**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

----

**Form 10-Q**
| x                                                       | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |
|---------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|
| **For the Quarterly Period Ended March 31,  2007** |
| o                                                       | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |

 

**For the Transition periodfrom                  to**

**Commission file number 0-19612**

----

**ImCloneSystems Incorporated**(Exactname of registrant as specified in its charter)

| **Delaware**                              |   | **04-2834797**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of          |   | (IRS Employer        |
| incorporation or organization)            |   | Identification  No.) |
| **180 Varick Street, New York, NY**       |   | **10014**            |
| (Address of  principal executive offices) |   | (Zip Code)           |

 

**(212)645-1405**(Registrant’s telephonenumber, including area code)

**NotApplicable**(Former name, former addressand former fiscal year, if changed since last report)

----

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x     No o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer x |   | Accelerated filer  o |   | Non-accelerated  filer o |
|---------------------------|--------|----------------------|--------|-------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined by Rule 12b-2 of the Exchange Act).Yes o    No x

Indicate the numberof shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date.

| Class                           | ** ** | **Outstanding as of April 30, 2007** |
|---------------------------------|------------|-------------------------------------------|
| Common Stock, par  value $0.001 |       | 85,632,793 Shares                         |

 

 

----

**IMCLONE SYSTEMSINCORPORATED**

**INDEX**
| PART I—FINANCIAL  INFORMATION |   |                                                                                                                               |
|-----------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------|
| Item  1.                                |   | Financial  Statements                                                                                                              |   | 1 |
|                                    |   | Unaudited  Consolidated Balance Sheets—March 31, 2007 and December 31, 2006                                         |   | 1 |
|                                    |   | Unaudited Consolidated Statements of Operations—Three  months ended March 31, 2007 and 2006     |   | 2 |
|                                    |   | Unaudited Consolidated Statements of Cash Flows—Three  months ended March 31, 2007 and 2006     |   | 3 |
|                                    |   | Notes to Unaudited Consolidated Financial Statements                                                                               |   | 4 |
| Item 2.                                 |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                        |   | 17 |
| Item 3.                                 |   | Quantitative and Qualitative Disclosures About Market  Risk                                                                        |   | 27 |
| Item 4.                                 |   | Controls and Procedures                                                                                                            |   | 28 |
| PART II—OTHER INFORMATION     |   |                                                                                                                               |
| Item  1.                                |   | Legal  Proceedings                                                                                                                 |   | 29 |
| Item 1A.                                |   | Risk Factors                                                                                                                       |   | 31 |
| Item 2.                                 |   | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                       |   | 31 |
| Item 3.                                 |   | Defaults Upon Senior Securities                                                                                                    |   | 31 |
| Item 4.                                 |   | Submission of Matters to a Vote of Security Holders                                                                                |   | 31 |
| Item  5.                                |   | Other  Information                                                                                                                 |   | 31 |
| Item 6.                                 |   | Exhibits                                                                                                                           |   | 31 |
| Signatures                              |   | 32                                                                                                                                 |

 

i

----

**PART I.FINANCIAL INFORMATION**

**Item 1.**                        *Financial Statements*

**IMCLONE SYSTEMS INCORPORATEDCONSOLIDATED BALANCE SHEETS(in thousands, except per share and share data)(Unaudited)**

| ** **                                                                                                                                                                                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                      | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                      | ** ** | ** **         | ** ** |                  | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                                                                                 |       |               |       |                  |       |   |   |
| Cash and cash  equivalents                                                                                                                                                                                                                                                      |       | $                  | 22,921     |                  |       | $ | 20,568 |   |   |
| Securities  available for sale                                                                                                                                                                                                                                                  |       | 1,047,096          |       |                  | 1,023,609  |   |   |
| Prepaid expenses                                                                                                                                                                                                                                                                |       | 2,571              |       |                  | 3,972      |   |   |
| Amounts due from  corporate partners                                                                                                                                                                                                                                            |       | 76,619             |       |                  | 78,030     |   |   |
| Inventories                                                                                                                                                                                                                                                                     |       | 112,534            |       |                  | 102,215    |   |   |
| Deferred income taxes,  net                                                                                                                                                                                                                                                     |       | 33,200             |       |                  | 29,715     |   |   |
| Other current  assets                                                                                                                                                                                                                                                           |       | 15,180             |       |                  | 12,123     |   |   |
| Total current  assets                                                                                                                                                                                                                                                           |       | 1,310,121          |       |                  | 1,270,232  |   |   |
| Property, plant  and equipment, net                                                                                                                                                                                                                                             |       | 415,097            |       |                  | 423,000    |   |   |
| Deferred financing  costs, net                                                                                                                                                                                                                                                  |       | 7,890              |       |                  | 8,818      |   |   |
| Deferred income  taxes, net                                                                                                                                                                                                                                                     |       | 100,809            |       |                  | 124,033    |   |   |
| Other assets                                                                                                                                                                                                                                                                    |       | 13,171             |       |                  | 13,753     |   |   |
| Total assets                                                                                                                                                                                                                                                                    |       | $                  | 1,847,088  |                  |       | $ | 1,839,836 |   |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                                                                                                  | ** ** | ** **         | ** ** |                  | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                                                                                            |       |               |       |                  |       |   |   |
| Accounts payable  (including $2,836 and $4,765 due Bristol-Myers Squibb Company (“BMS”) at  March 31, 2007 and December 31, 2006, respectively)                                                                                                             |       | $                  | 21,951     |                  |       | $ | 26,421 |   |   |
| Accrued expenses  (including $20,523 and $21,705 due BMS at March 31, 2007 and December 31,  2006, respectively)                                                                                                                                                 |       | 62,644             |       |                  | 69,080     |   |   |
| Current portion of  deferred revenue                                                                                                                                                                                                                                            |       | 134,674            |       |                  | 142,013    |   |   |
| Other current  liabilities                                                                                                                                                                                                                                                      |       | 4,265              |       |                  | 1,418      |   |   |
| Total current  liabilities                                                                                                                                                                                                                                                      |       | 223,534            |       |                  | 238,932    |   |   |
| Deferred revenue,  less current portion                                                                                                                                                                                                                                         |       | 215,909            |       |                  | 237,864    |   |   |
| Long-term debt                                                                                                                                                                                                                                                                  |       | 600,000            |       |                  | 600,000    |   |   |
| Share-based  compensation, less current portion                                                                                                                                                                                                                                 |       | 622                |       |                  | 261        |   |   |
| Other liabilities                                                                                                                                                                                                                                                               |       | 3,259              |       |                  | 3,130      |   |   |
| Total liabilities                                                                                                                                                                                                                                                               |       | 1,043,324          |       |                  | 1,080,187  |   |   |
| Commitments and contingencies (Note 8)                                                                                                                                                                                                                                          |       |               |       |                  |       |   |   |
| Stockholders’ equity:                                                                                                                                                                                                                                                      |       |               |       |                  |       |   |   |
| Preferred stock,  $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000  series B participating cumulative preferred stock, none issued or  outstanding                                                                                                         |       | —             |       |                  | —     |   |   |
| Common stock,  $0.001 par value; authorized 200,000,000 shares; issued 86,514,434 and  86,143,604 at March 31, 2007 and December 31, 2006, respectively;  outstanding 85,509,760 and 85,138,930 at March 31, 2007 and  December 31, 2006, respectively |       | 87                 |       |                  | 86         |   |   |
| Additional paid-in  capital                                                                                                                                                                                                                                                     |       | 877,907            |       |                  | 865,560    |   |   |
| Accumulated  deficit                                                                                                                                                                                                                                                            |       | (41,523            | )          |                  | (71,785    | ) |   |
| Treasury stock, at  cost 1,004,674 at March 31, 2007 and December 31, 2006,  respectively                                                                                                                                                                             |       | (29,149            | )          |                  | (29,149    | ) |   |
| Accumulated other  comprehensive loss:                                                                                                                                                                                                                                          |       |               |       |                  |       |   |   |
| Net unrealized  loss on securities available for sale                                                                                                                                                                                                                           |       | (3,558             | )          |                  | (5,063     | ) |   |
| Total  stockholders’ equity                                                                                                                                                                                                                                                |       | 803,764            |       |                  | 759,649    |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                                                                                                                                |       | $                  | 1,847,088  |                  |       | $ | 1,839,836 |   |   |

 

See accompanying notes to consolidated financial statements.

1

----

**IMCLONE SYSTEMS INCORPORATEDCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(Unaudited)**

| ** **                                              | ** ** | **Three Months  Ended March 31,** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                              | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues:                                               |       |                                             |       |   |   |
| Royalty revenue                                         |       | $                                                | 76,363     |   | $ | 60,270 |   |
| License fees and milestone revenue                      |       | 29,294                                           |       | 144,403 |   |
| Manufacturing revenue                                   |       | 16,458                                           |       | 19,349 |   |
| Collaborative agreement revenue                         |       | 19,385                                           |       | 21,109 |   |
| Total revenues                                          |       | 141,500                                          |       | 245,131 |   |
| Operating expenses:                                     |       |                                             |       |   |   |
| Research and development                                |       | 34,875                                           |       | 32,993 |   |
| Clinical and regulatory                                 |       | 13,808                                           |       | 15,081 |   |
| Marketing, general and administrative                   |       | 15,359                                           |       | 18,001 |   |
| Royalty expense                                         |       | 16,786                                           |       | 20,066 |   |
| Cost of manufacturing revenue                           |       | 13,855                                           |       | 15,402 |   |
| Total operating expenses                                |       | 94,683                                           |       | 101,543 |   |
| Operating income                                        |       | 46,817                                           |       | 143,588 |   |
| Other (income) expense:                                 |       |                                             |       |   |   |
| Interest income                                         |       | (12,517                                          | )          | (7,164 | ) |
| Interest expense                                        |       | 2,972                                            |       | 1,462 |   |
| Other income, net                                       |       | (9,545                                           | )          | (5,702 | ) |
| Income before income taxes                              |       | 56,362                                           |       | 149,290 |   |
| Income tax provision (benefit)                          |       | 27,607                                           |       | (80,301 | ) |
| Net income                                              |       | $                                                | 28,755     |   | $ | 229,591 |   |
| Income per common share:                                |       |                                             |       |   |   |
| Basic                                                   |       | $                                                | 0.34       |   | $ | 2.75 |   |
| Diluted                                                 |       | $                                                | 0.33       |   | $ | 2.51 |   |
| Shares used in  calculation of income per common share: |       |                                             |       |   |   |
| Basic                                                   |       | 85,255                                           |       | 83,624 |   |
| Diluted                                                 |       | 92,364                                           |       | 91,817 |   |

 

See accompanying notes to consolidated financial statements.

