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ImClone CEO Under Increasing Scrutiny

Biotech: Samuel Waksal runs in celebrity circles. But as lawsuits and probes mount, he is keeping a lower profile.


The highly public meltdown of ImClone Systems Inc. is casting the spotlight on Samuel Waksal, an immunologist and erstwhile film producer as comfortable with celebrities as with cells.

The lanky chief executive, whose company is under investigation for allegedly misleading investors about its cancer drug, is a regular on Manhattan's social circuit, where he has been spotted with Martha Stewart, home decorating queen and mother of his former girlfriend, Alexis. A recent issue of New York magazine showed Waksal posing alongside rock star Mick Jagger.

Now, Waksal's social life has become a lightning rod for investors, who have started to wonder whether there is more style than substance to ImClone.

At an investment conference sponsored by JP Morgan H&Q two weeks ago, professional stock pickers shouted, "Stop playing around in the Hamptons," when Waksal took the podium before a standing-room-only crowd.

"We screwed up," he admitted.

Waksal, 54, has lowered his profile since trial lawyers began circling several weeks ago, bombarding his unprofitable New York company with shareholder suits. They claim ImClone hid important information from investors, including serious concerns expressed by the Food and Drug Administration more than a year ago about the cancer drug Erbitux. The FDA rejected the drug Dec. 28.

"He is devoting all this time to addressing the situation with the FDA," said spokeswoman Andrea Rabney, adding that Waksal is not available for interviews.

But claims on Waksal's time are mounting. On Friday, the company disclosed that it has received inquiries from the Securities and Exchange Commission and the Justice Department.

The House Energy and Commerce Committee last week said it is investigating ImClone, including lucrative stock sales by Waksal and his brother that took place before the FDA rejection.

Bristol-Myers Squibb Co., which has invested $1.2 billion in ImClone since October, last week wrote off $735 million of its investment and said it is considering unspecified actions to protect shareholders.

Analysts speculated that the pharmaceutical company might sue ImClone or negotiate a deal to get some of its money back.

"We couldn't be more disappointed in this turn of events," Bristol-Myers Chairman and Chief Executive Peter Dolan said in a conference call last week.

ImClone's problems started with the FDA's rejection of an application to market Erbitux. ImClone blamed record-keeping mistakes that it hoped to correct by the end of March.

On Jan. 4, an industry publication reported that the FDA's confidential rejection letter showed that the agency had many concerns about Erbitux, some of which dated to August 2000. The Cancer Letter report raised questions about ImClone's truthfulness with investors.

The FDA, according to the Cancer Letter, said the clinical trials that ImClone conducted to test Erbitux in cancer patients were not "adequate and well controlled." The agency told ImClone that new trials would be needed to show whether Erbitux works. That would delay any sale of the drug until at least next year; ImClone expected to sell Erbitux this year.

The company's shares, which traded as high as $75 on Dec. 6 as the deadline for an FDA decision on Erbitux neared, have been battered by the continual stream of bad news. ImClone's shares closed Friday at $16.49 on Nasdaq.

Adding to the controversy is a series of insider transactions. Last summer, according to regulatory filings, the company lent Waksal and other insiders $35.2 million so they could exercise stock options. Talks with Bristol-Myers were well underway at that time but had not been publicly disclosed.

On July 12, regulatory filings show, Waksal exercised 2.06 million options at an average of $8.82 a share. His brother, Dr. Harlan Waksal, who is ImClone's chief operating officer, converted 2.08 million shares that same day at an average share price of $7.57.

ImClone executives and directors, including the Waksal brothers, together sold 2.1 million shares, or about 20% of their holdings, to Bristol-Myers on Oct. 29 for $150 million.

Waksal, who received $57 million in the Bristol-Myers transaction, said the pharmaceutical firm required the brothers to take part in the tender offer. Bristol-Myers acquired 19.9% of the company at $70 a share as part of a costly deal to obtain U.S. marketing rights to Erbitux.

On Dec. 6, Harlan Waksal disposed of 700,000 shares, valued at nearly $72 a share. Waksal told investors that his brother intended to use the proceeds from the sale to pay taxes incurred when Harlan Waksal exercised his options and sold his shares to Bristol-Myers.

The brothers had no idea the FDA rejection was coming, Waksal said, adding: "I haven't slept a wink since that evening."

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