Use these links to rapidly review the documentTABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

Form 10-Q

|ý                                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the Quarterly Period Ended September 30, 2007       
|o                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the Transition period
from                        to

Commission file number 0-19612

---

ImClone Systems Incorporated(Exact name of registrant as specified in its charter)

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

(212) 645-1405(Registrant's telephone number, including area code)

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

---

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o


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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding as of October 31, 2007Common Stock, par value $0.001

86,252,110 Shares




---



IMCLONE SYSTEMS INCORPORATED
INDEX



|PART IFINANCIAL INFORMATION |  |                                                                                                               
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Item 1.                      |  | Financial Statements                                                                                          
|                             |  | Unaudited Consolidated Balance SheetsSeptember 30, 2007 and December 31, 2006                                
|                             |  | Unaudited Consolidated Statements of OperationsThree Months and Nine Months Ended September 30, 2007 and 2006
|                             |  | Unaudited Consolidated Statements of Cash FlowsNine Months Ended September 30, 2007 and 2006                 
|                             |  | Notes to Unaudited Consolidated Financial Statements                                                          
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         
|Item 3.                      |  | Quantitative and Qualitative Disclosures About Market Risk                                                    
|Item 4.                      |  | Controls and Procedures                                                                                       
|PART IIOTHER INFORMATION    |  |                                                                                                               
|Item 1.                      |  | Legal Proceedings                                                                                             
|Item 1A.                     |  | Risk Factors                                                                                                  
|Item 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                   
|Item 3.                      |  | Defaults Upon Senior Securities                                                                               
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                                           
|Item 5.                      |  | Other Information                                                                                             
|Item 6.                      |  | Exhibits                                                                                                      
|Signatures                   |  | 39                                                                                                            

i

---





PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share data)
(Unaudited)

|                                               |                                                                                                                                                                                                                                                            | September 30,
2007                                   |           | December 31,
2006 |          
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | --------- | ----------------- | ---------
|ASSETS                                         |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|Current assets:                                |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               | Cash and cash equivalents                                                                                                                                                                                                                                  |                                                      | $         | 414,323           |          
|                                               | Securities available for sale                                                                                                                                                                                                                              |                                                      |           | 642,441           |          
|                                               | Prepaid expenses                                                                                                                                                                                                                                           |                                                      |           | 3,159             |          
|                                               | Amounts due from corporate partners                                                                                                                                                                                                                        |                                                      |           | 92,640            |          
|                                               | Inventories                                                                                                                                                                                                                                                |                                                      |           | 117,394           |          
|                                               | Deferred income taxes, net                                                                                                                                                                                                                                 |                                                      |           | 14,708            |          
|                                               | Other current assets                                                                                                                                                                                                                                       |                                                      |           | 13,244            |          
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Total current assets                                 |           |                   | 1,297,909
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|Property, plant and equipment, net             |                                                                                                                                                                                                                                                            |                                                      | 404,464   |                   |          
|Deferred financing costs, net                  |                                                                                                                                                                                                                                                            |                                                      | 6,034     |                   |          
|Deferred income taxes, net                     |                                                                                                                                                                                                                                                            |                                                      | 107,767   |                   |          
|Other assets                                   |                                                                                                                                                                                                                                                            |                                                      | 27,496    |                   |          
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Total assets                                         |           | $                 | 1,843,670
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|LIABILITIES AND STOCKHOLDERS' EQUITY           |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|Current liabilities:                           |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               | Accounts payable (including $1,387 and $4,765 due Bristol-Myers Squibb Company ("BMS") at September 30, 2007 and December 31, 2006, respectively)                                                                                                          |                                                      | $         | 24,424            |          
|                                               | Accrued expenses (including $3,079 and $21,705 due BMS at September 30, 2007 and December 31, 2006, respectively)                                                                                                                                          |                                                      |           | 58,355            |          
|                                               | Current portion of deferred revenue                                                                                                                                                                                                                        |                                                      |           | 66,203            |          
|                                               | Other current liabilities                                                                                                                                                                                                                                  |                                                      |           | 4,719             |          
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Total current liabilities                            |           |                   | 153,701  
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|Deferred revenue, less current portion         |                                                                                                                                                                                                                                                            |                                                      | 238,529   |                   |          
|Long-term debt                                 |                                                                                                                                                                                                                                                            |                                                      | 600,000   |                   |          
|Share-based compensation, less current portion |                                                                                                                                                                                                                                                            |                                                      | 734       |                   |          
|Deferred rent, less current portion            |                                                                                                                                                                                                                                                            |                                                      | 3,505     |                   |          
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Total liabilities                                    |           |                   | 996,469  
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|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 87,169,631 and 86,143,604 at September 30, 2007 and December 31, 2006, respectively; outstanding 86,178,566 and 85,138,930 at September 30, 2007 and
December 31, 2006, respectively |                                                      |           | 87                |          
|                                               | Additional paid-in capital                                                                                                                                                                                                                                 |                                                      |           | 905,291           |          
|                                               | Accumulated deficit                                                                                                                                                                                                                                        |                                                      |           | (10,534           | )        
|                                               | Treasury stock, at cost; 991,065 and 1,004,674 at September 30, 2007 and December 31, 2006, respectively                                                                                                                                                   |                                                      |           | (28,754           | )        
|                                               | Accumulated other comprehensive loss:                                                                                                                                                                                                                      |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Net unrealized loss on securities available for sale |           |                   | (18,889  
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|                                               |                                                                                                                                                                                                                                                            | Total stockholders' equity                           |           |                   | 847,201  
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          
|Total liabilities and stockholders' equity     |                                                                                                                                                                                                                                                            | $                                                    | 1,843,670 |                   | $        
|                                               |                                                                                                                                                                                                                                                            |                                                      |           |                   |          

See accompanying notes to consolidated financial statements.

1

---



IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

|                                                                |                                        | Three Months Ended
September 30, |                            | Nine Months Ended
September 30, |        
|--------------------------------------------------------------- | -------------------------------------- | -------------------------------- | -------------------------- | ------------------------------- | -------
|
|Revenues:                                                       |                                        |                                  |                            |                                 |        
|                                                                | Royalties                              |                                  | $                          | 87,853                          |        
|                                                                | License fees and milestones            |                                  |                            | 19,226                          |        
|                                                                | Manufacturing                          |                                  |                            | 21,973                          |        
|                                                                | Collaborative agreement reimbursements |                                  |                            | 18,495                          |        
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        | Total revenues                   |                            |                                 | 147,547
|                                                                |                                        |                                  |                            |                                 |        
|Operating expenses:                                             |                                        |                                  |                            |                                 |        
|                                                                | Research and development               |                                  |                            | 43,626                          |        
|                                                                | Clinical and regulatory                |                                  |                            | 4,761                           |        
|                                                                | Selling, general and administrative    |                                  |                            | 20,748                          |        
|                                                                | Royalties                              |                                  |                            | 19,324                          |        
|                                                                | Cost of manufacturing revenue          |                                  |                            | 22,256                          |        
|                                                                | Litigation settlement                  |                                  |                            | 50,000                          |        
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        | Total operating expenses         |                            |                                 | 160,715
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        |                                  | Operating income (loss)    |                                 |        
|                                                                |                                        |                                  |                            |                                 |        
|Other income (expense):                                         |                                        |                                  |                            |                                 |        
|                                                                | Interest income                        |                                  |                            | 13,369                          |        
|                                                                | Interest expense                       |                                  |                            | (3,100                          | )      
|                                                                | Gain on insurance settlement           |                                  |                            | 3,775                           |        
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        | Other income, net                |                            |                                 | 14,044 
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        |                                  | Income before income taxes |                                 |        
|                                                                |                                        | Income tax provision (benefit)   |                            |                                 | 1,792  
|                                                                |                                        |                                  |                            |                                 |        
|                                                                |                                        |                                  | Net income (loss)          |                                 | $      
|                                                                |                                        |                                  |                            |                                 |        
|Earnings (loss) per common share:                               |                                        |                                  |                            |                                 |        
|                                                                | Basic                                  |                                  | $                          | (0.01                           | )      
|                                                                |                                        |                                  |                            |                                 |        
|                                                                | Diluted                                |                                  | $                          | (0.01                           | )      
|                                                                |                                        |                                  |                            |                                 |        
|Shares used in calculation of earnings (loss) per common share: |                                        |                                  |                            |                                 |        
|                                                                | Basic                                  |                                  |                            | 85,957                          |        
|                                                                |                                        |                                  |                            |                                 |        
|                                                                | Diluted                                |                                  |                            | 85,957                          |        
|                                                                |                                        |                                  |                            |                                 |        

See
accompanying notes to consolidated financial statements.

2

---



IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

|                                                 |                                                                                             | Nine Months Ended
September 30,                |                                                    
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------------------------------------
|
|Cash flows from operating activities:            |                                                                                             |                                                |                                                    
|                                                 | Net income                                                                                  |                                                | $                                                  
|                                                 | Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                |                                                    
|                                                 | Depreciation and amortization                                                               |                                                |                                                    
|                                                 | Amortization of deferred financing costs                                                    |                                                |                                                    
|                                                 | Share-based compensation                                                                    |                                                |                                                    
|                                                 | Tax benefit from share-based compensation                                                   |                                                |                                                    
|                                                 | Loss on disposal of fixed assets                                                            |                                                |                                                    
|                                                 | Deferred income taxes                                                                       |                                                |                                                    
|                                                 | Other                                                                                       |                                                |                                                    
|                                                 | Changes in:                                                                                 |                                                |                                                    
|                                                 |                                                                                             | Prepaid expenses                               |                                                    
|                                                 |                                                                                             | Amounts due from corporate partners            |                                                    
|                                                 |                                                                                             | Inventories                                    |                                                    
|                                                 |                                                                                             | Other current assets                           |                                                    
|                                                 |                                                                                             | Other assets                                   |                                                    
|                                                 |                                                                                             | Accounts payable                               |                                                    
|                                                 |                                                                                             | Accrued expenses                               |                                                    
|                                                 |                                                                                             | Share-based compensation, less current portion |                                                    
|                                                 |                                                                                             | Other current liabilities                      |                                                    
|                                                 |                                                                                             | Withholding tax liability                      |                                                    
|                                                 |                                                                                             | Deferred revenue                               |                                                    
|                                                 |                                                                                             | Deferred rent, less current portion            |                                                    
|                                                 |                                                                                             |                                                |                                                    
|                                                 |                                                                                             |                                                | Net cash (used in) provided by operating activities
|                                                 |                                                                                             |                                                |                                                    
|Cash flows from investing activities:            |                                                                                             |                                                |                                                    
|                                                 | Acquisitions of property, plant and equipment                                               |                                                |                                                    
|                                                 | Purchases of securities available for sale                                                  |                                                |                                                    
|                                                 | Proceeds from sale of securities available for sale                                         |                                                |                                                    
|                                                 | Proceeds from maturities of securities available for sale                                   |                                                |                                                    
|                                                 |                                                                                             |                                                |                                                    
|                                                 |                                                                                             |                                                | Net cash provided by (used in) investing activities
|                                                 |                                                                                             |                                                |                                                    
|Cash flows from financing activities:            |                                                                                             |                                                |                                                    
|                                                 | Proceeds from exercise of stock options                                                     |                                                |                                                    
|                                                 | Proceeds from issuance of common stock under the employee stock purchase plan               |                                                |                                                    
|                                                 | Tax benefit from share-based compensation                                                   |                                                |                                                    
|                                                 | Proceeds from sale of treasury stock                                                        |                                                |                                                    
|                                                 |                                                                                             |                                                |                                                    
|                                                 |                                                                                             |                                                | Net cash provided by financing activities          
|                                                 |                                                                                             |                                                |                                                    
|Net increase in cash and cash equivalents        |                                                                                             |                                                | 393,755                                            
|Cash and cash equivalents at beginning of period |                                                                                             |                                                | 20,568                                             
|                                                 |                                                                                             |                                                |                                                    
|Cash and cash equivalents at end of period       |                                                                                             | $                                              | 414,323                                            
|                                                 |                                                                                             |                                                |                                                    
|Supplemental cash flow information:              |                                                                                             |                                                |                                                    
|                                                 | Cash paid for:                                                                              |                                                |                                                    
|                                                 |                                                                                             | Interest, net of amounts capitalized           |                                                    
|                                                 |                                                                                             |                                                |                                                    
|                                                 |                                                                                             | Income taxes                                   |                                                    
|                                                 |                                                                                             |                                                |                                                    
|Non-cash investing and financing activity:       |                                                                                             |                                                |                                                    
|                                                 | Change in net unrealized loss in securities available-for-sale                              |                                                | $                                                  
|                                                 |                                                                                             |                                                |                                                    

See accompanying notes to consolidated financial statements.