2

----

**IMCLONE SYSTEMS INCORPORATEDCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)(Unaudited)**

| ** **                                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Cash flows from operating  activities:                                             |       |                                             |       |   |   |
| Net income                                                                         |       | $                                                | 28,755     |   | $ | 229,591 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                      |       | 7,834                                            |       | 3,069 |   |
| Amortization of deferred financing costs                                           |       | 927                                              |       | 927 |   |
| Share-based compensation                                                           |       | 614                                              |       | 1,861 |   |
| Tax benefit from share-based compensation                                          |       | (7,033                                           | )          | (31,601 | ) |
| Loss on disposal of fixed assets                                                   |       | 3,229                                            |       | — |   |
| Deferred income taxes                                                              |       | 19,739                                           |       | (119,207 | ) |
| Other                                                                              |       | 21                                               |       | — |   |
| Changes  in:                                                                       |       |                                             |       |   |   |
| Prepaid expenses                                                                   |       | 1,401                                            |       | 1,890 |   |
| Amounts due from corporate partners                                                |       | 1,411                                            |       | (11,088 | ) |
| Inventories                                                                        |       | (10,319                                          | )          | 6,322 |   |
| Other current assets                                                               |       | (3,057                                           | )          | 97 |   |
| Other assets                                                                       |       | 537                                              |       | 430 |   |
| Accounts payable                                                                   |       | (4,470                                           | )          | (15,985 | ) |
| Accrued expenses                                                                   |       | 116                                              |       | 35,133 |   |
| Share-based compensation                                                           |       | 361                                              |       | 325 |   |
| Other current liabilities                                                          |       | 2,847                                            |       | 2,063 |   |
| Deferred revenue                                                                   |       | (29,294                                          | )          | 105,597 |   |
| Other liabilities                                                                  |       | 129                                              |       | 177 |   |
| Net cash provided by operating activities                                          |       | 13,748                                           |       | 209,601 |   |
| Cash flows from investing  activities:                                             |       |                                             |       |   |   |
| Acquisitions of property, plant and equipment                                      |       | (3,135                                           | )          | (16,414 | ) |
| Purchases of securities available for sale                                         |       | (470,432                                         | )          | (101,923 | ) |
| Proceeds from sale of securities available for sale                                |       | 417,500                                          |       | 133,250 |   |
| Proceeds from maturities of securities available for  sale                         |       | 30,950                                           |       | 5,475 |   |
| Net cash (used in) provided by investing activities                                |       | (25,117                                          | )          | 20,388 |   |
| Cash flows from financing  activities:                                             |       |                                             |       |   |   |
| Proceeds from exercise of stock options                                            |       | 6,512                                            |       | 10,613 |   |
| Proceeds from issuance of common stock under the  employee stock purchase plan     |       | 177                                              |       | 255 |   |
| Tax benefit from share-based compensation                                          |       | 7,033                                            |       | 31,601 |   |
| Net cash provided by financing activities                                          |       | 13,722                                           |       | 42,469 |   |
| Net increase in cash and cash equivalents                                          |       | 2,353                                            |       | 272,458 |   |
| Cash and cash equivalents at beginning of period                                   |       | 20,568                                           |       | 3,403 |   |
| Cash and cash equivalents at end of period                                         |       | $                                                | 22,921     |   | 275,861 |   |
| Supplemental cash flow  information:                                               |       |                                             |       |   |   |
| Cash  paid for:                                                                    |       |                                             |       |   |   |
| Income taxes                                                                       |       | $                                                | 2,210      |   | $ | 7 |   |
| Non-cash investing and  financing activity:                                        |       |                                             |       |   |   |
| Change in net  unrealized loss in securities available-for-sale                    |       | $                                                | (1,505     | ) | $ | 1,333 |   |

 

See accompanying notes to consolidated financial statements.

3

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**(1)**          BusinessOverview and Basis of Presentation

The accompanying consolidated financial statements ofImClone Systems Incorporated (“ImClone Systems” or the “Company”) as of March 31,2007 and for the three months ended March 31, 2007 and 2006 are unaudited.The accompanying unaudited consolidated balance sheets, statements ofoperations and statements of cash flows have been prepared in accordance withU.S. generally accepted accounting principles (“GAAP”) for interim financialinformation and in conjunction with the rules and regulations of theSecurities and Exchange Commission (“SEC”). Accordingly, they do not includeall of the disclosures required by GAAP for complete financial statements. Thefinancial statements reflect all adjustments, consisting only of normal,recurring adjustments, which are in the opinion of management, necessary for afair presentation for the interim periods. Management of the Company has made anumber of estimates and assumptions relating to the reporting of assets andliabilities and related revenue and expense accounts and the disclosure ofcontingent assets and liabilities to prepare these consolidated financialstatements in conformity with GAAP. Actual results could differ materially fromthose estimates. These financial statements should be read in conjunction withthe audited consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year ended December 31,2006, as filed with the SEC.

The results of operations for the interim periods arenot necessarily indicative of results to be expected for the entire fiscal yearor any other period.

The Company is a biopharmaceutical company whosemission is to advance oncology care by developing and commercializing a portfolioof targeted treatments designed to address the medical needs of patients withcancer. Our commercially available product, ERBITUX® (cetuximab) bindsspecifically to epidermal growth factor receptor (EGFR, HER1, c-ErbB-1)on both normal and tumor cells, and competitively inhibits the binding ofepidermal growth factor (EGF) and other ligands, such as transforming growthfactor-alpha. We are conducting, and in some cases have completed, clinicalstudies evaluating ERBITUX for broader use in colorectal cancer, squamous cellcarcinoma of the head and neck (“SCCHN”), for the potential treatment of lungand pancreatic cancers, as well as other potential indications. The Companydoes not operate separate lines of business or separate business entities anddoes not conduct any of its operations outside of the United States.Accordingly, the Company does not prepare discrete financial information withrespect to separate product areas or by location and does not have separatelyreportable segments.

On February 12, 2004, the United States Food andDrug Administration (“FDA”) approved ERBITUX for use in combination withirinotecan in the treatment of patients with EGFR-expressing, metastaticcolorectal cancer who are refractory to irinotecan-based chemotherapy and foruse as a single agent in the treatment of patients with EGFR-expressing,metastatic colorectal cancer who are intolerant to irinotecan-basedchemotherapy. In September 2005, Health Canada approved the use of ERBITUXfor use in combination with irinotecan for the treatment of EGFR-expressingmetastatic colorectal carcinoma in patients who are refractory to otheririnotecan-based chemotherapy regimens and for use as a single agent for thetreatment of EGFR expressing, metastatic colorectal carcinoma in patients whoare intolerant to irinotecan-based chemotherapy. On March 1, 2006, the FDAapproved ERBITUX for use in combination with radiation therapy for thetreatment of locally or regionally advanced SCCHN and as a single agent inrecurrent or metastatic SCCHN where prior platinum-based chemotherapy hasfailed. 

4

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

Please see fullprescribing information, available at www.ERBITUX.com, for important safetyinformation relating to ERBITUX, including boxed warnings.

On December 1, 2003,Swissmedic, the Swiss agency for therapeutic products, approved ERBITUX inSwitzerland for the treatment of patients with colorectal cancer who no longerrespond to standard chemotherapy treatment with irinotecan. Merck KGaA licensedthe right to market ERBITUX outside the United States and Canada from theCompany in 1998. In Japan, Merck KGaA has marketing rights to ERBITUX, whichare co-exclusive to the co-development rights of the Company and BMS. On June 30,2004, Merck KGaA received marketing approval by the European Commission to sellERBITUX for use in combination with irinotecan for the treatment of patientswith EGFR-expressing metastatic colorectal cancer after failure of irinotecanincluding cytotoxic therapy. On December 22, 2005, Swissmedic approvedERBITUX in Switzerland in combination with radiation in the treatment ofpatients with previously untreated, advanced SCCHN. On April 3, 2006,Merck KGaA was granted marketing authorization by the European Commission toextend the use of ERBITUX, in combination with radiotherapy, to the treatmentof patients with locally advanced SCCHN. In February 2007, an applicationwas submitted with the Japanese Pharmaceuticals and Medical Devices Agency forthe use of ERBITUX in treating patients with advanced colorectal cancer.ERBITUX is the first IgG1 monoclonal antibody that inhibits EGFR to besubmitted for marketing authorization in Japan.

**Impact of RecentAccounting Pronouncements**

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(SFAS) No. 157, “Accounting for Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, and establishes a framework for measuring fair value inaccordance with accounting principles generally accepted in the United Statesof America, and expands disclosure about fair value measurements. SFAS 157 iseffective for fiscal years beginning after November 15, 2007. The Companyis currently evaluating the requirements of SFAS 157.

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS 159”). SFAS 159 permits the measurement ofcertain financial instruments and certain other items at fair value. Entitiesmay choose to measure eligible items at fair value at specified election dates,reporting unrealized gains and losses on such items at each subsequentreporting period. SFAS 159 is effective for fiscal years beginning after November 15,2007. The Company is currently evaluating the requirements of SFAS 159.

In December 2006, theFASB issued FASB Staff Position Issue No. EITF 00-19-2,“Accounting for Registration Payment Arrangements” (“FSP 00-19-2”).FSP 00-19-2 addresses an issuer’s accounting for registrationpayment arrangements and specifies that the contingent obligation to makefuture payments or otherwise transfer consideration under a registrationpayment arrangement, whether issued as a separate agreement or included as aprovision of a financial instrument or other agreement, should be separatelyrecognized and measured in accordance with SFAS No. 5, “Accounting forContingencies.” FSP 00-19-2 is effective immediately forregistration payment arrangements and financial instruments subject to thosearrangements that were entered into or modified subsequent to the issuance ofFSP 00-19-2. For registration payment arrangements and financialinstruments subject to those arrangements that were entered into prior to theissuance of FSP 00-19-2, it is effective for financial statementsissued for fiscal years beginning after December 15, 2006. The Company hasadopted the provisions of FSP 00-19-2 as of 

5

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

January 1,2007, and has determined that it had no impact on our consolidated financialstatements. See Note 10—“Long-term Debt” for additional information.

**ComprehensiveIncome**

**The following table reconciles netincome to comprehensive income: (in thousands)**

| ** **                                                         | ** ** | **Three Months  Ended March 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Net income                                                         |       | $                                                | 28,755     |   | $ | 229,591 |   |
| Other comprehensive income (loss):                                 |       |                                             |       |   |   |
| Unrealized gain (loss)  on marketable securities during the period |       | 1,505                                            |       | (1,333 | ) |
| Total other  comprehensive income (loss)                           |       | 1,505                                            |       | (1,333 | ) |
| Total comprehensive  income                                        |       | $                                                | 30,260     |   | $ | 228,258 |   |

 

The tax (provision)benefit on the items included in other comprehensive loss assuming they wererecognized in income would be approximately $(617,000) and $173,000 for thethree months ended March 31, 2007 and 2006, respectively.

**Fair Value ofFinancial Instruments**

The fair value of theCompany’s 13¤8%convertible senior notes of $600.0 million was approximately $559.9 million and$545.6 million at March 31, 2007 and December 31, 2006, respectively,based on their quoted market price.

**(2)**          Inventories

Inventories are stated atthe lower of cost, determined on the first-in-first-out method, or market.Inventories consist of the following: (in thousands)

| ** **                  | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Raw materials and  supplies |       | $                        | 15,223     |                        |       | $ | 17,818 |   |   |
| Work in process             |       | 89,406                   |       |                        | 79,048     |   |   |
| Finished goods              |       | 7,905                    |       |                        | 5,349      |   |   |
| Total                       |       | $                        | 112,534    |                        |       | $ | 102,215 |   |   |

 

In June 2006, theCompany began producing ERBITUX for commercial use at its multiple productmanufacturing facility (“BB50”), located in Branchburg, New Jersey. The Companyfiled a supplemental Biological License Application with the FDA for approvalof BB50 in April 2007. Until such time as the Company receives approval ofBB50 from the FDA, the ERBITUX inventory produced in BB50 cannot be used forcommercial distribution. Based on management’s current expectations, theCompany expects that the costs of such inventory will be fully realizable oncethe Company obtains approval of BB50, which is anticipated in the second halfof 2007. As of March 31, 2007, the Company has capitalized approximately$40.0 million related to the costs of producing ERBITUX in BB50. The Companywill continue to 

6

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

capitalizethe costs of producing ERBITUX in BB50 as long as management can conclude thatthe costs of such inventory will be fully realizable in the future.

**(3)**          Property,Plant and Equipment

Property, plant andequipment are recorded at cost and consist of the following: (in thousands)

| ** **                          | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Land                                |       | $                        | 4,899      |                        |       | $ | 4,899 |   |   |
| Building                            |       | 281,559                  |       |                        | 281,556    |   |   |
| Leasehold improvements              |       | 23,933                   |       |                        | 14,595     |   |   |
| Machinery and equipment             |       | 169,560                  |       |                        | 164,869    |   |   |
| Furniture and fixtures              |       | 6,690                    |       |                        | 6,368      |   |   |
| Construction in progress            |       | 31,476                   |       |                        | 45,924     |   |   |
| Total cost                          |       | 518,117                  |       |                        | 518,211    |   |   |
| Less accumulated  depreciation      |       | (103,020                 | )          |                        | (95,211    | ) |   |
| Property, plant  and equipment, net |       | $                        | 415,097    |                        |       | $ | 423,000 |   |   |

 

In the first quarter of 2007, the Company determinedthat it was not cost effective to develop its Spring Street facility to houseits Research organization. As a result, the Company recorded a write-off ofapproximately $3.2 million related to design and engineering costs associatedwith this facility that were included in construction in progress as of December 31,2006. This write-off is included in Research and Development expenses in theCompany’s Statements of Operations for the three months ended March 31,2007. The Company is in the process of evaluating alternative uses for thisfacility.

The process of preparingconsolidated financial statements in accordance with GAAP requires the Companyto evaluate the carrying values of its long-lived assets. The recoverability ofthe carrying values of long-lived assets depends on the Company’s ability toearn sufficient returns on ERBITUX. Other than the asset impairment discussedabove, based on management’s current estimates, the Company expects to recoverthe carrying value of such assets.

