TOPICS > Economy

Imclone Implodes

August 8, 2002 at 12:00 AM EDT


JIM LEHRER: Now, the Imclone story. Yesterday, federal prosecutors announced an indictment against former Imclone CEO Sam Waksal. It was the latest move in the growing and very public crackdown on corporate abuse. Imclone is a biotech company that was developing cancer treatment drugs. Waksal was charged with insider trading, bank fraud, and more. Here to tell us about it is Catherine Arnst, a senior writer for “BusinessWeek” Magazine. Welcome.

CATHERINE ARNST: Welcome. Hi, how are you?

JIM LEHRER: Just fine, thank you. The company Imclone, now, Sam Waksal and his brother founded this company, did they not?

CATHERINE ARNST: Yes, they founded it in the mid ’80s, in 1984. At that time, they thought they would develop drugs for infectious diseases, actually. Harland Waksal is a doctor and Sam Waksal has a Ph.D. in epidemiology, and then in 1992, they met Dr. Mendelson who then was at Sloan Kettering, who at that time designed a growth factor found on 50 percent of all cancers and they agreed to develop that and basically threw the company behind developing this one drug.

JIM LEHRER: And this was seen as a very major development, was it not in the corporate world? I don’t know about the research world. Tell us.

CATHERINE ARNST: Well, it’s a very promising drug. It’s the first of a class of drugs that target a growth factor in tumor cells. And the theory is that if you can shut down this growth factor, you would be able to keep the tumor from continuing to grow and divide. It doesn’t actually cure the cancer or kill the tumor; it keeps it from growing, and that’s very important because the main thing that kills cancer victims is the spreading of the cancer, not the initial tumor. So the thought was if they could keep it from spreading, they could keep it from killing. And so this was a very promising drug, and still is in that sense in that it is one of this class of new targeted treatments.

JIM LEHRER: But it made… it puts a great financial spotlight did it not, on Imclone and Imclone stock took off?

CATHERINE ARNST: Well, it did. It takes a long time and it’s an extremely expensive to develop a cancer drug or any kind of a drug. They had spent over $150 million on this one over the past ten years, and so they haven’t made any profit. However, because it was such a promising drug, it could potentially be used over a whole range of cancers. The stock has been steadily climbing for a couple of years now.

JIM LEHRER: From what to what? Where did it… what was its peak?

CATHERINE ARNST: Well, its peak… what happened is the stock was at around 50 a year ago, and then last August, Bristol Myers Squibb agreed to buy 20 percent of Imclone and acquired 40 percent of the profits of this new drug, which is called Erbitux for $2 billion: $1 billion for the 20 percent stake and another $1 billion for the rights to the drug. So at that point, the stock went up to over $70, which is what they were paying for it, $70 a share. So it was an unprecedented deal in the biotech world.

JIM LEHRER: All right. Now, let’s freeze it right there. At $70 a share, how big was Imclone as a company? How many employees? What was it doing?

CATHERINE ARNST: Minuscule. It’s about 300 employees. Their offices are in a former shoe factory in Soho, and they have a plant in New Jersey where they’re making the drug.

JIM LEHRER: In New York City?

CATHERINE ARNST: Right, in New York City.


CATHERINE ARNST: It’s a very small company. It’s typical of start-up biotech companies, it only has the one major product being developed. It has a future back in the pipeline, but this is their one… you know, the company is really pinning its hopes on this drug.

JIM LEHRER: Okay, they’re pinning the hopes on the drug, and then it requires approval by the food and drug administration, does it not?

CATHERINE ARNST: Right. Yes, that’s right, and that’s a very complicated process. Imclone had never been gone through that before. A lot of biotech companies run into trouble when they go before the FDA because they have no experience with this, and what happened with Imclone is that they had filed for approval based on a phase two. Usually drugs are tested in three phases. This was a phase two trial of about 120 patients in which they got a 22 percent response rate, which means in 22 percent of the patients, the tumors shrank more than 50 percent. That’s a very good response rate in cancer. However, they didn’t provide the data on each of the patients to back up their claims when they finally filed with the FDA and so the FDA ended up rejecting the application — an unusual move.