3

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Business Overview and Basis of Presentation

The accompanying consolidated financial statements of ImClone Systems Incorporated ("ImClone Systems" or the "Company") as of September 30, 2007 and for
the three and nine months ended September 30, 2007 and 2006 are unaudited. The accompanying unaudited consolidated balance sheets,
statements of operations and statements of cash flows have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. The
financial statements reflect all adjustments, consisting only of normal, recurring adjustments, which are in the opinion of management, necessary for a fair presentation for the interim periods.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and related revenue and expense accounts and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ materially from those estimates. These financial statements should be
read in conjunction with the audited consolidated financial statements and notes thereto included in the Company'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 are not necessarily indicative of results to be expected for the entire fiscal year or any other period.

The
Company is a biopharmaceutical company whose mission is to advance oncology care by developing and commercializing a portfolio of targeted treatments designated to address the
medical need of patients 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 of epidermal growth factor (EGF) and other ligands, such as transforming growth factor-alpha.
We are conducting, and in some cases have completed, clinical studies evaluating ERBITUX for broader use in colorectal cancer, squamous cell carcinoma of the head and neck ("SCCHN"), for the potential
treatment of lung and pancreatic cancers, as well as other potential indications. The Company does not operate separate lines of business or separate business entities and does not conduct any of its
operations outside the United States. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and does not have separately
reportable segments.

Impact of Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 157, "Accounting
for Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, and establishes a framework for measuring fair value in accordance with GAAP, and expands disclosure about fair
value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements of SFAS 157.

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

4

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(1) Business Overview and Basis of Presentation (Continued)

In
June 2007, the Emerging Issues Task Force reached a consensus on Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Good or Services to Be
Used in Future Research and Development Activities." This Issue requires that nonrefundable advance payments for research and development activities be deferred and capitalized. Such amounts should be
recognized as an expense as the related goods are delivered or the services are performed or when the goods or services are no longer expected to be provided. This Issue will be effective for fiscal
years beginning after December 15, 2007, and earlier adoption is not permitted. This consensus is to be applied prospectively for new contracts entered into after that date. The Company is
currently evaluating the potential impact of this consensus on its consolidated financial statements.

Comprehensive Income (Loss)

The following table reconciles net income to comprehensive income (loss): (in thousands)

|                                                                  |  | Three Months Ended
September 30, |         | Nine Months Ended
September 30,
|----------------------------------------------------------------- |  | -------------------------------- | ------- | -------------------------------
|
|Net income (loss)                                                 |  | $                                | (916    | )                              
|Other comprehensive income (loss):                                |  |                                  |         |                                
|Unrealized gain (loss) on marketable securities during the period |  |                                  | (15,286 | )                              
|                                                                  |  |                                  |         |                                
|Total other comprehensive income (loss)                           |  |                                  | (15,286 | )                              
|                                                                  |  |                                  |         |                                
|Total comprehensive income (loss)                                 |  | $                                | (16,202 | )                              
|                                                                  |  |                                  |         |                                

The
tax benefit (provision) on the items included in other comprehensive income (loss) assuming they were recognized in income would be approximately $6.3 million
and $(687,000) for the three months ended September 30, 2007 and 2006, respectively, and $5.7 million and $(388,000) for the nine months ended September 30, 2007 and 2006,
respectively.

The
increase in unrealized losses for the three and nine months ended September 30, 2007 is due to a decline in the fair market value of certain debt securities. These investments
are all AAA/Aaa rated and interest continues to be paid by the holder of the instruments. The Company believes that this loss position is temporary and that no asset impairment charge is needed at
this time.

Fair Value of Financial Instruments

The fair value of the Company's 13/8% convertible senior notes of $600.0 million was approximately $559.5 million and
$545.6 million at September 30, 2007 and December 31, 2006, respectively, based on their quoted market price.

Treasury Stock

John H. Johnson was appointed as the Company's Chief Executive Officer ("CEO") in August 2007. On September 7, 2007, the Company sold 13,609 shares
of treasury stock to Mr. Johnson for an aggregate consideration of $500,000, or $36.74 per share, which was the fair value of our common stock on such date, in order to enable
Mr. Johnson to satisfy his obligation under his employment agreement to purchase $500,000 worth of Company common stock within three months of his commencement of employment.

5

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(1) Business Overview and Basis of Presentation (Continued)

Insurance Reimbursement

Other income for the third quarter of 2007 includes a gain of $3.8 million from the proceeds of an insurance reimbursement primarily for lost royalties on
an ERBITUX shipment that was damaged in-transit during 2006.

(2) Inventories

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

September 30,
2007

December 31,
2006Raw materials and supplies

$
16,153

$
17,818Work in process


89,763


79,048Finished goods


11,478


5,349Total

$
117,394

$
102,215


In
June 2006, the Company began producing ERBITUX for commercial use at its multiple product manufacturing facility ("BB50"), located in Branchburg, New Jersey. On
August 20, 2007, the Company received approval from the U.S. Food and Drug Administration ("FDA") for the manufacture of ERBITUX in BB50, and therefore is now able to sell the ERBITUX inventory
produced in BB50. Effective July 2007, the Company transitioned its BB50 plant from the production of ERBITUX to the production of pipeline products and is expensing the cost of manufacturing
these products as Research and Development expense. The Company's current plan is to produce pipeline products in BB50 during the remainder of 2007.

(3) Property, Plant and Equipment

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

September 30,
2007

December 31,
2006Land

$
4,899

$
4,899Building


282,811


281,556Leasehold improvements


24,266


14,595Machinery and equipment


174,577


164,869Furniture and fixtures


6,957


6,368Construction in progress


28,839


45,924Total cost


522,349


518,211Less accumulated depreciation


(117,885
)

(95,211
)Property, plant and equipment, net

$
404,464

$
423,000


In
the first quarter of 2007, the Company determined that it was not cost effective to develop its Spring Street facility to house its Research organization. As a result,
the Company recorded a write-off of approximately $3.6 million related to design and engineering costs associated with 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 the Company's Statement of Operations for the nine months

6

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Property, Plant and Equipment (Continued)

ended
September 30, 2007. The Company is in the process of evaluating alternative uses for this facility.

The
process of preparing consolidated financial statements in accordance with GAAP requires the Company to evaluate the carrying values of its long-lived assets. The
recoverability of the carrying values of long-lived assets depends on the Company's ability to earn sufficient returns on ERBITUX. Other than the asset impairment discussed above, based on
management's current estimates, the Company expects to recover the carrying value of such assets.

(4) Share-Based Compensation Plans

On February 15, 2007, the Company awarded, for no consideration, 268,283 Restricted Stock Units ("RSU") to its employees under its 2006 Stock Incentive
Plan (the "06 Plan"). The grant date fair value of the Company's RSU awards was calculated using the closing market price of the Company's common stock as listed on the Nasdaq Global Select Market on
February 15, 2007. The RSU granted in this issuance vest 331/3% annually over the three-year vesting period. On August 27, 2007, the Company awarded 31,347 RSU
to its new CEO under the 06 Plan. The grant date fair value of the such RSU awards was calculated using the closing market price of the Company's common stock as listed on the Nasdaq Global Select
Market on August 27, 2007. The RSU granted to the CEO vest 25% annually over the four-year vesting period.

RSU
activity for the nine months ended September 30, 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

299,630Forfeitures

(41,230
)Outstanding at September 30, 2007

258,400

1.50

$
10,682Expected to vest

211,184

1.43

$
8,730


The
weighted average grant date fair value of the RSU was $29.84. The aggregate intrinsic value of RSU outstanding as of September 30, 2007 is calculated as the
number of shares multiplied by the closing market price of our common stock on that date, which was $41.34.

The
Company recognized for the three and nine months ended September 30, 2007 approximately $426,000 and $1.0 million, respectively, in share-based compensation expense,
net of amounts capitalized, for RSU granted under the 06 Plan. As of September 30, 2007, there was $5.0 million of total unrecognized compensation cost related to the RSU. This amount
considers the Company's expected forfeiture rate. That cost is expected to be recognized over a weighted average period of 2.6 years. The Company will utilize newly issued shares to satisfy the
vesting of RSU.

7

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(4) Share-Based Compensation Plans (Continued)

In addition to the RSU discussed above, the Company also granted stock options for promotions and new hire grants. The activity related to stock options for the
nine months ended September 30, 2007 is summarized 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     |                  | 936,000    |                                           | $     | 34.19                                               |      |                                         
|                                  | Exercised   |                  | (1,009,335 | )                                         | $     | 23.40                                               |      |                                         
|                                  | Forfeitures |                  | (755,838   | )                                         | $     | 44.79                                               |      |                                         
|                                  |             |                  |            |                                           |       |                                                     |      |                                         
|Outstanding at September 30, 2007 |             | 9,680,121        |            | $                                         | 39.23 |                                                     | 5.78 |                                         
|                                  |             |                  |            |                                           |       |                                                     |      |                                         
|Vested and expected to vest       |             | 9,286,028        |            | $                                         | 39.45 |                                                     | 5.64 |                                         
|                                  |             |                  |            |                                           |       |                                                     |      |                                         
|Exercisable at September 30, 2007 |             | 7,927,616        |            | $                                         | 40.38 |                                                     | 5.04 |                                         
|                                  |             |                  |            |                                           |       |                                                     |      |                                         

The
weighted average fair value of options granted during the three months ended September 30, 2007 and 2006 was $14.34 and $14.27, respectively. The weighted average fair value
of options granted during the nine months ended September 30, 2007 and 2006 was $14.77 and $14.74, respectively. The aggregate intrinsic value of options outstanding at September 30,
2007 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the 5,384,197 options that had exercise prices that
were lower than the market price of the Company's common stock at September 30, 2007. The total intrinsic value of options exercised during
the three months ended September 30, 2007 and 2006 was $4.2 million and $7.8 million, respectively, determined as of the date of exercise. The total intrinsic value of options
exercised during the nine months ended September 30, 2007 and 2006 was $15.6 million and $21.0 million, respectively, determined as of the date of exercise.

(5) Earnings (Loss) Per Common Share

Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings
per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period increased to include all additional common shares that would have been
outstanding assuming potentially dilutive common share equivalents had been issued. Dilutive common share equivalents include (1) the dilutive effect of in-the-money
shares related to stock options, which is calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an option,
the average amount of compensation cost, if any, for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid-in
capital, if any, when the option is exercised, are assumed to be used to repurchase shares in the current period and (2) the conversion of convertible debt which is calculated using an
"if-converted" basis. In addition, in computing the dilutive effect of convertible debt, the numerator is adjusted to add back the after-tax amount of interest recognized in
the period and (3) the dilutive effect of RSU which is calculated under the treasury stock method. Under the treasury stock method for RSU, the average amount of compensation cost, if any, for
future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in

8

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(5) Earnings (Loss) Per Common Share (Continued)

additional
paid-in capital, if any, are assumed to be used to repurchase shares in the current period. For the three months ended September 30, 2007 and 2006, there were an
aggregate of 16,231,000 and 9,132,000, respectively, potential common shares excluded from the diluted earnings per share computation because their inclusion would have had an
anti-dilutive effect. For the nine months ended September 30, 2007 and 2006, there were an aggregate of 10,107,000 and 8,574,000, respectively, potential common shares excluded from
the diluted earnings per share computation because their inclusion would have had an anti-dilutive effect. The potential common shares excluded from the computation consist of
anti-dilutive stock options for all periods and anti-dilutive shares related to the RSU and 13/8% convertible notes for the three months ended
September 30, 2007, and anti-dilutive shares related to the 13/8% convertible notes for the nine months ended September 30, 2007.