**(4)**          Share-BasedCompensation Plans

On February 15, 2007, the Company awarded 268,283Restricted Stock Units (“RSU”) to its employees under its 2006 Stock IncentivePlan (the “06 Plan”). The grant date fair value of the Company’s RSU awards wascalculated using the closing market price of the Company’s common stock aslisted on the Nasdaq Global Select Market on February 15, 2007. The RSUvest 331¤3%annually over the three-year vesting period.

7

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

RSU activity for the threemonths ended March 31, 2007 is summarized as follows:

| ** **                            | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Remaining  Contractual  Term (Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                            | ** ** | ** **                 | ** ** | ** **                                                       | ** ** | **(in thousands)**         | ** ** |
| Outstanding at December 31, 2006 |       |                       | —     |                                                             |       |                            |       |   |   |   |   |   |   |
| Granted                               |       |                       | 268,283    |                                                             |       |                            |       |   |   |   |   |   |   |
| Forfeitures                           |       |                       | (6,255     | )                                                                |       |                            |       |   |   |   |   |   |   |
| Outstanding at March 31, 2007    |       |                       | 262,028    |                                                             |       |                            | 1.88       |   |   |   | $ | 10,683 |   |   |
| Expected to vest                      |       |                       | 215,352    |                                                             |       |                            | 1.81       |   |   |   | $ | 8,780 |   |   |

 

The grant date fair value of the RSU was $29.60. Theaggregate intrinsic value of RSU outstanding as of March 31, 2007 iscalculated as the number of shares multiplied by the closing market price ofour common stock at March 31, 2007, which was $40.77.

The Company recognized for the three months ended March 31,2007 approximately $197,000 in share-based compensation expense, net of amountscapitalized, for RSU granted under the 06 Plan. As of March 31, 2007,there was $6.3 million of total unrecognized compensation cost related to theRSU. This amount assumes the Company’s expected forfeiture rate. That cost isexpected to be recognized over a weighted average period of 2.9 years. TheCompany will utilize newly issued shares to satisfy the vesting of RSU.

In addition to the RSU discussed above, the Companyalso granted stock options for promotions and new hire grants. The activityrelated to stock options for the three months ended March 31, 2007 issummarized as follows:

| ** **                            | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise Price  Per Share** | ** ** | **Weighted  Average  Remaining  Contractual  Term (Years)** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                            | ** ** | ** **                 | ** ** | ** **                                                 | ** ** | ** **                                                       | ** ** | **(in thousands)**             | ** ** |
| Outstanding at December 31, 2006 |       | 10,509,294                 |       |                                                       | $          | 38.55                                                            |       |                                |       |   |   |   |   |   |   |   |
| Granted                               |       | 141,400                    |       |                                                       | $          | 29.87                                                            |       |                                |       |   |   |   |   |   |   |   |
| Exercised                             |       | (365,732                   | )          |                                                       | $          | 17.80                                                            |       |                                |       |   |   |   |   |   |   |   |
| Forfeitures                           |       | (341,611                   | )          |                                                       | $          | 41.50                                                            |       |                                |       |   |   |   |   |   |   |   |
| Outstanding at March 31, 2007    |       | 9,943,351                  |       |                                                       | $          | 39.09                                                            |       |                                |       | 5.91 |   |   |   | $ | 57,612 |   |   |
| Vested and expected to vest           |       | 9,684,034                  |       |                                                       | $          | 39.25                                                            |       |                                |       | 5.82 |   |   |   | $ | 55,673 |   |   |
| Exercisable at  March 31, 2007   |       | 8,762,399                  |       |                                                       | $          | 39.88                                                            |       |                                |       | 5.48 |   |   |   | $ | 48,684 |   |   |

 

The weighted average fairvalue of options granted during the three months ended March 31, 2007 and2006 was $13.13 and $15.20, respectively. The aggregate intrinsic value ofoptions outstanding at March 31, 2007 is calculated as the differencebetween the exercise price of the underlying options and the market price ofthe Company’s common stock for the 5,400,635 options that had exercise pricesthat were lower than the market price of our common stock at March 31,2007. The total intrinsic value of options exercised during the three monthsended March 31, 2007 and 2006 was $5.8 million and $10.1 million,respectively, determined as of the date of exercise.

8

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

**(5)**          IncomePer Common Share

Basic income per common share is computed by dividingnet income by the weighted-average number of common shares outstanding duringthe period. Diluted income per common share is computed by dividing net incomeby the weighted-average number of common shares outstanding during the periodincreased to include all additional common shares that would have beenoutstanding assuming potentially dilutive common share equivalents had beenissued. Dilutive common share equivalents include 1) the dilutive effect ofin-the-money shares related to stock options, which is calculated based on theaverage share price for each period using the treasury stock method. Under thetreasury stock method, the exercise price of an option, the average amount ofcompensation cost, if any, for future service that the Company has not yetrecognized, and the amount of tax benefits that would be recorded in additionalpaid-in capital, if any, when the option is exercised, are assumed to be usedto repurchase shares in the current period and 2) the conversion ofconvertible debt which is calculated using an “if-converted” basis. Inaddition, in computing the dilutive effect of convertible debt, the numeratoris adjusted to add back the after-tax amount of interest recognized in theperiod and 3) the dilutive effect of RSU which is calculated under the treasurystock method. Under the treasury stock method for RSU, the average amount ofcompensation cost, if any, for future service that the Company has not yetrecognized, and the amount of tax benefits that would be recorded in additionalpaid-in capital, if any are assumed to be used to repurchase shares in thecurrent period. For the three months ended March 31, 2007 and 2006, therewere an aggregate of 8,396,931 and 8,510,704, respectively, potential commonshares excluded from the diluted income per share computation because theirinclusion would have had an anti-dilutive effect.

Basic and diluted incomeper common share (EPS) were computed using the following: (in thousands, exceptper share data)

| ** **                                                                 | ** ** | **Three Months  Ended March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| EPS Numerator—Basic:                                                  |       |                                             |       |   |   |
| Net income                                                                 |       | $                                                | 28,755     |   | $ | 229,591 |   |
| EPS Denominator—Basic:                                                |       |                                             |       |   |   |
| Weighted-average number  of shares of common stock outstanding             |       | 85,255                                           |       | 83,624 |   |
| EPS Numerator—Diluted:                                                |       |                                             |       |   |   |
| Net income                                                                 |       | $                                                | 28,755     |   | $ | 229,591 |   |
| Adjustment for interest,  net of amounts capitalized and income tax effect |       | 1,753                                            |       | 1,274 |   |
| Net income, adjusted                                                       |       | $                                                | 30,508     |   | $ | 230,865 |   |
| EPS Denominator—Diluted:                                              |       |                                             |       |   |   |
| Weighted-average number  of shares of common stock outstanding             |       | 85,255                                           |       | 83,624 |   |
| Effect of dilutive securities:                                             |       |                                             |       |   |   |
| Stock options                                                              |       | 766                                              |       | 1,857 |   |
| Restricted stock units                                                     |       | 7                                                |       | — |   |
| Convertible subordinated  notes                                            |       | 6,336                                            |       | 6,336 |   |
| Dilutive potential  common shares                                          |       | 7,109                                            |       | 8,193 |   |
| Weighted-average common  shares and dilutive potential common shares       |       | 92,364                                           |       | 91,817 |   |
| Basic income per common  share                                             |       | $                                                | 0.34       |   | $ | 2.75 |   |
| Diluted income per  common share                                           |       | $                                                | 0.33       |   | $ | 2.51 |   |

** **

9

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

**(6)   Taxes**

The Company’s estimated annual effective operatingincome tax rate for 2007 is approximately 41%. Additionally, during the firstquarter of 2007 the Company recognized a discrete charge of approximately $4.5million related to certain tax return method changes filed as well as certaindeferred tax charges.

In July 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), whichclarifies the accounting and disclosure for uncertainty in tax positions. TheCompany adopted the provisions of FIN 48 effective January 1, 2007, and asa result of the adoption the Company recorded a decrease to beginningaccumulated deficit of approximately $1.5 million and an offsetting amount toadditional paid-in capital. As of the adoption date, the Company hasunrecognized tax benefits of approximately $38.3 million. Of this amount $36.1million would impact the effective income tax rate. A portion of the $36.1million if recognized could require additional valuation allowance to berecorded.

The Company recognizes both interest and penaltiesaccrued related to unrecognized tax benefits as elements of income tax expensein the Consolidated Statements of Operations. As of the adoption date, thetotal amount of accrued interest and penalties is approximately $787,000.Additionally, during the three months ended March 31, 2007, the Companyrecorded approximately $365,000 of interest and penalties.

The Company is subject toUnited States federal income tax as well as income tax of multiple statejurisdictions. The statute of limitations on the Company’s federal income taxreturns through 2002 has expired. The Company is currently under audit in theState of New Jersey for income tax years 2001 through 2004. The outcome of thisaudit is not expected to have a material impact on the Company’s results ofoperations or financial position. The statute of limitations on the Company’sNew Jersey income tax returns through 2000 has expired.

**(7)**          CollaborativeAgreements

***(a)****          MerckKGaA*

The following represents an update of the Company’scontractual relationship with Merck KGaA during the quarter ended March 31,2007. For a more detailed description of the Company’s contractual relationship,reference Note 10(a) of the Notes to the Consolidated Financial Statementsincluded in the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2006.

In July 2006,the Company and Merck KGaA entered into agreements amending and supplementingthe 1998 development and license agreement. As part of the agreements, theCompany consented to Merck KGaA’s sublicense of certain intellectual propertyrights relating to the development and commercialization of an anti-EGFRantibody to Takeda Pharmaceutical Company (“Takeda”). Merck KGaA and Takedasigned an alliance in September 2005 for the development andcommercialization of matuzumab (EMD-72000), a humanized EGFR-targetingmonoclonal antibody. In consideration for the Company’s consent, Merck KGaA agreedto pay the Company €2.5 million within 30 daysof the execution of the agreements and a further €5.0 million within 30 daysof the Company’s written consent to the sublicense. The Company received thefirst payment of €2.5million in August 2006 and has deferred the revenue associated with thispayment and is recognizing it over the estimated service period. The Companyexpects to give written consent to sublicense in the second quarter of 2007. Inaddition, Merck KGaA 

10

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

agreed to increase its fixed royalty to 9.5% on netsales of ERBITUX outside the U.S. and Canada, effective July 1, 2006. Theagreements also promote freedom to operate in the development andcommercialization of matuzumab outside the United States and Canada and of IMC-11F8(a fully-human EGFR-targeted IgG1 monoclonal antibody being developed byImClone Systems) within the United States and Canada through the granting ofcertain reciprocal rights, including the sharing of confidential technicalinformation. This is in addition to the exclusive rights held by the Company todevelop and commercialize IMC-11F8 outside of the United States andCanada. The agreements do not extend to key intellectual property rights in theU.S. and Canada, where the Company and its partner BMS continue to holdexclusive licenses to key patents covering certain uses of EGFR-targetedmonoclonal antibodies. The Company has a liability due Merck KGaA ofapproximately $58,000 as of March 31, 2007 and December 31, 2006.

***(b)****           Bristol-MyersSquibb Company*

The following represents an update of the Company’scontractual relationship with BMS during the quarter ended March 31, 2007.For a more detailed description of the Company’s contractual relationship,reference Note 10(b) of the Notes to the Consolidated Financial Statementsincluded in the Company’s Annual Report on Form 10-K for the fiscalyear ended December 31, 2006.

*Development of the Product—**The***Company incurred approximately $3.0 million and $6.9million pursuant to cost sharing agreements with BMS for the three months endedMarch 31, 2007 and 2006, respectively. The Company has also incurred$829,000 and $531,000 for the three months ended March 31, 2007 and 2006,respectively, related to the agreement with respect to development in Japan.

***Stockholder Agreement***

On April 25, 2007, the Company named Andrew R. J.Bonfield, current Chief Financial Officer of BMS, to the Company’s Board ofDirectors. Mr. Bonfield has served as Chief Financial Officer of BMS sinceSeptember 2002.

*Votingof Shares—**During*the period in which BMS hasthe right to nominate up to two BMS directors, BMS and its affiliates arerequired to vote all of their shares in the same proportion as the votes castby all of the Company’s other stockholders with respect to the election orremoval of non-BMS directors.

