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ImClone on the Block
The once-infamous pharmaceutical company has put itself up for sale. What will that mean for its stock?
Back in 2002, shares of ImClone Systems (IMCL ) were the butt of many jokes. Erbitux, the company's anticancer drug, had been rejected by the Food & Drug Administration. An insider trading scandal was dogging founder Dr. Sam Waksal and media magnate Martha Stewart, an early investor in the company (see BW Online, 08/09/05, "All Martha, All the Time"). Shares, which had peaked at more than $70, tumbled to single digits.
Four years later the company is in much better health. Erbitux eventually won approval from federal regulators. Last year the company reported net income of $100 million and total revenue of $383 million. Optimism over a range of promising new cancer treatments in the product pipeline has helped draw investors back into the stock, which traded Friday at $40.83.
Now management hopes to build on that success by selling the company in a multibillion-dollar deal to a large pharmaceutical or biotech company. ImClone has hired investment bank Lazard (LAZ ) to conduct an auction. ImClone, based in New York, has a market cap of $3.43 billion. It could fetch anywhere from $4.5 billion to $5 billion, analysts figure. Lazard declined comment.
DISTRIBUTION DEAL. A deal is by no means assured, though (see BW Online, 01/25/06, "ImClone: Hammered on the Block"). The probability of a sale is just above 50%, industry experts say. They believe ImClone is likely to end the auction in four weeks to six weeks, either with an announcement of a deal or a statement saying the company will go it alone for now.
The stock took a hit on June 6, dropping 6.9%, to $37.29, because a study on potential new uses for its colorectal cancer drug Erbitux wasn't as encouraging as some hoped. While the shares have recovered since then, the episode underscored the uncertainty surrounding the company.
A deal faces a key challenge. ImClone has an Erbitux distribution agreement with Bristol-Myers Squibb (BMY ). Bristol-Myers receives about half of the U.S. profits from Erbitux, according to analyst David Witzke of Banc of America Securities. Potential acquirers might very well want all the Erbitux profit and revenue for themselves.
Witzke says Bristol-Myers is probably willing to sell its interest in Erbitux. The question is whether Bristol will scare away potential ImClone bidders who are reluctant to pay too much for full control of the revenue stream.
ImClone has a strong presence in the fastest-growing segment of the anticancer drug market. Erbitux and other drugs in the pipeline are known as monoclonal antibodies. That means they attack one specific target without causing as much toxic damage to healthy parts of the body, according to Witzke. And they aren't eliminated through the liver, which helps avoid potential damage to that vital organ.
AWAITING TEST RESULTS. Erbitux is used to treat colorectal cancer and head and neck cancer (see BW Online, 06/09/05, "Erbitux: ImClone Makes Headway"). It may soon be used to treat pancreatic cancer, depending upon the results of government tests. Its use is expanding in other ways.
It's currently used as a second-line drug, after initial treatments with other drugs have failed. But it may have a future as a first-line drug as well, which would increase the size of its potential market. "I believe it's going to be a blockbuster," Witzke says. Revenues easily could pass $1 billion a year. Other analysts aren't as optimistic, and cite the test results released on June 6 as evidence.
The product pipeline at ImClone includes potential treatments for other kinds of cancers. It's developing monoclonal antibodies that might treat a variety of ailments, such as breast cancer, lung cancer, and prostate cancer.
MORE BULLISH. Analysts disagree about how much money the company might fetch in a sale, but there's general consensus that ImClone would be a strategic acquisition for a large pharmaceutical or biotech company. "ImClone possesses valuable manufacturing capacity, a strong balance sheet, and an early pipeline focused on validated targets," analyst Steven Harr of Morgan Stanley said in a report. Harr recently downgraded the stock from overweight to equal weight, on the theory that a takeover premium already is figured into the stock. His price target is $42.
Witzke is more bullish. He has a buy on the stock. "I think the stock can hit $48 over the next year even if the company isn't sold, because the product pipeline is underappreciated by some investors," Witzke says.
ImClone would make a logical fit for several large pharmaceutical companies. Johnson & Johnson (JNJ ) appears to want a bigger presence in the anticancer market. Merck KGaA, of Darmstadt, Germany, has expressed an interest in building a greater presence in the anticancer market in the U.S. (Merck KGaA and U.S.-based Merck Co. (MRK ) are not the same company.) Pfizer (PFE ) is looking to build up its drug pipeline as well, and may soon have additional cash to spend thanks to the ongoing auction of its consumer goods business.
Swiss biotech giant Serono (SEO ) also may be in the hunt. Industry experts say the company is looking at targets that have cancer drugs, a presence in the U.S. market, a history of profits, and a market cap in the $5 billion range. ImClone satisfies all those requirements.
The company has come a long ways from the dark days of 2002 and is beginning to generate some excitement. "2006 is shaping up to be a landmark year for the company," says Harr, of Morgan Stanley. Still, ImClone remains a volatile stock, subject to the tough scrutiny of regulators and researchers. No one thinks that a bidding war or a strong pipeline is about to drive the shares back to the $70 range they attained during the heyday in the Waksal era.
