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 1934For the Quarterly Period Ended June 30, 2008o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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, a non-accelerated filer, or a smaller reporting
company. See definition of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company 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 August 1, 2008Common Stock, par value $0.001

86,997,563 Shares




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IMCLONE SYSTEMS INCORPORATED
INDEX

PART IFINANCIAL INFORMATIONItem 1.

Financial Statements


1Unaudited Consolidated Balance SheetsJune 30, 2008 and December 31, 2007


1Unaudited Consolidated Statements of OperationsThree months and Six months ended June 30, 2008 and 2007


2Unaudited Consolidated Statements of Cash FlowsSix months ended
June 30, 2008 and 2007


3Notes to Unaudited Consolidated Financial Statements


4Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations


20Item 3.

Quantitative and Qualitative Disclosures About Market Risk


34Item 4.

Controls and Procedures


36PART IIOTHER INFORMATIONItem 1.

Legal Proceedings


37Item 1A.

Risk Factors


38Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


38Item 3.

Defaults Upon Senior Securities


38Item 4.

Submission of Matters to a Vote of Security Holders


38Item 5.

Other Information


38Item 6.

Exhibits


38Signatures


39


i

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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

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

June 30,
2008

December 31,
2007ASSETSCurrent assets:Cash and cash equivalents

$
889,862

$
602,227Securities available for sale


45,749


304,534Prepaid expenses


2,372


3,632Amounts due from corporate partners


102,847


95,838Inventories


137,170


116,153Deferred income taxes, net


16,520


14,582Deferred financing costs, net


3,249


Other current assets


9,616


11,696Total current assets


1,207,385


1,148,662Property, plant and equipment, net


392,488


397,682Deferred financing costs, net





5,105Deferred income taxes, net


56,062


82,043Securities available for sale


96,482


109,060Other assets


25,078


26,707Total assets

$
1,777,495

$
1,769,259LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable (including $3,214 and $1,387 due Bristol-Myers Squibb Company ("BMS") at June 30, 2008 and December 31, 2007, respectively)

$
42,353

$
30,528Accrued expenses (including $5,157 and $1,758 due BMS at June 30, 2008 and December 31, 2007, respectively)


78,087


54,374Current portion of deferred revenue


114,398


107,182Current portion of convertible notes payable


600,000


Other current liabilities


2,281


4,573Total current liabilities


837,119


196,657Deferred revenue, less current portion


117,438


176,605Convertible notes payable





600,000Other liabilities


13,306


12,208Total liabilities


967,863


985,470Commitments and contingencies (Note 9)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 87,580,132 and 87,314,181 at June 30, 2008 and December 31, 2007, respectively; outstanding
86,589,067 and 86,323,116 at June 30, 2008 and December 31, 2007, respectively


88


87Additional paid-in capital


913,710


893,613Accumulated deficit


(71,626
)

(30,478
)Treasury stock, at cost; 991,065 at June 30, 2008 and December 31, 2007, respectively


(28,754
)

(28,754
)Accumulated other comprehensive loss:Net unrealized loss on securities available for sale


(3,786
)

(50,679
)Total stockholders' equity


809,632


783,789Total liabilities and stockholders' equity

$
1,777,495

$
1,769,259


See accompanying notes to consolidated financial statements.

1

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IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(Unaudited)

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007Revenues:Royalties

$
97,764

$
78,144

$
192,750

$
154,507License fees and milestones


27,818


33,445


51,950


62,739Manufacturing


21,391


23,025


46,833


39,483Collaborative agreement reimbursements


19,544


15,818


37,626


35,203Total revenues


166,517


150,432


329,159


291,932Operating expenses:Research and development


55,858


47,557


103,547


95,248Selling, general and administrative


22,469


19,553


47,292


35,904Royalties


24,336


18,988


47,873


35,774Cost of manufacturing revenue


19,840


22,999


43,929


36,854Litigation settlement


17,500





17,500


Total operating expenses


140,003


109,097


260,141


203,780Operating income


26,514


41,335


69,018


88,152Other income (expense):Interest and other income


7,147


13,317


16,668


25,834Interest expense


(2,991
)

(2,990
)

(5,982
)

(5,962
)Loss on impairment of securities available for sale


(1,809
)




(86,678
)

Other income (expense), net


2,347


10,327


(75,992
)

19,872Income (loss) before income taxes


28,861


51,662


(6,974
)

108,024Income tax provision


14,109


19,757


34,174


47,364Net income (loss)

$
14,752

$
31,905

$
(41,148
)
$
60,660Earnings (loss) per common share:Basic

$
0.17

$
0.37

$
(0.48
)
$
0.71Diluted

$
0.17

$
0.36

$
(0.48
)
$
0.69Shares used in calculation of earnings (loss) per common share:Basic


86,546


85,726


86,459


85,492Diluted


87,738


93,212


86,459


92,790


See
accompanying notes to consolidated financial statements.

2

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IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

Six Months Ended
June 30,2008

2007Cash flows from operating activities:Net income (loss)

$
(41,148
)
$
60,660Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


16,627


15,591Amortization of deferred financing costs


1,856


1,856Share-based compensation


6,824


2,494Tax effect of share-based compensation


(11,271
)

(10,946
)Loss on impairment of securities available for sale


86,678


Loss on disposal of fixed assets





3,582Deferred income taxes


24,043


31,294Other





20Changes in:Prepaid expenses


1,260


(381
)Amounts due from corporate partners


(7,009
)

(7,555
)Inventories


(21,017
)

(21,039
)Other current assets


2,080


(1,668
)Other assets


511


787Accounts payable


11,825


2,221Accrued expenses


31,291


25,597Share-based compensation, less current portion





346Other current liabilities


(2,292
)

712Deferred revenue


(51,951
)

(62,738
)Other liabilities


1,098


253Net cash provided by operating activities


49,405


41,086Cash flows from investing activities:Acquisitions of property, plant and equipment


(10,315
)

(5,707
)Purchases of securities available for sale


(17,522
)

(884,336
)Proceeds from sale of securities available for sale


7,000


746,325Proceeds from maturities of securities available for sale


242,100


111,775Net cash provided by (used in) investing activities


221,263


(31,943
)Cash flows from financing activities:Proceeds from exercise of stock options


5,433


15,930Proceeds from issuance of common stock under the employee stock purchase plan


263


342Tax effect of share-based compensation


11,271


10,946Net cash provided by financing activities


16,967


27,218Net increase in cash and cash equivalents


287,635


36,361Cash and cash equivalents at beginning of period


602,227


20,568Cash and cash equivalents at end of period

$
889,862

$
56,929Supplemental cash flow information:Cash paid for:Interest, net of amounts capitalized

$
4,125

$
4,106Income taxes

$
105

$
2,875Non-cash investing and financing activities:Change in net unrealized gain (loss) in securities available-for-sale

$
39,785

$
(1,460
)Value of restricted stock units not issued in lieu of withholding taxes

$
1,053

$



See accompanying notes to consolidated financial statements.

3

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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 June 30, 2008 and for the three and six months ended
June 30, 2008 and 2007 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, 2007, 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.

Certain
previously reported amounts have been reclassified to conform with current period presentation. Clinical and regulatory expenses that were previously reported separately in the
Consolidated Statements of Operations for the three months and six months ended June 30, 2007 have been included within Research and development expenses. Certain expenses of approximately
$986,000 and $2.0 million for the three months and six months ended June 30, 2007, respectively, that were previously reported within Research and development expenses have been
reclassified to Selling, general and administrative expenses.

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 cancer, as well as other potential indications. The Company does not operate separate lines of business or separate business entities and does not currently maintain any significant
operations outside the U.S. 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 November 2007, the Emerging Issues Task Force reached a consensus on Issue No. 07-1, "Accounting for
Collaborative Arrangements." This Issue establishes accounting for costs incurred and revenues generated on sales to third parties should be reported by partners to joint development agreements in
each of their respective income statements, how sharing payments made to or received

4

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IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

by
a partner pursuant to a Collaboration Agreement should be presented in the income statement, and disclosures related to the combined sales and expenses of the partners to a Collaboration Agreement
that are used to compute the payments made/received. This Issue will be effective for fiscal years beginning after December 15, 2008, and is to be applied retrospectively to all periods
presented for all collaborative arrangements existing as of the effective date. The Company is currently evaluating the effect this Issue will have on its consolidated financial statements.

In
May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled
in Cash Upon Conversion (Including Partial Cash Settlement)" (FSP 14-1). FSP 14-1 specifies that issuers of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlements) should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible borrowing rate when interest
cost is recognized in subsequent periods. FSP 14-1 is effective for financial statements issued for fiscal years beginning after December 31, 2008, and interim periods within those
fiscal years. The Company is evaluating the effect that FSP 14-1 will have on its consolidated financial statements.