Basic
and diluted earnings (loss) per common share (EPS) were computed using the following: (in thousands, except per share data)

|                                                                          |                                                               | Three Months Ended
September 30, |        | Nine Months Ended
September 30,
|------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------- | ------ | -------------------------------
|
|EPS NumeratorBasic:                                                      |                                                               |                                  |        |                                
|                                                                          | Net Income (Loss)                                             |                                  | $      | (916                           
|                                                                          |                                                               |                                  |        |                                
|EPS DenominatorBasic:                                                    |                                                               |                                  |        |                                
|                                                                          | Weighted-average number of shares of common stock outstanding |                                  |        | 85,957                         
|                                                                          |                                                               |                                  |        |                                
|EPS NumeratorDiluted:                                                    |                                                               |                                  |        |                                
|                                                                          | Net Income (Loss)                                             |                                  | $      | (916                           
|Adjustment for interest, net of amounts capitalized and income tax effect |                                                               |                                  |       |                                
|                                                                          |                                                               |                                  |        |                                
|                                                                          | Net income (loss), adjusted                                   |                                  | $      | (916                           
|                                                                          |                                                               |                                  |        |                                
|EPS DenominatorDiluted:                                                  |                                                               |                                  |        |                                
|                                                                          | Weighted-average number of shares of common stock outstanding |                                  |        | 85,957                         
|                                                                          |                                                               |                                  |        |                                
|Effect of dilutive securities:                                            |                                                               |                                  |        |                                
|                                                                          | Stock options                                                 |                                  |        |                               
|                                                                          | Restricted stock units                                        |                                  |        |                               
|                                                                          | Convertible subordinated notes                                |                                  |        |                               
|                                                                          |                                                               |                                  |        |                                
|                                                                          | Dilutive potential common shares                              |                                  |        |                               
|                                                                          |                                                               |                                  |        |                                
|Weighted-average common shares and dilutive potential common shares       |                                                               |                                  | 85,957 |                                
|                                                                          |                                                               |                                  |        |                                
|Basic earnings (loss) per common share                                    |                                                               | $                                | (0.01  | )                              
|Diluted earnings (loss) per common share                                  |                                                               | $                                | (0.01  | )                              

9

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(6) Taxes

The Company's estimated annual effective income tax rate for 2007 is expected to be approximately 41.5%, excluding the effect of any discrete charges. For the
nine months ended September 30, 2007, the Company has recognized a net discrete charge of approximately $4.3 millon primarily related to certain tax return method changes filed as well as
certain deferred charges. The difference between the statutory rate and the Company's expected annual effective income tax rate primarily relates to state taxes. Actual cash tax payments in 2007 are
estimated to be approximately $4.0 million.

In
July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which clarifies the accounting and disclosure for
uncertainty in tax positions. The Company adopted the provisions of FIN 48 effective January 1, 2007, and as a result of the adoption the Company recorded a decrease to beginning accumulated
deficit of approximately $1.5 million and an offsetting amount to additional paid-in capital. As of the adoption date, the Company had unrecognized tax benefits of approximately
$38.3 million. Of this amount $36.1 million would have impacted the effective income tax rate. A portion of the $36.1 million if recognized could have required an additional
valuation allowance to be recorded.

The
Company recognizes both interest and penalties accrued related to unrecognized tax benefits as elements of income tax expense in the Consolidated Statements of Operations. As of the
adoption date, the total amount of accrued interest and penalties was approximately $787,000. Additionally, during the three and nine months ended September 30, 2007, the Company recorded
approximately $229,000 and $857,000, respectively, of net interest and penalties.

The
Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The statute of limitations on the Company's federal income tax returns through
2002 has expired. A New Jersey State audit was recently concluded for income tax years 2001 through 2004. The outcome of this audit did not have a material impact on the Company's results of
operations or financial position. The statute of limitations on the Company's New Jersey income tax returns through 2002 has expired.

(7) Collaborative Agreements

The following represents an update of the Company's contractual relationship with Merck KGaA and BMS during the nine months ended September 30, 2007. For a
more detailed description of the Company's contractual agreements with our partners Merck KGaA and BMS, reference Note 10 of the Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006.

(a) Merck KGaA

In July 2006, the Company and Merck KGaA entered into agreements amending and supplementing the 1998 development and license agreement. As part of the
agreements, the Company consented to Merck KGaA's sublicense of certain intellectual property rights relating to the development and commercialization of an anti-EGFR antibody to Takeda
Pharmaceutical Company ("Takeda"). Merck KGaA and Takeda signed an alliance in September 2005 for the development and commercialization of matuzumab (EMD-72000), a humanized
EGFR-targeting monoclonal antibody. In consideration for the Company's consent, Merck KGaA agreed to pay the Company € 2.5 million within 30 days
of the execution of the agreements and a further € 5.0 million within 30 days of the Company's

10

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

written
consent to the sublicense. The Company received the payments of € 2.5 million and € 5.0 million in August 2006
and August 2007, respectively and has deferred the revenue associated with these payments and is recognizing them over the estimated service period. The Company has a liability due Merck KGaA
of approximately $58,000 as of September 30, 2007 and December 31, 2006.

(b) Bristol-Myers Squibb Company

In July 2007, the Company and BMS amended the terms of their commercial agreement for the co-development and co-promotion of ERBITUX in
North America (the
"BMS Amendment"). Under the BMS Amendment, the companies have jointly agreed to expand the investment in the ongoing clinical development plan for ERBITUX by up to several hundred million dollars.
Development costs, up to a threshold amount, will be the sole responsibility of BMS; costs in excess of this threshold will be shared by both companies according to a pre-determined ratio.
With this additional funding, the companies will further explore the use of ERBITUX in additional tumor types including brain, breast, bladder, esophageal, gastric, lung, pancreas and prostate.

Under
the BMS Amendment, ERBITUX clinical development costs, up to a threshold amount, are the sole responsibility of BMS, with costs in excess of this threshold shared by both companies
according to a predetermined ratio effective January 1, 2007. As a result, reimbursable ERBITUX clinical development costs from BMS increased by $2.8 million for the nine months ended
September 30, 2007, including $2.3 million for costs previously recorded by the Company in the first half of 2007 that are now reimbursable. Also, an adjustment of $7.6 million
was recorded in clinical and regulatory expenses to reduce the Company's share of ERBITUX clinical development costs incurred by BMS that were previously recorded, which the Company is no longer
required to reimburse.

Development of the ProductThe Company incurred approximately $943,000 and $4.1 million
pursuant to cost sharing agreements with BMS for the three months ended September 30, 2007 and 2006, respectively and $2.6 million and $17.7 million for the nine months ended
September 30, 2007 and 2006, respectively. The decreases versus the comparable periods are due to more development costs being the responsibility of BMS as a result of the BMS Amendment. The
Company has also incurred $601,000 and $1.0 million for the three months ended September 30, 2007 and 2006, respectively, and $1.9 million and $2.2 million for the nine
months ended September 30, 2007 and 2006, respectively, related to the agreement with respect to development in Japan.



Royalty revenue consists of the following: (in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006BMSERBITUX

$
71,957

$
68,100

$
197,627

$
189,158Merck KGaAERBITUX


15,860


10,442


44,651


24,055Other


36


57


82


270Total royalty revenue

$
87,853

$
78,599

$
242,360

$
213,483


11

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

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

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006BMSERBITUX

$
18,958

$
34,830

$
81,460

$
212,578Merck KGaAERBITUX


268


118


505


229Total license fees and milestone revenue

$
19,226

$
34,948

$
81,965

$
212,807


Manufacturing
revenue consists of the following: (in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006BMSERBITUX

$
20,923

$
20,305

$
57,781

$
64,541Merck KGaAERBITUX


1,050


579


3,675


4,048Total manufacturing revenue

$
21,973

$
20,884

$
61,456

$
68,589


Collaborative
agreement reimbursement revenue consists of the following: (in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,2007

2006

2007

2006BMS:ERBITUX supplied for clinical trials

$
2,736

$
1,936

$
7,875

$
6,329ERBITUX clinical and regulatory expenses


7,040


3,277


14,430


9,419ERBITUX selling, general and administrative


387


297


878


848ERBITUX royalty expenses


4,612


7,858


12,668


21,826Total BMS


14,775


13,368


35,851


38,422Merck KGaA:ERBITUX supplied for clinical trials


1,815


1,651


11,477


7,215ERBITUX selling, general and administrative


1


10


89


109ERBITUX royalty expenses


1,904


1,238


5,681


5,044Total Merck KGaA


3,720


2,899


17,247


12,368Other





(1
)

600


15Total collaborative agreement reimbursement revenue

$
18,495

$
16,266

$
53,698

$
50,805


12

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

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

September 30,
2007

December 31,
2006BMSERBITUX

$
75,008

$
64,991Merck KGaAERBITUX


17,632


13,039Total amounts due from corporate partners

$
92,640

$
78,030


Deferred
revenue consists of the following: (in thousands)

September 30,
2007

December 31,
2006BMSERBITUX commercial agreement

$
292,755

$
374,215Merck KGaAERBITUX development and license agreement


11,977


5,662Total deferred revenue


304,732


379,877Less current portion


(66,203
)

(142,013
)Total long term deferred revenue

$
238,529

$
237,864


(c) Merck KGaA/Bristol-Myers Squibb Company Japan Commercial Agreement

On October 12, 2007, the Company entered into agreements with Merck KGaA and BMS for the co-development and co-commercialization of
ERBITUX in Japan. Under the terms of the agreements, the Company, BMS and Merck KGaA will collaborate on a joint effort to develop and, following regulatory approval, market ERBITUX in Japan for the
treatment of EGFR-expressing mCRC, as well as for the treatment of any other cancers the parties agree to pursue. BMS and Merck KGaA will utilize their respective sales forces in Japan,
and the three companies will share development costs incurred and profits/losses realized as a result of their collaboration. Merck Serono Japan will distribute the product and record the sales for
the collaboration. The agreements have a term of twenty-five years; provided that either BMS or Merck KGaA may terminate the agreement without cause upon three months' notice if ERBITUX is
not launched in Japan by December 31, 2009 and without cause upon six months' notice following the earlier of a launch of a biosimilar product in Japan and the tenth anniversary of the
agreements.

The
Company, BMS and Merck KGaA submitted an application in Japan earlier this year for the use of ERBITUX in treating patients with EGFR-expressing mCRC. The submission is a
result of a collaboration among the three companies and is based on results from studies conducted in North America, Europe and Japan. ERBITUX is the first monoclonal antibody that inhibits EGFR to be
submitted for marketing authorization in Japan.

The
terms of these new agreements provide that Merck KGaA will receive 50% of the profit/loss from sales in Japan and bear 50% of the related development expense, and the Company and BMS
will each receive 25% of the profit/loss and bear 25% of the related development expense. The sharing of profit/loss reflect the co-exclusive rights to ERBITUX in Japan previously granted
by the Company to Merck KGaA and BMS. In addition to its percentage of profit/loss, ImClone Systems will receive from Merck KGaA a royalty equal to 4.75% of total net sales in Japan. Any bulk ERBITUX
supplied by the Company pursuant to the agreements for use in Japan will be at its fully burdened manufacturing cost.

13

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(8) Commitments and Contingencies

On October 28, 2003, a complaint was filed by Yeda Research and Development Company Ltd. ("Yeda") against ImClone Systems and Aventis
Pharmaceuticals, Inc. ("Aventis") in the 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 individuals associated 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, the Company's EGFR antibody product) in combination with chemotherapy. The Company has 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 2, 2005, the Court denied the Company's motion for summary judgment with
respect to this matter, as filed with the Court on June 24, 2005. At the same time, the Court granted summary judgment to Yeda dismissing two of the Company's affirmative defenses. 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 in favor of Yeda by awarding it sole inventorship
rights to the patent. The Company then appealed the Court's decision to the Court of Appeals for the Federal Circuit. The appeal was docketed on October 5, 2006 (as
No. 2007-1012). Briefing is now complete. A hearing is scheduled for December 7, 2007 and a decision from the Federal Circuit is expected in due course. The Company, having
had the advice of its patent counsel, plans to vigorously pursue this appeal.

On
September 20, 2006, subsequent to the Court's inventorship decision, the Company also filed an action (06 CV 7190) against Yeda in the U.S. District Court for the Southern
District of New York seeking a declaratory judgment that U.S. Patent No. 6,217,866 is invalid. On October 31, 2006, Yeda filed an answer and counterclaim to the Company's declaratory
judgment complaint in which Yeda alleges the Company is liable to Yeda for willful patent infringement, unjust enrichment and conversion, and seeks damages from the Company and an order requiring the
Company to license the patent and pay Yeda royalties until the patent expires. The Company filed an answer denying all counterclaims. In addition, on November 7, 2007, the Company filed a first
amended answer to defendant's counterclaims asserting that the Company's activities are protected by the safe harbor provisions of 35 U.S.C 271(e)(1), that Yeda's claims for damages for any
infringement more than six years prior to filing of its counterclaims are barred by the statute of limitations, and that federal law preempts Yeda's claims for unjust enrichment and conversion. The
Company, having had the advice of its patent counsel, plans to vigorously pursue this action. The Company is unable to predict the outcome of these actions at this time. If the Company's appeal is
unsuccessful and Yeda's sole inventorship rights to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action, the Company may become obligated to pay Yeda
a royalty and may be liable to Yeda for other damages.