*Committees of the Board ofDirectors—**During*the period in which BMS hasthe right to nominate up to two BMS directors, BMS also has the right, subjectto certain exceptions and limitations, to have one member of each committee ofthe Board be a BMS director.

11

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

***Collaborative Agreement Tables***

Royaltyrevenue consists of the following: (in thousands)

| ** **             | ** ** | **Three Months   Ended March 31,** | ** ** |
|------------------------|------------|--------------------------------------------------------|------------|
| ** **             | ** ** | **2007**                                               | ** ** | **2006** | ** ** |
| BMS                    |       | $                                                      | 62,455     |   | $ | 53,832 |   |
| Merck KGaA             |       | 13,862                                                 |       | 6,276 |   |
| Other                  |       | 46                                                     |       | 162 |   |
| Total royalty  revenue |       | $                                                      | 76,363     |   | $ | 60,270 |   |

 

Licensefees and milestone revenue consists of the following: (in thousands)

| ** **                                | ** ** | **Three Months  Ended March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| BMS:                                      |       |                                             |       |   |   |
| ERBITUX license fee revenue               |       | $                                                | 29,176     |   | $ | 144,347 |   |
| Merck KGaA:                               |       |                                             |       |   |   |
| ERBITUX license fee revenue               |       | 118                                              |       | 56 |   |
| Total license  fees and milestone revenue |       | $                                                | 29,294     |   | $ | 144,403 |   |

 

Manufacturingrevenue from corporate partners consists of the following: (in thousands)

| ** **                   | ** ** | **Three Months  Ended March 31,** | ** ** |
|------------------------------|------------|--------------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| BMS                          |       | $                                                | 16,458     |   | $ | 16,631 |   |
| Merck KGaA                   |       | —                                           |       | 2,718 |   |
| Total  manufacturing revenue |       | $                                                | 16,458     |   | $ | 19,349 |   |

 

12

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

Collaborativeagreement revenue from partners consists of the following: (in thousands)

| ** **                                    | ** ** | **Three Months  Ended March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| BMS:                                          |       |                                             |       |   |   |
| ERBITUX supplied for clinical trials          |       | $                                                | 2,474      |   | $ | 3,382 |   |
| ERBITUX clinical and regulatory expenses      |       | 3,761                                            |       | 3,369 |   |
| ERBITUX marketing, general and administrative |       | 258                                              |       | 251 |   |
| ERBITUX royalty expenses                      |       | 4,004                                            |       | 6,211 |   |
| Total BMS                                     |       | 10,497                                           |       | 13,213 |   |
| Merck KGaA:                                   |       |                                             |       |   |   |
| ERBITUX supplied for clinical trials          |       | 7,713                                            |       | 5,437 |   |
| ERBITUX marketing, general and administrative |       | 62                                               |       | 63 |   |
| ERBITUX royalty expenses                      |       | 1,113                                            |       | 2,387 |   |
| Total Merck KGaA                              |       | 8,888                                            |       | 7,887 |   |
| Other                                         |       | —                                           |       | 9 |   |
| Total  collaborative agreement revenue        |       | $                                                | 19,385     |   | $ | 21,109 |   |

 

Amountsdue from corporate partners consists of the following: (in thousands)

| ** **                                 | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| BMS:                                       |       |                     |       |                        |       |   |   |   |   |
| ERBITUX                                    |       |                     | $          | 61,483                      |       |   |   | $ | 64,991 |   |   |
| Merck KGaA:                                |       |                     |       |                        |       |   |   |   |   |
| ERBITUX                                    |       |                     | 15,136     |                        |       |   | 13,039 |   |   |
| Total amounts due  from corporate partners |       |                     | $          | 76,619                      |       |   |   | $ | 78,030 |   |   |

 

Deferredrevenue consists of the following: (in thousands)

| ** **                                | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| BMS:                                      |       |                     |       |                        |       |   |   |
| ERBITUX commercial agreement              |       | $                        | 345,040    |                        |       | $ | 374,215 |   |   |
| Merck KGaA:                               |       |                     |       |                        |       |   |   |
| ERBITUX development and license agreement |       | 5,543                    |       |                        | 5,662      |   |   |
| Total deferred revenue                    |       | 350,583                  |       |                        | 379,877    |   |   |
| Less: current  portion                    |       | (134,674                 | )          |                        | (142,013   | ) |   |
| Total long-term  deferred revenue         |       | $                        | 215,909    |                        |       | $ | 237,864 |   |   |

 

13

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

**(8)**          Commitmentsand Contingencies

On October 28, 2003, a complaint was filed byYeda Research and Development Company Ltd. (“Yeda”) against ImCloneSystems and Aventis Pharmaceuticals, Inc. (“Aventis”) in the U.S. DistrictCourt for the Southern District of New York (03 CV 8484). This action did notseek damages, but rather alleged that three individuals associated with Yedashould also be named as co-inventors on U.S. Patent No. 6,217,866, whichrelates to the therapeutic use of EGFR antibodies (such as ERBITUX, the Company’sEGFR antibody product) in combination with chemotherapy. The Company hasexclusively licensed this patent from Rhone-Poulenc Rorer Pharmaceuticals, nowknown as Sanofi-Aventis. On June 7, 2005, Yeda amended its U.S. complaintto seek sole inventorship of the subject patent. On November 4, 2005, theCourt denied the Company’s motion for summary judgment with respect to thismatter, as filed with the Court on June 24, 2005. At the same time, theCourt granted summary judgment to Yeda dismissing two of ImClone’s affirmativedefenses. A bench trial on the merits of Yeda’s complaint was held between June 5,2006 and July 19, 2006. On September 18, 2006, the Court ruled infavor of Yeda by awarding it sole inventorship rights to the patent. TheCompany then appealed the Court’s decision to the Court of Appeals for theFederal Circuit. The appeal was docketed on October 5, 2006 (as No. 2007-1012).On March 16, 2007, the Company submitted its opening brief in the appeal.The Company, having had the advice of its patent counsel, believes thepositions raised on appeal are sound, and it plans to vigorously pursue thisappeal.

On September 20, 2006, subsequent to the Court’sinventorship decision, the Company also filed an action (06 CV 7190) againstYeda in the U.S. District Court for the Southern District of New York seeking adeclaratory judgment that the patent is invalid due to the removal of theoriginally named inventors. On October 31, 2006, Yeda filed an answer andcounterclaim to the Company’s declaratory judgment complaint in which Yedaalleges the Company is liable to Yeda for willful patent infringement, unjustenrichment and conversion, and seeks damages from the Company and an orderrequiring the Company to license the patent and pay Yeda royalties until thepatent expires. The declaratory judgment action is in its early stages. TheCompany, having had the advice of its patent counsel, believes that the claimsasserted in the declaratory judgment action are sound, and that Yeda’scounterclaims are not sound, and it plans to vigorously pursue this action. TheCompany is unable to predict the outcome of these actions at this time. If theCompany’s appeal is unsuccessful and Yeda’s sole inventorship rights to thepatent are upheld and the Company is unsuccessful with respect to itsdeclaratory judgment action, the Company may become obligated to pay Yeda aroyalty and may be liable to Yeda for other damages.

On March 25, 2004, an action was filed in theUnited Kingdom Patent Office entitled Referrer’s Statement requesting transferof co-ownership and amendment of patent EP (UK) 0 667 165 to add three Yedaemployees as inventors. Also on March 25, 2004, a German action entitledLegal Action was filed in the Munich District Court I, Patent LitigationDivision, in which Yeda sought a 75% ownership interest in patent EP (DE) 0 667165 based on its allegation that the inventorship on that patent was incorrect.The Company was not named as a party in these actions which relate to theEuropean equivalent of U.S. Patent No. 6,217,866 discussed above.Accordingly, the Company has intervened in the U.K. and German actions. Yedasought to amend its pleadings in the United Kingdom and Germany to seek soleinventorship and sole ownership. Following hearings, both the U.K. and Germancourts held that Yeda was not entitled to amend its pleadings. In the U.K.,Yeda sought leave from the House of Lords to appeal the High Court’s decision,and such leave was granted in November 2006. In Germany, Yeda has appealedthe lower court’s decision to the Higher Regional Court of Munich.Additionally, on or about March 25, 2005 and March 29, 

14

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

2005, respectively, Yedafiled legal actions in Austria and France against both Aventis and ImCloneSystems seeking full inventorship of EP (AU) 0 667 165 and EP (FR) 0 667 165,as well as payment of legal costs and fees. The Company, having had the adviceof its patent counsel, believes there are sound defenses to these actions, andit presently plans to vigorously defend against the claims asserted. TheCompany is unable to predict the outcome of these actions at this time. Inaddition, in December 2002, Opposition Proceedings seeking to revoke theEuropean patent discussed above were brought by the Scripps Research Institute,Amgen Inc., Abgenix, Inc., and YM Biosciences Inc. An OppositionProceeding is an administrative process, the outcome of which may be that theEuropean patent will be revoked. The Opposition Proceedings are suspendedpending a final determination of the Yeda matter discussed above.

On May 4, 2004, a complaint was filed against theCompany by Massachusetts Institute of Technology (“MIT”) and RepligenCorporation (“Repligen”) in the U.S. District Court for the District ofMassachusetts (04-10884 RGS). This action alleges that ERBITUX infringesU.S. Patent No. 4,663,281, which is owned by MIT and exclusively licensedto Repligen and that the Company should therefore pay damages. On July 28,2006, the Court denied the Company’s motion for summary judgment seeking todismiss all claims on the basis that the patent rights at issue were exhaustedas a matter of law and granted MIT and Repligen’s cross motion that theirpatent rights were not exhausted. On September 26, 2006, a hearing washeld in response to a Motion for Sanctions filed by Repligen, which allegedthat the Company’s counsel, Kenyon & Kenyon, and the Company actedimproperly during and after the deposition of one of Repligen’s potentialwitnesses. Repligen seeks evidentiary sanctions which may limit the Company’sproofs on non-infringement issues, and the Court has raised the possibilitythat Kenyon & Kenyon may be disqualified from further representationof the Company in the case. The Company and Kenyon & Kenyon deny anyimproper conduct. The Court has not ruled on the motion, and it is not possibleto predict what impact, if any, this collateral matter may have in the case.Upon a ruling by the Court, the case will proceed to trial on the merits of theCompany’s other defenses. The Company, having had the advice of its patentcounsel, believes that its defenses are sound, and it presently plans tovigorously defend against the claims asserted

On February 5, 2007, a complaint was filedagainst the Company by Abbott Laboratories (“Abbott”) in the U.S. DistrictCourt for the District of Massachusetts (07-cv-10216). This actionalleges that the manufacture and sale of ERBITUX infringes U.S. Patent No. 5,665,578,which is owned by Abbott and that the Company should therefore pay damages. On April 24,2007, the Company filed an answer to this complaint denying all claims. TheCompany, having had the advice of its patent counsel, believes that itsdefenses are sound, and it presently plans to vigorously defend against theclaims asserted. The Company is unable to predict the outcome of this action atthe present time.

No reserve has been established in the financialstatements for any of the intellectual property-related legal proceedingsdescribed above because the Company does not believe that such a reserve isrequired to be established at this time under Statement of Financial AccountingStandards No. 5. However, if in a future period, events in any such legalproceedings render it probable that a loss will be incurred and if such loss isreasonably estimable at that time, the Company will establish such a reserve.Thus, it is possible that legal proceedings and settlements arising therefrom,if any, may have a material adverse impact on operating results for thatperiod, on our balance sheet or both.

In October 2001, theCompany entered into a sublease (the “Sublease”) for a four-story building at325 Spring Street, New York, New York, which includes approximately 100,000square feet of usable 

15

----

**IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (UNAUDITED)**

space.The Sublease has a term of 22 years, followed by two five-year renewal optionperiods. In order to induce the sublandlord to enter into the Sublease, theCompany made a loan to the sublandlord in the principal amount of a $10.0million note receivable, of which $8.2 million is outstanding as of March 31,2007. The loan is secured by a leasehold mortgage on the prime lease as well asa collateral assignment of rents by the sublandlord. The loan is payable by thesublandlord over 20 years and bears interest at 51¤2% in years onethrough five, 61¤2%in years six through ten, 71¤2%in years eleven through fifteen and 81¤2%in years sixteen through twenty. In addition, the Company paid the owner aconsent fee in the amount of $500,000. Effective March 1, 2005, theCompany amended the Sublease to add an additional 6,500 square feet of spaceupon all the same terms and conditions set forth in the Sublease. In connectionwith this amendment, the Company paid an up-front fee of $1.7 million which isbeing amortized to lease expense over the respective term of the Sublease. Thefuture minimum lease payments remaining at March 31, 2007, areapproximately $45.9 million.