Comprehensive Income

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

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007Net income (loss)

$
14,752

$
31,905

$
(41,148
)
$
60,660Other comprehensive (loss) income:Unrealized gain (loss) on securities available for sale during the period


(7,036
)

(45
)

(39,785
)

1,460Reclassification adjustment for recognized losses on securities available for sale during the period


1,809





86,678


Total other comprehensive (loss) income


(5,227
)

(45
)

46,893


1,460Total comprehensive income

$
9,525

$
31,860

$
5,745

$
62,120


(2) Fair Value Measurements

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, "Accounting for Fair Value Measurements" (SFAS 157), on January 1, 2008.
SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
(an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related
disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and SFAS 157 details the disclosures that are required for items measured at fair value. In February
2008, the Financial Accounting Standards Board issued Staff Position No. 157-2 (FSP 157-2), which delays the effective date of SFAS 157 for one year for all
nonfinancial assets and

5

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IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(2) Fair Value Measurements (Continued)

liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company does not have nonfinancial assets and nonfinancial liabilities
that are required to be measured at fair value on a recurring basis. Based on this guidance, the Company expects to adopt the provisions of SFAS 157 as related to nonfinancial assets and
nonfinancial liabilities, effective January 1, 2009 and this adoption is not expected to have a material impact on the Company's financial statements.

Under
SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159), entities are permitted to choose to measure many financial
instruments and certain other items at fair
value. The Company did not elect the fair value measurement option under SFAS 159 for our financial assets or liabilities.

Financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:



In
accordance with the fair value hierarchy described above, the following table shows the fair value of our securities available for sale that are required to be measured at fair value
as of June 30, 2008:

Fair Value Measurement at Reporting Date UsingDescription

Total as of
June 30,
2008

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs
(Level 3)Securities available for sale

$
45,749

$
45,749

$


$
Securities available for sale, non-current


96,482








96,482Total

$
142,231

$
45,749

$


$
96,482


6

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IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(2) Fair Value Measurements (Continued)

The following table summarizes the changes in fair value for our Level 3 assets: (in thousands)

Fair Value Measurement of
Assets Using Level 3 InputsSecurities Available for
Sale, non-currentBalance at January 1, 2008

$
109,060Total gains (losses) (realized or unrealized)Included in earnings


(70,935
)Included in other comprehensive income


46,056Transfers into Level 3


12,501Redemptions of principal


(200
)Balance at June 30, 2008

$
96,482Total gains (losses) for the six months ended June 30, 2008 included in earnings attributable to the change in unrealized gains or losses (including other-than-temporary
impairment) relating to assets still held at the reporting date

$
(70,935
)


As
of June 30, 2008, the Company has $161.5 million of principal invested in auction rate securities (ARS), of which $144.1 million represent interests in synthetic
collateralized debt obligations referencing portfolios of corporate bonds (CDOs), $5.1 million represents interests in floating rate surplus notes of captive insurance companies (FRN) and
$12.3 million represents interests in student loans and student loan revenue bonds (Student Loans). These securities have long-term nominal maturities for which interest rates are
reset through a dutch-auction each month and these auctions had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced in the global
credit and capital markets, these ARS have had multiple failed auctions; the CDOs and FRN have been failing at auction since August 2007 and the Student Loans have been failing at auction since March
2008. The estimated fair value of the CDOs were $83.6 million as of June 30, 2008, which were determined based on indicative bids from an investment bank. The estimated fair value of the
FRN and the Student Loans were $2.6 million and $10.3 million, respectively, as of June 30, 2008, which were determined based on valuations performed by Pluris Valuation
Advisors LLC. Collectively, the fair value of the ARS of $96.5 million as of June 30, 2008 is significantly below the fair value at December 31, 2007 of
$121.7 million. While interest continues to be paid by the issuers of these securities, due to the severity of the decline in fair value and the duration of time for which these securities have
been in a loss position, the Company concluded that these securities have experienced an other-than-temporarily decline in fair value and recorded impairment charges of
$69.1 million and $1.8 million, related to these ARS in the first and second quarters of 2008, respectively. These ARS all had AAA/Aaa credit ratings as of June 30, 2008, however,
in July 2008 ARS with a cost basis of $149.2 million and a fair value $86.2 million as of June 30, 2008 were downgraded to an A rating by the Fitch rating agency. ARS have been
classified as long-term investments in the Company's Consolidated Balance Sheets given that these securities are illiquid until there is a successful auction for them, the timing of which
is not knowable at this time. The Company

7

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IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(2) Fair Value Measurements (Continued)

also
has investments in government agency bonds that are not impaired with a fair value of $10.3 million, based on actively traded markets, and are classified in the table above as
Level 1.

As
of June 30, 2008, the Company has equity securities with a cost basis of $61.2 million, that have a fair value of $35.4 million (using Level 1 inputs),
resulting in a decline in fair value of $25.8 million. During the first quarter of 2008, the Company recorded an impairment charge of approximately $15.8 million, reflecting an
other-than-temporary decline in the fair value of the equity securities. As of June 30, 2008, the fair value of the equity securities was $10.0 million less than
this new cost basis, however, as of August 7, 2008, the fair value of the equity securities was $0.5 million less than their new cost basis. The Company determined that the decline in
fair value during the three months ended June 30, 2008 was not other than temporary and accordingly, was included in accumulated other comprehensive loss as a net unrealized loss on securities
available for sale. In making these determinations the Company considered a number of factors, including the nature of the investment, the cause of the decline in fair value, the severity and duration
of the decline in fair value, the financial position and prospects of the company whose securities are held, analyst reports, as well as other factors. The fair value of the Company's equity
securities was determined using the June 30, 2008 closing market price of the securities (Level 1 inputs).

Changes
in the fair values of securities available for sale deemed to be temporary are included in the Company's Consolidated Balance Sheets as Net unrealized loss on securities
available for sale which is included within Accumulated other comprehensive loss.

The
fair value of the Company's 13/8% convertible senior notes of $600.0 million was approximately $579.8 million and $564.8 million at
June 30, 2008 and December 31, 2007, respectively, based on their quoted price in the active market for this debt instrument.

(3) 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)

June 30,
2008

December 31,
2007Raw materials and supplies

$
18,339

$
19,357Work in process


90,226


79,859Finished goods


28,605


16,937Total

$
137,170

$
116,153


In
June 2006, the Company began producing ERBITUX for commercial use at its multiple product manufacturing facility (BB50), located in Branchburg, New Jersey. In August 2007, the Company
received approval from the FDA for the manufacture of ERBITUX in BB50, and therefore was able to sell the ERBITUX inventory produced in BB50. In July 2007, the Company transitioned its BB50 plant from
the production of ERBITUX to the production of pipeline products and has expensed the cost of manufacturing these products as Research and development expense.

8

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IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(3) Inventories (Continued)

The
Company's current plan is to produce a mix of ERBITUX and pipeline products in BB50 during 2008. In February 2008, the Company transitioned BB50 back to the production of ERBITUX.
This facility is approved by the FDA as a single-product manufacturing facility for the production of ERBITUX. Therefore, we are required to file a supplemental biologics license application
with the FDA for approval of the procedures and controls in the operation of BB50 as a multi-product manufacturing facility, which we did in May 2008 and anticipate receiving approval by the end of
2008. Since the initial review period of thirty days has passed we are allowed to sell this product prior to approval, however, there is no assurance that the FDA will approve these procedures and
controls in the
operation of BB50 as a multi-product manufacturing facility. If the FDA does not approve the procedures and controls that were used during the operation of BB50 as a multi-product manufacturing
facility, we will not be able to sell the ERBITUX produced since the transition back to the production of ERBITUX in February 2008. As of June 30, 2008, the Company has capitalized
approximately $25.9 million related to the costs of producing ERBITUX in BB50 during 2008. The Company also has an additional $26.8 million of ERBITUX inventory related to a change in
raw material sourcing that requires regulatory approval before it can be sold. The Company filed for the required regulatory approvals with the FDA in May 2008 and anticipates receiving approval by
the end of 2008. Since the initial review period of thirty days has passed we are allowed to sell this product prior to approval, however, there is no assurance that the FDA will approve this product
for distribution. Management expects the total capitalized costs of ERBITUX to be fully realizable.

(4) Property, Plant and Equipment

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

June 30,
2008

December 31,
2007Land

$
4,899

$
4,899Building


283,909


283,415Leasehold improvements


24,427


24,369Machinery and equipment


178,607


176,109Furniture and fixtures


7,066


7,016Construction in progress


34,452


27,237Total cost


533,360


523,045Less accumulated depreciation


(140,872
)

(125,363
)Property, plant and equipment, net

$
392,488

$
397,682


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 $3.4 million related to design and engineering costs associated with this facility. This write-off is included in Research and
development expenses in the
Company's Statement of Operations for the six months ended June 30, 2007. The Company is in the process of evaluating alternative uses for this facility.

9

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(4) Property, Plant and Equipment (Continued)

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.