On
March 25, 2004, an action was filed in the United Kingdom Patent Office requesting transfer of co-ownership to Yeda and amendment of patent EP (UK) 0 667 165 to add
three Weizmann former employees as inventors. The Company was not named as a party in this action which relates to the European equivalent of U.S. Patent No. 6,217,866 discussed above.
Accordingly, the Company intervened. On June 29, 2005, Yeda sought to amend its pleadings to seek sole ownership. That amendment was refused by the High Court and the Court of Appeal but was
further appealed by Yeda to the House of Lords. The House of Lords heard Yeda's appeal on July 23-25, 2007. On October 24, 2007, the House of Lords issued a decision that
reinstated the permission given by the Patent office, namely, that Yeda may proceed with a claim in relation to the EP (UK) to sole entitlement,

14

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(8) Commitments and Contingencies (Continued)

alternatively
to joint entitlement with Aventis. A hearing on the substantive case relating to entitlement to the EP (UK) will now likely occur in 2008.

On
March 25, 2004, a German action was filed in the Munich District Court I, Patent Litigation Division, in which Yeda claims a 75% ownership interest in patent EP (DE) 0 667 165
based on its allegation that the inventorship on that patent was incorrect. The Company was not named as a party in this action which relates to the European equivalent of U.S. Patent
No. 6,217,866 discussed above. Accordingly, the Company intervened. On October 7, 2005, Yeda sought to amend its claim to seek sole ownership. That amendment was refused by the Munich
District Court and on appeal by the Munich Higher Regional Court in a Decision dated September 20, 2007. That decision will likely be appealed by Yeda to the German Supreme Court. Presently,
Yeda's claim in respect of the EP (DE) remains restricted to joint entitlement.

On
March 25, 2005, Yeda filed an action in the Austrian Patent Office ("APO") against Aventis seeking sole entitlement of EP (AU) 0 667 165, as well as payment of legal costs and
fees. The Company was not named as a party to this action which relates to the European equivalent of US Pat. No. 6,217,866 discussed above. Accordingly, the Company intervened. Aventis'
Defence and the Company's Intervention were filed on February 15, 2006. Yeda's Reply to the Defence/Intervention was filed on February 12, 2007. The Company's Rejoinder was filed on
September 14, 2007. The case has been sent to the Technical Examiner, who will report back to the Nullity Division of the APO in due course. The Company, having had the advice of its patent
counsel, believes there are sound defenses to these actions, and it plans to vigorously defend against the claims asserted.

On
March 29, 2005, Yeda filed an action in the Tribunal de Grande Instance, Paris jointly against Aventis and the Company seeking sole entitlement of EP (FR) 0 667 165, as well as
payment of damages, legal costs and fees. This is the European equivalent of US Pat. No. 6,217,866. Aventis and the Company filed their Defences on September 22, 2006. Yeda submitted a
Reply to Defence on September 17, 2007. Additionally, Yeda requested the French Court to take jurisdiction over the 9 non-French counterparts of the '165 EP in: Belgium, The
Netherlands, Luxembourg, Liechtenstein, Sweden, Switzerland, Spain, Italy and Greece. A preliminary challenge to the jurisdiction of the French Court to hear Yeda's claim to those
non-French parts of the European Patent will be made and that preliminary challenge is likely to be heard in early 2008. The Company, having had the advice of its patent counsel, believes
there are sound defenses to these actions, and it plans to vigorously defend against the claims asserted.

On
May 4, 2004, an action was filed against the Company by Massachusetts Institute of Technology ("MIT") and Repligen Corporation ("Repligen"). This action alleged that ERBITUX
infringes U.S. Patent No. 4,663,281, which is owned by MIT and exclusively licensed to Repligen and that the Company should therefore pay damages. In September 2007, the parties signed a
settlement and certain sublicensing agreements, for which the Company paid $65.0 million in cash for full and final settlement of the claims against the Company in the matter, as well as for a
royalty-free, irrevocable worldwide sublicense to technology patented under U.S. Patents No. 4,663,281. The total settlement was $65.0 million, of which $50.0 million
was attributable to an expired Repligen patent and was expensed in the period and $15.0 million was attributed to the sublicensed Abbott patents. Repligen is responsible for providing MIT with
its portion of the settlement payment. Repligen also granted to the Company a royalty-free, irrevocable worldwide sublicense for the future use of other patented technology, including U.S.
Patent No. 5,665,578, which is owned by Abbott Laboratories ("Abbott"), but

15

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(8) Commitments and Contingencies (Continued)

to
which Repligen has the power to sublicense under an agreement between Abbott and Repligen. U.S. Patent No. 5,665,578 is the patent upon which Abbott sued the Company for patent infringement
earlier this year.

On
February 5, 2007, a complaint was filed against the Company by Abbott in the U.S. District Court for the District of Massachusetts (07-cv-10216). This
action alleges 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, which it amended on May 17, 2007, to this complaint denying all claims. The court has ordered a mediation hearing to occur on December 20, 2007. The
Company, having had the advice of its patent counsel, plans to vigorously defend against the claims asserted.

In
December 2002, Opposition Proceedings seeking to revoke EP (UK) 0 667 165 were brought by Scripps Research Institute, Amgen Inc., Abgenix, Inc., and YM
Biosciences Inc. The Opposition Proceedings are suspended pending a final determination of the entitlement cases in Europe.

On
May 2, 2007, the Company filed an Opposition in the European Patent Office against EP 1,058,562 B1, which is a patent directed to, inter alia, the use of either radiation or
chemotherapy in concert with an EGFR antibody that inhibits receptor dimerization. The patent is assigned to the University of Pennsylvania. Oppositions to that European Patent have also been filed by
Amgen, Merck KGaA, Oncoscience, Genmab and Hoffmann La-Roche.

No
reserve has been established in the financial statements for any of the legal proceedings described above as the Company does not believe that such a reserve is required to be
established at this time under SFAS No. 5. However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred and if such loss is reasonably
estimable at that time, the Company will establish such a reserve. Thus, it is possible that legal proceedings and settlements arising there from, if any, may have a material adverse impact on
operating results for that period, on our balance sheet or both.

In
October 2001, the Company entered into a sublease (the "Sublease") for a four-story building at 325 Spring Street, New York, New York, which includes approximately
100,000 square feet of usable space. The Sublease has a term of 22 years, followed by two five-year renewal option periods. In order to induce the sublandlord to enter into the
Sublease, the Company made a loan to the sublandlord in the principal amount of a $10.0 million note receivable, of which $8.0 million is outstanding as of September 30, 2007. The
loan is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The loan is payable by the sublandlord over 20 years and bears
interest at 51/2% in years one through 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 a consent fee in the amount of $500,000. Effective March 1, 2005, the Company amended the Sublease to add an additional 6,500
square feet of space upon all the same terms and conditions set forth in the Sublease. In connection with this amendment, the Company paid an up-front fee of $1.7 million which is
being amortized to lease expense over the respective term of the Sublease. The future minimum lease payments remaining as of September 30, 2007, are approximately $44.7 million.

16

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(9) Employee Benefit Plans

Defined Contribution Plan

All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a 401(k) defined contribution plan.
The 401(k) plan allows eligible employees to defer up to 25% of their annual compensation, subject to certain limitations imposed by federal law. The amounts 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 are invested in the Company's securities. Total expense incurred by the Company was $502,000 and $607,000 for the three months ended
September 30, 2007 and 2006, respectively, and
approximately $1.6 million and $1.8 million for the nine months ended September 30, 2007 and 2006, respectively.

(10) Long-term Debt

The Company's long-term debt was $600.0 million at September 30, 2007 and December 31, 2006. For a more detailed description of
the Company's long-term debt, reference Note 8 of the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2006.

In
December 2006, the FASB 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 registration payment arrangements and specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with SFAS No. 5. FSP 00-19-2 is effective immediately for registration payment arrangements and
financial instruments subject to those arrangements that were entered into or modified subsequent to the issuance of FSP 00-19-2. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance of FSP 00-19-2, it is effective for financial statements issued for fiscal
years beginning after December 15, 2006. The Company has adopted the provisions of FSP 00-19-2 as of January 1, 2007, and has determined that it had no impact on
the consolidated financial statements.

Under
the Registration Rights Agreement for these convertible notes, the Company could be subject to liquidated damages if the effectiveness of the registration statement covering the
convertible debt is not maintained at any time prior to the redemption of the convertible notes, the repayment of the convertible notes, or certain corporate events as defined in the convertible note
agreement. The Company believes the likelihood of such an event occurring is remote and, as such has not recorded a liability as of September 30, 2007. In the unlikely event that it becomes
probable that the Company would have to pay liquidated damages under the Registration Rights Agreement, until a shelf registration statement covering the convertible debt is again effective, the
potential liquidated damages would be 0.25% of the outstanding amount of notes for the first 90 days and 0.50% of the outstanding amount of notes thereafter. Such damages (i) would
accrue only with respect to the shares of the Company's common stock that were not already sold by the holder (using the registration statement or pursuant to SEC Rule 144) and that were not
eligible for sale without a registration statement; (ii) would
accrue only over the period during which the registration statement was not effective; and (iii) would be settled in cash in accordance with the terms of the Registration Rights Agreement.

17

---





Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is provided to further the reader's understanding of the consolidated financial statements, financial condition and results
of operations of ImClone Systems in this Quarterly Report on Form 10-Q. This discussion should be read in conjunction with the consolidated financial statements and the accompanying
notes included in our filings with the SEC, including our 2006 Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that
involve risk and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors,
including those set forth below and under "Risk Factors" and elsewhere in our 2006 Annual Report on Form 10-K.

OVERVIEW

ImClone Systems is a biopharmaceutical company whose mission is to advance oncology care by developing and commercializing a portfolio of targeted treatments
designed to address the medical needs of patients 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 of epidermal growth factor (EGF) and other ligands, such as transforming growth factor-alpha.
We are conducting, and in some cases have completed, clinical studies evaluating ERBITUX for broader use in colorectal cancer, squamous cell carcinoma of the head and neck ("SCCHN"), for the potential
treatment of lung and pancreatic cancers, as well as other potential indications.

In
July 2007, the Company and BMS amended the terms of their agreement for the co-development and co-promotion of ERBITUX in North America ("the BMS
Amendment"). Under this amendment, the companies have jointly agreed to expand the investment in the ongoing clinical development plan for ERBITUX by up to several hundred million dollars. Development
costs, up to a threshold amount, will be the sole responsibility of BMS; costs in excess of this threshold amount will be shared by both companies according to a pre-determined ratio. With
this additional funding, the companies will further explore the use of ERBITUX in additional tumor types including brain, breast, bladder, esophageal, gastric, lung, pancreas and prostate. In 2007 and
beyond, the BMS Agreement will allow us to significantly reduce our clinical and regulatory expenses for ERBITUX while at the same time expanding the antibody's development.

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



As
a result of our substantial investment in research and development, we incurred significant operating losses prior to fiscal 2004 and have an accumulated deficit of
$10.5 million as of September 30, 2007. We anticipate that our accumulated deficit will continue to decrease in the future

18

---



as
we earn revenues on commercial sales of ERBITUX and generate net income. There is no assurance that we will be able to continue to successfully manufacture market or commercialize ERBITUX or that
potential customers will buy ERBITUX. We rely entirely on third-party manufacturers for filling and finishing services with respect to ERBITUX. If our current third-party manufacturers or critical raw
material suppliers fail to meet our expectations, we cannot be assured that we will be able to enter into new agreements with other suppliers or third party manufacturers without an adverse effect on
our business.

HIGHLIGHTS AND OUTLOOK

John H. Johnson was appointed as the Company's Chief Executive Officer in August 2007. Mr. Johnson has more than two decades of executive and
operational management experience in the biopharmaceutical and healthcare industries. He has held senior management positions of increasing responsibility at Johnson & Johnson and most recently
served as Company Group Chairman of its worldwide biopharmaceuticals unit. Additionally, in July 2007, ImClone further strengthened its Board of Directors with the appointment of
Dr. Thomas Deuel, a preeminent scientist with a strong background in oncology.

In
August 2007, ImClone Systems received FDA approval in August 2007 for a second facility to manufacture ERBITUX. The approval of this new
250,000-square-foot multi-product state-of-the-art manufacturing facility, referred to as "BB50", more than doubles the Company's total
available production volume capacity for ERBITUX. This approval, in conjunction with ImClone Systems' existing "BB36"manufacturing facility, enhances the Company's ability to meet increasing demand
for ERBITUX in the worldwide market while advancing its clinical development pipeline.

