ImClone stock dips on analyst downgrade

NEW YORK (CNNMoney.com) -- ImClone stock fell Friday after an analyst downgraded the biotech, based on his conversation with doctors who were hesitant to use Erbitux as a lung cancer drug.

Shares of ImClone Systems (down $4.46 to $39.02, Charts) fell nearly 8 percent after Jim Reddoch, analyst for Friedman, Billings, Ramsey, downgraded the stock to "market perform" and lowered his 12-month price target to $45.

"We are tempering our expectations for Erbitux sales in lung cancer due to feedback from practitioners," wrote Reddoch in his published note on Friday.

Just three days before, on Sept. 11, Reddoch raised the price target to $65 from $50, based on ImClone's announcement about Erbitux. See correction below.

ImClone's stock surged about 20 percent that day after the biotech released positive test results for Erbitux, a drug that treats colorectal cancer and cancer of the head and neck. ImClone, and its partner Bristol-Myers Squibb (down $0.42 to $28.38, Charts, Fortune 500), said preliminary test results of Erbitux showed that the drug extended survival in lung cancer patients.

But in his newest report on Friday, Reddoch said he had spoken to doctors who were "unmoved" by ImClone's new study results and "doubted" they would use Erbitux with a common form of chemotherapy. This implies that Erbitux would have difficulty competing with Genentech's (up $0.41 to $78.99, Charts) lung cancer drug Avastin.

"Unbelievable," said ImClone chief medical officer Eric Rowinsky to CNNMoney.com, in reference to Reddoch's downgrade and the ensuing stock plunge.

Rowinsky said he was "ecstatic" about the results reported on Sept. 11, and said that Erbitux is the only drug - aside from Avastin - found to increase survivability in lung cancer patients (when added to chemo). But Rowinsky said that ImClone is under embargo until its European partner, the Germany-based Merck KGaA, releases more data.

"Unfortunately, because of the embargo policies of meetings, we cannot disclose anything other than meeting the endpoint in a study," said Rowinsky.

Reddoch, the analyst from FBR, said the additional data would have to be "compelling in order to be taken up," even by patients who were not eligible to use the competing drug Avastin. He said that investors would probably have to wait until the American Society of Clinical Oncology conference in the summer of 2008 for more information.

On Sept. 11, another analyst, Christopher Raymond of the firm Robert W. Baird, noted that the Erbitux lung cancer results were "preliminary" and "the devil is very much in the details with regard to Erbitux's potential impact." He said there was no data provided, beyond ImClone's announcement that Erbitux achieved its main endpoint of extending survival.

Correction: An earlier version of this story inaccurately stated that Reddoch upgraded the ImClone stock earlier this week. CNNMoney.com regrets the error.

The analysts quoted here do not own ImClone stock, but FBR makes a market in the company and R.W. Baird makes a market in Genentech.