(5) Share-Based Compensation Plans

On February 15, 2008, the Company awarded, for no consideration, 296,719 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, 2008.
The RSU vest 331/3% annually over the three-year vesting period, with the exception of 30,000 RSU that cliff-vest at the end of three years.

RSU
activity for the six months ended June 30, 2008 is summarized as follows:

Number of
Units

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value(in thousands)Outstanding at December 31, 2007


255,975Granted


296,719Vested


(75,012
)Forfeitures


(13,185
)Outstanding at June 30, 2008


464,497


1.55

$
18,794Expected to vest


354,664


1.48

$
14,350


The
grant date fair values of the RSU was $39.06 and $29.60 for grants issued during the six months ended June 30, 2008 and 2007, respectively. The aggregate intrinsic value of
RSU outstanding as of June 30, 2008 is calculated as the number of units multiplied by the closing market price of our common stock on that date, which was $40.46.

10

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(5) Share-Based Compensation Plans (Continued)

In
addition to the RSU discussed above, the Company also granted stock options for promotions and to newly hired employees. The activity related to stock options for the six months ended
June 30, 2008 is summarized as follows:

Number of
Options

Weighted
Average
Exercise Price
Per Share

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic Value(in thousands)Outstanding at December 31, 2007


9,614,528

$
39.36Granted


652,105

$
41.92Exercised


(210,611
)
$
25.79Forfeitures


(118,296
)
$
40.33Outstanding at June 30, 2008


9,937,726

$
39.80


5.43

$
45,565Vested and expected to vest


9,354,877

$
39.99


5.21

$
42,989Exercisable at June 30, 2008


7,825,126

$
40.58


4.47

$
36,446


The
weighted average fair value of options granted during the three months ended June 30, 2008 and 2007 was $18.17 and $17.28, respectively. The weighted average fair value of
options granted during the six months ended June 30, 2008 and 2007 was $17.02 and $15.53, respectively. The aggregate intrinsic value of options outstanding at June 30, 2008 is
calculated as the difference between the exercise price of the options and the market price of the Company's common stock for the options that had exercise prices that were lower than the market price
of our common stock on that date. The total intrinsic value of options exercised during the three months ended June 30, 2008 and 2007 was $3.2 million and $5.6 million,
respectively, determined as of the date of exercise. The total intrinsic value of options exercised during the six months ended June 30, 2008 and 2007 was $4.1 million and
$11.4 million, respectively, determined as of the date of exercise.

(6) Earnings Per Common Share

Basic earnings per common share (EPS) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted EPS 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; (2) the conversion of convertible debt which is calculated using an
"if-converted" basis; and (3) the dilutive effect of RSU which is calculated under 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. 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. Under the treasury stock method for RSU, the

11

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(6) Earnings Per Common Share (Continued)

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, are assumed to be used to repurchase shares in the current period. For the three months ended June 30, 2008 and 2007, there were an aggregate of 5,400,412 and 5,693,646,
respectively, potential common shares related to share-based instruments, excluded from the diluted EPS computation because their inclusion would have had an anti-dilutive effect. For the
six months ended June 30, 2008 and 2007, there were an aggregate of 10,211,973 and 7,045,289, respectively, potential common shares related to share-based instruments, excluded from the diluted
EPS computation because their inclusion would have had an anti-dilutive effect. For the three and six months ended June 30, 2008, there was an additional 6,336,466 potential common
shares, which are attributable to the convertible subordinated notes, excluded from the diluted EPS computation because their inclusion would have had an anti-dilutive effect. Basic and
diluted EPS were computed using the following: (in thousands, except per share data)

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007EPS NumeratorBasic:Net Income (Loss)

$
14,752

$
31,905

$
(41,148
)
$
60,660EPS DenominatorBasic:Weighted-average number of shares of common stock outstanding


86,546


85,726


86,459


85,492EPS NumeratorDiluted:Net Income (Loss)

$
14,752

$
31,905

$
(41,148
)
$
60,660Adjustment for interest, net of amounts capitalized and income tax effect





1,854





3,607Net income (loss), adjusted

$
14,752

$
33,759

$
(41,148
)
$
64,267EPS DenominatorDiluted:Weighted-average number of shares of common stock outstanding


86,546


85,726


86,459


85,492Effect of dilutive securities:Stock options


1,076


1,067





917Restricted stock units


116


83





45Convertible subordinated notes





6,336





6,336Dilutive potential common shares


1,192


7,486





7,298Weighted-average common shares and dilutive potential common shares


87,738


93,212


86,459


92,790Basic earnings (loss) per common share

$
0.17

$
0.37

$
(0.48
)
$
0.71Diluted earnings (loss) per common share

$
0.17

$
0.36

$
(0.48
)
$
0.69


12

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(7) Taxes

The Company's annual effective income tax rate for 2008 is approximately 44%, excluding the effect of any discrete (benefits) charges and the effect of impairment charges of
approximately $86.7 million on investments, for which no tax benefit has been taken due to the Company's expected inability to utilize capital losses. During the three months ended
June 30, 2008 and 2007, excluding the effect of impairment charges, the Company recognized discrete charges (benefits) of approximately $0.3 million and $(0.1) million, respectively,
related to certain deferred items. During the six months ended June 30, 2008 and 2007, excluding the effect of impairment charges, the Company recognized discrete (benefits) charges of
approximately $(1.0) million and $4.8 million, respectively, related to certain deferred items. 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 2008 are estimated to be less than $2.0 million.

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. During the
three months ended June 30, 2008 and 2007, the Company recorded approximately $260,000 and $262,000, respectively, of interest and penalties. During the six months ended June 30, 2008
and 2007, the Company recorded approximately $520,000 and $627,000, respectively, of 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. The statute of limitations on the Company's New Jersey income tax returns through 2003 has expired.

(8) Collaborative Agreements

The
following represents an update of the Company's contractual relationship with Merck KGaA during the six months ended June 30, 2008. For a more detailed description of the
Company's contractual relationship, reference Note 10(a) and (c) 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, 2007.

On
February 27, 2008, the Company received verbal notification from Merck KGaA that Merck KGaA was taking the position that the Yeda Settlement Agreement of December 7,
2007 resulted in the breach of one of the Company's representations in the Development License Agreement and that, therefore, Merck KGaA was no longer obligated to reimburse a portion of the royalty
payments paid by ImClone to Yeda and Sanofi-Aventis following the date of that agreement. Merck KGaA has subsequently made payment for the first quarter of 2008 royalty reimbursement and is
anticipated to make the second quarter of 2008 payment to the Company for the reimbursement of these royalties. Merck KGaA has communicated to the Company that any such payments are being made under
protest. As a result, the Company has not recognized revenue of approximately $3.5 million of these royalty reimbursements for the six months ended June 30, 2008, pending a final
resolution with Merck KGaA. The Company does not believe that the settlement with Yeda altered Merck KGaA's obligation to pay us the royalty reimbursement and will continue to seek to resolve the
matter with Merck KGaA.

13

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(8) Collaborative Agreements (Continued)

The
Company has a liability due Merck KGaA of approximately $670,000 and $2.2 million as of June 30, 2008 and December 31, 2007, respectively, which does not include
the amount of royalty reimbursements received from Merck KGaA under protest as discussed above.

The
following represents an update of the Company's contractual relationship with BMS during the six months ended June 30, 2008. For a more detailed description of the Company's
contractual relationship, reference Note 10(b) and (c) 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, 2007.

The
Company recorded expenses of approximately $3.3 million and $4.3 million pursuant to cost sharing agreements with BMS for the three months ended June 30, 2008
and 2007, respectively and $5.0 million and $7.3 million for the six months ended June 30, 2008 and 2007, respectively. The Company has also recorded expenses of $410,000 and
$436,000 for the three months ended June 30, 2008 and 2007, respectively, and $551,000 and $1.3 million for the six months ended June 30, 2008 and 2007, respectively, related to
the agreements with respect to co-development of ERBITUX in Japan.

On
May 1, 2008, Andrew R.J. Bonfield, a BMS-appointed director, resigned as a director of the Company. On May 12, 2008, Mr. John E. Celantano, Senior
Vice President, Strategy and Productivity Transformation at BMS, was named a director of the Company. Mr. Celantano was designated by BMS pursuant to the Company's contractual relationship with
BMS.

Pursuant
to the Commercial Agreement with BMS and our agreement with Merck KGaA, we had granted E.R. Squibb and Merck KGaA co-exclusive rights (together or without the
Company) to develop, distribute and promote ERBITUX in Japan. Subsequently, on October 12, 2007, the Company entered into agreements with Merck KGaA, Merck Serono Japan Company, Limited, E.R.
Squibb, Bristol-Myers K.K., and BMS for the co-development and co-commercialization of ERBITUX in Japan. Under the terms of the agreements, the Company, BMS, Merck KGaA, and
respective affiliates 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 this 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. On July 16, 2008, the Company
announced that ERBITUX was approved for commercial sale in Japan for the treatment of advanced colorectal cancer. A price review will be conducted by Japan's Ministry of Health, Labor and Welfare over
the next few months and product launch is expected shortly thereafter.

