day at an average share price of $7.57.

ImClone executives and directors, including the Waksal brothers, together sold 2.1 million shares, or about 20% of their holdings, to Bristol-Myers on Oct. 29 for $150 million.

Waksal, who received $57 million in the Bristol-Myers transaction, said the pharmaceutical firm required the brothers to take part in the tender offer. Bristol-Myers acquired 19.9% of the company at $70 a share as part of a costly deal to obtain U.S. marketing rights to Erbitux.

On Dec. 6, Harlan Waksal disposed of 700,000 shares, valued at nearly $72 a share. Waksal told investors that his brother intended to use the proceeds from the sale to pay taxes incurred when Harlan Waksal exercised his options and sold his shares to Bristol-Myers.

The brothers had no idea the FDA rejection was coming, Waksal said, adding: “I haven’t slept a wink since that evening.”


The crash of ImClone’s shares is taking its toll on the Waksals. On Friday, the company disclosed the brothers sold a significant portion of their holdings to meet margin calls. Waksal lost 94% of his ImClone shares, which had been pledged as collateral for loans. He has exercisable options to purchase 416,666 shares at $50.01 each, above where ImClone is trading.


Drug’s Promise Had Company Riding High

One month ago, ImClone was the toast of the biotechnology industry, based on the promise of Erbitux.

The 17-year-old New York company had never marketed a drug. But it had a top-flight board of directors, including Vincent DeVita, a former head of the National Cancer Institute, and Dr. John Mendelsohn, president of the M.D. Anderson Cancer Center in Houston, who brought the molecule that became Erbitux to ImClone’s attention in 1992. Dr. Leonard Saltz, a renowned oncologist--a chemotherapy cocktail for colon cancer is called the “Saltz regimen”--led ImClone’s clinical trials.

ImClone’s shares began an upward march after Saltz presented his findings at a medical conference in May. Of the 121 patients in the study, he said, 22.5% responded to a combination of Erbitux and irinotecan, a potent chemotherapy drug. The results looked impressive because, according to Saltz and ImClone, the patients had not improved when treated solely with irinotecan, the best drug available.

ImClone celebrated a successful medical conference by throwing a party for researchers featuring the Doobie Brothers rock band. Though it isn’t unusual for pharmaceutical companies to entertain physicians at such conferences, ImClone’s bash was in keeping with Waksal’s show-business style.

Waksal co-produced two films, including “The Suicide Club,” starring Mariel Hemingway. Waksal opened a Manhattan restaurant with Hemingway’s husband, Stephen Crisman, that failed.


New York gossip writers, besides linking him to the Stewarts--”They’re friends,” said ImClone spokeswoman Rabney--have spotted Waksal dining with entertainment lawyer Allen Grubman and such stars as Matthew Modine.

Last year, Waksal had a cameo role in a failed effort by his tennis partner, corporate raider Carl Icahn, to seize control of Visx Inc., the eye surgery company. Waksal was among Icahn’s nominees for Visx’s board of directors.

In 1981, Rabney confirmed, Harlan Waksal, then 28, was arrested for cocaine possession at Fort Lauderdale International Airport in Florida. He was sentenced to nine years in prison, but the conviction was overturned on appeal and he served no time. Harlan Waksal, in a 1993 article in Barron’s magazine, described the incident as “a dramatic mistake in judgment.”


Analysts, Others Begin to Doubt Research

Beginning last fall, some people began questioning ImClone’s research, casting doubt on the company’s management and raising issues later cited by the FDA.

David Hines, an analyst with Avalon Research Group in Florida, was unconvinced that irinotecan had failed to work for all patients in the trial. He noted that the patients, on average, received Erbitux with irinotecan 54 days after their last chemotherapy treatment. “It is widely accepted that a break in chemotherapy may allow patient re-sensitization” to the drug, he said.

Indeed, the FDA said it could not tell from ImClone’s data which drug was responsible for the tumor shrinkage--a key reason Erbitux was rejected, according to ImClone.


Moreover, there were indications that Erbitux alone was not very effective. Eric Sharps of FourSquare Partners, a stock research firm in Los Altos, Calif., said a 1999 ImClone experiment with renal cancer patients was a red flag. Just three of 54 patients in that test showed modest improvement from Erbitux.

“This was a very good target for the drug and there was basically no improvement,” Sharps said.

Waksal told investors two weeks ago that, at the request of the FDA, ImClone conducted an experiment to test the effectiveness of Erbitux alone. Of the 57 colon cancer patients, 10.5% improved on the drug. But people familiar with the FDA’s review process doubted the agency would be impressed by the numbers.

“The FDA wants to see large positive results,” said Dr. Kimberly Margolin, a City of Hope National Medical Center oncologist and former member of an FDA committee that reviews cancer drug applications.

In a note to clients Friday, Thomas Weisel Partners analyst Patrick Mooney warned of a continuing gloomy outlook for ImClone. “We see very little possibility of Erbitux ... being salvaged without another trial,” he said.

But ImClone director Mendelsohn, who also is a member of Enron Corp.’s board--a coincidence, he said--believes that ImClone will recover from what he describes as a setback and that Erbitux will be approved. “I have to believe the data exists” to satisfy the FDA without a new trial, he said.


He isn’t the only optimist. Dr. Douglas D. Lind, an analyst with Morgan Stanley Dean Witter, had a “buy” recommendation on ImClone last week. And Jim McCamant of Moors & Cabot Dakin said the investigations will allow ImClone to clear the air. It isn’t unusual for small biotech companies to botch clinical trials, he added.

“We’re rolling up our sleeves,” said Mendelsohn, a key player in the company’s attempt at damage control. “I’m very happy with ImClone.”