**(9)**          EmployeeBenefit Plans

***Defined Contribution Plan***

All employees of theCompany who meet certain minimum age and period of service requirements areeligible to participate in a 401(k) defined contribution plan. The 401(k) planallows eligible employees to defer up to 25 percent of their annualcompensation, subject to certain limitations imposed by federal law. Theamounts contributed by employees are immediately vested and non-forfeitable.Under the 401(k) plan, the Company, at management’s discretion,may match employee contributions and/or make discretionary contributions.Neither the employee contributions nor voluntary matching contributions areinvested in the Company’s securities. Total expense incurred by the Company was$646,000 and $681,000 for the three months ended March 31, 2007 and 2006,respectively.

**(10) Long-term Debt**

The Company’s long-term debt was $600.0 million at March31, 2007 and December 31, 2006. For a more detailed description of theCompany’s long-term debt, reference Note 8 to the Notes to theConsolidated Financial Statements included in the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006.

Under the Registration Rights Agreement for theseconvertible notes, the Company could be subject to liquidated damages if theeffectiveness of the registration statement covering the convertible debt isnot maintained at any time prior to the redemption of the convertible notes,the repayment of the convertible notes, or certain corporate events as definedin the convertible note agreement. The Company believes the likelihood of suchan event occurring is remote and, as such we have not recorded a liability asof March 31, 2007. In the unlikely event that it becomes probable that we wouldhave to pay liquidated damages under the Registration Rights Agreement, until ashelf registration statement covering the convertible debt is again effective,the potential liquidated damages would be 0.25% of the outstanding amount ofnotes for the first 90 days and 0.50% of the outstanding amount of notesthereafter. Such damages (i) would accrue only with respect to the shares ofthe Company’s common stock that were not already sold by the holder (using theregistration statement or pursuant to SEC Rule 144) and that were not eligiblefor sale without a registration statement; (ii) would accrue only over theperiod during which the registration statement was not effective; and (iii)would be settled in cash in accordance with the terms of the RegistrationRights Agreement.

16

----

**ITEM2.**                *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

The following discussionand analysis is provided to further the reader’s understanding of theconsolidated financial statements, financial condition and results ofoperations of ImClone Systems in this Quarterly Report on Form 10-Q.This discussion should be read in conjunction with the consolidated financialstatements and the accompanying notes included in our filings with the SEC,including our 2006 Annual Report on Form 10-K. This discussioncontains forward-looking statements based upon current expectations thatinvolve risk and uncertainties. Our actual results and the timing of certainevents could differ materially from those anticipated in these forward-lookingstatements as a result of certain factors, including those set forth below andunder “Risk Factors” set forth in Part II- Item 1A and elsewhere in our2006 Annual Report on Form 10-K.

**OVERVIEW**

ImClone Systems is a biopharmaceutical company whosemission is to advance oncology care by developing and commercializing aportfolio of targeted treatments designed to address the medical needs ofpatients with cancer. Our commercially available product, ERBITUX® (cetuximab)binds specifically to epidermal growth factor receptor (EGFR, HER1, c-ErbB-1)on both normal and tumor cells, and competitively inhibits the binding ofepidermal growth factor (EGF) and other ligands, such as transforming growthfactor-alpha. We are conducting, and in some cases have completed, clinicalstudies evaluating ERBITUX for broader use in colorectal cancer, for thepotential treatment of lung and pancreatic cancers, as well as other potentialindications.

On February 12, 2004, the United States Food andDrug Administration (“FDA”) approved ERBITUX for use in combination withirinotecan in the treatment of patients with EGFR-expressing, metastaticcolorectal cancer who are refractory to irinotecan-based chemotherapy and foruse as a single agent in the treatment of patients with EGFR-expressing,metastatic colorectal cancer who are intolerant to irinotecan-basedchemotherapy. In September 2005, Health Canada approved the use of ERBITUXfor use in combination with irinotecan for the treatment of EGFR-expressingmetastatic colorectal carcinoma in patients who are refractory to otheririnotecan-based chemotherapy regimens and for use as a single agent for thetreatment of EGFR-expressing, metastatic colorectal carcinoma in patients whoare intolerant to irinotecan-based chemotherapy. On March 1, 2006, the FDAapproved ERBITUX for use in combination with radiation therapy for thetreatment of locally or regionally advanced squamous cell carcinoma of the headand neck (“SCCHN”) and as a single agent in recurrent or metastatic SCCHN whereprior platinum-based chemotherapy has failed. Please see full prescribinginformation, available at www.ERBITUX.com, for important safety informationrelating to ERBITUX, including boxed warnings.

On December 1, 2003, Swissmedic, the Swiss agencyfor therapeutic products, approved ERBITUX in Switzerland for the treatment ofpatients with colorectal cancer who no longer respond to standard chemotherapytreatment with irinotecan. Merck KGaA licensed the right to market ERBITUXoutside the United States and Canada from the Company in 1998. In Japan, MerckKGaA has marketing rights to ERBITUX, which are co-exclusive to theco-development rights of the Company and Bristol-Myers Squibb (“BMS”). On June 30,2004, Merck KGaA received marketing approval by the European Commission to sellERBITUX for use in combination with irinotecan for the treatment of patientswith EGFR-expressing metastatic colorectal cancer after failure of irinotecanincluding cytotoxic therapy. On December 22, 2005, Swissmedic approvedERBITUX in Switzerland in combination with radiation in the treatment ofpatients with previously untreated, advanced SCCHN. On April 3, 2006,Merck KGaA was granted marketing authorization by the European Commission toextend the use of ERBITUX, in combination with radiotherapy, to the treatmentof patients with locally advanced SCCHN. In February 2007, an applicationwas submitted with the Japanese Pharmaceuticals and Medical Devices Agency forthe use of ERBITUX in treating patients with advanced colorectal cancer.ERBITUX is the first IgG1 monoclonal antibody that inhibits EGFR to besubmitted for marketing authorization in Japan.

17

----

Our revenues, aswell as our results of operations, have fluctuated and are expected to continueto fluctuate significantly from period to period due to several factors,including but not limited to:

·       theamount and timing of revenues earned from commercial sales of ERBITUX;

·       thetiming of recognition of license fees and milestone revenues;

·       thestatus of development of our various product candidates;

·       whetheror not we achieve specified research or commercialization objectives;

·       anybusiness development transactions;

·       fluctuationsin our effective tax rate and timing on when we may revise our conclusionsregarding the realization of our net deferred tax assets, which currently havea partial valuation allowance;

·       legalcosts and the outcome of outstanding legal proceedings; and

·       theaddition or termination of research programs or funding support and variationsin the level of expenses related to our proprietary product candidates duringany given period.

As a result of oursubstantial investment in research and development, we have incurredsignificant operating losses and have an accumulated deficit of approximately$41.5 million as of March 31, 2007. We anticipate that our accumulateddeficit may continue to decrease in the future as we earn revenues oncommercial sales of ERBITUX and generate net income. There is no assurance thatwe will be able to continue to successfully manufacture, market orcommercialize ERBITUX or that potential customers will buy ERBITUX. We relyentirely on third-party manufacturers for filling and finishing services withrespect to ERBITUX. If our current third-party manufacturers or critical rawmaterial suppliers fail to meet our expectations, we cannot be assured that wewill be able to enter into new agreements with other suppliers or third-partymanufacturers without an adverse effect on our business.

**HIGHLIGHTS ANDOUTLOOK**

A great deal of activity is taking place at ImCloneand we expect that the level of activity will increase.

Our strategic focus consists of three key elements: (i) tomaximize ERBITUX through insuring excellent commercialization and full clinicaldevelopment, (ii) to develop our pipeline as aggressively as possiblewhile considering some select partnering opportunities, and (iii) toinvest in other key growth areas such as research and manufacturing. Inaddition, we are dedicated to addressing a number of specific issues at theCompany including our BMS relationship, the search for a chief executiveofficer, ongoing litigation, and cutting costs and improving operationalefficiency. In the last quarter, significant progress has been made in each ofthese areas.

The first quarter of 2007 has been marked by severaldecisions and milestones. We believe that the entirety of clinical data on EGFRantibodies that was released by the Company over the past few monthsestablishes ERBITUX’s position as a drug with major clinical importance. Also,we were excited that two of the three trials that the American Association ofCancer Research chose to highlight at their annual meeting were ImClone trials.Importantly, we recently received FDA approval for use of ERBITUX in anadditional dose configuration—the 100 mg vial - giving customers greaterflexibility and convenience in drug preparation. In addition, in April 2007 wesubmitted a supplemental Biologics License Application (“sBLA”) seeking theapproval of our manufacturing facility, BB50, as a second manufacturing sourcefor ERBITUX.

With respect to our operating expenses, our goal is tocontinue to manage expenditures aggressively in areas where we can generateeconomies of scale and redirect our investment to areas that we believe willderive long-term benefit to our shareholders. Our primary emphases are tocontinue to invest in the 

18

----

development of ERBITUX, toactively develop our pipeline candidates and to strategically invest in ourability to reach our customer base.

With respect to our infrastructure, in the firstquarter of this year we concluded that it would not be cost effective for us todevelop the Spring Street facility in Manhattan as the headquarters for ourresearch organization. As a result, we have expensed approximately $3.2 millionof fixed assets related to this facility, in the first quarter of this year. Thiswrite-off is included in Research and Development expenses.

We are also making significant investments in ourcommercial and clinical capabilities. From a commercial perspective, in thefirst quarter of 2007 we made the strategic decision to expand our field force.Specifically, we added 27 oncology sales professionals to our existing 37 tomake a total salesforce size of 64. With this increase in our sales force, itwill now be possible for us to reach almost all prescribing medicaloncologists, as well as those who influence the decision to use ERBITUX forapproved indications. This expansion is currently underway and we expect tohave the new organization fully trained and mobilized before the end of June 2007.We believe this expansion will generate a significant return for ERBITUX. Froma clinical perspective, we have been spending considerable resources to expandand strengthen our Clinical Development, Medical Affairs, and Regulatorydepartments to accomplish several goals. First, we are developing coherentregulatory strategies to expand on ERBITUX’s current indications and to enablecompendia listings. Secondly, we are developing a series of randomized,multicenter trials to quantify relevant activity with ERBITUX in other tumortypes such as cancers of the rectum, bladder, prostate, esophagus, stomach, andothers, as well as evaluating ERBITUX on less frequent dosing schedules.

We are enthusiastic aboutImClone and are encouraged by the positive changes and the progress that hasbeen made thus far in the areas noted above.

**CRITICAL ACCOUNTINGPOLICIES**

The preparation of financial statements in conformitywith U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting period. We base our estimates on historical experience andon assumptions that we believe to be reasonable under the circumstances.Estimates are deemed critical when a different methodology could havereasonably been used or where changes in the estimate from period to periodmay have a material impact on our financial condition or results ofoperations. Our critical accounting policies that require management to makesignificant judgments, estimates, and assumptions are set forth below. Thedevelopment and selection of the critical accounting policies, and the relateddisclosure below, have been reviewed with the Audit Committee of our Board ofDirectors.

*RevenueRecognition—**Our***revenuesare derived from four primary sources: license fees and milestone payments,manufacturing revenue, royalty revenue, and collaborative agreement revenue.