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

14

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(8) Collaborative Agreements (Continued)

profit/loss
reflects 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.

The
Company recorded expenses of approximately $147,000 and $1.7 million for the three and six months ended June 30, 2008, respectively, related to the agreement with
respect to commercialization in Japan.



Royalty revenue consists of the following: (in thousands)

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007BMSERBITUX

$
76,072

$
63,215

$
149,189

$
125,670Merck KGaAERBITUX


21,687


14,929


43,550


28,791Other


5





11


46Total royalties

$
97,764

$
78,144

$
192,750

$
154,507


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

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007BMSERBITUX

$
27,551

$
33,326

$
51,415

$
62,502Merck KGaAERBITUX


267


119


535


237Total license fees and milestones

$
27,818

$
33,445

$
51,950

$
62,739


Manufacturing
revenue consists of the following: (in thousands)

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007BMSERBITUX

$
19,781

$
20,400

$
42,460

$
36,858Merck KGaAERBITUX


1,610


2,625


4,373


2,625Total manufacturing

$
21,391

$
23,025

$
46,833

$
39,483


15

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(8) Collaborative Agreements (Continued)

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

Three Months Ended June 30

Six Months Ended June 302008

2007

2008

2007BMSERBITUX:Drug supplied for clinical trials

$
1,437

$
2,665

$
3,877

$
5,139Clinical and regulatory expenses


6,733


3,629


12,875


7,390Selling, general and administrative expenses


337


233


681


491Royalty expenses


4,876


4,052


9,563


8,056Total BMS


13,383


10,579


26,996


21,076Merck KGaAERBITUX:Drug supplied for clinical trials


4,848


1,949


7,963


9,662Selling, general and administrative expenses


182


26


182


88Royalty expenses


1,131


2,664


2,485


3,777Total Merck KGaA


6,161


4,639


10,630


13,527Other





600





600Total collaborative agreement reimbursements

$
19,544

$
15,818

$
37,626

$
35,203


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

June 30, 2008

December 31, 2007BMSERBITUX

$
78,053

$
74,326Merck KGaAERBITUX


24,794


21,512Total amounts due from corporate partners

$
102,847

$
95,838


Deferred
revenue consists of the following: (in thousands)

June 30, 2008

December 31, 2007BMSERBITUX commercial agreement

$
220,662

$
272,078Merck KGaAERBITUX development and license agreement


11,174


11,709Total deferred revenue


231,836


283,787Less current portion


(114,398
)

(107,182
)Total long term deferred revenue

$
117,438

$
176,605


16

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(9) Commitments and Contingencies

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. An Opposition Proceeding is an administrative process, the outcome of which may be that the patent will be revoked. The Opposition Proceedings were
suspended pending a final determination of the entitlement cases in Europe and are yet to be formally recommenced.

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, Inc., Merck KGaA, Oncoscience AG, Genmab A/S and Hoffmann La-Roche Inc. On April 9, 2008, the University filed a submission in response to the Oppositions
proposing a new set of claims. The Company, having had the advice of its patent counsel, plans to vigorously defend against the claims asserted in this patent office administrative proceeding.

On
February 5, 2007, a complaint was filed against the Company by Abbott Laboratories (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
May 2, 2008, the Company filed a complaint against Abbott in the United States District Court, District of Massachusetts based on Abbott's wrongful concealment of and
misrepresentations relating to a document that was critical to one of the Company's defenses in a prior patent infringement proceeding with the Repligen Corporation and the Massachusetts Institute of
Technology.

On
August 4, 2008, the Company and Abbott reached an oral settlement to end all litigation pending between them. Under the terms of the settlement agreement, ImClone Systems will
pay Abbott $17.5 million in cash for full and final settlement of all claims and counterclaims raised in these cases,
including all claims related to U.S. Patent No. 5,665,578. The parties have notified the Court of the settlement and all pending actions in the matter have been stayed. The parties are
currently memorializing the terms of the settlement in writing following which stipulations of dismissal will be filed with the Court.

The
Company recorded in the second quarter of 2008 an accrued liability of $17.5 million for the settlement of the Abbott matter discussed above. No reserves have been established
in the financial statements for any other legal proceedings, because the Company does not believe that such reserves are 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 therefrom, 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 $7.6 million is outstanding as of

17

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(9) Commitments and Contingencies (Continued)

June 30,
2008. 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 at June 30, 2008, are approximately
$42.9 million.

(10) 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 percent 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 $659,000 and
$454,000 for the three months ended June 30, 2008 and 2007, respectively, and approximately $1.4 million and $1.1 million for the six months ended June 30, 2008 and 2007,
respectively.

(11) Convertible Notes Payable

During the second quarter of 2008, the Company reclassified its convertible notes payable to a current liability since the notes include a put provision whereby the holders can seek
repayment of the convertible notes payable from the Company in May 2009. The amount of the notes was $600.0 million at June 30, 2008 and December 31, 2007. For a more detailed
description of the Company's convertible notes payable, reference Note 8 "Long-term Debt" 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, 2007.

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 we have not recorded a liability as of June 30, 2008. In the unlikely event that it becomes
probable that we 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

18

---



IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(UNAUDITED)

(11) Convertible Notes Payable (Continued)

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.

(12) Subsequent Event

On July 31, 2008, BMS submitted an unsolicited non-binding offer to acquire all of the outstanding shares of common stock of the Company for $60 per share in cash. On
August 4, 2008, the Company announced that the preliminary view of the Board of Directors was that BMS's offer substantially undervalues the Company, and that the Board has formed a committee
to study BMS's proposal and to retain advisors to assist it in determining the appropriate course of action. The Company also stated that the Board has been discussing the possibility of separating
ERBITUX and the pipeline business into separate components in order to maximize the value of the Company. Additional information is included in the Current Reports filed with the SEC on
Form 8-K filed on August 1, 2008 and August 4, 2008.

Following
the public announcement of the unsolicited non-binding offer from BMS, several lawsuits were filed against the Company, its directors and other named parties, in the Supreme
Court of the State of New York, New York County. Such lawsuits allege, in part, that the proposal from BMS substantially undervalues the Company and that the sale process has been flawed. The time
period for the Company to move or answer with respect to such lawsuits has not yet expired.

19

---





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 2007 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" set forth in Part IIItem 1A and elsewhere in our 2007 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, and for the potential treatment of lung cancer, as well as other potential indications, including esphogeal,
stomach, prostate, and bladder cancers.

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, recent patent litigation settlements and the loss on impairment of investments, we have incurred significant
operating losses and have an accumulated deficit of approximately $71.6 million as of June 30, 2008. We anticipate that our accumulated deficit will decrease in the future 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

20

---



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.

On
July 31, 2008, BMS submitted an unsolicited non-binding offer to acquire all of the outstanding shares of common stock of the Company for $60 per share in cash. On
August 4, 2008, the Company announced that the preliminary view of the Board of Directors was that BMS's offer substantially undervalues the Company, and that the Board has formed a committee
to study BMS's proposal and to retain advisors to assist it in determining the appropriate course of action. The Company also stated that the Board has been discussing the possibility of separating
ERBITUX and the pipeline business into separate components in order to maximize the value of the Company. Additional information is included in the Current Reports filed with the SEC on
Form 8-K filed on August 1, 2008 and August 4, 2008.

Following
the public announcement of the unsolicited non-binding offer from BMS, several lawsuits were filed against the Company, its directors and other named parties, in the Supreme
Court of the
State of New York, New York County. Such lawsuits allege, in part, that the proposal from BMS substantially undervalues the Company and that the sale process has been flawed. The time period for the
Company to move or answer with respect to such lawsuits has not yet expired.

HIGHLIGHTS AND OUTLOOK

We have achieved a few key milestones in 2008 that will help us accelerate ERBITUX sales in 2009 and beyond. Building on our steady
sales growth in North America, we are seeking to expand the ERBITUX approved label within earlier stage settings and in non-small cell lung cancer (NSCLC). We expect to file two
supplemental Biologic License Applications (sBLA) with the FDA in 2008 based on registration-quality earlier-stage studies. We plan to file for first-line head and neck cancer by the end
of the third quarter of 2008, based upon the EXTREME data, and we plan to file for first-line NSCLC in the fourth quarter of 2008, based upon the FLEX data.

We
achieved a major milestone in our efforts to maximize the global commercialization of ERBITUX with the recent approval we received in Japan for use in treating patients with
metastatic colorectal cancer. With this approval, ERBITUX is now approved for use in the world's three largest markets for colorectal cancer therapies. Now that we have received marketing
authorization in Japan, a pricing review will take place over the next few months and the product launch is expected shortly thereafter. We also look forward to further broadening the approved use of
ERBITUX in Japan to include earlier stage settings and additional tumor types in the future, including head and neck cancer.

