The encyclopedia · Strategy & Leadership · Strategic decision · 2001–2008
ImClone bet everything on one FDA approval — then its CEO sold the bad news
A biotech staked everything on one FDA approval; when the agency refused, the CEO's insider sales nearly destroyed the company.
ImClone Systems · 2001-12
What happened
ImClone Systems was a biotech founded in 1984 with one serious asset: Erbitux (cetuximab), an experimental antibody for colorectal cancer. In September 2001 Bristol-Myers Squibb paid $2 billion — a billion of it up front — for less than a fifth of the company, betting on the drug's blockbuster potential. The stock ran to $70, and ImClone submitted its application for FDA approval.
The FDA refused to file it, over concerns about the clinical trial's structure. Sam Waksal, the founder and CEO, learned on the evening of December 26 that the refusal was coming; the announcement was set for the close of trading on December 28. In between he tried to sell nearly 80,000 of his own shares — two brokers refused to execute the orders — and tipped his family, who sold more than $10 million of stock over two days. The FDA faxed its decision at 4 p.m. on December 28; ImClone announced it at 6 p.m. The stock dropped 16 percent in three days and kept falling.
The SEC charged Waksal on June 12, 2002. He pleaded guilty that October to securities fraud, bank fraud, obstruction of justice and perjury, and was sentenced to seven years and three months in prison. A congressional hearing uncovered a board that had tolerated him since a 1986 signature forgery; the general counsel called it 'a good-faith misunderstanding' and no one ever acted. The scandal touched everyone around him — Martha Stewart sold about $230,000 of ImClone stock on a tip from her broker and went to prison for lying about it — while Bristol-Myers's $2 billion bet evaporated.
The company survived its founder. Merck KGaA ran a new trial and won approval on February 12, 2004, and Erbitux became a blockbuster, passing $1.5 billion in sales by 2008. But the scandal had cost ImClone its momentum and its independence: a 2006 sale attempt failed, Carl Icahn took control of the board in October 2006, and after a bidding war Eli Lilly bought the company for $6.5 billion in October 2008 — $70 a share, the price the stock had last seen before the refusal.
Why it happened
- ImClone bet its entire future on one approval: the September 2001 deal valued the company on Erbitux alone, so the FDA's refusal left it with no second act.
- The founder answered a business setback with a crime: Waksal learned the refusal was coming, sold, tipped his family, and turned a regulatory delay into a securities scandal.
- The board failed its one job: directors had tolerated Waksal since a 1986 forged signature and never acted, so the October 2002 hearing found no one had been watching the CEO.
- The deal's own pressure wrote the script: a $2 billion valuation demanded a fast approval, and the company filed before its trial data could carry the application.
The lesson
A company that is one approval away from everything is one refusal away from nothing: when the whole bet rests on a single milestone, the founder's panic decides how the story ends.
Aftermath
The drug and the company both recovered: Merck KGaA won approval on 12 February 2004, and Erbitux passed $1.5 billion in sales by 2008. The scandal's cost was independence — a 2006 sale attempt failed, Carl Icahn took board control that October, and Eli Lilly bought ImClone for $6.5 billion on 6 October 2008, at $70 a share. Waksal was released from prison in February 2009, his fines and back taxes running past $4 million. The case became the reference point for tipping, and the refusal-to-file letter is now understood as a verdict no company built on one drug can ignore.
Sources
- Wikipedia — ImClone Systems (founding 1984, Bristol-Myers $2B deal September 2001, FDA refusal after close 28 Dec 2001, family and executive stock sales, Waksal arrest/plea/sentence, Stewart conviction 2004, Merck KGaA approval Feb 2004, Icahn, Eli Lilly $6.5B acquisition 2008)
- Wikipedia — Samuel Waksal (learned of the refusal on Christmas Day, tipping family and friends, broker Peter Bacanovic, bank fraud over a pledged warrant, guilty plea 15 Oct 2002, seven years three months plus $4M+ in fines, released February 2009)
- SEC Press Release 2002-87 (12 June 2002) — the charges: Waksal tipped family who sold over $10M of stock across two days, his own order for 79,797 shares was refused by two brokers, FDA faxed the refusal at 4 p.m. / ImClone announced at 6 p.m. on 28 Dec, stock fell 16% from $55.25 to $46.46 by 31 Dec
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