Revenues from license fees and milestone paymentsprimarily consist of up-front license fees and milestone payments receivedunder the Commercial Agreement with BMS, relating to ERBITUX, and milestonepayments received under the development and license agreement with Merck KGaA.We recognize all non-refundable up-front license fees as revenues in accordancewith the guidance provided in the SEC’s Staff Accounting Bulletin No. 104.Our most critical application of this policy, to date, relates to the $900.0million in license fees received from BMS under the Commercial Agreement whichare being deferred and recognized as revenue based upon the actual productclinical and development costs incurred since September 19, 2001 to dateby BMS and ImClone as a percentage of the estimated total of such costs to beincurred over the 17-year term of the Commercial Agreement. The estimatedtotal of such costs is based on the clinical development budget whichestablishes joint responsibilities that will be carried out by 

19

----

both the Company and BMSfor certain clinical and other studies. Of the $900.0 million in paymentsreceived to date, $29.2 million was recognized as revenue in the first quarterof 2007 and $555.0 million from the commencement of the Commercial Agreement in2001 through March 31, 2007. The methodology used to recognize deferredrevenue involves a number of estimates and judgments, such as the estimate oftotal product clinical and development costs to be incurred under theCommercial Agreement. Changes in these estimates and judgments can have asignificant effect on the size and timing of revenue recognition. In addition,if management had chosen a different methodology to recognize the license feeand milestone payments received under the Commercial Agreement, the Company’sfinancial position and results of operations could have differed materially.For example, if the Company were to recognize the revenues earned from theCommercial Agreement on a straight-line basis over the life of the agreement,the Company would have recognized approximately $16.0 million and $205.2million as revenue in the first quarter of 2007 and from the commencement of theCommercial Agreement, respectively, through March 31, 2007. Managementbelieves that the current methodology used to recognize revenues under theCommercial Agreement, which reflects the level of effort consistent with theproduct development activities, is the most appropriate methodology because itreflects the level of expenditure and activity in the period in which it isbeing spent as compared to the total expected expenditure over the life of theCommercial Agreement. This cost to cost approach is systematic and rational, itprovides a factually supportable pattern to track progress, and is reflectiveof the level of effort, which varies over time.

Non-refundable upfront payments received from MerckKGaA were deferred due to our significant continuing involvement and are beingrecognized as revenue on a straight-line basis over the estimated serviceperiod because the activities specified in the agreement between the Companyand Merck KGaA will be performed over the estimated service period and there isno other pattern or circumstances that indicate a different way in which therevenue is earned. In addition, the development and license agreement withMerck KGaA does not contain any provisions for establishing a clinical budgetand none has been established between the parties. This agreement does not callfor co-development with the Company in Merck KGaA’s territory; rather MerckKGaA is solely responsible for regulatory efforts in its territory.Non-refundable milestone payments, which represent the achievement of asignificant step in the research and development process, pursuant tocollaborative agreements other than the Commercial Agreement, are recognized asrevenue upon the achievement of the specified milestone. This is because eachmilestone payment represents the achievement of a substantive step in theresearch and development process and Merck KGaA has the right to evaluate thetechnology to decide whether to continue with the research and developmentprogram as each milestone is reached.

Manufacturing revenue consists of revenue earned onthe sale of ERBITUX to our corporate partners for subsequent commercial sale.The Company recognizes manufacturing revenue when the product is shipped, whichis when our partners take ownership and title has passed, collectibility isreasonably assured, the sales price is fixed or determinable, and there ispersuasive evidence of an arrangement. We are contractually obligated to sellERBITUX to BMS at our cost of production plus a 10% markup on bulk. We sellbulk inventory to Merck KGaA at our full absorption cost of production. Thecontinuing level of manufacturing revenue in future periods may fluctuatesignificantly based on market demand, our cost of production, as well as BMS’srequired level of safety stock inventory for ERBITUX and whether Merck KGaAcontinues to order ERBITUX for commercial use.

Royalty revenues from licensees, which are based onthird-party sales of licensed products and technology, are recorded as earnedin accordance with contract terms when third-party sales can be reliablymeasured and collection of funds is reasonably assured.

Collaborative agreement revenue consists ofreimbursements received from BMS and Merck KGaA related to clinical andregulatory studies, ERBITUX provided to them for use in clinical studies,reimbursement of a portion of royalty expense and certain marketing andadministrative costs. 

20

----

Collaborative agreementrevenue is recorded as earned based on the performance requirements under therespective contracts.

*Inventories—*Ourpolicy is to capitalize inventory costs associated with our products when,based on management’s judgment, future economic benefit is expected to berealized. Our accounting policy addresses the attributes that should beconsidered in evaluating whether the costs to manufacture a product have metthe definition of an asset as stipulated in FASB Concepts Statement No. 6.If applicable, we assess the regulatory and approval process including anyknown constraints and impediments to approval. We also consider the shelf-lifeof the product in relation to the expected timeline for approval. We review ourinventory for excess or obsolete inventory and write down obsolete or otherwiseunmarketable inventory to its estimated net realizable value.

In June 2006, we began producing ERBITUX forcommercial use at our BB50 manufacturing facility. We filed a sBLA with the FDAfor approval of our BB50 facility in April 2007. Until such time as wereceive approval of BB50 from the FDA, we will not be able to sell the ERBITUXinventory produced in BB50. Based on management’s current expectations, weexpect that the costs of such inventory will be fully realizable once we obtainapproval of BB50. Therefore, in June 2006 we began to capitalize the costsof producing ERBITUX in BB50 and will continue to do so, as long as we canconclude that the costs of such inventory will be fully realizable. As of March 31,2007, we have capitalized approximately $40.0 million of inventory produced inBB50.

*Litigation—**The*Company iscurrently involved in certain legal proceedings more fully described under Part II—Item1—“Legal Proceedings” and as disclosed in the notes to the consolidatedfinancial statements. As of March 31, 2007, we have not established alegal reserve in our financial statements because we do not believe that such areserve is required to be established at this time, in accordance withStatement of Financial Standards No. 5. However, if in a future period,events in any such legal proceedings render it probable that a loss will beincurred, and if such loss is reasonably estimable at that time, we willestablish such a reserve. Thus, it is possible that legal proceedings andsettlements arising therefrom, if any, may have a material adverse impacton the operating results for that period, on our balance sheet or both.

*Long-Lived Assets—**We*review long-livedassets for impairment when events or changes in business conditions indicatethat their full carrying value may not be recovered. Assets are consideredto be impaired and written down to fair value if expected associatedundiscounted cash flows are less than carrying amounts. Fair value is generallydetermined as the present value of the expected associated cash flows. We own anumber of buildings that are primarily dedicated to the manufacturing ofERBITUX and other clinical products in our pipeline. Based on management’scurrent estimates, we expect to recover the carrying value of such assets.Changes in regulatory or other business conditions in the future could changeour judgments about the carrying value of these facilities, which could resultin the recognition of material impairment losses.

*IncomeTaxes—**Income*taxes are accounted forunder the asset and liability method. Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases and operating loss and tax credit carryforwards.Significant estimates are required in determining our provision for incometaxes. In 2006, we released a portion of our valuation allowance against ourdeferred tax assets. This partial release was based on revised expectations ofour projected book and taxable income which caused us to conclude that it ismore likely than not that a portion of the benefits of these deferred taxeswould be realized. The financial projections supporting our conclusion torelease a portion of our valuation allowance contain significant assumptionsbased on current facts about our market share and our competitive landscape. Ifsuch assumptions were to differ significantly, it may have a materialimpact on our ability to realize our deferred tax assets. We will continue tomonitor our current performance and 

21

----

future financialprojections, including market share and competitive landscape, in order todetermine the effect on the valuation allowance.

**Impact of RecentAccounting Pronouncements**

In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards(SFAS) No. 157, “Accounting for Fair Value Measurements” (“SFAS 157”). SFAS157 defines fair value, and establishes a framework for measuring fair value inaccordance with accounting principles generally accepted in the United Statesof America, and expands disclosure about fair value measurements. SFAS 157 iseffective for fiscal years beginning after November 15, 2007. The Companyis currently evaluating the requirements of SFAS 157.

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (“SFAS 159”). SFAS 159 permits the measurement ofcertain financial instruments and certain other items at fair value. Entitiesmay choose to measure eligible items at fair value at specified election dates,reporting unrealized gains and losses on such items at each subsequentreporting period. SFAS 159 is effective for fiscal years beginning after November 15,2007. The Company is currently evaluating the requirements of SFAS 159.

**RESULTS OFOPERATIONS**

Selectedfinancial and operating data for the three months ended March 31, 2007 and2006 are as follows: (in thousands)

| ** **                             | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                             | ** ** | **2007**                                         | ** ** | **2006**   | ** ** | **Variance** | ** ** |
| **Results of Operations:**             | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Royalty revenue                        |       | $                                                | 76,363     |       | $          | 60,270 |   | $ | 16,093 |   |
| License fees and  milestone revenue    |       | 29,294                                           |       | 144,403    |       | (115,109 | ) |
| Manufacturing  revenue                 |       | 16,458                                           |       | 19,349     |       | (2,891 | ) |
| Collaborative  agreement revenue       |       | 19,385                                           |       | 21,109     |       | (1,724 | ) |
| Total revenues                         |       | 141,500                                          |       | 245,131    |       | (103,631 | ) |
| Research and  development              |       | 34,875                                           |       | 32,993     |       | 1,882 |   |
| Clinical and  regulatory               |       | 13,808                                           |       | 15,081     |       | (1,273 | ) |
| Marketing,  general and administrative |       | 15,359                                           |       | 18,001     |       | (2,642 | ) |
| Royalty expense                        |       | 16,786                                           |       | 20,066     |       | (3,280 | ) |
| Cost of manufacturing  revenue         |       | 13,855                                           |       | 15,402     |       | (1,547 | ) |
| Total operating expenses               |       | 94,683                                           |       | 101,543    |       | (6,860 | ) |
| Operating income                       |       | $                                                | 46,817     |       | $          | 143,588 |   | $ | (96,771 | ) |

 

***Three Months Ended March 31, 2007 and 2006***

**Revenues**

**Royalty Revenue**

Royalty revenues consist primarily of royalty paymentsearned on the sales of ERBITUX by our partners, BMS and Merck KGaA. Under ouragreement with BMS, we are entitled to royalty payments equal to 39% of BMS’snet sales of ERBITUX in the United States and Canada. Under our agreement withMerck KGaA, we were previously entitled to royalty payments based on apercentage of gross margin of Merck KGaA’s sales of ERBITUX outside the UnitedStates and Canada. Beginning in July 2006, we are entitled to 9.5% ofMerck KGaA’s net sales outside of the United States and Canada.

22

----

In the first quarter of 2007, our royalty revenueincreased by approximately $16.1 million, or 27%, from the comparable period in2006 due to an increase in net sales of ERBITUX. In North America, in-marketnet sales by BMS in the first quarter of 2007 amounted to $160.1 million, anincrease of $22.1 million, or 16%. Outside of North America, in-market netsales of ERBITUX by Merck KGaA in the first quarter of 2007 amounted toapproximately $145.9 million, an increase of $56.1 million, or 62%, from the comparableperiod in 2006.

Royalty revenue in 2007will continue to reflect 39% of BMS’ net sales and 9.5% of Merck KGaA’s netsales.

**License Fees andMilestone Revenue**

License fees and milestone revenues consist of therecognition of up-front license fees and milestone payments received under theCommercial Agreement with BMS and recognition of payments received under thedevelopment and license agreements with Merck KGaA. In the first quarter of2007, total license fee and milestone revenue consisted of approximately $29.2million earned from BMS and $118,000 from Merck KGaA, as compared to the sameperiod on 2006 in which approximately $144.3 million was earned from BMS and$56,000 was earned from Merck KGaA.

The decrease of $115.1 million, or 80%, from the comparableperiod in 2006 is mainly due to the fact that in March 2006 we received thelast milestone payment from BMS of $250.0 million, as a result of obtainingapproval from the FDA for ERBITUX in the head and neck indication. The firstquarter milestone revenue in 2006 contained a “catch-up” adjustment ofapproximately $112.7 million related to the actual product research anddevelopment costs incurred from inception through December 31, 2005 as apercentage of the estimated total costs to be incurred over the term of theCommercial Agreement.

We have updated ourguidance on milestone revenues based on the most recent clinical budget for2007 and we expect that milestone revenues will range between $115 million and$135 million.

**Manufacturing Revenue**

Manufacturing revenues consist of sales of ERBITUX toour corporate partners for commercial use. In accordance with the CommercialAgreement, we are contractually obligated to sell ERBITUX to BMS at our cost ofproduction plus a 10% markup. We sell bulk inventory to Merck KGaA at our fullabsorption cost of production.

During the first quarterof 2007, volume purchases from BMS increased by 23% over the comparable periodin 2006. The decrease in revenue is due to efficiencies in the manufacturingprocess of ERBITUX resulting in a decrease in the price we charge our partnersfor ERBITUX. In addition, there were no purchases of commercial product fromMerck KGaA in the first quarter 2007 while there was $2.7 million of purchasesfrom Merck KGaA in the first quarter of 2006.