We
are also planning to expand the approved use of ERBITUX in Europe and other countries through supplemental regulatory filings as we are doing in the U.S. The supplemental filing for
first-line head and neck cancer has been submitted to the European Medicines Agency (EMEA) by our partner Merck KGaA in June 2008, and the first-line NSCLC EMEA filing is
expected in the second half of this year. Additionally, our partner Merck KGaA received approval from the European Commission in July 2008 for its application to broaden the use of ERBITUX in
metastatic colorectal cancer including first-line treatment.

Another
milestone of note in our efforts expand globally was the recent establishment of our operations in Germany. This is an important step in furthering our relationships with key
opinion leaders and regulatory agencies worldwide for the increasing number of international clinical trials we have underway for both ERBITUX and our pipeline antibodies. To help lead this next phase
of ImClone Systems' global expansion, we have hired Bernhard Ehmer, who prior to his most recent position as Chief Executive Officer of Fresenius Biotech, was one of the early and most influential

21

---



champions
of the ERBITUX clinical development and international registration efforts while he was with Merck KGaA.

While
these activities highlight our progress in maximizing the potential of ERBITUX by expanding its use in the U.S. and around the world, we do not expect the impact of potential new
indications for ERBITUX in the U.S. to be seen until 2009 and beyond.

On
August 4, 2008, we reached an oral settlement with Abbott Laboratories in which we agreed to pay $17.5 million to Abbott for full and final settlement of all of the
litigation between us. As a result of this settlement, we now have no pending or threatened litigation with respect to our development and sale of ERBITUX.

ERBITUX and Pipeline Clinical Development Update

ERBITUX Clinical Development

Significant data on ERBITUX was presented at the American Society of Clinical Oncology (ASCO) 2008 Annual Meeting in June. In total,
new clinical data on ERBITUX was featured in more than 80 oral presentations, poster discussions and abstracts at the meeting.



22

---





Pipeline Clinical Development

Since the beginning of 2008, ImClone Systems has continued to make progress in advancing its earlier stage pipeline, consisting of five
receptor-targeted fully-human IgG1 antibodies, through clinical development.



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

23

---



make
significant judgments, estimates, and assumptions are disclosed in the management discussion and analysis (MD&A) section of our Annual Report on Form 10-K for the period ended
December 31, 2007. The development and selection of the critical accounting policies, and the related disclosure, have been reviewed with the Audit Committee of our Board of Directors. Updates
to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the period ended December 31, 2007 are set forth in our
Form 10-Q for the period ended March 31, 2008.

Impact of Recent Accounting Pronouncements

In November 2007, the Emerging Issues Task Force reached a consensus on Issue No. 07-1, "Accounting for
Collaborative Arrangements." This Issue establishes accounting for costs incurred and revenues generated on sales to third parties should be reported by partners to joint development agreements in
each of their respective income statements, how sharing payments made to or received by a partner pursuant to a Collaboration Agreement should be presented in the income statement, and disclosures
related to the combined sales and expenses of the partners to a Collaboration Agreement that are used to compute the payments made/received. This Issue will be effective for fiscal years beginning
after December 15, 2008, and is to be applied retrospectively to all periods presented for all collaborative arrangements existing as of the effective date. The Company is currently evaluating
the effect this Issue will have on its consolidated financial statements.

In
May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled
in Cash Upon Conversion (Including Partial Cash Settlement)" (FSP 14-1). FSP 14-1 specifies that issuers of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlements) should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible borrowing rate when interest
cost is recognized in subsequent periods. FSP 14-1 is effective for financial statements issued for fiscal years beginning after December 31, 2008, and interim periods within those
fiscal years. The Company is evaluating the effect that FSP 14-1 will have a material impact on its consolidated financial statements.

RESULTS OF OPERATIONS

Selected financial and operating data for the three and six months ended June 30, 2008 and 2007 are as follows (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2008

2007

Variance

2008

2007

VarianceResults of Operations:Royalties

$
97,764

$
78,144

$
19,620

$
192,750

$
154,507

$
38,243License fees and milestones


27,818


33,445


(5,627
)

51,950


62,739


(10,789
)Manufacturing


21,391


23,025


(1,634
)

46,833


39,483


7,350Collaborative agreement reimbursements


19,544


15,818


3,726


37,626


35,203


2,423Total revenues


166,517


150,432


16,085


329,159


291,932


37,227Research and development


55,858


47,557


8,301


103,547


95,248


8,299Selling, general and administrative


22,469


19,553


2,916


47,292


35,904


11,388Royalties


24,336


18,988


5,348


47,873


35,774


12,099Cost of manufacturing revenue


19,840


22,999


(3,159
)

43,929


36,854


7,075Litigation settlements


17,500





17,500


17,500





17,500Total operating expenses


140,003


109,097


30,906


260,141


203,780


56,361Operating income

$
26,514

$
41,335

$
(14,821
)
$
69,018

$
88,152

$
(19,134
)


24

---



Three Months Ended June 30, 2008 and 2007

Revenues

Royalties

Royalty revenue consists 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 U.S. and Canada. Under our agreement with Merck KGaA, we are entitled to royalty payments
equal to 9.5% of Merck's KGaA's net sales outside of the U.S. and Canada, which are calculated per the agreement using the exchange rate of the U.S. dollar as compared to the Euro at the end of the
quarterly period.

In
the second quarter of 2008, our royalty revenue increased by approximately $19.6 million, or 25%, from the comparable period in 2007 due to an increase in global net sales of
ERBITUX combined with favorable foreign exchange rates for sales made outside of the U.S. and Canada. In the U.S. and
Canada, in-market net sales by BMS in the second quarter of 2008 amounted to $195.1 million, an increase of $33.0 million, or 20%. Outside of the U.S. and Canada,
in-market net sales of ERBITUX by Merck KGaA in the second quarter of 2008 amounted to approximately $228.3 million, an increase of $71.1 million or 45% from the comparable
period in 2007. Favorable foreign currency translation contributed to approximately $32.7 million of the in-market increase, which corresponds to a $3.1 million increase in
royalty revenue for the quarter.

Royalty
revenue in 2008 will continue to reflect 39% of BMS' net sales and 9.5% of Merck KGaA's net sales. Changes in exchange rate of the Euro verus the U.S. dollar could materially
impact our royalty revenues during 2008. We do not expect the impact of potential new indications for ERBITUX in the U.S. to be seen until 2009 and beyond.

License Fees and Milestones

License fees and milestone revenue consists 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 second quarter of 2008, license fee and milestone
revenue consisted of approximately $27.5 million earned from BMS and $267,000 from Merck KGaA, as compared to the same period in 2007, in which approximately $33.3 million was earned
from BMS and $119,000 was earned from Merck KGaA.

The
decrease of $5.6 million, or 17%, from the comparable period in 2007 is attributable to the effect of our amendment to the Commercial Agreement dated July 27, 2007, on
the ERBITUX clinical development cost estimates used to calculate BMS license fees and milestone revenues.

We
continue to anticipate that full year 2008 milestone revenue will range between $100 million and $110 million. Also, there remains an aggregate of approximately
$231.8 million of milestone payments to be recognized as revenue over future periods, which are classified as current and long-term deferred revenue in our June 30, 2008
consolidated balance sheet.

Manufacturing Revenue

Manufacturing revenue consists 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 second quarter of 2008, manufacturing revenue decreased by $1.6 million from the comparable period in 2007 due to efficiencies in the manufacturing process of ERBITUX
resulting in a decrease in the price we charge our partners for ERBITUX. This decrease was partially offset by

25

---



increased
volume purchases from our partners in the second quarter of 2008, which were 11% higher than the comparable period in 2007.

Collaborative Agreement Reimbursements

Collaborative agreement reimbursements 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, certain clinical
and regulatory expenses, certain selling and administrative expenses, and a portion of royalty expense. During the second quarter of 2008, we earned approximately $19.5 million in collaborative
agreement reimbursements revenue, of which $13.4 million was earned from BMS and $6.1 million was earned from Merck KGaA, as compared to $15.8 million earned in the comparable
period in 2007, of which $10.6 million was earned from BMS, $4.6 million was earned from Merck KGaA and $600,000 was earned as final payment from a former corporate partner.

The
increase from the comparable period of approximately $3.7 million, or 23%, is due to increased reimbursements of clinical and regulatory expenses of $3.1 million due to
higher clinical activity, clinical shipments of ERBITUX to our partners of approximately $1.7 million, and higher selling, general and administrative costs of $261,000. These increases were
partially offset by reduced reimbursements for royalty expenses of $709,000 and the final payment received from a former corporate partner of $600,000.

