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Imclone Systems, Inc.
Nasdaq: IMCL

180 Varick Street
New York, NY 10014
Tel: (212) 645-1405
Fax: (212) 645-2054

Andrea F. Rabney
Director, Corporate Development & Investor Relations
Investor Relations: ir@imclone.com

Company Description

ImClone Systems Incorporated is a New York City based biotechnology company (with manufacturing facilities in New Jersey) focused on the development of novel therapeutic products for the treatment of cancer and cancer-related disorders. The company is working on three distinct development programs; cancer therapeutics, cancer vaccines and anti-angiogenesis agents. The firm is developing chimerized monoclonal antibodies (part mouse and part human) as cancer therapeutics, vaccines for small-cell lung carcinoma and melanoma as well as endothelial stem cells to deliver gene therapies. ImClone has products in clinical trials, as well as candidates approaching the clinical stage. They recently signed an agreement with Merck KgaA for the development and commercialization of ImClone's lead anti-cancer product, C225. ImClone conducts much of its research with partners, including CombiChem and Memorial Sloan-Kettering Cancer Center.

Technology

ImClone's efforts are directed at the research and development of new drugs to treat cancer. Imclone has decided to take a three pronged approach to the attack on cancer. They are developing monoclonal antibodies to tumor cell receptors. They are also developing vaccines to specific cancer antigens. The third approach they are exploring is the use of angiogenesis inhibitors to stop blood vessel formation in tumors.

One of ImCIone's overlying technologies is the use of chimeric monoclonal antibodies to target cancer cell receptors. An antibody is a protein that specifically recognizes foreign substances in the body. A monoclonal antibody means that the antibody is derived from a single antibody-producing cell called a hybridoma. Monoclonal antibodies can be directed at a specific target called an antigen.

ImClone is developing inhibitors of tyrosine kinase receptors, a type of growth factor receptor. Tumor cells rely on growth factors to grow. The growth factor binds to the receptor, inducing enzyme activity, which initiates cell division. IMCL has inhibited tyrosine kinase receptors with antibodies that block the binding of growth factors to the receptors. Examples include C225, which blocks the binding of EGF to its receptor, EGFr and c-p1C11, which blocks the binding of VEGF to its receptor, KDR. The company is also working on a program to identify small molecules that inhibit the enzyme portion of growth factor receptors. They are working with CombiChem, Inc. to use CombiChem's library of chemical compounds to help identify candidates that interfere with the function of growth factor receptors. CombiChem will also synthesize novel molecules to act as inhibitors of growth factor receptors. IMCL also has an agreement with the Institute for Molecular Medicine in Freiburg, Germany to test small molecules for effectiveness in inhibiting various tyrosine kinase receptors.

ImClone is also studying the use of antibody inhibition of vascular-specific cadherin (VE cadherin) to inhibit angiogenesis. Cadherins are cell surface molecules that help organize tissue structures. Vascular-specific cadherin is thought to play a role in angiogenesis by organizing the assembly of endothelial cells into vascular tubes in the formation of new blood vessels. The company hopes the inhibition of VE cadherin will inhibit capillary formation thus starving the tumor. The company is also using CombiChem's libraries to identify small molecules that inhibit VE cadherin. IMCL has been assigned the exclusive rights to VE cadherin-2, a recently developed form of vascular-specific cadherin and to antibodies that inhibit VE-cadherin.

ImClone is also researching cancer vaccines. The company believes they can use the immune system to attack cancer. They hope to activate the immune system to recognize tumor specific antigens and stop a tumors local spread, metastases and recurrence. IMCL has BEC2 in clinical trials for small cell lung cancer. The company is also researching a vaccine using the melanoma antigen gp75. In preclinical studies, a gp75 vaccine has shown promise inhibiting melanoma growth.

ImClone has developed the technology needed to isolate endothelial stem cells. These stem cells are involved in the development of blood vessels. The company hopes to use the stem cells in the development of new blood vessels throughout the body. They plan to study these stem cells to generate new vessels in ischemia, burns and wound healing.

ImClone is also studying the use of endothelial stem cells in gene therapy to treat cancer. Tumors attract endothelial stem cells for use in angiogenesis. The company believes they can genetically alter endothelial stem cells to express tumor-destroying molecules thus delivering the deadly molecule directly to the tumor. ImClone's wholly-owned subsidiary EndoClone Incorporated is conducting this research.

