Imclone Executives Just Can't Get Enough

First Call/Thomson Financial Insiders' Chronicle, August 27, 2001

Executives at ImClone Systems Inc. (IMCL) have been exercising options like there's no tomorrow. As usual, there's more to it than that. Turns out, ImClone loaned the executives funds with which to exercise their options. Ordinarily the Story would end right there, but with ImClone there may be a few factors worth considering.

Unlike when buying on the open market, insiders who exercise options can always give back shares to the company to cover the cost of exercise. Thus, an executive looking to boost his exposure can do so without having to put up his own money, much less assume the risk of taking on debt (leverage).

More specific to this case, ImClone executives have displayed a knack for timing in the past. We highlighted executives exercising options at ImClone back in November 1998; in fact, two actually bought more stock when their options subsequently went underwater. Over the next two-or-so years, the stock ran up some 3,000%.

What's more, CEO Sam Waksal also exercised low cost options last year. Remember, when executives exercise options and hold the shares, the difference between the strike price and the market price at the time of the exercise counts against the Alternative Minimum Tax (AMT) calculation. Rather than disqualify the exercise (and thus avoid the AMT) by selling the weakened shares at yearend, Waksal presumably assumed a hefty AMT tax burden--a clear bet the stock would move higher.

In July alone, Chief Operating Officer Harlan Waksal and Chief Executive Sam Waksal each exercised to acquire more than 2 million shares. Chairman Robert Goldhammer picked up more than 300,000 shares, while Directors David Kies and Paul Kopperl acquired 55,000 shares and 120,000 shares, respectively. Nearly all previously acquired the stock in 1997 and 1998 ahead of its monstrous move upwards.

Why exercise now? It doesn't look to be the financials. Investors have high hopes for ImClone's anti-cancer drug IMC-C225, but approval isn't exactly imminent ImClone recently submitted a rolling Biologies License Application (BLA) for C-225 in combination with Irinotecan for treatment of colorectal cancer, and has completed enrolment in a single-agent trial for the same indication. The drug is also being tested for the treatment for refractory head and neck cancer among others.

Meanwhile, losses have widened; largely as a result of costs associated with filing the new drug application. And presuming approval, ImClone will need cash to build plants to manufacture the drug. Comparable biotechs have recently partnered with major drug companies, resulting in dramatic oneday pops. Some have speculated that ImClone could be next. Others shudder at the thought, fearful that ImClone would be selling itself short.

Who knows, maybe the options were exercised as a means to discourage some sort of corporate advance. Either way, it's difficult to identify a downside. No matter how you slice it, ImClone executives really want to hold this stock.