On
February 27, 2008, we received verbal notification from Merck KGaA that they were taking the position that the Yeda Settlement Agreement of December 7, 2007 resulted in
the breach of one of our representations in the Development License Agreement and that, therefore, they were no longer obligated to reimburse a portion of the royalty payments paid by us to Yeda and
Sanofi-Aventis following the date of that agreement. Merck KGaA has subsequently made payment for the first quarter 2008 royalty reimbursement and is anticipated to make the second quarter 2008
payment to the Company for the reimbursement of these royalties. Merck KGaA has communicated to the Company that any such payments are being made under protest. As a result, the Company has not
recognized
revenue of approximately $1.6 million of these royalty reimbursements for the three months ended June 30, 2008 pending a final resolution with Merck KGaA. We do not believe that the
settlement with Yeda altered Merck KGaA's obligation to pay us the royalty reimbursement and will continue to seek to resolve the matter with Merck KGaA.

Expenses

Research and Development

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, costs to conduct clinical studies and associated
regulatory activities. Research and development expenses also include our cost of inventory that is supplied to our partners for use in clinical studies and certain clinical and regulatory amounts
that are reimbursable from our corporate partners. As a result, approximately $13.0 million and $8.2 million of costs representing research and development expenses in the second
quarters of 2008 and 2007, respectively, were reimbursable and included under Collaborative agreement reimbursements revenue.

Research
and development expenses in the second quarter of 2008 of $55.9 million increased from the comparable period in 2007 by $8.3 million, or 17%. This increase is
primarily due to an increase in third party clinical trial expenses of approximately $4.9 million associated with ERBITUX and the Company's pipeline products, as well as increases in salaries
and benefits, an increase in pipeline

26

---



material
costs and an increase in ERBITUX used for clinical studies, as compared to the second quarter of 2007. ERBITUX used in clinical studies by our corporate partners is reimbursed as
collaborative agreement reimbursements revenue. These increases were partly offset by decreases in third-party production costs of pipeline product and reductions in amounts we are responsible to pay
our corporate partner BMS as a result of the amended and restated BMS agreement.

Due
to the timing of production of clinical trial material, we will continue to see fluctuations in our research and development expenses on a
quarter-over-quarter basis. But we reiterate our expectation that research and development expenses for the full year of 2008 will
increase by 25% to 30% over the levels reported for 2007. This is primarily due to the increase in investment in the clinical development of our proprietary pipeline antibodies.

Selling, General and Administrative

Selling, general and administrative expenses include selling and administrative personnel costs, including related facility costs,
additional costs to develop internal marketing and field operations 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. As a result, approximately $519,000 and $259,000 of costs representing selling and general expenses in the second
quarters of 2008 and 2007, respectively, were reimbursable and included in Collaborative agreement reimbursements revenue.

Selling,
general and administrative expenses in the second quarter of 2008 amounted to $22.5 million, an increase of $2.9 million or 15% from the comparable period in 2007.
Expenses in this category have increased from the comparable period in 2007, mainly due to our expanded efforts in the second half of 2007 to grow ERBITUX sales in North America primarily through the
expansion of our U.S. sales force, as well as our share of the costs for increased commercialization efforts by our partners in Japan.

We
reiterate our guidance for 2008 that on an annual basis, we continue to expect our selling, general and administrative expenses as a percentage of total revenues will marginally
increase during 2008 as compared to the prior year.

Royalties

Royalty expense consists of obligations related to certain licensing agreements related to ERBITUX. Our effective royalty rate for the
second quarter of 2008 on global in-market sales of ERBITUX was approximately 5.7%, as compared to 6.0% in 2007. A portion of our royalties are reimbursed by our corporate partners, which
is reflected in Collaborative agreement reimbursements revenue. As a result, approximately $6.0 million and $6.7 million of royalty expense were reimbursable by our corporate partners
and included as Collaborative agreement reimbursement revenue in the second quarters of 2008 and 2007, respectively.

In
the second quarter of 2008, we incurred royalty expense of $24.3 million, an increase of $5.3 million, or 28%, from the comparable period in 2007. The increase is
primarily due to worldwide in-market sales that increased 33% as compared to the second quarter of 2007.

We
now expect royalty expense as a percentage of global in-market sales of ERBITUX to be in the low-6% range for 2008. This rate may increase based on the amount
of net sales outside of the U.S. and Canada that consist of ERBITUX produced in the U.S.

Cost of Manufacturing Revenue

We sell ERBITUX to BMS at our cost of production plus a 10% mark-up on bulk and we sell bulk to Merck KGaA at our cost of
production. Therefore, depending on certain circumstances, such as

27

---



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), and as the cost used for the computation of
manufacturing revenue is contractually based, which may be different than the cost of manufacturing revenue, our gross margins on sales of ERBITUX may fluctuate from quarter to quarter.

Cost
of manufacturing revenue in the second quarter of 2008 amounted to $19.8 million resulting in a gross margin of 7%, compared to costs of manufacturing revenue in the
comparable period of 2007 of approximately $23.0 million, resulting in a gross margin of less than 1%. The fluctuation in our gross margin is based on the explanation noted above.

Litigation Settlement

On August 4, 2008, the Company and Abbott reached an oral settlement to end all litigation pending between them. Under the terms
of the settlement agreement, ImClone Systems will pay Abbott $17.5 million in cash for full and final settlement of all claims and counterclaims raised in these cases, including all claims
related to U.S. Patent No. 5,665,578. The parties have notified the Court of the settlement and all pending actions in the matter have been stayed. The parties are currently memorializing the
terms of the settlement in writing following which stipulations of dismissal will be filed with the Court. The Company recorded in the second quarter of 2008 an accrued liability of
$17.5 million for the settlement of the Abbott matter discussed above.

Other Income (Expense)

Interest and other income in the second quarter of 2008 amounted to $7.1 million, a decrease of approximately
$6.2 million, or 46% from the comparable period in 2007. This decrease is attributable to lower interest rates on our investment portfolio and a shift to lower yielding money-market funds
commencing in the third quarter of 2007 due to liquidity concerns in the global credit and capital markets.

Because
of our concentration of investments in money-market accounts, we expect our interest income will continue to track the Federal Funds rate and other similar short-term
rates for the remainder of 2008.

Interest
expense in the second quarter of 2008 amounted to $3.0 million, which is comparable to the same period in 2007.

During
the second quarter of 2008, we recorded an impairment charge of $1.8 million on certain securities available for sale due to an other-than-temporary
decline in fair value as a result of the downgrade of MBIA and Ambac, which companies provide insurance for certain of our securities available for sale, in the second quarter of 2008.

Provision for Income Taxes

The Company's estimated annual effective income tax rate for 2008 is approximately 44%, excluding the effect of any discrete (benefits)
charges and the effect of the impairment charge of $1.8 million on investments, for which no tax benefit has been taken because of our expected inability to utilize capital losses. During the
three months ended June 30, 2008 and 2007, excluding the effect of impairment charges, we recognized discrete charges (benefits) of approximately $0.3 million and $(0.1) million,
respectively, related to certain deferred items. The difference between the statutory rate and our expected annual effective income tax rate primarily relates to state taxes. Actual cash tax payments
in 2008 are estimated to be less than $2 million.

28

---



Six Months Ended June 30, 2008 and 2007

Revenues

Royalties

For the six months ended June 30, 2008, royalty revenue amounted to $192.8 million, an increase of $38.2 million,
or 25%, from the comparable period in 2007. This increase is due to an increase in net sales of ERBITUX. In the U.S. and Canada, in-market net sales by BMS for the first six months of 2008
amounted to $382.5 million, an increase of $60.3 million, or 19%. Outside of the U.S. and Canada, in-market net sales of ERBITUX by Merck KGaA in the first half of 2008
amounted to $458.1 million, an increase of $155.1 million or 51% from the comparable period in 2007. Favorable foreign currency translation contributed to approximately
$68.6 million of the in-market sales increase, which corresponds to a $6.5 million increase in royalty revenue for the first half of 2008.

Royalty
revenue in 2008 will continue to reflect 39% of BMS' net sales and 9.5% of Merck KGaA's net sales. Changes in exchange rate of the Euro verus the U.S. dollar could materially
impact our royalty revenues during 2008. We do not expect the impact of potential new indications for ERBITUX in the U.S. to be seen until 2009 and beyond.

License Fees and Milestone Revenue

For the six months ended June 30, 2008, license fees and milestone revenue consisted of $51.4 million earned from BMS and
$535,000 from Merck KGaA, as compared to the same period in 2007 in which $62.5 million was earned from BMS and $237,000 was earned from Merck KGaA.

The
decrease of $10.8 million, or 17%, from the comparable period in 2007 is attributable to the effect of our amendment to the Commercial Agreement, dated July 27, 2007,
on the ERBITUX clinical development cost estimates used to calculate BMS license fees and milestone revenues.