**CollaborativeAgreement Revenue**

Collaborative agreement revenue consists primarily ofreimbursements from our partners BMS and Merck KGaA under our collaborativeagreements. There are certain categories for which we receive reimbursement fromour partners: the cost of ERBITUX supplied to our partners for use in clinicalstudies, clinical and regulatory expenses, certain marketing and administrativeexpenses, and a portion of royalty expense. During the first quarter of 2007,we earned approximately $19.4 million in collaborative agreement revenues, ofwhich approximately $10.5 million was earned from BMS and $8.9 million wasearned from Merck KGaA, as compared to $21.1 million earned in the comparableperiod in 2006, of which approximately $13.2 million was earned from BMS and$7.9 million was earned from Merck KGaA.

23

----

The decrease from thecomparable period of $1.7 million, or 8%, is principally due to decreases inreimbursement for royalty expenses of $3.5 million primarily as a result of thefact that starting in the first quarter of 2007 the reimbursement rate from BMSfor third party royalty expense decreased from 4.5% to 2.5% based on ourcontractual agreement, partly offset by increases in the reimbursement ofclinical drugs of approximately $1.4 million and clinical and regulatoryexpenses of approximately $392,000 as compared to the same period in 2006.

**Expenses**

**Research andDevelopment**

Research and development expenses include costsassociated with our in-house research programs, product and process developmentexpenses, cost to manufacture our product candidates for clinical studies,quality assurance and quality control infrastructure and costs of ERBITUXsupplied to our corporate partners, BMS and Merck KGaA, for use in clinical studies.Research and development expenses also include our cost of inventory that issupplied to our partners for use in clinical studies that are reimbursable fromour corporate partners. As a result, approximately $10.2 million and $8.8million of costs representing research and development expenses in the firstquarters of 2007 and 2006, respectively, were reimbursable and included undercollaborative agreement revenue since they represent inventory supplied to ourpartners for use in clinical studies.

The increase from thecomparable period of $1.9 million, or 6%, is primarily due to an increase inshipments of ERBITUX sold to our partners for clinical studies of approximately$4.0 million, the write-off of previously capitalized costs associated withthe development of our Spring Street location of approximately $3.2 million,and approximately $1.3 million of additional depreciation expense due to thefact that we began to depreciate BB50 in June of 2006. These increaseswere partially offset by decreased costs for third-party clinical manufacturingof $2.2 million, $2.0 million related to reduced headcount and reductions invarious other categories as a result of cost saving initiatives.

**Clinical andRegulatory**

Clinical and regulatory expenses consist of costs toconduct our clinical studies and associated regulatory activities. Clinical andregulatory expenses also include certain amounts that are reimbursable from ourcorporate partners. As a result, approximately $3.8 million and $3.4 million ofthe costs included in this category for the first quarters of 2007 and 2006,respectively, are reflected as revenues under collaborative agreement revenuesince they represent costs that are reimbursable by our corporate partners.

Clinical and regulatoryexpenses in the first quarter of 2007 amounted to $13.8 million, adecrease of $1.3 million or 8% from the comparable period in 2006. The decreaseis primarily due to a $3.9 million cost sharing liability due BMS, recorded inthe first quarter of 2006, for ERBITUX clinical development costs in excess ofthe annual clinical budget. We do not have an obligation to reimburse BMS forclinical development costs in excess of the 2007 annual clinical budget. This decreasewas partially offset by increased clinical trial expenses associated withERBITUX and the Company’s pipeline products.

**Marketing, Generaland Administrative**

Marketing, general and administrative expenses includemarketing and administrative personnel costs, including related facility costs,additional costs to develop internal marketing and field operationscapabilities and expenses associated with applying for patent protection forour technology and products. Marketing, general and administrative expensesalso include amounts reimbursable from our corporate partners. As a result,approximately $320,000 and $314,000 of costs representing marketing and general

24

----

expenses in the firstquarters of 2007 and 2006, respectively, were reimbursable and included incollaborative agreement revenue.

Marketing, general and administrative expenses in thefirst quarter of 2007 amounted to $15.4 million, a decrease of $2.6 million, or15%, from the comparable period in 2006. Expenses in this category havedecreased from the comparable period in 2006, mainly due to reduced headcount,which resulted in reduced salaries and benefits of $2.5 million, including$953,000 less stock-based compensation costs.

In the first quarter of2007, we made the strategic decision to expand our field force. Specifically,we added 27 oncology sales professionals to our existing 37 to make a totalsalesforce size of 64. With this increase in our sales force it will now bepossible for us to reach almost all prescribing medical oncologists, as well asthose who influence the decision to use ERBITUX for approved indications. This expansion is currently underway and weexpect to have the new organization fully trained and mobilized before the endof June 2007. We believe this expansion will generate a significant returnfor ERBITUX. Our decision to increase our field force will result inincremental expenses in 2007. The incremental investment in our field force,offset by our continued commitment to control other administrative expensesthroughout the organization, is expected to result in an overall slightincrease from 2006 in Marketing, general and administrative expenses.

**Royalty Expense**

Royalty expense consists of obligations related tocertain licensing agreements related to ERBITUX. We are obligated to payroyalties of approximately 9.25% of North American net sales and a lowsingle-digit royalty on net sales outside of North America, which will increaseif net sales outside of North America consist of ERBITUX produced in the UnitedStates. In 2007, we received reimbursements from our corporate partners of 2.5%on North American net sales and a single-digit percentage on net sales outsideof North America, which is reflected in collaborative agreement revenue. As aresult, approximately $5.1 million and $8.6 million of royaltyexpense was reimbursable by our corporate partners and included ascollaborative agreement revenue in the first quarters of 2007 and 2006,respectively.

In the first quarter of2007, we incurred royalty expense of $16.8 million as compared to $20.1million, a decrease of $3.3 million, or 16% from the comparable period in2006. This decrease is primarily due to the fact that in the first quarter of2006, we paid royalties of approximately 12.25% of North American net sales andeffective in the second quarter of 2006, our obligation, as noted abovedecreased by 3%.

**Cost ofManufacturing Revenue**

We sell ERBITUX to BMS at our costs of production plusa 10% mark-up on bulk and to Merck KGaA at our cost of production. Therefore,depending on certain circumstances, such as the mix of demand from our partnersand the costs of filling and finishing ERBITUX bulk (for which we do not chargea 10% markup when selling to BMS), we expect that our gross margins on sales ofERBITUX may fluctuate from quarter to quarter.

Cost of manufacturingrevenue in the first quarter of 2007 amounted to $13.9 million representing agross margin of approximately 16% compared to costs of manufacturing revenue inthe comparable period of 2006 of approximately $15.4 million, or a gross marginof 20%.

**Interest Income andInterest Expense**

Interest income in the first quarter of 2007 amountedto $12.5 million, an increase of approximately $5.4 million or 75% fromthe comparable period in 2006. This increase is attributable to increases ininterest rates and higher average balance of our investment portfolio from thecomparable period in 2006 due primarily to the receipt of a $250 millionmilestone payment from BMS on March 31, 2006.

25

----

Interest expense in thefirst quarter of 2007 amounted to $3.0 million, an increase of $1.5 million or103% from the comparable period in 2006. The increase is due to the fact thatwe finalized construction of our BB50 manufacturing facility in May 2006,and therefore, ceased capitalizing interest on the construction of this facilityat that time.

**Provision forIncome Taxes**

The Company’s estimatedannual effective operating income tax rate for 2007 is approximately 41%.Additionally, during the first quarter of 2007 the Company recognized adiscrete charge of approximately $4.5 million related to certain tax returnmethod changes filed as well as certain deferred tax charges.

**Net Income**

We had net income of $28.8million or $0.34 per basic common share and $0.33 per diluted common share forthe first quarter of 2007, compared with net income of $229.6 million or $2.75per basic common share and $2.51 per diluted common share for the comparableperiod in 2006. The fluctuation in results was due to the factors noted above.

**LIQUIDITY ANDCAPITAL RESOURCES**

At March 31, 2007,our principal sources of liquidity consisted of cash and cash equivalents andsecurities available for sale of approximately $1.1 billion. Historically,we have financed our operations through a variety of sources, mostsignificantly through the issuance of public and private equity and convertiblenotes, license fees and milestone payments and reimbursements from ourcorporate partners. Since the approval of ERBITUX on February 12, 2004, webegan to generate royalty revenue and manufacturing revenue from the commercialsale of ERBITUX by our corporate partners and we have generated income fromoperations since 2004. As we continue to generate income, our cash flows fromoperating activities are expected to increase as a source to fund ouroperations. Therefore, we anticipate that our future financial condition andour future operating performance will continue to experience significantchanges and that past performance will not likely be indicative of our futureperformance.

**SUMMARY OF CASH FLOWS**

| ** **                                 | ** ** | **Three Month ended** | ** ** | ** **               | ** ** |
|--------------------------------------------|------------|---------------------------------|------------|--------------------------|------------|
| ** **                                 | ** ** | **March 31,  2007**        | ** ** | **March 31,  2006** | ** ** | **Variance** | ** ** |
| Cash provided by (used  in):               |       |                            |       |                     |       |   |   |
| Operating activities                       |       | $                               | 13,748     |                     | $          | 209,601 |   | $ | (195,853 | ) |
| Investing activities                       |       | (25,117                         | )          | 20,388                   |       | (45,505 | ) |
| Financing activities                       |       | 13,722                          |       | 42,469                   |       | (28,747 | ) |
| Net increase in  cash and cash equivalents |       | $                               | 2,353      |                     | $          | 272,458 |   | $ | (270,105 | ) |

 

Historically our cash flows from operating activitieshave fluctuated significantly due to the nature of our operations and thetiming of our cash receipts. During the first quarter of 2007, we generatedapproximately $13.7 million in cash from operating activities, as compared to$209.6 million in the comparable period of 2006. The decrease in operating cashflows in the first quarter of 2007 is primarily due to the receipt of $250.0million milestone payment from our corporate partner BMS in March 2006, asa result of obtaining approval from the FDA for ERBITUX in a second indication.

Our primary sources and uses of cash under investingactivities consist of purchases and sales activity in our investment portfolio,which we manage based on our liquidity needs, possible business developmenttransactions and amounts used for capital expenditures. During the firstquarter of 2007, we used net cash from investing activities of $25.1 millioncomprised of approximately $3.1 million in acquisition of fixed 

26

----

assets, offset by netpurchases of additional securities in our investment portfolio of $22.0 million.Since we generated positive cash flows from operating activities during thefirst quarter of 2007, we invested the excess cash in our investment portfolio.

Net cash flows generated in financing activities in2007 were approximately $13.7 million, of which approximately $6.7 million ofproceeds were generated from the exercise of stock options and sales under theCompany’s employee stock purchase plan and $7.0 million was generated from taxbenefits associated with equity net operating losses that will be taken as areduction on our tax returns. In the first quarter of 2006, net cash flowsgenerated in financing activities were approximately $42.5 million, of whichapproximately $10.9 million of proceeds were generated from the exercise ofstock options and sales under the Company’s employee stock purchase plan and$31.6 million was generated from tax benefits associate with equity netoperating losses that will be taken as a reduction on our tax returns.

Our future workingcapital and capital requirements will depend upon numerous factors, including,but not limited to:

·       progressand cost of our research and development programs, pre-clinical testing andclinical studies;

·       theamount and timing of revenues earned from the commercial sale of ERBITUX;

·       ourcorporate partners fulfilling their obligations to us;

·       timingand cost of seeking and obtaining additional regulatory approvals;

·       possiblebusiness development transactions;

·       levelof resources that we devote to the development of marketing and fieldoperations capabilities;

·       costsinvolved in filing, prosecuting and enforcing patent claims; and legal costsassociated with the outcome of outstanding legal proceedings andinvestigations;

·       statusof competition; and

·       our ability to maintainexisting corporate collaborations and establish new collaborative arrangementswith other companies to provide funding to support these activities.

**OFF-BALANCE SHEETARRANGEMENTS**

We have no off-balancesheet arrangements that have or are reasonably likely to have a current orfuture effect on our financial condition, results of operations, liquidity,capital expenditures or capital resources.

**Item 3.**                        *Quantitative and Qualitative Disclosures About Market Risk*

Our holdings of financial instruments comprise a mixof U.S. dollar denominated securities that may include U.S. corporate debt,foreign corporate debt, U.S. government debt, foreign government debt,asset-backed securities, auction rate securities and commercial paper. All suchinstruments are classified as securities available for sale. Generally, we donot invest in portfolio equity securities, commodities, foreign exchangecontracts or use financial derivatives for trading purposes. Our debt securityportfolio represents funds held temporarily pending use in our business andoperations. We manage these funds accordingly. We seek reasonable assurednessof the safety of principal and market liquidity by investing in investmentgrade fixed income securities while at the same time seeking to achieve afavorable rate of return. Our market risk exposure consists principally ofexposure to changes in interest rates. Our holdings are also exposed to therisks of changes in the credit quality of issuers. We invest in securities thathave a range of maturity dates.

