Biotech Values

[DewDiligence]

IMCL
U.S. Erbitux sales $107M, +27% Y-o-Y, +9% Q-o-Q

[This is pretty good growth considering that the compendium listing for H&N cancer occurred halfway through the third quarter (#msg-7490869). Sales should be even higher in Q4 when the compendium allows H&N reimbursement for a full quarter. Moreover, Q4 ought to begin to show some Canadian sales, for which IMCL earns the same 39% gross royalty as in the U.S.

3Q05 EPS of 0.35 was down from 0.44 in the prior year due to lower “manufacturing revenue” for product sold by IMCL to BMY. This amount is lumpy and does not track end-user sales because BMY does not stock Erbitux for ordinary sales (which are handled by a drop-ship method).

Owing to an artificially low tax rate (from tax loss carryforwards), artificially low COGS (from previously expensed product), and amortization of previously obtained license fees, IMCL’s EPS accounting in quite complex and requires considerable effort to understand; hence I won’t try to explain it here. Suffice it to say that the level of end-user Erbitux sales sold in the U.S. (and soon Canada) is the best metric for gauging the health of IMCL’s business. CC today at 11:00 a.m. ET.]

http://biz.yahoo.com/bw/051027/275114.html?.v=1

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ImClone Systems Reports Third Quarter and Nine Months 2005 Financial Results

Thursday October 27, 7:00 am ET

NEW YORK--(BUSINESS WIRE)--Oct. 27, 2005-- ImClone Systems Incorporated (NASDAQ: IMCL ) announced today its financial results for the third quarter and nine months ended September 30, 2005.

Total revenues for the third quarter of 2005 were $106.5 million, a 9% increase over the third quarter of 2004. Revenues include four principal components:

• License fees and milestone revenue of $27.1 million in the third quarter of 2005 compared with $23.0 million in the third quarter of 2004;
• Manufacturing revenue of $10.7 million in the third quarter of 2005 compared with $30.0 million in the third quarter of 2004. The decrease reflects a decline in volume purchases by Bristol-Myers Squibb in the third quarter of this year, as well as a significantly lower selling price to Bristol-Myers Squibb for Erbitux, as compared to 2004. The selling price in 2004 included costlier Lonza Biologics-manufactured product as well as ImClone Systems-manufactured product, whereas in 2005, the selling price includes only ImClone Systems-manufactured materials. Purchases by Bristol-Myers Squibb are timed at their discretion to accommodate forecasts and safety stock needs, and are not necessarily indicative of historical in-market sales or future sales expectations. No product intended for commercial use was sold to Merck KGaA during the third quarter of 2005;
• Royalty revenue of $46.6 million in the third quarter of 2005 compared with $34.1 million in the third quarter of 2004. Royalty revenue for the third quarter of 2005 includes $41.7 million representing 39% of Bristol-Myers Squibb's in-market Erbitux net sales of $107.0 million; these in-market sales, reflecting a drop-ship distribution methodology, represent Erbitux shipments to end-user accounts only, with no wholesaler stocking; and
• Collaborative agreement revenue of $22.0 million in the third quarter of 2005 compared with $10.4 million in the third quarter of 2004. The year-to-year increase principally reflects reimbursement for increased purchases of clinical materials by Merck KGaA, and higher reimbursements from Bristol-Myers Squibb for royalty payments.

Total operating expenses for the third quarter of 2005 were $80.3 million compared with $49.9 million in the third quarter of 2004. Operating expenses included:

• Research and development expenses of $29.0 million in the third quarter of 2005 compared with $17.6 million in the third quarter of 2004; the increase is principally attributable to expenses associated with clinical supplies sold to the Company's partners which are reimbursed as a component of collaborative agreement revenue;
• Clinical and regulatory expenses in the third quarter of 2005 were $13.6 million, compared with $7.6 million in the third quarter of 2004, reflecting higher expenses associated with clinical trials for ERBITUX and the Company's other products in clinical development;
• Marketing, general and administrative expenses were $19.5 million in the third quarter of 2005 compared with $14.8 million in the third quarter of 2004. The increase in 2005 is principally attributable to legal fee indemnification expenses, higher compensation expenses associated with increased headcount, principally in sales and marketing, which is attributable to the field force, and higher professional fees;
• Royalty Expenses were $15.2 million in the third quarter of 2005 compared with $9.7 million in the third quarter of 2004; approximately $5.5 million of the 2005 expenses were reimbursed as a component of collaborative agreement revenue, resulting in net royalty expenses of $9.7 million for the third quarter of 2005 compared with $5.5 million in the third quarter of 2004; beginning in the third quarter of this year, gross royalty expense has decreased as a percentage of net sales in North America from 12.75% to 12.25% as the result of a reduction in the royalty obligation under one of our patent licenses. Net royalty obligations in North America, including reimbursement from Bristol-Myers Squibb, are now 7.75% [i.e. net royalties IMCL receives from BMY are 39-12.25+7.75=34.5%]; and
• Costs of manufacturing revenue were $3.1 million in the third quarter of 2005, continuing to reflect blended costs as the Company continues to deplete its supply of previously expensed material (that is, some batches approximate the full costs of manufacturing while others include only packaging and labeling costs).

The effective tax rate for the full year of 2005 (assuming no milestone is earned from Bristol-Myers Squibb) is estimated to be 1% excluding the effect of an adjustment recorded in the third quarter of 2005 of approximately $440,000, resulting from the reconciliation of the prior year's tax provision to its recently filed tax returns. The resulting tax rate for the third quarter and first nine months of 2005, including such adjustment, is 2.4% and 1.5%, respectively.

Net income for the third quarter of 2005 was $31.0 million compared with $39.8 million in the third quarter of last year. Diluted earnings per share were $.35 in the third quarter of 2005 compared with $.44 in the third quarter of 2004, with the decrease principally reflecting the reduction in Manufacturing revenue described above, among other things.

Total revenues and net income for the nine months ended September 30, 2005 were $284.7 million and $85.8 million, respectively, compared with $281.4 million and $126.8 million, respectively, in the first nine months of last year. Diluted earnings per share were $.98 for the first nine months of 2005 compared with $1.45 in the first nine months of 2004.

Conference Call

ImClone Systems will host a conference call with the financial community to discuss 2005 third quarter and nine months financial results, today, October 27, 2005, at 11:00 AM Eastern Time. The conference call will be webcast live and may be accessed by visiting ImClone Systems' website at www.imclone.com. A replay of the audio webcast will be available under "Earnings Webcast" in the "Investor Relations" section of the Company's website starting shortly after the call.

Those parties interested in participating via telephone may join by dialing [phone], or [phone] for calls outside of Canada and the United States. A telephone replay of the conference call will be available shortly after the call until November 3, 2005 at midnight Eastern Time. To access the telephone replay, dial [phone] domestically, or [phone] for calls outside of Canada and the United States, and enter passcode number 6603782.

About ImClone Systems Incorporated

ImClone Systems Incorporated is committed to advancing oncology care by developing and commercializing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The Company's research and development programs include growth factor blockers and angiogenesis inhibitors. ImClone Systems' strategy is to become a fully integrated biopharmaceutical company, taking its development programs from the research stage to the market. ImClone Systems' headquarters and research operations are located in New York City, with additional administration and manufacturing facilities in Branchburg, New Jersey.
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