We
continue to anticipate that full year 2008 milestone revenue will range between $100 million and $110 million. Also, there remains an aggregate of approximately
$231.8 million of milestone payments to be recognized as revenue over future periods, which are classified as current and long-term deferred revenue in our June 30, 2008
consolidated balance sheet.

Manufacturing Revenue

During the first half of 2008, manufacturing revenue increased by $7.4 million from the comparable period in 2007 due primarily
to increased volume of product purchased by our partners in the first six months of 2008 of approximately 37% from the comparable period in 2007. This increase was partially offset by revenue
reductions of approximately $2.1 million due to efficiencies in the manufacturing process of ERBITUX resulting in a decrease in the price we charge our partners for ERBITUX.

Collaborative Agreement Reimbursements

During the six months ended June 30, 2008, we earned $37.6 million in collaborative agreement reimbursements revenue, of
which approximately $27.0 million was earned from BMS and approximately $10.6 million was earned from Merck KGaA, as compared to $35.2 million earned in the comparable period in
2007, of which $21.1 million was earned from BMS, approximately $13.5 million was earned from Merck KGaA, and $600,000 was received as final payment from a former corporate partner.

The
increase in collaborative agreement reimbursements revenue of $2.4 million is principally due to increases in reimbursements of clinical and regulatory expenses of
approximately $5.5 million, royalty expense of $215,000, and selling, general and administrative costs of $284,000. These increases were

29

---



partially
offset by a decrease in shipments of clinical drugs of approximately $3.0 million and the final payment received from a former corporate partner of $600,000 in 2007.

On
February 27, 2008, we received verbal notification from Merck KGaA that they were taking the position that the Yeda Settlement Agreement of December 7, 2007 resulted in
the breach of one of our representations in the Development License Agreement and that, therefore, they were no longer obligated to reimburse a portion of the royalty payments paid by us to Yeda and
Sanofi-Aventis following the date of that agreement. Merck KGaA has subsequently made payment for the first quarter 2008 royalty reimbursement and is anticipated to make the second quarter 2008
payment to the Company for the reimbursement of these royalties. Merck KGaA has communicated to the Company that any such payments are being made under protest. As a result, the Company has not
recognized revenue of approximately $3.5 million of these royalty reimbursements for the six months ended June 30, 2008 pending a final resolution with Merck KGaA. We do not believe that
the settlement with Yeda altered Merck KGaA's obligation to pay us the royalty reimbursement and will continue to seek to resolve the matter with Merck KGaA.

Expenses

Research and Development

Approximately $24.7 million and $22.2 million of costs representing research and development expenses in the first half
of 2008 and 2007, respectively, were reimbursable and included under Collaborative agreement reimbursements revenue.

Research
and development expenses for the six months ended June 30, 2008 of $103.5 million increased by approximately $8.3 million, or 9%, from the comparable period
in 2007. This increase is primarily due to an increase in third party clinical trial expenses of approximately $8.0 million associated with ERBITUX and the Company's pipeline products, as well
as increases in salaries and benefits and an increase in pipeline material costs. These increases were partly offset by decreases in ERBITUX used
for clinical studies, as compared to the second half of 2007, third-party production costs of pipeline product and reductions in amounts we are responsible to pay our corporate partner BMS as a result
of the amended and restated BMS agreement.

Due
to the timing of production of clinical trial material, we will continue to see fluctuations in our research and development expenses on a
quarter-over-quarter basis. But we reiterate our expectation that research and development expenses for the full year of 2008 will increase by 25% to 30% over the levels
reported for 2007. This is primarily due to the increase in investment in the clinical development of our proprietary pipeline antibodies.

Selling, General and Administrative

Approximately $863,000 and $579,000 of costs representing selling and general expenses in the first half of 2008 and 2007,
respectively, were reimbursable and included in collaborative agreement reimbursements revenue.

Selling,
general and administrative expenses for the six months ended June 30, 2008 amounted to $47.3 million, an increase of $11.4 million or 32% from the
comparable period in 2007. Expenses in this category have increased from the comparable period in 2007, mainly due to our expanded efforts in the second half of 2007 to grow ERBITUX sales in North
America primarily through the expansion of our U.S. sales force, as well as our share of the costs for increased commercialization efforts by our partners in Japan.

We
reiterate our guidance for 2008 that on an annual basis, we continue to expect our selling, general and administrative expenses as a percentage of total revenues will marginally
increase during 2008 as compared to the prior year.

30

---



Royalties

Our effective royalty rate for the first half of 2008 on global in-market sales of ERBITUX was approximately 5.7%, which
was comparable to the first half of 2007. Approximately $12.0 million and $11.8 million of royalty expense was reimbursable by our corporate partners and included as Collaborative
agreement reimbursement revenue in the first half of 2008 and 2007, respectively.

In
the first half of 2008, we incurred royalty expense of $47.9 million as compared to $35.8 million, an increase of $12.1 million, or 34% from the comparable period
in 2007. This increase is primarily due to worldwide in-market sales that increased 34% as compared to the first half of 2007.

We
now expect royalty expense as a percentage of global in-market sales of ERBITUX to be in the low-6% range for 2008. This rate may increase based on the amount
of net sales outside of the U.S. and Canada that consist of ERBITUX produced in the U.S.

Cost of Manufacturing Revenue

Cost of manufacturing revenue for the six months ended June 30, 2008 amounted to $43.9 million resulting in a gross
margin of approximately 6% compared to costs of manufacturing revenue in the comparable period of 2007 of approximately $36.9 million, resulting in a gross margin of 7%.

Litigation Settlement

On August 4, 2008, the Company and Abbott reached an oral settlement to end all litigation pending between them. Under the terms
of the settlement agreement, ImClone Systems will pay Abbott $17.5 million in cash for full and final settlement of all claims and counterclaims raised in these cases, including all claims
related to U.S. Patent No. 5,665,578. The parties have notified the Court of the settlement and all pending actions in the matter have been stayed. The parties are currently memorializing the
terms of the settlement in writing following which stipulations of dismissal will be filed with the Court. The Company recorded in the second quarter of 2008 an accrued liability of
$17.5 million for the settlement of the Abbott matter discussed above.

Other Income (Expense)

Interest and other income for the six months ended June 30, 2008 amounted to $16.7 million, a decrease of approximately
$9.2 million, or 35% from the comparable period in 2007. This decrease is attributable to lower interest rates on our investment portfolio and a shift to lower yielding money-market funds
commencing in the third quarter of 2007 due to the liquidity concerns in the global credit and capital markets.

Because
of our concentration of investments in money-market accounts, we expect our interest income will continue to track the Federal Funds rate and other similar short-term
rates for the remainder of 2008.

Interest
expense for the six months ended June 30, 2008 amounted to approximately $6.0 million, which is comparable to the same period in 2007.

During
the first half of 2008, we recorded impairment charges of $86.7 million on certain securities available for sale due to an other-than-temporarily
decline in fair value. The impairment was primarily due to the severity of the decline in estimated fair value of these securities and the duration of time for which they have been in a loss position.

31

---





Provision for Income Taxes

The Company's estimated annual effective income tax rate for 2008 is approximately 44%, excluding the effect of any discrete (benefits)
charges and the effect of impairment charges of $86.7 million on investments, for which no tax benefit has been taken because of our expected inability to utilize capital losses. During the six
months ended June 30, 2008 and 2007, excluding the effect of impairment charges, the Company recognized discrete (benefits) charges of approximately $(1.0) million and $4.8 million,
respectively, related to certain deferred items. 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 2008 are estimated to be less than $2 million.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2008, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of
approximately $935.6 million. We also have an additional $96.5 million of securities available for sale which have been classified as long-term due to the current illiquidity
in the market for ARS. We expect the holders our $600.0 million convertible notes payable will exercise their right under a put provision whereby the holders can seek repayment of the
convertible notes payable from us in May 2009. We are currently evaluating payment and refinancing options for the convertible notes payable. 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. 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.

SUMMARY OF CASH FLOWS

Six months endedJune 30, 2008

June 30, 2007

VarianceCash provided by (used in):Operating activities

$
49,405

$
41,086

$
8,319Investing activities


221,263


(31,943
)

253,206Financing activities


16,967


27,218


(10,251
)Net increase in cash and cash equivalents

$
287,635

$
36,361

$
251,274


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 half of
2008, we generated approximately $49.4 million in cash from operating activities, as compared to $41.1 million in the comparable period of 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 half of 2008, we generated net cash from investing activities of $221.3 million comprised of approximately
$249.1 million of proceeds from our investment portfolio, partially offset by approximately $10.3 million used for acquisition of fixed assets, and purchases of additional securities of
approximately $17.5 million.

32

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Net
cash flows generated in financing activities in 2008 were approximately $17.0 million, of which approximately $5.7 million of proceeds were generated from the exercise
of stock options and sales under the Company's employee stock purchase plan and $11.3 million was generated from tax benefits associated with equity net operating losses that will be taken as a
reduction on our tax returns.

