On December 31, ImClone held a conference call for analysts and investors, during which it painted a somewhat optimistic picture of the reasons for FDA's refusal to file and the prospects for moving forward. Waksal told investors that the agency had denied the application because ImClone had not provided enough data about the cancer patients participating in the trial. He projected that ImClone would be able to answer the questions by the end of the first quarter of 2002 and said he expected FDA to approve Erbitux for marketing by the fall of 2002.

The plot thickens. Unbeknownst to ImClone, FDA's RTF letter, which is a non-public document, had been leaked to the Cancer Letter, a Washington, DC-based newsletter. On Jan-uary 4, 2002, the Cancer Letter disclosed the contents of the letter and revealed for the first time that the agency had repeatedly informed ImClone about problems with the structure of its Erbitux trials and had warned it about violations of protocol.

The agency letter stated: "In order for your applicationto be considered, you were informed during the meeting of August 11, 2000, in our letter of January 19, 2001, and during the telephone conference call of January 26, 2001, that the application must provide evidence that the addition of a toxic agent (irinotecan) is necessary to achieve the clinical effect."

According to the Cancer Letter, the defects in ImClone's clinical trials were so serious that the company would not likely be able to refile its Erbitux application in the first half of 2002 and would likely be delayed until late in 2002 because FDA was requiring additional studies.

Faced with that exposure, on January 9, 2002, Waksal finally admitted, "We put together a faulty package. We screwed up." The CEO also admitted that ImClone would need to conduct new clinical trials to prove Erbitux's efficacy. On January 10, 2002, the New York Times reported that Waksal had admitted at the 20th Annual J.P. Morgan H&Q Healthcare Conference that FDA's rejection was "not an insignificant problem; the data does not exist." Between December 28, 2001 and January 9, 2002, ImClone's stock lost more than 42 percent of its value.

More Trouble IN JANUARY 2002, THE HOUSE ENERGY AND Commerce Committee, which at the time was investigating the Enron scandal, initiated an inquiry into ImClone's clinical trials and its pre-approval promotional statements about Erbitux.

The thrust of the congressional inquiry, led by Republicans Billy Tauzin and James Greenwood, was whether ImClone had misled public investors into believing that its FDA application was on track when it was not. The committee delved into issues of timing, specifically when ImClone's officers first learned about FDA's concerns about clinical trial structure, and whether the agency had talked with SEC about any pre-approval promotional statements that ImClone had made to investors.

The committee served formal letters of inquiry on ImClone, BMS, and FDA. Its letter to FDA underscored the gravity of the situation: "We have several serious concerns. Available information seems to conflict with ImClone's description of the contents of the agency's RTF letter and its clinical research. Without the Cancer Letter article, investors would have had to rely on ImClone's questionable descriptions of the RTF letter."

The congressional inquiry letter also stated: "The FDA's statute and regulations appear to inhibit the agency on its own from disclosing some, if not all, of the RTF letter or other similar, relevant information to the Securities and Exchange Commission when there are concerns about the accuracy and completeness of company's descriptions of FDA actions."