Late in the afternoon of December 28, 2001, the fax machine at the SoHo offices of ImClone Systems, spit out a stunning announcement. Citing sloppy data and poor research design, the FDA had spiked the company's application to file for approval for its much-anticipated cancer drug, Erbitux. For the officers and employees of the hot young biotech firm, it was a very bad day -- and the start of two very bad years.
One month later, in January 2002, things got worse. Federal regulators announced that they were launching an investigation into possible insider trading by the company's founder and CEO, Sam Waksal. Within the company, shock was compounded by a sense of betrayal: Waksal had attempted to unload his stock just before the FDA's announcement. When that news surfaced, it undermined investors' belief in Erbitux's efficacy, casting a pall over the entire enterprise.
But the worst was yet to come.
In March 2003, after an excruciatingly painful effort to put the company's house in order, ImClone's officers took yet another devastating call from the Feds. Improper accounting for taxes on stock options granted to the Waksal brothers (Sam's brother, Harlan, had been the company's CEO at the time) and other executives meant the company would need to restate its earnings for 2001 and possibly for other years as well. It could be on the hook for taxes of $60 million, before penalties and interest. What's more, in April, ImClone was warned by Nasdaq that its stock could be de-listed if its 10-K wasn't filed by June 23, potentially triggering the collapse of all that ImClone's staff had worked so hard to build.
"We did everything we could to help, but ultimately it was outside our control," says Daniel Lynch, ImClone's incumbent CEO. "When the stakes are that high, it's...