JIM LEHRER: They rejected the application. Now, it’s the rejection of the application that brings us here tonight.


JIM LEHRER: Tell us what… that was in December of what, last year, right?

CATHERINE ARNST: Yes, December 27th, I believe it was actually announced.

JIM LEHRER: Okay, now, the charges against Sam Waksal have to do with that. Tell us precisely what it is that he allegedly did.

CATHERINE ARNST: What happened is, is that the… this is a very secret process, of course, before the FDA, but the fact that they were going to reject the application leaked out, an FDA official told a lobbyist for Bristol Myers that that they would be rejecting the application.

JIM LEHRER: This was before… oh yeah, go ahead, so sorry.

CATHERINE ARNST: On December 26.


CATHERINE ARNST: So he… the lobbyist for Bristol Myers told his employers who told Harland Waksal, the C.O.O. Of the company, he then called his brother Sam, who was on vacation in St. Barts, I believe in the Caribbean, and that opened the window for the insider trading. At that point, the stock was at around $60. It had been sliding for a couple of weeks over concerns that the FDA may reject it. But.

JIM LEHRER: And then… all right. Now take the next step. The word…


JIM LEHRER: Excuse me. Let me just take you through this. The next step was, of course, that the official announcement came and the stock went down.


JIM LEHRER: And it went down very, very dramatically, did it not?

CATHERINE ARNST: Dramatically, because this was a real blow…

JIM LEHRER: To, like, what?

CATHERINE ARNST: I think it went down to about 40 in the next week.

JIM LEHRER: 40? $40 a share?


JIM LEHRER: And then it was alleged… the charge against Sam Waksal is that after he got the call from his brother, he did what, on the 27th, the day before it went down?

CATHERINE ARNST: He then called his father and his daughter and, you know, the government is saying he tipped them off that they should sell their stock. He also evidently tried to sell his own stock. However, there was a ban on any officers of the company selling their stock by the company’s lawyers, so his broker at Merrill Lynch refused to execute the trade.

JIM LEHRER: Okay. So that is the charge that the indictment… now, there are a lot of technical… there are 13 counts in the indictment, but that’s basically what it is alleged that he did, correct?

CATHERINE ARNST: Right. That’s right.

JIM LEHRER: Now, briefly, Martha Stewart has also been mentioned in connection with this because she’s a friend of Sam Waksal, correct? And she owned some stock?

CATHERINE ARNST: Yes. Sam Waksal is unusual in the biotech world in that he is a New York socialite. He was very close friends with Martha Stewart; he dated her daughter for a couple of years, and she owned a certain amount of stock in the company, I think it was about 4,000 shares. So she also sold her stock the day before the FDA announcement came out. Now she says that she had an agreement with her broker at Merrill Lynch, the same broker as Sam Waksal, to sell when the stock hit 60. So far, the government says they don’t have a written record of that…


CATHERINE ARNST: …Agreement, but…

JIM LEHRER: As we sit here tonight, no charges have been levied against Martha Stewart?

CATHERINE ARNST: That’s exactly right.

JIM LEHRER: The charges against Sam Waksal– what is the next legal step for him in that case?

CATHERINE ARNST: Well, he’ll have to respond to the indictment. I believe that’ll be next week. They have been trying to work out a deal with the government, and the SEC and Waksal’s lawyers. So far, that hasn’t happened. This indictment may possibly put more pressure on them to work out a deal on Mr. Waksal, but at this point, he’ll just have to respond to the indictment and he’s out on $10 million bail. So he will be in prison for a little while.

JIM LEHRER: All right, we’ll see what happens. Katherine Arnst, thank you very much.