In
September 2007, ImClone Systems signed settlement and sublicensing agreements with MIT and Repligen to end litigation related to U.S. Patent No. 4,663,281, which is
owned by the Massachusetts Institute of Technology ("MIT") and exclusively licensed to Repligen Corporation ("Repligen"). In addition to a full and final settlement of the claims against ImClone in
the matter, Repligen granted to ImClone Systems a royalty-free, irrevocable worldwide sublicense for the future use of other patented technology, including U.S. Patent
No. 5,665,578, which is owned by Abbott Laboratories ("Abbott"), but to which Repligen has the power to sublicense under an agreement between Abbott and Repligen. U.S. Patent
No. 5,665,578 is the patent upon which Abbott sued ImClone Systems for patent infringement earlier this year.

The
U.S. in-market third quarter sales of ERBITUX continued to increase as compared to both the third quarter of 2006 and sequentially over the second quarter of 2007. We
have built on the positive sales trend with increased promotional efforts to establish ERBITUX as the standard of care in refractory colorectal and head and neck cancers. With our expanded field
force, we hope to increase share in markets where ERBITUX has proven to provide significant clinical benefit and has received FDA approvals. Overall, we are encouraged by the performance of ERBITUX
and optimistic about our prospects for the future.

ERBITUX Clinical Development Update

In October 2007, ImClone Systems, BMS and Merck KGaA established an agreement for the co-development and co-commercialization of
ERBITUX in Japan. Under the terms of the agreement, the companies will collaborate on a joint effort to develop and, following regulatory approval, market ERBITUX in Japan for the treatment of EGFR
expressing metastatic colorectal cancer (mCRC), as well as for the treatment of any other cancers the parties agree to pursue. The companies submitted an application in Japan earlier this year for the
use of ERBITUX in treating patients with EGFR-expressing mCRC. ERBITUX is the first and only monoclonal antibody that inhibits the EGFR to be submitted for marketing authorization in
Japan.

19

---



In
October 2007, the FDA approved an update to the ERBITUX product labeling to include overall survival data as a single agent in EGFR-expressing mCRC patients after
failure of both irinotecan- and oxaliplatin-based regimens. With this approval, ERBITUX is the only approved biologic therapy to demonstrate improved overall survival as a single agent in patients
with mCRC.

In
September 2007, the Company announced that a Phase III study of ERBITUX in combination with platinum-based chemotherapy (vinorelbine plus cisplatin) met its primary endpoint of
increasing overall survival compared with chemotherapy alone in patients with advanced non-small cell lung cancer (NSCLC). This large, randomized multi-national study, known as FLEX, was
conducted by Merck KGaA and enrolled patients with Stage IIIB or Stage IV NSCLC who had not previously received chemotherapy. Based on the FLEX results, ERBITUX is the only member of the class of
epidermal growth factor inhibitors to demonstrate survival in the first-line treatment of patients with advanced NSCLC. Results from this study will be submitted for presentation at an
upcoming medical conference.

In
July 2007, ImClone Systems and BMS amended the terms of their commercial agreement for the co-development and co-promotion of ERBITUX in North America.
The
amendment significantly increases BMS' financial investment in ERBITUX by up to several hundred million dollars. With this additional funding, the companies will seek to add numerous Phase II and
Phase III clinical trials that will further explore the activity of ERBITUX in a wide variety of therapeutic settings. The companies intend to utilize the results of these studies to support new
registration opportunities for ERBITUX.

Pipeline Clinical Development

A number of the Company's clinical pipeline candidates have progressed into Phase II during the second half of 2007. Patient enrollment commenced for Phase II
studies of IMC-A12 for mCRC and prostate cancer, for a Phase II study of IMC-1121B for renal cell cancer, and for a Phase II study of IMC-11F8 for mCRC. The Company
plans to initiate additional Phase II and Phase III studies of these clinical pipeline candidates over the next several quarters. Also, the Company announced that the Cancer Therapy Evaluation Program
(CTEP) of the Division of Cancer Treatment and Diagnosis (DCTD), National Cancer Institute (NCI), has selected 10 proposals for Phase I/II clinical trials of IMC-A12.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Estimates are deemed critical when a
different methodology could have reasonably been used or where changes in the estimate from period to period may have a material impact on our financial condition or results of operations. Our
critical accounting policies that require management to make significant judgments, estimates, and assumptions are set forth below. The development and selection of the critical accounting policies,
and the related disclosure below, have been reviewed with the Audit Committee of our Board of Directors.

Revenue RecognitionOur revenues are derived from four primary sources: royalty revenue, license fees and milestone payments,
manufacturing revenue, and collaborative agreement reimbursement revenue.

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

20

---



Revenues
from license fees and milestone payments primarily consist of up-front license fees and milestone payments received under the Commercial Agreement with BMS, relating
to ERBITUX, and milestone payments received under the development and license agreement with Merck KGaA. We recognize all non-refundable up-front license fees as revenues in
accordance with the guidance provided in the SEC's Staff Accounting Bulletin No. 104. Our most critical application of this policy relates to the $900.0 million in license fees and
milestones received from BMS under the Commercial Agreement. We recognize license fees and milestones received from BMS based upon actual ERBITUX clinical development costs incurred as a percentage of
the estimated total of such costs to be incurred over the projected term of the ERBITUX clinical development plan. Any future changes in the estimated total costs of the clinical development plan will
be addressed on a prospective basis. Of the $900.0 million in payments received to date, $19.0 million and $81.5 million was recognized as revenue for the three and nine months
ended September 30, 2007, respectively, and $607.3 million from the commencement of the Commercial Agreement in 2001 through September 30, 2007. The methodology used to recognize
deferred revenue involves a number of estimates and judgments, such as the estimate of total ERBITUX clinical development costs to be incurred under the BMS Amendment. Changes in these estimates and
judgments can have a significant effect on the size and timing of revenue recognition. In addition, if management had chosen a different methodology to recognize the license fees and milestone
payments received under the Commercial Agreement, the Company's financial position and results of operations could have differed materially. For example, if the Company were to recognize the revenues
earned from the Commercial Agreement on a straight-line basis over the life of the agreement, the Company would have recognized approximately $16.0 million and $48.0 million
for the three and nine months ended September 30, 2007, respectively, and $237.1 million from the commencement of the Commercial Agreement through September 30, 2007. Management
believes that the methodology used to recognize revenues under the Commercial Agreement, which reflects the level of effort consistent with our product development activities, is the most appropriate
methodology because it reflects the level of expenditure and activity in the period in which it is being spent as compared to the total expected expenditure over the life of the ERBITUX clinical
development plan. This cost-to-cost approach is systematic and rational, it provides a factually supportable pattern to track progress, and is reflective of the level of
effort, which varies over time.

Non-refundable
upfront payments received from Merck KGaA were deferred due to our significant continuing involvement and are being recognized as revenue on a
straight-line basis over the estimated service period because the activities specified in the agreement between the Company and Merck KGaA will be performed over the estimated service
period and there is no other pattern or circumstances that indicate a different way in which the revenue is earned. In addition, the development and license agreement with Merck KGaA does not contain
any provisions for establishing a clinical budget and none has been established between the parties. This agreement does not call for co-development with the Company in Merck KGaA's
territory; rather Merck KGaA is solely responsible for regulatory efforts in its territory. Non-refundable milestone payments, which represent the achievement of a significant step in the
research and development process, pursuant to collaborative agreements other than the Commercial Agreement, are recognized as revenue upon the achievement of the specified milestone. This is because
each milestone payment represents the achievement of a substantive step in the research and development process and Merck
KGaA has the right to evaluate the technology to decide whether to continue with the research and development program as each milestone is reached.

Manufacturing
revenue consists of revenue earned on the sale of ERBITUX to our corporate partners for subsequent commercial sale. The Company recognizes manufacturing revenue when the
product is shipped, which is when our partners take ownership and title has passed, collectibility is reasonably assured, the sales price is fixed or determinable, and there is persuasive evidence of
an arrangement. We are contractually obligated to sell ERBITUX to BMS at our cost of production plus a 10% markup on bulk. We sell bulk inventory to Merck KGaA at our cost of production. The

21

---



continuing
level of manufacturing revenue in future periods may fluctuate significantly based on market demand, our cost of production, as well as BMS's required level of safety stock inventory for
ERBITUX and whether Merck KGaA continues to order ERBITUX for commercial use.

Collaborative
agreement reimbursement revenue consists of reimbursements received from BMS and Merck KGaA related to clinical and regulatory studies, ERBITUX provided to them for use in
clinical studies, reimbursement of a portion of royalty expense and certain marketing and administrative costs. Collaborative agreement revenue is recorded as earned based on the performance
requirements under the respective contracts.

InventoriesOur policy is to capitalize inventory costs associated with our products when, based on management's judgment,
future economic benefit is expected to be realized. Our accounting policy addresses the attributes that should be considered in evaluating whether the costs to manufacture a product have met the
definition of an asset as stipulated in FASB Concepts Statement No. 6. If applicable, we assess the regulatory and approval process including any known constraints and impediments to approval.
We also consider the shelf-life of the product in relation to the expected timeline for approval. We review our inventory for excess or obsolete inventory and write down obsolete or
otherwise unmarketable inventory to its estimated net realizable value.

In
June 2006, we began producing ERBITUX for commercial use at our BB50 manufacturing facility and on August 20, 2007, we received approval from the FDA for the manufacture
of ERBITUX in BB50, and are now able to sell the ERBITUX inventory produced in BB50.

LitigationThe Company is currently involved in certain legal proceedings more fully described under
Part IIItem 1"Legal Proceedings" and as disclosed in the notes to the consolidated financial statements. As of September 30, 2007, we have not established a
legal reserve in our financial statements as we do not believe that such a reserve is required to be established at this time, in accordance with Statement of Financial Standards ("SFAS")
No. 5, "Accounting for Contingencies." However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred, and if such loss is reasonably
estimable at that time, we will establish such a reserve. Thus, it is possible that legal proceedings and settlements arising there
from, if any, may have a material adverse impact on the operating results for that period, on our balance sheet or both.

Long-Lived AssetsWe review long-lived assets for impairment when events or changes in business
conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and written down to fair value if expected associated undiscounted cash flows are less
than carrying amounts. Fair value is generally determined as the present value of the expected associated cash flows. We own a number of buildings that are primarily dedicated to the manufacturing of
ERBITUX and other clinical products in our pipeline. Based on management's current estimates, we expect to recover the carrying value of such assets. Changes in regulatory or other business conditions
in the future could change our judgments about the carrying value of these facilities, which could result in the recognition of material impairment losses.

Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Significant estimates are required in determining our provision for income taxes. In 2006, we released a portion of our valuation allowance against our deferred tax
assets. This partial release was based on revised expectations of our projected book and taxable income which caused us to conclude that it is more likely than not that a portion of the benefits of
these deferred taxes would be realized. The financial projections supporting our conclusion to release a portion of our valuation allowance contain significant assumptions based on current facts about
our market share and our competitive landscape. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. We will continue to

22

---



monitor
our current performance and future financial projections, including market share and competitive landscape, in order to determine the effect on the valuation allowance.

Impact of Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, "Accounting for Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value,
and establishes a framework for measuring fair value in accordance with accounting GAAP, and expands disclosure about fair value measurements. SFAS 157 is effective for fiscal years beginning
after November 15, 2007. The Company is currently evaluating the requirements of SFAS 157.

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

In
June 2007, the Emerging Issues Task Force reached a consensus on Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Good or Services to Be
Used in Future Research and Development Activities." This Issue requires that nonrefundable advance payments for research and development activities be deferred and capitalized. Such amounts should be
recognized as an expense as the related goods are delivered or the services are performed or when the goods or services are no longer expected to be provided. This Issue will be effective for fiscal
years beginning after December 15, 2007, and earlier adoption is not permitted. This consensus is to be applied prospectively for new contracts entered into after that date. The Company is
currently evaluating the potential impact of this consensus on its consolidated financial statements.