The company is studying hematopoiesis in hopes of using the stem cells to regenerate blood cells after chemotherapy and/or radiation. The company is hoping to remove the stem cells from the patient prior to treatment and return them to the patient afterwards. IMCL is studying factors to control the proliferation, differentiation and functional deterioration of stem cells. They hope to develop technology to allow them to be maintained in culture outside of the body. ImClone has an exclusive license from The National Institutes of Health to the delta-like protein (DLK) in studies involving stem cells. DLK is a protein that helps maintain stem cells in their undifferentiated state while outside the patient's body. They are also hoping to use DLK to maintain undifferentiated stem cells while genetically manipulating them outside of the body. The company also discovered the FLK-2/FLT-3 receptor. The FLK-2/FLT-3 ligand binds and activates the receptor inducing the growth of the hematopoietic stem cells. The ligand may help stem cells reproduce outside of the body.

Products

The company currently has no products on the market. They have two drugs in late stage clinical trials, C225 and BEC2. The company derives what revenue they currently receive from a few different sources. They have licensed the rights to diagnostic products and vaccines for infectious diseases (such as gonorrhea and chlamydia) to corporate partners. They also derive revenue from contract research and development fees. Another source of funding is the licensing, research support, milestone payments and royalty fee revenues received from corporate partners.

Pipeline

ImClone Systems, Inc. has a number of products in clinical and preclinical trials. The most promising is their lead cancer therapeutic C225, a chimerized monoclonal antibody that blocks the Epidermal Growth Factor receptor (EGFr). EGFr is overexpressed on the cells of over one-third of all solid tumors, including bladder, breast, colon, ovarian, prostate, pancreatic, renal cell and squamous cell (non-small cell lung and head & neck) carcinomas. In cancer, specific growth factors act to trigger tumor cell growth and division through interaction with surface receptors (such as EGFr) on tumor cells. In animal studies, C225 in combination with chemotherapeutic agents or radiation increased the ability to kill tumor cells. In some of these studies, the human tumors established in these animals were eliminated and the animals survived tumor-free for a significant period of time. C225 used alone has also helped reduce implanted renal cell carcinoma and pancreatic carcinoma tumors in animals. As we know, animal studies are great (there are a lot of ecstatic mice with cancer dancing in the streets) but the "proof is in the pudding" (or in this case human clinical trials). Clinical trials are underway for a number of indications (various solid cancers, such as breast, prostate, head, and neck and renal cancers) either alone and in combination with chemotherapeutic drugs or radiotherapeutic agents. The studies have shown C225 to be generally well tolerated. C225 recently had positive results from a Phase Ib/IIa study. The study had 15 patients with unresponsive head and neck tumors. The patients were given C225 in conjunction with radiation. The results were quite impressive showing 100% resolution in 13 of the patients and 50% in the other two patients. Based on these results, the FDA granted approval to begin pivotal Phase III trials in head and neck cancers. One group will receive C225 plus radiation and the other will get radiation alone. A second trial with head and neck cancers will compare cisplatin to cisplatin plus C225. A third trial in squamous cell head and neck cancers that have failed chemotherapy will involve combining chemotherapy with C225. The company is planning to begin additional Phase II clinical trials to determine the type of tumors in which C225 is most effective. In these trials, they plan to use C225 in combination with chemotherapeutic agents or cytokines. ImClone recently presented preclinical results of C225 in combination with the anti-cancer drug gemcitabine in a mouse model of pancreatic cancer. Combined administration of C225 plus gemcitabine caused a 90% reduction in pancreatic tumors, compared with a 27% response rate using gemcitabine alone. ImClone has entered into an agreement to grant Merck KGaA the right to market C225 outside of North America. The two companies will co-develop C225 in Japan. ImClone retained the rights to North America.

