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ImClone Systems (IMCL) and its advisor JPMorgan are still running numbers around the Nasdaq-listed biotechnology company’s marketed drug, Erbitux (cetuximab), and its pipeline products as part of the proposed separation, it is understood.
But industry sources following the situation have already begun their own due diligence, with expectations that an offer could reach USD 70 per share for the company as a whole or a USD 60 per share price tag for Erbitux alone.
Earlier this month, ImClone disclosed that its board of directors had discussed the separation of Erbitux and its pipeline businesses to maximize the value of the company. The company stated in a 4 August press release: “Based upon preliminary internal data, and recognizing that the pipeline products are in various stages of development, the board still believes that the company’s pipeline business may be extremely valuable and significantly increase stockholder value as a separate business.”
It was said that discussions to separate the assets started ahead of the unsolicited approach in July by NYSE-listed Bristol-Myers Squibb Company (BMY), which co-develops and co-commercializes Erbitux in the US and Canada under an agreement entered into by the parties in September 2001. ImClone’s board responded that Bristol-Myers’ proposed USD 60 per share cash offer to acquire the remaining 83.46% stake it does not own in ImClone substantially undervalued the company.
Bristol-Myers retained Morgan Stanley, Citigroup and Credit Suisse as its advisors. The offer represents a premium of approximately 30% over the closing price of ImClone common stock on 30 July, a day before the announcement was made.
Although working out a value for Erbitux can be done with relative ease by running the royalty, there are difficulties in valuing all the other indications, it was said. Management is currently undergoing a large amount of work to achieve all valuations and will provide a more formal response to Bristol-Myers in “due course,” it was also said.
A person familiar with the situation said that ImClone’s management believes Erbitux is worth USD 55 to USD 60 per share on its own. Therefore, this person added that the current Bristol-Myers offer is not paying up for the company’s pipeline. As offered, the person also said Bristol-Myers could be the best theoretical buyer for Erbitux but may not be for the pipeline.
Currently, the pipeline includes five main clinical programs either in Phase I and II of development. In July, ImClone said in a release that it is making considerable progress in advancing the clinical development of IMC-A12 and other novel antibodies in its proprietary pipeline. ”This study in particular highlights ImClone’s commitment to developing biologic therapies to treat all types of cancer in both adult and pediatric patients,” said ImClone CEO John Johnson.
On Tuesday the company announced that its disease-directed Phase II clinical trial in patients with advanced prostate cancer randomized to treatment with either IMC-A12 or IMC-1121B plus mitoxantrone and prednisone has commenced patient enrollment. IMC-A12 is a fully human IgG1 monoclonal antibody. It is designed to specifically target the human IGF-1R, thereby inhibiting certain ligands known as IGFs 1 and 2 from binding to and activating the receptor. This action blocks a signaling pathway that enhances tumor cell proliferation and survival.
A leading ImClone shareholder said he could see a deal being struck anywhere between USD 67 to USD 70 per share for the company over the next couple of months. He said that while ImClone could argue that such a valuation does not offer the company much credit for the pipeline, it should be noted that the clinical programs still only show Phase I or II data. In fact, the shareholder said despite the company’s reaffirmation of IMC-A12, it still only has Phase II single arm response data.
An industry source familiar with ImClone said he had run numbers on the assets and could certainly see how the company is worth USD 70 or more a share if sold as a whole. He said that because the market does not ascribe a tremendous amount of value to the pipeline, it would be correct to assume Erbitux is worth in the range of USD 55 to USD 60. “I would say we thought [the company] was worth USD 70 plus or minus,” he said, adding that he still felt the pipeline and infrastructure was “pretty interesting”.
The shareholder measured the pipeline as “cost neutral”. As with the sources interviewed, the shareholder said a value for Erbitux as a standalone should be in the USD 60 per share range, with an additional USD 7 per share on top of that for cash and equipment that ImClone offers.
Alternatively, the person familiar said he believes that more mileage could be derived from Erbitux, which, in combination with radiation therapy, is indicated for the treatment of a certain type of locally or regionally advanced head and neck cancer. He said that going forward the drug in colorectal cancer has proven to double survival rates in third line and has proven results in non-small cell lung cancer, which he noted has a larger indication. He said he expects Erbitux to receive approval by the Food and Drug Administration (FDA) for indication in lung cancer within the expected 4Q08 timeframe.
However, Bristol-Myers has paid up for ImClone in the past. In 2001, it made an offer of USD 70 per share to purchase over 14 million shares of common stock in the company. The previous purchase occurred at a time when Erbitux was barely even a marketed drug, it was said. In contrast, Bristol-Myers is offering USD 10 per share less for a drug that is now widely distributed with follow on indications.
In a press release Carl Icahn, ImClone’s chairman, pointed out that the company has a pipeline antibody, IMC-11F8 – a fully humanized form of Erbitux, or a second generation Erbitux – under development, which, if ultimately approved for sale might have a significant competitive effect on Erbitux. Icahn also stated that Bristol-Myers may have no rights to market that product under its agreement with ImClone, which has been a point of contention between the two companies.
Despite this argument, the shareholder commented that Icahn has confronted a number of recent setbacks in his own stocks, including the failed sale of Biogen Idec late last year, Yahoo’s rejection of Microsoft and Icahn’s joint bid in July, and more recently, the FDA’s response to Amylin Pharmaceuticals, with the agency announcing it is working on a stronger label for the diabetes drug Byetta after receiving reports of hemorrhagic or necrotizing pancreatitis requiring hospitalization.
He said Icahn cannot afford to have “a winner” like this slip through his fingers. “If he closes this deal; Bristol-Myers sweetens it 10% to USD 66 to USD 67, everyone is happy,” he remarked.
As for another suitor, the industry source familiar with ImClone said he did not see the merit for an interloper. “I don’t think anyone thinks they are going to beat Bristol-Myers and Bristol-Myers wants to own it, so why help Icahn get a higher price,” said the industry source. He said Bristol-Myers might have “a couple of dollars in their pocket” to up its bid.
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