ImClone on the Block
The once-infamous pharmaceutical company has put itself up for sale. What will that mean for its stock?
Back in 2002, shares of ImClone Systems (IMCL ) were the butt of many jokes. Erbitux, the company's anticancer drug, had been rejected by the Food & Drug Administration. An insider trading scandal was dogging founder Dr. Sam Waksal and media magnate Martha Stewart, an early investor in the company (see BW Online, 08/09/05, "All Martha, All the Time"). Shares, which had peaked at more than $70, tumbled to single digits.
Four years later the company is in much better health. Erbitux eventually won approval from federal regulators. Last year the company reported net income of $100 million and total revenue of $383 million. Optimism over a range of promising new cancer treatments in the product pipeline has helped draw investors back into the stock, which traded Friday at $40.83.
Now management hopes to build on that success by selling the company in a multibillion-dollar deal to a large pharmaceutical or biotech company. ImClone has hired investment bank Lazard (LAZ ) to conduct an auction. ImClone, based in New York, has a market cap of $3.43 billion. It could fetch anywhere from $4.5 billion to $5 billion, analysts figure. Lazard declined comment.
DISTRIBUTION DEAL. A deal is by no means assured, though (see BW Online, 01/25/06, "ImClone: Hammered on the Block"). The probability of a sale is just above 50%, industry experts say. They believe ImClone is likely to end the auction in four weeks to six weeks, either with an announcement of a deal or a statement saying the company will go it alone for now.
The stock took a hit on June 6, dropping 6.9%, to $37.29, because a study on potential new uses for its colorectal cancer drug Erbitux wasn't as encouraging as some hoped. While the shares have recovered since then, the episode underscored the uncertainty surrounding the company.
A deal faces a key challenge. ImClone has an Erbitux distribution agreement with Bristol-Myers Squibb (BMY ). Bristol-Myers receives about half of the U.S. profits from Erbitux, according to analyst David Witzke of Banc of America Securities. Potential acquirers might very well want all the Erbitux profit and revenue for themselves.
Witzke says Bristol-Myers is probably willing to sell its interest in Erbitux. The question is whether Bristol will scare away potential ImClone bidders who are reluctant to pay too much for full control of the revenue stream.
ImClone has a strong presence in the fastest-growing segment of the anticancer drug market. Erbitux and other drugs in the pipeline are known as monoclonal antibodies. That means they attack one specific target without causing as much toxic damage to healthy parts of the body, according to Witzke. And they aren't eliminated through the liver, which helps avoid potential damage to that vital organ.
AWAITING TEST RESULTS. Erbitux is used to treat colorectal cancer and head and neck cancer (see BW Online, 06/09/05, "Erbitux: ImClone Makes Headway"). It may soon be used to treat pancreatic cancer, depending upon the results of government tests. Its use is expanding in other ways.
It's currently used as a second-line drug, after initial treatments with other drugs have failed. But it may have a future as a first-line drug as well, which would increase the size of its potential market. "I believe it's going to be a blockbuster," Witzke says. Revenues easily could pass $1 billion a year. Other analysts aren't as optimistic, and cite the test results released on June 6 as evidence.
The product pipeline at ImClone includes potential treatments for other kinds of cancers. It's developing monoclonal antibodies that might treat a variety of ailments, such as breast cancer, lung cancer, and prostate cancer.
MORE BULLISH. Analysts disagree about how much money the company might fetch in a sale, but there's general consensus that ImClone would be a strategic acquisition for a large pharmaceutical or biotech company. "ImClone possesses valuable manufacturing capacity, a strong balance sheet, and an early pipeline focused on validated targets," analyst Steven Harr of Morgan Stanley said in a report. Harr recently downgraded the stock from overweight to equal weight, on the theory that a takeover premium already is figured into the stock. His price target is $42.
Witzke is more bullish. He has a buy on the stock. "I think the stock can hit $48 over the next year even if the company isn't sold, because the product pipeline is underappreciated by some investors," Witzke says.
ImClone would make a logical fit for several large pharmaceutical companies. Johnson & Johnson (JNJ ) appears to want a bigger presence in the anticancer market. Merck KGaA, of Darmstadt, Germany, has expressed an interest in building a greater presence in the anticancer market in the U.S. (Merck KGaA and U.S.-based Merck Co. (MRK ) are not the same company.) Pfizer (PFE ) is looking to build up its drug pipeline as well, and may soon have additional cash to spend thanks to the ongoing auction of its consumer goods business.
Swiss biotech giant Serono (SEO ) also may be in the hunt. Industry experts say the company is looking at targets that have cancer drugs, a presence in the U.S. market, a history of profits, and a market cap in the $5 billion range. ImClone satisfies all those requirements.
The company has come a long ways from the dark days of 2002 and is beginning to generate some excitement. "2006 is shaping up to be a landmark year for the company," says Harr, of Morgan Stanley. Still, ImClone remains a volatile stock, subject to the tough scrutiny of regulators and researchers. No one thinks that a bidding war or a strong pipeline is about to drive the shares back to the $70 range they attained during the heyday in the Waksal era.
posted by Jones Lang LaSalle NJ News Blog at 12:03 PM
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