ImClone bets the pharm on Erbitux

NEW YORK (CNNMoney.com) -- ImClone Systems has bet virtually everything on its only product, Erbitux, a cancer drug with a checkered history that helped to land its former CEO - and Martha Stewart - in prison.

ImClone (IMCL), one of last year's top-performing biotech stocks with a 65 percent price surge, has been fueled by expectations that Erbitux will become an oncological powerhouse.

But some analysts are skeptical as to whether ImClone will continue its advance in 2008, because the company is years away from getting additional products onto the market.

Erbitux is FDA-approved to treat colorectal cancer, as well as cancer of the head and neck. Many analysts believe that Erbitux has multi-billion dollar sales potential if ImClone succeeds in getting it approved as a treatment for additional types of cancer.

ImClone is expected to announce drug study results later this year on Erbitux's ability to treat lung cancer, and this could have a major impact on the company. ImClone is expected to unveil these results at the annual conference of the American Society of Clinical Oncology in June in San Francisco.

ImClone's stock gain last year was fueled by several factors - including Amgen (AMGN, Fortune 500)'s failed attempt to expand the competing drug Vectibix to treat patients with early-stage colon cancer. But ImClone was driven primarily by investor expectations that the lung cancer results will be strong, analysts say.

"For a time, [ImClone] was everybody's favorite whipping boy and I think people began to understand that maybe that was a little overdone," said Michael King, analyst for Rodman & Renshaw.

King believes that Erbitux's annual sales will peak at $4 billion by 2015. The drug totaled about $1 billion in sales during the first nine months of 2007, and the revenue is divided between ImClone and its New Jersey-based partner Bristol-Myers Squibb (BMY, Fortune 500).

But not everyone is as bullish at King. Going forward, analysts have mixed projections as to whether the lung cancer results will help the company.

Caroline Stewart, analyst for Piper Jaffray, said that ImClone stock rose last year because company officials "announced they had positive data for lung cancer." She said that if the Food and Drug Administration approves Erbitux as a lung cancer drug, that could add up to $1 billion in annual sales and give another boost to the stock, which still has "room to grow."

But ImClone has fueled doubts by not publishing the details of its study, said Stewart, who is neutral on the company.

"But we don't know any of the data yet," said Stewart. "I think there's a lot of skepticism about what they are going to present at the ASCO in June."

Katherine Kim, analyst for Banc of America Securities, said that ASCO "would not be a good event for the company," because she doesn't believe that Erbitux will be able to treat lung cancer as well as Genentech's (DNA) lung cancer drug Avastin. Kim rates ImClone as "neutral."

For now, ImClone lives and dies on Erbitux. This was also the case back in 2001, when former chief executive Sam Waksal illegally informed his friends that Erbitux was about to get denied by the Food and Drug Administration.

Lifestyle maven Martha Stewart, who illegally dumped shares on a tip from a broker, served a six-month sentence for insider trading. Waksal is still serving his seven-year, three-month prison sentence.

The company later re-filed its Erbitux application and the drug was eventually approved.

Not only is Erbitux the company's sole product, but the drug dominates the biotech's late-stage pipeline. Other drugs are being studied to treat prostate, breast and ovarian cancer, and to target tumors, but any possible marketing approval is years away.

"Right now, in the near term, everything is banking on Erbitux," said Stewart, the analyst with Piper Jaffray, who described the pipeline as "promising" but "nascent."

But King of Rodman & Renshaw is bullish on the company, forecasting the stock price will rise within a year to $62 from its Jan. 4 close of $40.52. King said that new areas of treatment for Erbitux will continue to fuel sales, and that ImClone could be bringing a new anti-tumor drug to market by 2010.

"The Erbitux fundamentals are solid and we think 2008 will be the year that the realization will strike that ImClone has a [strong] pipeline," said King. "We just named it our large cap [company] of the year."