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



Below
is a table that presents our contractual obligations and commercial commitments as of June 30, 2008, which reflects our expectation of the repayment of our convertible
long-term debt in May 2009: (in thousands)

Payments due by Year(1),(2)Total

2008

2009

2010

2011

2012

2013 and
ThereafterConvertible notes payable(3)

$
600,000

$


$
600,000

$


$


$


$
Interest on convertible notes payable


8,250


4,125


4,125











Operating leases


62,545


3,116


6,205


4,967


4,274


4,236


39,747Purchase obligations


21,578


21,578














Contract services obligations


6,930


2,610


1,350


2,970








Total contractual cash obligations

$
699,303

$
31,429

$
611,680

$
7,937

$
4,274

$
4,236

$
39,747


---

33

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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, money
market funds, foreign corporate debt, U.S. government debt, foreign government debt, asset-backed securities, auction rate securities (ARS) and commercial paper. All such instruments are classified as
securities available for sale. Generally, we do not invest in portfolio equity securities, commodities, foreign exchange contracts or use financial derivatives for trading purposes. However, we
currently have investments in equity securities and may continue to make these investments depending upon our needs. Our debt security portfolio normally 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.

During
2007, liquidity issues began to affect the global credit and capital markets. As a result, ARS, which historically have had a liquid market and had their interest rates reset
periodically (e.g., monthly) through dutch auctions, began to fail at auction. These auction failures have caused many ARS to become illiquid since investors are hesitant to purchase these
types of investments, which in turn has caused the fair values for these securities to decline.

As
of June 30, 2008, the Company has $161.5 million of principal invested in auction rate securities (ARS), of which $144.1 million represent interests in synthetic
collateralized debt obligations referencing portfolios of corporate bonds (CDOs), $5.1 million represents interests in floating rate surplus notes of captive insurance companies (FRN) and
$12.3 million represents interests in student loans and student loan revenue bonds (Student Loans). These securities have long-term nominal maturities for which interest rates are
reset through a dutch-auction each month and these auctions had historically provided a liquid market for these securities. As a result of the continuing liquidity issues experienced in the global
credit and capital markets, these ARS have had multiple failed auctions; the CDOs and FRN have been failing at auction since August 2007 and the Student Loans have been failing at auction since March
2008. The estimated fair value of the CDOs were $83.6 million as of June 30, 2008, which were determined based on indicative bids from an investment bank. The estimated fair value of the
FRN and the Student Loans were $2.6 million and $10.3 million, respectively, as of June 30, 2008, which were determined based on valuations performed by Pluris Valuation
Advisors LLC. Collectively, the fair value of the ARS of $96.5 million as of June 30, 2008 is significantly below the fair value at December 31, 2007 of
$121.7 million. While interest continues to be paid by the issuers of these securities, due to the severity of the decline in fair value and the duration

34

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of
time for which these securities have been in a loss position, the Company concluded that these securities have experienced an other-than-temporarily decline in fair value
and recorded impairment charges of $69.1 million and $1.8 million, related to these ARS in the first and second quarters of 2008, respectively. These ARS all had AAA/Aaa credit ratings
as of June 30, 2008, however, in July 2008 ARS with a cost basis of $149.2 million and a fair value $86.2 million were downgraded to an A rating by the Fitch rating agency. ARS
have been classified as long-term investments in the Company's Consolidated Balance Sheets given that these securities are illiquid until there is a successful auction for them, the timing
of which is not knowable at this time. The Company also has investments in government agency bonds that are not impaired with a fair value of $10.3 million, based on actively traded markets.

As
of June 30, 2008, the Company has equity securities with a cost basis of $61.2 million, that have a fair value of $35.4 million (using Level 1 inputs),
resulting in a decline in fair value of $25.8 million. During the first quarter of 2008, the Company recorded an impairment charge of approximately $15.8 million, reflecting an
other-than-temporary decline in the fair value of the equity securities. As of June 30, 2008, the fair value of the equity securities was $10.0 million less than
their new cost basis, however, as of August 7, 2008, the fair value of the equity securities was $0.5 million less than their new cost basis. The Company determined that the decline in
fair value during the three months ended June 30, 2008 was not other than temporary and accordingly, was included in accumulated other comprehensive loss as a net unrealized loss on securities
available for sale. In making these determinations the Company considered a number of factors, including the nature of the investment, the cause of the decline in fair value, the severity and duration
of the decline in fair value, the financial position and prospects of the company whose securities are held, analyst reports, as well as other factors. The fair value of the Company's equity
securities was determined using the June 30, 2008 closing market price of the securities (Level 1 inputs).

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 June 30, 2008 (in thousands, except interest rates):

2008

2009

2010

2011

2012

2013 and Thereafter

Total

Fair ValueFixed Rate

$


$


$
10,000

$


$


$


$
10,000

$
10,309Average Interest Rate








5.00
%










5.00
%Variable Rate

















161,520
(1)

161,520


96,482Average Interest Rate

















2.99
%

2.99
%$


$


$
10,000

$


$


$
161,520

$
171,520

$
106,791


---

Our
outstanding 13/8% fixed rate convertible 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 notes was approximately $579.8 million at June 30, 2008.

35

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Item 4.    Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, 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 Chief Financial Officer 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 June 30, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

36

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PART II    OTHER INFORMATION

Item 1.    Legal Proceedings

Intellectual Property Litigation

As previously reported, on February 5, 2007, a complaint was filed against the Company by Abbott Laboratories (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
May 2, 2008, the Company filed a complaint against Abbott in the United States District Court, District of Massachusetts based on Abbott's wrongful concealment of and
misrepresentations relating to a document that was critical to one of the Company's defenses in a prior patent infringement proceeding with the Repligen Corporation and the Massachusetts Institute of
Technology.

On
August 4, 2008, the Company and Abbott reached an oral settlement to end all litigation pending between them. Under the terms of the settlement agreement, ImClone Systems will
pay Abbott $17.5 million in cash for full and final settlement of all claims and counterclaims raised in these cases, including all claims related to U.S. Patent No. 5,665,578. The
parties have notified the Court of the settlement and all pending actions in the matter have been stayed. The parties are currently memorializing the terms of the settlement in writing following which
stipulations of dismissal will be filed with the Court.

The
Company recorded in the second quarter of 2008 an accrued liability of $17.5 million for the settlement of the Abbott matter discussed above. No reserves have been established
in the financial statements for any other legal proceedings, because the Company does not believe that such reserves are 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 therefrom, if any, may have a material adverse impact on operating results for that period, on our balance sheet, or both.

Other

On July 31, 2008, BMS submitted an unsolicited non-binding offer to acquire all of the outstanding shares of common
stock of the Company for $60 per share in cash. On August 4, 2008, the Company announced that the preliminary view of the Board of Directors was that BMS's offer substantially undervalues the
Company, and that the Board has formed a committee to study BMS's proposal and to retain advisors to assist it in determining the appropriate course of action. The Company also stated that the Board
has been discussing the possibility of separating ERBITUX and the pipeline business into separate components in order to maximize the value of the Company. Additional information is included in the
Current Reports filed with the SEC on Form 8-K filed on August 1, 2008 and August 4, 2008.

Following
the public announcement of the unsolicited non-binding offer from BMS, several lawsuits were filed against the Company, its directors and other named parties, in the Supreme
Court of the State of New York, New York County. Such lawsuits allege, in part, that the proposal from BMS substantially undervalues the Company and that the sale process has been flawed. The time
period for the Company to move or answer with respect to such lawsuits has not yet expired.

37

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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, 2007 except as follows:

We may be unable to refinance our $600.0 million of convertible notes payable in May 2009 or be required to refinance the convertible notes payable at less favorable
terms.

Currently, we expect the holders of our convertible notes payable to require us to repay the full $600.0 million in May 2009. We
currently have sufficient liquidity to repay this indebtedness, however our continuing efforts to expand the uses of ERBITUX and develop our pipeline products will require substantial capital in the
coming years. Should we be unable to refinance this indebtedness, this could require us to seek funds from other sources, including the issuance of common stock or entering into collaboration
agreements to further the development of our pipeline products.

We
may be required to refinance the convertible notes payable at a higher interest rates than the 13/8% fixed rate that we currently pay. This would adversely impact the
amount of interest expense and our results of operations.

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

Not applicable

Item 3.    Defaults Upon Senior Securities

Not applicable

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

Not applicable

Item 5.    Other Information

Not applicable

Item 6.    Exhibits

Exhibit No.

Description31.1

Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232

Certification of the Company's Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


38

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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.

IMCLONESYSTEMSINCORPORATED(Registrant)Date: August 8, 2008

By:

/s/JOHN H. JOHNSONJohn H. Johnson Chief Executive Officer
Principal Executive OfficerDate: August 8, 2008

By:

/s/KENNETH J. ZUERBLISKenneth J. Zuerblis Senior Vice President and Chief Financial Officer
Principal Financial Officer


39

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