Big money, weird science.(ImClone Systems Inc.)

The way things are going, the question most often asked of corporate C.E.O.s will no longer be "How are you going to boost your stock price?" Instead, it will be "What did you know and when did you know it?" Executives at Enron and at Arthur Andersen have been facing that one for a while, and now executives at ImClone Systems, Inc., a biotech firm based in Tribeca, are, too.

Until December, ImClone Systems was one of the most highly touted biotechnology companies in America, thanks to a cancer-fighting drug called Erbitux. Even while Erbitux was still being tested, ImClone was pitching it as a potential blockbuster that would revolutionize cancer treatment. Wall Street and the business press were sweet on Erbitux as well. In July, Business Week put the drug on its cover, and the Times called it "the $2 billion molecule." More than half a dozen analysts had "buy" ratings on ImClone. And though the company had never, in seventeen years, brought a drug to market, and had just three million dollars in quarterly revenues (and no profits), ImClone's market capitalization was, at its peak, $5.5 billion. Shareholders included some of the biggest institutional investors around -- what the Street likes to call "smart money."

But right now the smart money must be feeling pretty dumb. On December 28th, ImClone announced that the Food and Drug Administration had rejected its Erbitux application. In other words, the agency would not even consider the drug for approval, much less approve it. (The F.D.A. said that ImClone's clinical trials were inadequate and its data insufficient.) The more shocking news came a few days later: apparently, ImClone had known all along that the F.D.A. had serious questions about the way the Erbitux trials were designed and conducted, yet the company, inexplicably, did not heed the F.D.A.'s recommendations, while continuing to project that the drug would be approved by early 2002. The revelations cut the share price in half and provoked a slew of analyst downgrades and shareholder lawsuits. Last week, a congressional committee launched an investigation.

So why did Wall Street blow it? ImClone told the kind of story that the Street loves to hear. A cutting-edge biotech was leading the charge to transform Tribeca into a mini-Cambridge, a regular Genome Alley. The product was hip: Erbitux is what's called a "targeted therapy" drug, and targeted therapy is supposedly the future of cancer treatment. ImClone's board was grand: among the directors were some of the most important people in oncology, including Vincent DeVita, the former head of the National Cancer Institute, and John Mendelsohn, the president of the M. D. Anderson Cancer Center, in Houston, who invented Erbitux (and who, oddly enough, is also on the board -- and the audit committee -- of Enron. "It's a coincidence," he said last week). ...