Another promising product is the BEC2 cancer vaccine. BEC2 is a monoclonal anti-idiotypic antibody. An anti-idiotypic antibody is an antibody to another antibody's antigen binding site. The theory is that the anti-idiotypic antibodies mimic a specific antigen. This induces the body to produce an immune response to the chosen specific antigen. The anti-idiotypic antibody seems to stimulate a stronger immune response than the antigen itself. The BEC2 vaccine is given to the patient after the initial treatment of the tumor. The BEC2 vaccine resembles an antigen (GD3 ganglioside) on the tumor thus inducing the immune system to attack the cancer cells. GD3 is overexpressed on a number of cancers including small cell lung carcinoma, melanoma and soft tissue sarcomas. In preclinical studies BEC2 was shown to eliminate tumor metastases and prevent cancer reoccurrence. The vaccine has been in clinical trials since 1991. A trial of 15 patients with small cell lung cancer showed significantly increased survival. Median survival was 20.5 months versus a reference group with median survival of 17.9 months. A significant difference in survival curves was demonstrated (p = 0.03). BEC2 is currently in a Phase III clinical trial for the treatment of limited disease in small cell lung carcinoma. The trial will evaluate the effect in approximately 800 patients with small cell lung carcinoma. ImClone has entered into an agreement with Merck KGaA to develop and commercialize BEC2. Merck was granted the exclusive rights to manufacture and market BEC2 worldwide excluding North America. In North America the companies will co-market BEC2.
Merck will be responsible for the clinical development outside the United States, for development costs of the small cell lung cancer trial worldwide, milestone payments and royalties. ImClone will be the bulk product manufacturer of BEC2 to support worldwide sales.

Vascular Endothelial Growth Factor (VEGF) is a growth factor produced by tumor cells. VEGF induces angiogenesis (the growth of new blood vessels) via binding of the KDR receptor on endothelial cells (the cells that line blood vessels). Angiogenesis ensures an adequate blood supply for continued tumor growth. ImClone's angiogenesis inhibitor is c-p1C11. C-p1C11 is a chimeric monoclonal antibody that binds to the KDR receptor for VEGF. This prevents VEGF from binding thus inhibiting angiogenesis. C-p1C11 is currently in pre-clinical studies that have shown angiogenesis inhibition in animal studies. A recent presentation of preclinical results of in vivo findings demonstrated that administration of the anti-VEGFR-2 antibody resulted in a reduction of new blood vessel formation in tumors by as much as 80% and a decrease of existing blood vessel structures. Additionally, administration of anti-VEGFR-2 antibody significantly reduced or completely halted growth of established tumors. Examination of treated tumors showed evidence of tumor necrosis, decreased vascular permeability, decreased endothelial cell division and decreased microvessel density. IMCL is also working with MRC Collaborative Center in England, preparing a humanized form of c-p1C11. This would be a human antibody that contains only the minimal amount of mouse components necessary for the antibody to have therapeutic value.

Management

OFFICERS

Samuel D. Waksal, Ph.D. President Chief Executive Officer	Harlan W. Waksal, M.D. Executive Vice President Chief Operating Officer
Carl S. Goldfischer, M.D. Vice President Finance Chief Financial Officer	John B. Landes Vice President Business Development and General Counsel
John A. Gilly, Ph.D. Vice President Biopharmaceutical Operations	Michael Feldman, Ph.D. Vice President Discovery Research
Peter Bohlen, Ph.D. Vice President Research

BOARD OF DIRECTORS

Robert F. Goldhammer Chairman of the Board	Richard Barth Former Chairman of the Board Ciba-Geigy, U. S.
Jean Carvais, M.D. Former President of the Research Institute of Roger Bellon, S.A. (a division of Rhone-Poulenc Rorer)	Vincent T. DeVita, Jr., M.D. Executive Director of Yale Cancer Center
David M. Kies Partner, Sullivan & Cromwell	Paul B. Kopperl President, Delano and Kopperl, Inc. Pegasus Investments, Inc.
John Mendelsohn, M.D. President, MD Anderson Cancer Center, University of Texas	William R. Miller Former Vice Chairman of the Board of Directors, Bristol-Myers Squibb Company
Harlan W. Waksal, M.D. Executive Vice President Chief Operating Officer ImClone Systems Incorporated	Samuel D. Waksal, Ph.D. President Chief Executive Officer ImClone Systems Incorporated

