ImClone stock surges on Erbitux report

NEW YORK (CNNMoney.com) -- ImClone Systems' stock surged more than 20 percent Tuesday after a report of strong test results for the drug Erbitux and its ability to treat lung cancer, which might help the biotech take market share from Genentech.

The New York-based biotech said that Erbitux, already on the U.S. market to treat colorectal cancer as well as head and neck cancer, can also extend the survival of lung cancer patients when added to chemotherapy, according to late-stage study results from its German partner, the drugmaker Merck KGaA. (This company is separate from New Jersey-based Merck & Co., Inc.)

ImClone (Charts) markets Erbitux with its New Jersey-based partner, the drugmaker Bristol-Myers Squibb (up $0.20 to $28.20, Charts, Fortune 500). Both of these companies have a checkered past - including disgraced CEOs - but have won renewed favor with investors.

Les Funtleyder, analyst for Miller Tabak, wrote in a published note that if the study results are "as robust as the initial reports suggest" then Erbitux might be able to take share away from Avastin, a treatment for colorectal and lung cancer manufactured by the California-based biotech Genentech (down $1.19 to $77.96, Charts) and the Swiss drug giant Roche.

The study results prompted James Reddoch, analyst for Friedman, Billings, Ramsey, to raise his peak estimate for annual U.S. sales of Erbitux to $1.67 billion by 2011 from his prior projection of $1.32 billion.

Genentech's stock slipped about 2 percent on news of the ImClone study. But Christopher Raymond, analyst for Robert W. Baird, reiterated his "buy" rating for Genentech and said that ImClone's study results were preliminary.

Raymond wrote, in a published note, that "the devil is very much in the details with regard to Erbitux's potential impact" and there were no data provided, beyond ImClone's announcement that Erbitux achieved the main goal of extending survival.

In a presentation Tuesday at Bear Stearns' 20th annual healthcare conference in New York, ImClone chief medical officer Eric Rowinsky said he was "extremely delighted" with the study results.

Rowinsky painted a picture of a promising future for ImClone, armed with a newly appointed chief executive, John Johnson, whom he referred to as "a breath of fresh air," and a strong pipeline. In addition to lung cancer, Erbitux is also in late stage testing for pancreatic cancer and early-stage colorectal cancer.

Also, ImClone said Monday it settled a patent infringement case regarding Erbitux. ImClone agreed to pay $65 million to the plaintiffs, the Massachusetts Institute of Technology and the Massachusetts-based biotech Repligen (up $0.33 to $4.45, Charts). As part of the settlement, ImClone is allowed certain patent rights.

At the Bear Stearns conference, Susan Morris of Genentech's investor relations group said the company was continuing to study Avastin as a treatment for other types of cancer, and would be releasing more data at the San Antonio Breast Cancer Symposium in December.

Also at the conference, Joerg Reinhardt, chief executive of Novartis' (up $0.71 to $53.85, Charts) vaccines and diagnostics division, said he plans to submit a cell culture-based method of vaccine production to the Food and Drug Administration in 2008. This method is considered faster than the current technology, which grows the vaccines in chicken eggs.

The U.S. government awarded the Swiss company Novartis a grant of $220 million in 2006 to develop the cell-based method, to quickly produce a vaccine in the event of a pandemic.

The analysts quoted here do not own stocks in the companies they discuss, but FBR makes a market in ImClone and R.W. Baird makes a market in Genentech.