RESULTS OF OPERATIONS

Selected financial and operating data for the three and nine months ended September 30, 2007 and 2006 are as follows: (in thousands)

|                                       |                          | Three Months Ended
September 30, |        | Nine Months Ended
September 30, |        
|-------------------------------------- | ------------------------ | -------------------------------- | ------ | ------------------------------- | -------
|
|Results of Operations:                 |                          |                                  |        |                                 |        
|Royalties                              |                          | $                                | 87,853 |                                 | $      
|License fees and milestones            |                          |                                  | 19,226 |                                 |        
|Manufacturing                          |                          |                                  | 21,973 |                                 |        
|Collaborative agreement reimbursements |                          |                                  | 18,495 |                                 |        
|                                       |                          |                                  |        |                                 |        
|                                       | Total revenues           |                                  |        | 147,547                         |        
|                                       |                          |                                  |        |                                 |        
|Research and development               |                          |                                  | 43,626 |                                 |        
|Clinical and regulatory                |                          |                                  | 4,761  |                                 |        
|Selling, general and administrative    |                          |                                  | 20,748 |                                 |        
|Royalties                              |                          |                                  | 19,324 |                                 |        
|Cost of manufacturing revenue          |                          |                                  | 22,256 |                                 |        
|Litigation settlement                  |                          |                                  | 50,000 |                                 |        
|                                       |                          |                                  |        |                                 |        
|                                       | Total operating expenses |                                  |        | 160,715                         |        
|                                       |                          |                                  |        |                                 |        
|                                       |                          | Operating income (loss)          |        | $                               | (13,168
|                                       |                          |                                  |        |                                 |        

23

---



Three Months Ended September 30, 2007 and 2006

Revenues



Royalty revenues consist primarily of royalty payments earned on the sales of ERBITUX by our partners, BMS and Merck KGaA. Under our agreement with BMS, we are
entitled to royalty payments equal to 39% of BMS's net sales of ERBITUX in the United States and Canada. Under our agreement with Merck KGaA, beginning July 2006, we are entitled to royalty
payments equal to 9.5% of Merck's KGaA's net sales outside of the United States and Canada.

In
the third quarter of 2007, our royalty revenue increased by approximately $9.3 million, or 12%, from the comparable period in 2006 due to an increase in domestic and
international net sales of ERBITUX. U.S. in-market sales by BMS in the third quarter of 2007 amounted to $184.5 million compared to the comparable period in 2006 of
$174.6 million, an increase of $9.9 million, or 6%. Approximately $9.0 million of this increase resulted from BMS transitioning from a drop-shipment methodology to a
more traditional wholesaler distribution model in the third quarter of 2007 whereby currently three domestic wholesalers are now maintaining an inventory of ERBITUX for distribution in the U.S.
International net sales of ERBITUX by our partner Merck KGaA in the third quarter of 2007 amounted to approximately $166.9 million, an increase of $56.8 million or 52% from the
comparable period in 2006.



License fees and milestone revenues consist of the recognition of up-front license fees and milestone payments received under the Commercial Agreement
with BMS and recognition of payments received under the development and license agreements with Merck KGaA. In the third quarter of 2007, total license fees and milestone revenue consisted of
approximately $19.0 million earned from BMS and $268,000 from Merck KGaA, as compared to the same period in 2006, in which approximately $34.8 million was earned from BMS and $118,000
was earned from Merck KGaA.

The
decrease in license fees and milestone revenues is attributable to the impact of the BMS Amendment on the ERBITUX clinicial development cost estimates used to calculate BMS license
fees and milestone revenues.



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

During
the third quarter of 2007, manufacturing revenue increased by $1.1 million from the comparable period in 2006 primarily due to an increase in the number of vials sold by
both of our corporate partners year over year. This increase was partially offset by efficiencies in the manufacturing process of ERBITUX resulting in a decrease in the price we charge our partners
for ERBITUX.



Collaborative agreement reimbursement revenue consists primarily of reimbursements from our partners BMS and Merck KGaA under our collaborative agreements. There
are certain categories for which we receive reimbursement from our partners: the cost of ERBITUX supplied to our partners for use in clinical studies, clinical and regulatory expenses, certain
marketing and administrative expenses, and a portion of royalty expense. During the third quarter of 2007, we earned approximately

24

---



$18.5 million
in collaborative agreement revenue, which consists of $14.8 million earned from BMS and $3.7 million earned from Merck KGaA, as compared to $16.3 million
earned in the comparable period in 2006, of which $13.4 million was earned from BMS and $2.9 million was earned from Merck KGaA.

The
increase from the comparable period of $2.2 million, or 14%, is primarily due to an increase in reimbursements of clinical expenses following the BMS Amendment. As a result of
the BMS Amendment, ERBITUX clinical development costs, up to a threshold amount, are the sole responsibility of BMS, with costs in excess of this threshold amount shared by both companies according to
a predetermined ratio, effective January 1, 2007. As a result, reimbursable ERBITUX clinical development costs from BMS increased by $2.8 million for the quarter, including
$2.3 million for costs previously recorded by us in the first half of 2007 that are now reimbursable. The increase is also due to more reimbursable clinical trial activity year over year of
approximately $1.0 million as well as an increase in clinical shipments of ERBITUX to our partners of approximately $1.0 million. These increases were offset by a decrease in
reimbursement for royalty expenses of $2.6 million resulting from the lower reimbursement rate from BMS for third-party royalties, which dropped from 4.5% to 2.5%, effective January 1,
2007.

Expenses



Research and development expenses include costs associated with our in-house research programs, product and process development expenses, costs to
manufacture our product candidates for clinical studies, quality assurance, and quality control infrastructure. Research and development expenses also include our cost of inventory that is supplied to
our corporate partners for use in clinical
studies that are reimbursable from our corporate partners. Approximately $4.6 million and $3.6 million of costs representing research and development expenses in the third quarters of
2007 and 2006, respectively, were reimbursable and included under collaborative agreement reimbursement revenue since they represent inventory supplied to our partners for use in clinical studies.

Research
and development expenses in the third quarter of 2007 of $43.6 million increased from the comparable period in 2006 by $17.2 million, or 65%. This increase is
primarily due to the transition of our BB50 manufacturing facility from the production of ERBITUX to pipeline products on July 1, 2007. This transition resulted in approximately
$14 million of inventory production costs for pipeline products being recorded as research and development expense as compared to the prior year when these costs were incurred and capitalized
into the production of ERBITUX. In addition, there was an increase of $5.6 million in material costs associated with the production of pipeline products which were expensed. These increases
were partially offset by decreases in various other expense categories.

For
the full year of 2007, we expect research and development expenses to be in the range of approximately $155 to $160 million.



Clinical and regulatory expenses consist of costs to conduct our clinical studies and associated regulatory activities. Clinical and regulatory expenses in the
third quarter of 2007 amounted to $4.8 million, a decrease of $8.8 million or 65% from the comparable period in 2006. Clinical and regulatory expenses includes certain amounts that are
reimbursable from our corporate partners. As a result, approximately $7.0 million and $3.3 million of the costs included in this category for the third quarters of 2007 and 2006,
respectively, are reflected as revenues under collaborative agreement reimbursement revenue since they represent costs that are reimbursable by our corporate partners.

25

---





The BMS Amendment specifies that each year BMS will fund nearly all of the annual ERBITUX development costs up to a specific threshold amount and that we will contribute a portion of the
costs in excess of that threshold amount. For 2007, this threshold amount is effective January 1, 2007, therefore, a $7.6 million adjustment was recorded by the Company to reduce
previously expensed ERBITUX clinical development costs incurred during the period prior to signing the BMS Amendment, which fell under the newly established threshold amount and therefore are the sole
responsibility of BMS.

For
the full year of 2007, we expect clinical and regulatory expense to be in the range of approximately $50 to $55 million.



Selling, general and administrative expenses include selling and administrative personnel costs, including related facility costs, additional costs to develop
internal selling and field operations capabilities and expenses associated with applying for patent protection for our technology and products.

Selling,
general and administrative expenses in the third quarter of 2007 amounted to $20.7 million, an increase of $4.8 million or 30% from the comparable period in 2006.
Expenses in this category have increased from the comparable period in 2006, mainly due to the expansion of our field sales force during the second quarter of 2007 as well as an increase in legal fees
associated with patent litigation matters. Selling, general and administrative expenses include amounts reimbursable from our corporate partners of which approximately $388,000 and $307,000 of costs
in the third quarters of 2007 and 2006, respectively, were reimbursable and included in collaborative agreement reimbursement revenue.

For
the full year of 2007, we expect total selling, general and administrative expenses to be in the range of approximately $75 to $80 million.



Royalty expense consists of obligations related to certain licensing agreements regarding ERBITUX. In July 2007, a patent we licensed expired and therefore
the royalty rate we pay on North American net sales decreased from 9.25% to 8.50%. We pay a low single-digit royalty on sales outside of North America, which will increase if sales outside of North
America consist of ERBITUX produced in the United States. In 2007, we receive reimbursements from our corporate partners of 2.5% on North American net sales and a single-digit percentage on net sales
outside of North America, which is reflected in collaborative agreement reimbursement revenue. Approximately $6.5 million and $9.1 million of royalty expense were reimbursable by our
corporate partners and included as collaborative agreement reimbursement revenue in the third quarters of 2007 and 2006, respectively.

In
the third quarter of 2007, we incurred royalty expense of $19.3 million an increase of $1.3 million, or 7%, from the comparable period in 2006. The increase is due to an
increase in global net sales of ERBITUX in the third quarter of 2007 from the comparable period in 2006.



We sell ERBITUX to BMS at our cost of production plus a 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 partners, and the costs of filling and finishing ERBITUX bulk (for which we do not charge a 10% markup when selling to BMS), we expect that
our gross margins on sales of ERBITUX may fluctuate from quarter to quarter.

26

---



Cost
of manufacturing revenue in the third quarter of 2007 amounted to $22.3 million, which includes a $2.1 million expense for batches of ERBITUX that were damaged during
the period, compared to approximately $19.2 million for the same period of 2006. Excluding the costs of the damaged batches, our gross margin was 8% for the third quarter of 2007.



Litigation settlement expense of $50.0 million was recorded in the third quarter of 2007 resulting from the settlement agreement executed in
September 2007 with MIT and Repligen. The total settlement was $65.0 million, of which $50.0 million was attributable to an expired Repligen patent and was expensed in the period
and $15.0 million was attributed to the sublicensed Abbott patents.



Interest income in the third quarter of 2007 amounted to $13.4 million, an increase of approximately $2.3 million, or 21% from the comparable period
in 2006. This increase is attributable to higher average interest rates and balance of our investment portfolio from the comparable period in 2006.

Interest
expense in the third quarter of 2007 amounted to $3.1 million, an increase of $126,000 from the comparable period in 2006.

Other
income for the third quarter of 2007 includes a gain of $3.8 million from the proceeds of an insurance reimbursement primarily for lost royalties on an ERBITUX shipment that
was damaged in-transit during 2006.



Our estimated annual effective income tax rate for 2007 is approximately 41.5%, excluding the effect of any discrete charges. The income tax provision for the
quarter ended September 30, 2007 reflects the cumulative impact of the increased estimated annual effective tax rate. Additionally, during the three months ended September 30, 2007, the
Company recorded a benefit of approximately $786,000 primarily related to the reconcilation of estimates to actual filed tax returns. The estimated annual income tax rate is higher than the prior
year's rate mainly due to the utilization in 2006 of fully reserved deferred tax assets. Cash taxes in 2007 are expected to be approximately $4 million.



In the third quarter of 2007 we had a net loss of $916,000, or $(0.01) per diluted common share, compared with net income of $57.3 million, or $0.65 per
diluted common share for the comparable period in 2006. The fluctuation in results was due to the factors noted above.

Nine Months Ended September 30, 2007 and 2006

Revenues



Royalty revenues consist primarily of royalty payments earned on net sales of ERBITUX by our partners, BMS and Merck KGaA. Under our agreement with BMS, we are
entitled to royalty payments equal to 39% of BMS's net sales of ERBITUX in the United States and Canada. Under our agreement with Merck KGaA, beginning July 2006, we are entitled to royalty
payments equal to 9.5% of Merck's KGaA's net sales outside of the United States and Canada.

For
the nine months ended September 30, 2007, royalty revenue amounted to $242.4 million, an increase of $28.9 million, or 14%, from the comparable period in 2006.
This increase is due to an

27

---



increase
in global net sales of ERBITUX. U.S. in-market sales by BMS for the first nine months of 2007 amounted to $506.7 million, an increase of $21.7 million, or 4%
compared to the prior year period. Approximately $10.6 million of this increase resulted from BMS's switch from a drop-shipment methodology to a more traditional wholesaler
distribution model in the third quarter of 2007 whereby currently three domestic wholesalers are now maintaining an inventory of ERBITUX for distribution in the U.S. Outside of North America. Net
sales of ERBITUX by Merck KGaA in the first nine months of 2007 amounted to $470.0 million, an increase of $167.6 million or 55% from the comparable period in 2006.