SCIENTIFIC ADVISORY BOARD

Thomas Deuel, M.D. Professor of Medicine, Director of the Division of Growth Regulation, Harvard Medical School	Charles A. Dinarello, M.D. Professor of Medicine, University of Colorado School of Medicine
Michael Feldman, Ph.D. Vice President Discovery Research, ImClone Systems Incorporated; Member of the Israeli Academy of Sciences and Humanities and the World Academy of Arts and Sciences	Zvi Fuks, M.D. Chairman of the Department of Radiation Oncology, Memorial Sloan-Kettering Cancer Center
Gerald T. Keusch, M.D. Professor and Head of the Division of Geographic Medicine and Infectious Disease, Tufts University School of Medicine	Arnold Levine, Ph.D. Chairman of the Department of Molecular Biology, Harry C. Wiess Professor of Molecular Biology, Princeton University
John Mendelsohn, M.D. President, MD Anderson Cancer Center, University of Texas	Malcolm Moore, Ph.D. Enid A. Haupt Professor of Cell Biology, Head of the James Ewing Laboratory of Development Hematopoiesis at Memorial Sloan-Kettering Cancer Center
Robert Schneider, Ph.D. Associate Professor, Department of Biochemistry, New York University Medical Center	Thomas Shenk, Ph.D. Professor of Molecular Biology, Princeton University; American Cancer Society Professor, Howard Hughes Medical Institute
P. Frederick Sparling, M.D. Professor and Chairman of the Department of Medicine and Professor of Microbiology and Immunology, University of North Carolina School of Medicine	Samuel D. Waksal, Ph.D. President and Chief Executive Officer, ImClone Systems Incorporated

Alliances

ImClone currently has a number of collaborations. One of the most important is their partnership with the German pharmaceutical company Merck KGaA (Merck). In 1990, ImClone and Merck entered an agreement relating to the development and commercialization of BEC2 and the recombinant gp75 antigen. Merck has been granted a license to manufacture and market BEC2 and gp75. In return, ImClone receives research payments of $4.7million and milestone payments of up to $22.5 million. Merck is required to make royalty payments on all sales outside of North America. Gross sales of BEC2 in North America will be divided per agreement. Merck will also be responsible for conduct of the clinical trials and regulatory submissions outside North America. Costs worldwide to conduct a multi-site, multi-national Phase III clinical trial to obtain approval for the indication of the treatment of limited disease small cell lung carcinoma for BEC2 are also the responsibility of Merck.

In 1998 ImClone entered into an agreement with Merck relating to the development and commercialization of C225. Merck has been granted exclusive rights to market C225 outside of North America. IMCL will be entitled to royalty fees derived from sales outside North America. The companies will co-promote C225 in Japan. ImClone will manufacture C225 for use by Merck in both clinical trials and commercialization. Merck will pay IMCL $30 million in up front fees and milestone payments. Additionally, Merck will pay another $30 million for an equity base in IMCL assuming other milestones are achieved. Merck is extending an secured line of credit to help IMCL build a manufacturing facility for the production of C225.

ImClone and Abbott labs have a research and license agreement that provides Abbott with an exclusive worldwide license to manufacture and distribute products arising from IMCL's research into diagnostic technology. These already include DNA probe diagnostic tools for chlamydia, gonorrhea and mycobacteria.

IMCL has given license to manufacture and distribute infectious disease vaccines to American Home Products. AHP has already provided upfront fees and research support and will be paying milestone payments and royalties on any future sales.

IMCL and Combichem have an agreement for the discovery of novel small molecules for the treatment of cancer. Combichem is responsible for generating potential drug candidates using proprietary technology, which IMCL then tests and develops. In this case, Combichem will receive research funding, milestone payments and royalties on any marketed products. IMCL has taken an equity position in Combichem of 312,500 shares.

Immunex has been granted a "limited world wide exclusive" license for the FLK-2/FLT-3 receptor. IMCL will receive payments and royalties based on any sales of products derived from these therapeutic candidates.

EndoClone is a wholly owned subsidiary formed in 1998. Its purpose is to research the use of endothelial stem cells to stimulate the growth of new blood vessels to a targeted area of the body for the potential treatment of ischemia. They are also exploring the use of this technology in the treatment of burn patients as well as wound healing. The company is also studying the use of these stem cells in gene therapy.

Financials

                     IMCLONE SYSTEMS INCORPORATED

     Consolidated Statements of Operations and Comprehensive Loss
                (in thousands, except per share data)

                               Three Months Ended         Year Ended
                                    December 31,         December 31,
                                 ------------------   ----------------
                                 1998        1997       1998       1997
                                 ----        ----       ----       ----

Revenues                    $     759   $   1,335  $   4,193  $   5,348
Operating expenses:
  Research and development      5,780       4,483     21,049     16,455
  General and administrative    2,971       1,962      7,145      5,356
                                -----       -----      -----      -----
     Total operating expenses   8,751       6,445     28,194     21,811
                                -----       -----      -----      -----

Operating loss                 (7,992)     (5,110)   (24,001)   (16,463)
                                -----       -----      -----      -----
Other:
  Interest and other income      (672)       (424)    (3,054)    (1,523)
  Interest expense                115          80        435        551
                                -----       -----      -----      -----
Net interest and other income    (557)       (344)    (2,619)      (972)
                                -----       -----      -----      -----