27

----

Thetable below presents the principal amounts and related weighted averageinterest rates by year of maturity for our investment portfolio as of March 31,2007: (in thousands, except interest rates)

| ** **             | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012 and  Thereafter** | ** ** | **Total** | ** ** | **Fair  Value** | ** ** |
|------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-------------------------------|------------|-----------|------------|-----------------|------------|
| Fixed Rate             |       | $        | 189,900    |     | $          | 100,000  |       | $        | 85,170     |     | $          | 88,320                        |       |      | $          | —          |       |   |   | $ | — |   |   | $ | 463,390 |   | $ | 459,829 |   |
| Average Interest  Rate |       | 3.52     | %          | 3.86     | %          | 4.75     | %          | 5.22     | %          |     | —     |                          |       |      | —     |            |       | 4.14 | % |   |   |
| Variable Rate(1)       |       | —   |       | 1,802    |       | —   |       | —   |       |     | —     |                          |       |      | 585,462    |            |       | 587,264 |   | 587,267 |   |
| Average Interest  Rate |       | —   |       | 5.70     | %          | —   |       | —   |       |     | —     |                          |       |      | 5.33       | %               |       | 5.33 | % |   |   |
|                   |       | $        | 189,900    |     | $          | 101,802  |       | $        | 85,170     |     | $          | 88,320                        |       |      | $          | —          |       |   |   | $ | 585,462 |   |   | $ | 1,050,654 |   | $ | 1,047,096 |   |

----

(1)           These holdings primarily consist of U.S. corporate andforeign corporate floating rate notes. Interest on the securities is adjustedmonthly, quarterly or semi-annually, depending on the instrument, usingprevailing interest rates. These holdings are highly liquid and we consider thepotential for loss of principal to be minimal

Our outstanding 13¤8%fixed rate convertible senior notes in the principal amount of $600.0 milliondue May 15, 2024 are convertible into our common stock at a conversionprice of $94.69 per share, subject to certain restrictions as outlined in theindenture agreement. The fair value of fixed interest rate instruments isaffected by changes in interest rates and in the case of the convertible notesby changes in the price of our common stock as well. The fair value of theconvertible senior notes was approximately $559.9 million at March 31,2007.

**Item 4.**                        *Controls and Procedures*

*Disclosure Controlsand Procedures*

Our management, with theparticipation of our Executive Committee of the Board, Chairman and Senior VicePresident, Finance, has evaluated the effectiveness of our “disclosure controlsand procedures” (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of the end of the period covered by this report. Based onsuch evaluation, our Executive Committee of the Board, Chairman and Senior VicePresident, Finance, have concluded that, as of the end of the period covered bythis report, our disclosure controls and procedures are effective in recording,processing, summarizing and reporting, on a timely basis, information that weare required to disclose in the reports that we file or submit under theExchange Act.

*Changes In InternalControl Over Financial Reporting*

There has been no change in our internal control overfinancial reporting during the three months ended March 31, 2007 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

28

----

**PART II.**

**OTHER INFORMATION**

**Item 1.       *Legal Proceedings***

***IntellectualProperty Litigation***

As previously reported, on October 28, 2003, acomplaint was filed by Yeda Research and Development Company Ltd. (“Yeda”)against ImClone Systems and Aventis Pharmaceuticals, Inc. (“Aventis”) inthe U.S. District Court for the Southern District of New York (03 CV 8484).This action did not seek damages, but rather alleged that three individualsassociated with Yeda should also be named as co-inventors on U.S. Patent No. 6,217,866,which relates to the therapeutic use of EGFR antibodies (such as ERBITUX, theCompany’s EGFR antibody product) in combination with chemotherapy. The Companyhas exclusively licensed this patent from Rhone-Poulenc Rorer Pharmaceuticals,now known as Sanofi-Aventis. On June 7, 2005, Yeda amended its U.S.complaint to seek sole inventorship of the subject patent. On November 4,2005, the Court denied the Company’s motion for summary judgment with respectto this matter, as filed with the Court on June 24, 2005. At the sametime, the Court granted summary judgment to Yeda dismissing two of ImClone’saffirmative defenses. A bench trial on the merits of Yeda’s complaint was heldbetween June 5, 2006 and July 19, 2006. On September 18, 2006,the Court ruled in favor of Yeda by awarding it sole inventorship rights to thepatent. The Company then appealed the Court’s decision to the Court of Appealsfor the Federal Circuit. The appeal was docketed on October 5, 2006 (as No. 2007-1012).On March 16, 2007, the Company submitted its opening brief in the appeal.The Company, having had the advice of its patent counsel, believes thepositions raised on appeal are sound, and it plans to vigorously pursue thisappeal.

On September 20, 2006, subsequent to the Court’sinventorship decision, the Company also filed an action (06 CV 7190) againstYeda in the U.S. District Court for the Southern District of New York seeking adeclaratory judgment that the patent is invalid due to the removal of theoriginally named inventors. On October 31, 2006, Yeda filed an answer andcounterclaim to the Company’s declaratory judgment complaint in which Yedaalleges the Company is liable to Yeda for willful patent infringement, unjustenrichment and conversion, and seeks damages from the Company and an orderrequiring the Company to license the patent and pay Yeda royalties until thepatent expires. The declaratory judgment action is in its early stages. TheCompany,  having had the advice of its patentcounsel, believes that the claims asserted in the declaratory judgment actionare sound, and that Yeda’s counterclaims are not sound, and it plans tovigorously pursue this action. If the Company’s appeal is unsuccessful and Yeda’ssole inventorship rights to the patent are upheld and the Company isunsuccessful with respect to its declaratory judgment action, the Company maybecome obligated to pay Yeda a royalty and may be liable to Yeda for otherdamages.

As previously reported, on March 25, 2004, anaction was filed in the United Kingdom Patent Office entitled Referrer’sStatement requesting transfer of co-ownership and amendment ofpatent EP (UK) 0 667 165 to add three Yeda employees asinventors. Also on March 25, 2004, a German action entitled Legal Actionwas filed in the Munich District Court I, Patent Litigation Division, in whichYeda sought a 75% ownership interest in patent EP (DE) 0 667 165 based on itsallegation that the inventorship on that patent was incorrect. The Company wasnot named as a party in these actions which relate to the European equivalentof U.S. Patent No. 6,217,866 discussed above. Accordingly, the Companyintervened in the U.K. and German actions. Yeda sought to amend its pleadingsin the United Kingdom and Germany to seek sole inventorship and sole ownership.Following hearings, both the U.K. and German courts held that Yeda was notentitled to amend its pleadings. In the U.K., Yeda sought leave from the Houseof Lords to appeal the High Court’s decision, and such leave was granted in November 2006.In Germany, Yeda has appealed the lower court’s decision to the Higher RegionalCourt of Munich. Additionally, on or about March 25, 2005 and March 29,2005, respectively, Yeda filed legal actions in Austria and France against bothAventis and ImClone Systems seeking full inventorship of EP 

29

----

(AU) 0 667 165and EP (FR) 0 667 165, as well as payment of legal costs and fees.The Company, having had the advice of its patent counsel, believes there aresound defenses to these actions, and it presently plans to vigorously defendagainst the claims asserted. In addition, in December 2002, OppositionProceedings seeking to revoke the European patent discussed above were broughtby Scripps Research Institute, Amgen Inc., Abgenix, Inc., and YMBiosciences Inc. An Opposition Proceeding is an administrative process, theoutcome of which may be that the European patent will be revoked. TheOpposition Proceedings are suspended pending a final determination on the Yedamatter discussed above.

As previously reported, on May 4, 2004, acomplaint was filed against the Company by Massachusetts Institute ofTechnology (“MIT”) and Repligen Corporation (“Repligen”) in the U.S. DistrictCourt for the District of Massachusetts (04-10884 RGS). This actionalleges that ERBITUX infringes U.S. Patent No. 4,663,281, which is ownedby MIT and exclusively licensed to Repligen and that the Company shouldtherefore pay damages. On July 28, 2006, the Court denied the Company’smotion for summary judgment seeking to dismiss all claims on the basis that thepatent rights at issue were exhausted as a matter of law and granted MIT andRepligen’s cross motion that their patent rights were not exhausted. On September 26,2006, a hearing was held in response to a Motion for Sanctions filed byRepligen, which alleged that the Company’s counsel, Kenyon & Kenyon,and the Company acted improperly during and after the deposition of one ofRepligen’s potential witnesses. Repligen seeks evidentiary sanctions which maylimit the Company’s proofs on non-infringement issues, and the Court has raisedthe possibility that Kenyon & Kenyon may be disqualified from furtherrepresentation of the Company in the case. The Company and Kenyon &Kenyon deny any improper conduct. The Court has not ruled on the motion, and itis not possible to predict what impact, if any, this collateral matter may havein the case. Upon a ruling by the Court, the case will proceed to trial on themerits of the Company’s other defenses. The Company, having had the advice ofits patent counsel, believes that its defenses are sound, and it presentlyplans to vigorously defend against the claims asserted.

On February 5, 2007, a complaint was filedagainst the Company by Abbott Laboratories (“Abbott”) in the U.S. DistrictCourt for the District of Massachusetts (07-cv-10216). This actionalleges that the manufacture and sale of ERBITUX infringes U.S. Patent No. 5,665,578,which is owned by Abbott and that the Company should therefore pay damages. On April 24,2007, the Company filed an answer to this complaint denying all claims. TheCompany, having had the advice of its patent counsel, believes that itsdefenses are sound, and it presently plans to vigorously defend against theclaims asserted. The Company is unable to predict the outcome of this action atthe present time.

No reserve has beenestablished in the financial statements for any of the items described above inthis  Part II. Item 1- “LegalProceedings, Intellectual Property Litigation” because the Company does notbelieve that such a reserve is required to be established at this time underStatement of Financial Accounting Standards No. 5. However, if in a futureperiod, events in any such legal proceedings render it probable that a losswill be incurred and if such loss is reasonably estimable, the Company willestablish such a reserve. Thus, it is possible that legal proceedings andsettlements arising therefrom, if any, may have a material adverse impact onoperating results for that period, on our balance sheet or both.

30

----

**Item 1A.    *Risk Factors***

There have been nomaterial changes to the risk factors as set forth in the Company’s AnnualReport filed on Form 10-K for the year ended December 31, 2006.

**Item 2.       *Unregistered Sales ofEquity Securities and Use of Proceeds***

Not applicable

**Item 3.       *Defaults upon SeniorSecurities***

Not applicable

**Item 4.       *Submission of Matters to aVote of Security Holders***

Not applicable

**Item 5.       *Other Information***

On April 24, 2007,John A. Fazio resigned as a director of the Company, as disclosed in theCurrent Report on Form 8-K dated April 26, 2007, and as furtherdescribed in the amended Annual Report filed on Form 10-K/A datedApril 30, 2007. Mr. Fazio was the Chairman of the Company’s AuditCommittee.

**Item6.       *Exhibits***
| Exhibit No. | ** ** | **Description** | ** ** |
|------------------|------------|-----------------|------------|
|             | 31.1       |            |       | Certification of the Company’s Principal Executive  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |   |
|             | 31.2       |            |       | Certification of the Company’s Principal Financial  Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |   |
|             | 32         |            |       | Certification of  the Company’s Principal Executive Officer and Principal Financial Officer  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |   |

 

31

----

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         | IMCLONE  SYSTEMS INCORPORATED  (Registrant) |
|-------------------------|---------------------------------------------|
|                    | By:                                         | /s/  ALEXANDER J. DENNER |
|                    |                                        | Alexander J.  Denner |
|                    | * *                                    | *Executive  Committee of the Board, Chairman* |
|                    | * *                                    | Principal  Executive Officer |
| Date: May 8,  2007 |                                        |   |
|                    | By:                                         | /s/  ANA I. STANCIC |
|                    |                                        | Ana I. Stancic |
|                    |                                        | *Senior  Vice President, Finance* |
|                    |                                        | Principal  Financial Officer |
| Date: May 8,  2007 |                                        |   |

 

32

----