License fees and milestone revenues consist of the recognition of up-front license fees and milestone payments received under the Commercial Agreement
with BMS and recognition of payments received under the development and license agreements with Merck KGaA. For the nine months ended September 30, 2007, license fees and milestone revenue
consisted of $81.5 million earned from BMS and $505,000 from Merck KGaA, as compared to the same period in 2006 in which $212.6 million was earned from BMS and $229,000 was earned from
Merck KGaA.

The
decrease of $130.8 million, or 60%, from the comparable period in 2006 is due to the fact that in March 2006, we received the last milestone payment from BMS of
$250.0 million, as a result of obtaining approval from the FDA for ERBITUX in a head and neck indication. The milestone revenue in the first quarter of 2006 included a "catch-up"
adjustment of approximately $112.7 million related to the actual product clinical development costs incurred from inception through December 31, 2005 as a percentage of the estimated
total costs to be incurred over the term of the Commercial Agreement.



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

During
the first nine months of 2007, manufacturing revenue decreased by $7.1 million from the comparable period in 2006 due primarily to efficiencies in the manufacturing process
of ERBITUX resulting in a decrease in the price we charge our partners for ERBITUX. Total volume purchases from our partners in the first nine months of 2007 increased by approximately 5% from the
comparable period in 2006.



Collaborative agreement reimbursement revenue consists primarily of reimbursements from our partners BMS and Merck KGaA under our collaborative agreements. There
are certain categories for which we receive reimbursement from our partners: the cost of ERBITUX supplied to our partners for use in clinical studies, clinical and regulatory expenses, certain selling
and administrative expenses, and a portion of royalty expense. During the nine months ended September 30, 2007, we earned $53.7 million in collaborative agreement revenue, which
primarily consists of approximately $35.9 million earned from BMS, approximately $17.2 million earned from Merck KGaA and $600,000 as final payment from a former corporate partner, as
compared to $50.8 million earned in the comparable period in 2006, of which $38.4 million was earned from BMS and approximately $12.4 million was earned from Merck KGaA. The
increase in collaborative agreement revenue of $2.9 million is principally due to increases in reimbursement for clinical drugs of approximately $5.8 million and in the reimbursement of
clinical expenses of approximately $5.0 million, $2.3 million for costs previously recorded by the Company in the first half of 2007 that are now reimbursable by

28

---



BMS.
These increases were partially offset by a decrease in reimbursement for royalty expense of $8.5 million, primarily resulting from the lower reimbursement rate from BMS for third-party
royalties, which dropped from 4.5% to 2.5% on January 1, 2007.



Research and development expenses include costs associated with our in-house research programs, product and process development expenses, costs to
manufacture our product candidates for clinical studies, quality assurance and quality control infrastructure. Research and development expenses also include our cost of inventory that is supplied to
our corporate partners for use in clinical studies that are reimbursable from our corporate partners. Approximately $19.4 million and $13.5 million of costs representing research and
development expenses in the first nine months of 2007 and 2006, respectively, were reimbursable and included under collaborative agreement reimbursement revenue as they represent inventory supplied to
our partners for use in clinical studies.

Research
and development expenses for the nine months ended September 30, 2007 of $112.2 million increased by approximately $25.2 million, or 29%, from the
comparable period in 2006. The increase is due primarily to the transition of our BB50 manufacturing facility from the production of ERBITUX to pipeline products on July 1, 2007. This
transition resulted in inventory production costs for pipeline products being recorded as research and development expense as compared to the prior year when these costs were incurred and capitalized
into the production of ERBITUX. As part of this transition we also experienced increased material costs associated with the development of our pipeline products of approximately $7.5 million
which were expensed. In addition, we had an increase in shipments of ERBITUX to our partners for clinical studies of approximately $7.1 million, as well as the write-off of
$3.6 million of previously capitalized costs associated with the development of our Spring Street location. These increases were partially offset by smaller decrease across various categories.

For
the full year of 2007, we expect research and development expenses to be in the range of approximately $155 to $160 million.



Clinical and regulatory expenses consist of costs to conduct our clinical studies and associated regulatory activities. Clinical and regulatory expenses also
include certain amounts that are reimbursable from our corporate partners. As a result, approximately $14.4 million and $9.4 million of the costs included in this category for the first
nine months of 2007 and 2006, respectively, are reflected as revenues under collaborative agreement reimbursement revenue since they represent costs that are reimbursable by our corporate partners.

Clinical
and regulatory expenses for the nine months ended September 30, 2007 amounted to $33.4 million, a decrease of $10.1 million, or 23%, from the comparable
period in 2006. This decrease is due primarily to an adjustment of $7.6 million that was recorded by the Company as a result of the BMS Amendment, to reduce previously expensed ERBITUX
development costs incurred during the period prior to signing the BMS Amendment, which fell under the newly established threshold amount and therefore are the sole responsibility of BMS.

For
the full year of 2007, we expect clinical and regulatory expense to be in the range of approximately $50 to $55 million.



Selling, general and administrative expenses include selling and administrative personnel costs, including related facility costs, additional costs to develop
internal selling and field operations

29

---



capabilities
and expenses associated with applying for patent protection for our technology and products. Selling, general and administrative expenses also include amounts reimbursable from our
corporate partners. Approximately $967,000 and $957,000 of costs in the first nine months of 2007 and 2006, respectively, were reimbursable and included in collaborative agreement reimbursement
revenue.

Selling,
general and administrative expenses for the nine months ended September 30, 2007 amounted to $54.7 million, a decrease of $2.3 million or 4% from the
comparable period in 2006. Expenses in this category have decreased from the comparable period in 2006, mainly due to a $4.2 million decrease in personnel costs as a result of the turnover of
executive level employees, some of whom have not been replaced. This decrease was partly offset by small increases in various other categories.

For
the full year of 2007, we expect total selling, general and administrative expenses to be in the range of approximately $75 to $80 million.



Royalty expense consists of obligations related to certain licensing agreements regarding ERBITUX. Due to the expiration of a patent we licensed, in
July 2007 the royalty rate we pay on North American net sales decreased from 9.25% to 8.50%. We pay a low single-digit royalty on sales outside of North America, which will increase if sales
outside of North America consist of ERBITUX produced in the United States. In 2007, we receive reimbursements from our corporate partners of 2.5% on North American net sales and a single-digit
percentage on net sales outside of North America, which is reflected in collaborative agreement revenue. As a result, approximately $18.3 million and $26.9 million of royalty expense
were reimbursable by our corporate partners and included as collaborative agreement revenue in the first nine months of 2007 and 2006, respectively.

During
the nine months ended September 30, 2007, we incurred royalty expense of $55.1 million, a decrease of $1.4 million, or 3% from the comparable period in 2006.
The decrease is primarily due the fact that (1) prior to the second quarter of 2006, we paid royalties of approximately 12.25% of North American net sales and effective in the second quarter of
2006, our obligation decreased by 3%; and
(2) as previouisly dicussed, as a result of the expiration in July 2007 of a patent we licensed, our total domestic royalty expense decreased from 9.25% to 8.5% These decreases in
royalty rates were partially offset by the increased worldwide net sales of ERBITUX from $787.5 million for the first nine months of 2006 to $976.7 million in the first nine months of
2007.



We sell ERBITUX to BMS at our cost of production plus a 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 partners, and the costs of filling and finishing ERBITUX bulk (for which we do not charge a 10% markup when selling to BMS), we expect that
our gross margins on sales of ERBITUX may fluctuate from quarter to quarter.

Cost
of manufacturing revenue for the nine months ended September 30, 2007 amounted to $59.1 million, which includes a $3.1 million charge for batches of ERBITUX
that were damaged during the period, compared to approximately $61.5 million in the comparable period of 2006. Excluding the costs of the damaged batches, our gross margin was 9%.



Litigation settlement expense of $50.0 million was recorded in the third quarter of 2007 resulting from the settlement agreement executed in
September 2007 with MIT and Repligen. The total

30

---



settlement
was $65.0 million, of which $50.0 million was attributable to an expired Repligen patent and was expensed in the period and $15.0 million was attributed to the
sublicensed Abbott patents.



Interest income for the nine months ended September 30, 2007 amounted to $39.2 million, an increase of approximately $10.8 million, or 38%
from the comparable period in 2006. This increase is attributable to higher average interest rates and balances in our investment portfolio from the comparable period in
2006, due primarily to the receipt of a $250.0 million milestone payment we received from BMS on March 31, 2006.

Interest
expense for the nine months ended September 30, 2007 amounted to approximately $9.1 million, an increase of approximately $2.7 million, or 43% from the
comparable period in 2006. The increase is primarily due to the fact that we finalized construction of our BB50 manufacturing facility in May 2006, and therefore, ceased capitalizing interest
on the construction of the facility at that time.

Other
income for the third quarter of 2007 includes a gain of $3.8 million from the proceeds of an insurance reimbursement primarily for lost royalties on an ERBITUX shipment that
was damaged in-transit during 2006.



Our estimated annual effective income tax rate for 2007 is approximately 41.5%, excluding the effect of any discrete charges. Additionally, for the nine months
ended September 30, 2007, the Company has recognized a net discrete charge of approximately $4.3 million primarily related to certain tax return method changes filed as well as certain
deferred tax charges. The estimated annual income tax rate is higher than the prior year's rate mainly due to the utilization in 2006 of fully reserved deferred tax assets. For the nine months ended
September 30, 2006, the Company had also recorded a discrete benefit related to the partial release of the valuation allowance. We expect to pay cash taxes of approximately $4 million in
2007.



For the nine months ended September 30, 2007, we had net income of $59.7 million, or $0.69 per diluted common share compared with net income of
$324.1 million, or $3.58 per diluted common share for the comparable period in 2006. The fluctuation in results was due to the factors noted above.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2007, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately
$1.1 billion. Historically, we have financed our operations
through a variety of sources, most significantly through the issuance of public and private equity and convertible notes, license fees and milestone payments and reimbursements from our corporate
partners. Since the approval of ERBITUX on February 12, 2004, we began to generate royalty revenue and manufacturing revenue from the commercial sale of ERBITUX by our corporate partners and we
have generated income from operations since 2004. As we continue to generate income, our cash flows from operating activities are expected to increase as a source to fund our operations. Therefore, we
anticipate that our future financial condition and our future operating performance will continue to experience significant changes and that past performance will not likely be indicative of our
future performance.

31

---



SUMMARY OF CASH FLOWS

September 30,
2007

September 30,
2006

VarianceCash provided by (used in):Operating activities

$
(3,531
)
$
186,422

$
(189,953
)Investing activities


358,570


(261,485
)

620,055Financing activities


38,716


86,968


(48,252
)Net increase in cash and cash equivalents

$
393,755

$
11,905

$
381,850


Historically
our cash flows from operating activities have fluctuated significantly due to the nature of our operations and the timing of our cash receipts. During the first nine months
of 2007, we used approximately $3.5 million in cash from operating activities, as compared to generating $186.4 million in the comparable period of 2006. The decrease in operating cash
flows in the first nine months of 2007 is primarily due to the receipt of a $250.0 million milestone payment from our corporate partner BMS in March 2006, as a result of obtaining
approval from the FDA for ERBITUX in a second indication, and the payment of $65.0 million to settle the Repligen/MIT litigation in September 2007, partially offset by an increase in
cash flows from royalty revenues in 2007.

Our
primary sources and uses of cash from investing activities consist of purchases and sales activity in our investment portfolio, which we manage based on our liquidity needs, possible
business development transactions and amounts used for capital expenditures. During the first nine months of 2007, we generated cash from investing activities of $358.6 million which consists
of net proceeds of $367.4 million from sales and maturities of securities available for sale due to our decision to increase our money market fund investments until more stability returns to
the financial markets. The proceeds were partially offset by approximately $8.8 million in acquisition of fixed assets. As of September 30, 2007, we had approximately
$149.2 million of variable-rate financial instruments that failed at auction during the quarter. These investments are all AAA/Aaa rated and the interest continues to be paid by the
holder of the notes. The Company believes that this loss position is temporary and that no asset impairment charge is needed at this time.

Net
cash flows generated in financing activities in 2007 were approximately $38.7 million, of which approximately $24.2 million of proceeds were generated from the exercise
of stock options and sales under the Company's employee stock purchase plan, $14.0 million was generated from tax benefits associated with equity net operating losses that will be taken as a
reduction on our tax returns, and $500,000 was generated through the sale of treasury stock.

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



32

---





OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future 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 mix of 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 such instruments are classified as securities available for sale. Generally, we do
not invest in equity investments, commodities, foreign exchange contracts or use financial derivatives for trading purposes, however, we may make these investments depending upon our needs. Our debt
security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market
liquidity by investing in investment grade fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to
changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We invest in securities that have a range of maturity dates.