Net loss                       (7,435)     (4,766)   (21,382)   (15,491)
Preferred dividends
 (including assumed incremental
 yield attributable to
 beneficial conversion feature)   921         163      3,668        163
                                -----       -----      -----      -----
Net loss to
 common stockholders        $  (8,356)  $  (4,929) $ (25,050) $ (15,654)

Basic and diluted net
 loss per common share      $   (0.34)  $   (0.20) $   (1.03) $   (0.67)
Weighted average
 shares outstanding            24,373      24,202     24,301     23,457

Comprehensive Loss:

Net loss                    $  (7,435)  $  (4,766) $ (21,382) $ (15,491)

Other comprehensive income (loss):
  Unrealized gain (loss) on
  securities available for sale:
   Unrealized holding gain
    (loss) arising during period   66          62       (638)        99
   Less: Reclassification
    adjustment for realized
    gain (loss) included
    in net loss                     4         --          38         (2)
                                -----       -----      -----      -----
      Total other comprehensive
       income (loss)               62          62       (676)       101
                                -----       -----      -----      -----
Comprehensive loss          $  (7,373)  $  (4,704) $ (22,058) $ (15,390)


                       Condensed Balance Sheets
                            (in thousands)

                                         December 31,    December 31,
               Assets                       1998             1997
                                         -----------     -----------
Current assets:
 Cash and cash equivalents                 $   3,888       $   2,558
  Securities available for sale               42,851          57,052
 Other current assets                          1,666           1,185
                                              ------          ------
     Total current assets                     48,405          60,795

Property and equipment, net                   11,417          11,871
Other assets                                   2,430           3,114
                                              ------          ------
     Total assets                          $  62,252       $  75,780

       Liabilities and stockholders' equity
Current Liabilities                        $  13,332       $   4,124
Long-term obligations                          3,746           3,430
                                              ------          ------
     Total liabilities                        17,078           7,554

Stockholders' equity                          45,174          68,226
     Total liabilities and
      stockholders' equity                 $  62,252       $  75,780

Recommendations/Outlook

ImClone has taken an interesting approach to cancer therapeutics. Using multiple immunologic weapons seems to be a logical and effective method of combating this universal disease. C225 is a potential blockbuster for squamous cell head and neck cancers that, unfortunately, have no effective treatment at this time. The results from a recent Phase II trial showed an incredible success rate. Of the 15 patients treated, 13 had 100% regression of their tumors and the other two had 50% regression. Keeping in mind that this was a small Phase II trial (and we all know what can happen in small Phase II trials) the results were extraordinary. These results would be nice and we would watch and wait except for one thing; a blockbuster drug recently approved from Genentech that supports the hypothesis underlying this treatment modality. Herceptin, Genentech's new breast cancer drug, has shown some marvelous results. Herceptin has proven the effectiveness of an immunologic attack on cancer similar to the mechanism of action behind C225. With the theoretical constructs underlying C225 being proven not only through clinical trials but also through a similar approved drug, we feel more comfortable assuming successful trial results.

In addition to head and neck cancer treatments, the company is looking to treat other tumor types. The company is studying renal cell cancers as well as pancreatic cancers, both of which have high levels of EGF receptors. The EGFr is also present on at least 30% of solid tumors including both lung and colorectal cancers.

ImClone's potential does not end with C225. BEC2 also has enormous potential. It is currently in Phase III trials for small cell lung cancer and has shown promise in melanomas and soft tissue sarcomas as well. C-p1C11 is an angiogenesis inhibitor currently in preclinical trials. The market has tended to take a favorable view of companies with potentially effective antiangiogenic drugs, Entremed being the prime example here. Once C-p1C11 starts human trials that could potentially convince the market to increase the market capitalization.

Additionally, the company seems to be making progress in the relatively new arena of stem cell research. They are also using the stem cells in the gene therapy. Both of these areas promise great strides in our ability to treat a wide variety of diseases from cancers to lost brain cells.

When valuing the company we attempt to take a conservative look at the company. Obviously, to value any company, we have to make predictions about the outcome of drug trials and future market size. With that in mind, we have valued ImClone based on C225 alone. We assumed approval and use for head and neck cancers. With these assumptions, we have placed a value of $67.50 on the company in the next 18-24 months. This represents a 291% total return.

As always, you need to do your own research into the company's finances and future prospects.