The
table below presents the principal amounts and related weighted average interest rates by year of maturity for our fixed and variable rate securities within our investment portfolio
as of September 30, 2007: (in thousands, except interest rates)

|                      |  | 2007 |        | 2008 |   | 2009    |   | 2010 |        | 2011 |   | 2012 and
Thereafter |   | Total |        | Fair
Value
|--------------------- |  | ---- | ------ | ---- | - | ------- | - | ---- | ------ | ---- | - | ------------------- | - | ----- | ------ | ----------
|Fixed Rate            |  | $    | 60,000 |      | $ | 115,015 |   | $    | 55,000 |      | $ | 193,397             |   | $     | 20,000 |           
|Average Interest Rate |  |      | 3.53   | %    |   | 4.10    | % |      | 4.33   | %    |   | 5.39                | % |       | 5.5    | %         
|Variable Rate(1)      |  |      |       |      |   | 1,801   |   |      |       |      |   |                    |   |       |       |           
|Average Interest Rate |  |      |       |      |   | 5.70    | % |      |       |      |   |                    |   |       |       |           
|                      |  |      |        |      |   |         |   |      |        |      |   |                     |   |       |        |           
|                      |  | $    | 60,000 |      | $ | 116,816 |   | $    | 55,000 |      | $ | 193,397             |   | $     | 20,000 |           
|                      |  |      |        |      |   |         |   |      |        |      |   |                     |   |       |        |           

---

Our
outstanding 13/8% fixed rate convertible senior notes in the principal amount of $600.0 million due May 15, 2024 are convertible into our common stock at
a conversion price of $94.69 per share, subject to certain restrictions as outlined in the indenture agreement. The fair value of fixed interest rate instruments is affected by changes in interest
rates and in the case of the convertible notes by changes in the price of our common stock as well. The fair value of the convertible senior notes was approximately $559.5 million at
September 30, 2007.

33

---



Item 4.Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Interim Vice President, Finance, has evaluated the effectiveness of our "disclosure
controls and procedures" (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on such evaluation, our
Chief Executive Officer and Interim Vice President, Finance have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information that we are required to disclose in the reports that we file or submit under the Exchange Act.

Changes In Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended September 30, 2007 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.

34

---





PART II  OTHER INFORMATION

Item 1.Legal Proceedings

Intellectual Property Litigation

As previously reported, on October 28, 2003, a complaint was filed by Yeda Research and Development Company Ltd. ("Yeda") against ImClone Systems
and Aventis Pharmaceuticals, Inc. ("Aventis") in the 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
individuals associated 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, the
Company's EGFR antibody product) in combination with chemotherapy. The Company has 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
respect to this matter, as filed with the Court on June 24, 2005. At the same time, the Court granted summary judgment to Yeda dismissing two of the Company's affirmative defenses. 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 in favor of Yeda by awarding it sole inventorship
rights to the patent. The Company then appealed the Court's decision to the Court of Appeals for the Federal Circuit. The appeal was docketed on October 5, 2006 (as
No. 2007-1012). Briefing is now complete. A hearing is scheduled for December 7, 2007 and a decision from the Federal Circuit is expected in due course. The Company, having
had the advice of its patent counsel, plans to vigorously pursue this appeal.

As
previously reported, on September 20, 2006, subsequent to the Court's inventorship decision, the Company also filed an action (06 CV 7190) against Yeda in the U.S. District
Court for the Southern
District of New York seeking a declaratory judgment that U.S. Patent No. 6,217,866 is invalid. On October 31, 2006, Yeda filed an answer and counterclaim to the Company's declaratory
judgment complaint in which Yeda alleges the Company is liable to Yeda for willful patent infringement, unjust enrichment and conversion, and seeks damages from the Company and an order requiring the
Company to license the patent and pay Yeda royalties until the patent expires. The Company filed an answer denying all counterclaims. In addition, on November 7, 2007, the Company filed a first
amended answer to defendant's counterclaims asserting that the Company's activities are protected by the safe harbor provisions of 35 U.S.C. 271(e)(1), that Yeda's claims for damages for any
infringement more than six years prior to filing of its counterclaims are barred by the statute of limitations, and that federal law preempts Yeda's claims for unjust enrichment and conversion. The
Company, having had the advice of its patent counsel, plans to vigorously pursue this action. The Company is unable to predict the outcome of these actions at this time. If the Company's appeal is
unsuccessful and Yeda's sole inventorship rights to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action, the Company may become obligated to pay Yeda
a royalty and may be liable to Yeda for other damages.

On
March 25, 2004, an action was filed in the United Kingdom Patent Office requesting transfer of co-ownership to Yeda and amendment of patent EP (UK) 0 667 165 to add
three Weizmann former employees as inventors. The Company was not named as a party in this action which relates to the European equivalent of U.S. Patent No. 6,217,866 discussed above.
Accordingly, the Company intervened. On June 29, 2005, Yeda sought to amend its pleadings to seek sole ownership. That amendment was refused by the High Court and the Court of Appeal but was
further appealed by Yeda to the House of Lords. The House of Lords heard Yeda's appeal on July 23-25, 2007. On October 24, 2007, the House of Lords issued a decision that
reinstated the permission given by the Patent office, namely, that Yeda may proceed with a claim in relation to the EP (UK) to sole entitlement,

35

---



alternatively
to joint entitlement with Aventis. A hearing on the substantive case relating to entitlement to the EP (UK) will now likely occur in 2008.

On
March 25, 2004, a German action was filed in the Munich District Court I, Patent Litigation Division, in which Yeda claims a 75% ownership interest in patent EP (DE) 0 667 165
based on its allegation that the inventorship on that patent was incorrect. The Company was not named as a party in this action which relates to the European equivalent of U.S. Patent
No. 6,217,866 discussed above. Accordingly, the Company intervened. On October 7, 2005, Yeda sought to amend its claim to seek sole ownership. That amendment was refused by the Munich
District Court and on appeal by the Munich Higher Regional Court in a Decision dated September 20, 2007. That decision will likely be appealed by Yeda to the German Supreme Court. Presently,
Yeda's claim in respect of the EP(DE) remains restricted to joint entitlement.

On
March 25, 2005, Yeda filed an action in the Austrian Patent Office ("APO") against Aventis seeking sole entitlement of EP (AU) 0 667 165, as well as payment of legal costs and
fees. The Company was not named as a party to this action which relates to the European equivalent of US Pat. No. 6,217,866 discussed above. Accordingly, the Company intervened. Aventis'
Defence and the Company's Intervention were filed on February 15, 2006. Yeda's Reply to the Defence/Intervention was filed on
February 12, 2007. The Company's Rejoinder was filed on September 14, 2007. The case has been sent to the Technical Examiner, who will report back to the Nullity Division of the APO in
due course. The Company, having had the advice of its patent counsel, believes there are sound defenses to these actions, and it plans to vigorously defend against the claims asserted.

On
March 29, 2005, Yeda filed an action in the Tribunal de Grande Instance, Paris jointly against Aventis and the Company seeking sole entitlement of EP (FR) 0 667 165, as well as
payment of damages, legal costs and fees. This is the European equivalent of US Pat. No. 6,217,866. Aventis and the Company filed their Defences on September 22, 2006. Yeda submitted a
Reply to Defence on September 17, 2007. Additionally, Yeda requested the French Court to take jurisdiction over the 9 non-French counterparts of the "165 EP in: Belgium, The
Netherlands, Luxembourg, Liechtenstein, Sweden, Switzerland, Spain, Italy and Greece. A preliminary challenge to the jurisdiction of the French Court to hear Yeda's claim to those
non-French parts of the European Patent will be made and that preliminary challenge is likely to be heard in early 2008. The Company, having had the advice of its patent counsel, believes
there are sound defenses to these actions, and it plans to vigorously defend against the claims asserted.

As
previously reported, on May 4, 2004, an action was filed against the Company by Massachusetts Institute of Technology ("MIT") and Repligen Corporation ("Repligen"). This action
alleged that ERBITUX infringes U.S. Patent No. 4,663,281, which is owned by MIT and exclusively licensed to Repligen and that the Company should therefore pay damages. In September 2007,
the parties signed settlement and certain sublicensing agreements, for which the Company paid $65.0 million in cash for full and final settlement of the claims against the Company in the
matter, as well as for a royalty-free, irrevocable worldwide sublicense to technology patented under U.S. Patent No. 4,663,281. Repligen is responsible for providing MIT with its
portion of the settlement payment. Repligen also granted to the Company a royalty-free, irrevocable worldwide sublicense for the future use of other patented technology, including U.S.
Patent No. 5,665,578, which is owned by Abbott but to which Repligen has the power to sublicense under an agreement between Abbott and Repligen. U.S. Patent No. 5,665,578 is the patent
upon which Abbott sued the Company for patent infringement earlier this year.

As
previously reported, on February 5, 2007, a complaint was filed against the Company by Abbott in the U.S. District Court for the District of Massachusetts
(07-cv-10216). This action alleges 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, which it amended on May 17, 2007, to this complaint denying all claims. The court has ordered a

36

---



mediation
hearing to occur on December 20, 2007. The Company, having had the advice of its patent counsel, plans to vigorously defend against the claims asserted.

In
December 2002, Opposition Proceedings seeking to revoke EP (UK) 0 667 165 were brought by Scripps Research Institute, Amgen Inc., Abgenix, Inc., and YM
Biosciences Inc. The Opposition Proceedings are suspended pending a final determination of the entitlement cases in Europe.

On
May 2, 2007, the Company filed an Opposition in the European Patent Office against EP 1,058,562 B1, which is a patent directed to, inter alia, the use of either radiation or
chemotherapy in concert with an EGFR antibody that inhibits receptor dimerization. The patent is assigned to the University of Pennsylvania. Oppositions to that European Patent have also been filed by
Amgen, Merck KGaA, Oncoscience, Genmab and Hoffmann La-Roche.

No
reserve has been established in the financial statements for any of the items described above in this Part II. Item 1"Legal ProceedingsIntellectual
Property Litigation" because the Company does not believe that such a reserve is required to be established at this time under Statement of Financial Accounting Standards No. 5. However, if in
a future period, events in any such legal proceedings render it probable that a loss will be incurred and if such loss is reasonably estimable, 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 that period, on our balance sheet or both.

Item 1A.Risk Factors

There have been no material changes to the risk factors as set forth in the Company's Annual Report filed on Form 10-K for the year ended
December 31, 2006.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On September 7, 2007, the Company sold 13,609 shares of treasury stock in a private placement exempt from registration in reliance on Section 4(2)
under the Securities Act of 1933 to John H. Johnson, the Company's Chief Executive Officer, for an aggregate consideration of $500,000, or $36.74 per share, in order to enable Mr. Johnson to
satisfy his obligation under his employment agreement to purchase $500,000 worth of Company common stock within three months of his commencement of employment.

Item 3.Defaults upon Senior Securities

Not applicable

Item 4.Submission of Matters to a Vote of Security Holders

|(a) |  | The Company held its annual meeting of stockholders on August 2, 2007 (the "Annual Meeting").                                                                                                                                                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | No response is required to Paragraph (b) because (i) proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; (ii) there was no solicitation in opposition to those nominees listed in the
proxy statement; and (iii) all such nominees were elected.
|(c) |  | Each of the matters voted upon at the Annual Meeting were approved by the margins set forth below.                                                                                                                                                                                                                   

37

---





Name

In Favor

WithheldAndrew R.J. Bonfield

63,823,716

498,289Alexander J. Denner

45,758,217

18,561,788Thomas F. Deuel

63,923,195

396,810Jules Haimovitz

63,916,490

403,515Carl C. Icahn

63,198,467

1,121,538Peter S. Liebert

63,905,436

411,569Richard C. Mulligan

63,784,408

535,597David Sidransky

63,903,605

416,400Charles Woler

63,912,894

407,111




FOR

63,461,501AGAINST

778,734ABSTAIN

79,770


Item 5.Other Information

Not applicable

Item 6.Exhibits

|Exhibit No. |  | Description                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.41       |  | Amendment No. 2 to the Development, Promotion, Distribution and Supply Agreement, dated as of July 27, 2007, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C.
|10.42       |  | Employment Agreement between the Company and John H. Johnson dated August 8, 2007                                                                                                          
|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                                       

38

---





SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                       |  | IMCLONE SYSTEMS INCORPORATED(Registrant)
|---------------------- |  | ----------------------------------------
|Date: November 9, 2007 |  | By:                                     
|Date: November 9, 2007 |  | By:                                     

39

---