10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2006

or

o            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-19612

IMCLONE SYSTEMS INCORPORATED

(Exact name of registrant as specified in its charter)

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

(212) 645-1405

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $0.001 and the associated preferred stock purchase rights.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes  x  No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act  Yes  o  No  x

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  x  No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  x         Accelerated Filer  o         Non-Accelerated Filer  x

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

The aggregate market value of the voting and non-voting Common Stock held by non-affiliates of the registrant as of June 30, 2006 was $3,195,312,505.

Number of shares of Common Stock; par value $0.001, as of February 23, 2007: 85,234,361

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be delivered in connection with its 2007 Annual Meeting of Stockholders are incorporated by reference in Parts II and III of this report.

IMCLONE SYSTEMS INCORPORATED

2006 Annual Report on Form 10-K

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	4
Item 1A.	Risk Factors	37
Item 1B.	Unresolved Staff Comments	46
Item 2.	Properties	46
Item 3.	Legal Proceedings	48
Item 4.	Submission of Matters to a Vote of Security Holders	53
	PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	54
Item 6.	Selected Financial Data	56
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	57
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 8.	Financial Statements and Supplementary Data	74
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	77
	PART III
Item 10.	Directors, Executive Officers and Corporate Governace	77
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accounting Fees and Services	77
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	78

2

As used in this Annual Report on Form 10-K, “ImClone Systems,” “ImClone,” “Company,” “we,” “ours,” and “us” refer to ImClone Systems Incorporated, except where the context otherwise requires or as otherwise indicated.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

The Company considers portions of the information in this Annual Report on Form 10-K to be “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, without limitation, the Company’s future economic performance, plans and objectives for future operations and projections of revenue and other financial items. Forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “continue” or comparable terminology. Forward-looking statements are inherently subject to risks, trends and uncertainties, many of which are beyond the Company’s ability to control or predict and some of which the Company might not even anticipate. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, it can give no assurance that its expectations will be achieved. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.

Important factors that may cause actual results to differ materially from forward-looking statements include, but are not limited to, risks and uncertainties associated with the development of market demand for, and continued market acceptance of, ERBITUX® (cetuximab); fluctuations in our royalty, collaborative agreement and manufacturing revenues; our dependence on Bristol-Myers Squibb and Merck KGaA to co-promote, market and sell ERBITUX; our ability to compete effectively with other pharmaceutical and biotechnological companies and products; obtaining and maintaining regulatory approval for our compounds and complying with other governmental regulations applicable to our business; obtaining adequate reimbursement from third-party payers; expending resources on, and completing pre-clinical and clinical studies of, our compounds that demonstrate such compounds’ safety and efficacy; difficulties or delays in product manufacturing and finishing, and the receipt of raw materials, that may cause shortfalls in the supply of ERBITUX or our product candidates; pressure to lower the price of ERBITUX because of new and/or proposed federal legislation or competition; the importation of products from overseas; attracting and retaining key personnel; changes in law or the United States Food and Drug Administration policy that expose us to competition from “generic” or “follow-on” versions of our products; protecting our proprietary rights and obtaining patent protection for new discoveries; commercial limitations imposed by patents owned or controlled by third-parties; the use of hazardous materials in our operations; our exposure to material product liability claims that could prevent or interfere with the commercialization of products; legal costs and the duration and outcome of legal proceedings and investigations; provisions of Delaware law, our charter, bylaws and stockholder rights plan that could hinder, delay or prevent changes in our control; volatility in our stock price; compliance with covenants in the indenture for our convertible notes and with the terms of other contractual obligations; and those other factors set forth in this report in Item 1- “Business,” Item 1A- “Risk Factors” and Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company assumes no obligation to update and supplement any forward-looking statements that may become untrue because of subsequent events whether as a result of new information, future events or otherwise.

We do not undertake to discuss matters relating to certain completed clinical studies or our regulatory strategies beyond those which have already been made public or discussed herein.

3

PART I

ITEM 1.BUSINESS

OVERVIEW

We are 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. We focus on what we believe are two promising strategies for treating cancer: growth factor blockers and angiogenesis inhibitors.

We were incorporated under the laws of the State of Delaware on April 26, 1984. Our corporate headquarters and research facility are located at 180 Varick Street, New York, New York 10014 and our telephone number is (212) 645-1405. We make available free of charge on our Internet website (http://www.imclone.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. In addition, our Internet website includes other items related to corporate governance matters, including among other things, our corporate governance guidelines, charters of the various committees of the Board of Directors, and our corporate compliance program (including our code of business conduct and ethics).

Our commercially available product, ERBITUX® (cetuximab), is a first-of-its-kind antibody approved by the United States Food and Drug Administration (“FDA”) on February 12, 2004 for use in combination with irinotecan in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. On March 1, 2006, the FDA approved ERBITUX for use in combination with radiation therapy for the treatment of locally or regionally advanced squamous cell carcinoma of the head and neck (“SCCHN”) and as a single agent in recurrent or metastatic SCCHN where prior platinum-based chemotherapy has failed. Please see full prescribing information, available at www.ERBITUX.com, for important safety information relating to ERBITUX, including boxed warnings. ERBITUX binds specifically to the epidermal growth factor receptor (EGFR; also referred to as HER1 and c-ErbB-1) on both normal and tumor cells, and competitively inhibits the binding of the epidermal growth factor (EGF) and other growth stimulatory ligands, such as transforming growth factor-alpha. The EGFR is constitutively expressed in many normal epithelial tissues, including the skin and hair follicle. Expression of EGFR is also detected in many human cancers, particularly carcinomas, including those of the head and neck, colon and rectum, pancreas, stomach, lung, and breast. We are conducting, and in some cases have completed, clinical studies evaluating ERBITUX for broader use in colorectal and head and neck cancers, lung and pancreatic cancers, as well as other potential indications.

In September 2005, Health Canada approved ERBITUX for use in combination with irinotecan for the treatment of EGFR-expressing metastatic colorectal carcinoma in patients who are refractory to other irinotecan-based chemotherapy regimens and for use as a single agent for the treatment of EGFR expressing, metastatic colorectal carcinoma in patients who are intolerant to irinotecan-based chemotherapy. However, ERBITUX is not currently being actively promoted in Canada.

On December 1, 2003, Swissmedic, the Swiss agency for therapeutic products, approved ERBITUX in Switzerland for the treatment of patients with colorectal cancer who no longer respond to standard chemotherapy treatment with irinotecan. Merck KGaA licensed the right to market ERBITUX outside the United States and Canada from the Company in 1998. In Japan, Merck KGaA has marketing rights to ERBITUX, which are co-exclusive to the co-development rights of the Company and BMS. On June 30, 2004, Merck KGaA received marketing approval by the European Commission to sell ERBITUX for use

4

in combination with irinotecan for the treatment of patients with EGFR-expressing metastatic colorectal cancer after failure of irinotecan including cytotoxic therapy. On December 22, 2005,  Swissmedic approved ERBITUX in Switzerland in combination with radiation in the treatment of patients with previously untreated, advanced SCCHN.

In February 2007, an application was submitted with the Japanese Pharmaceuticals and Medical Devices Agency for the use of ERBITUX in treating patients with advanced colorectal cancer. ERBITUX is the first IgG1 monoclonal antibody that inhibits EGFR to be submitted for marketing authorization in Japan.

We co-promote and otherwise support the sale of ERBITUX in North America together with our development, promotion and distribution partner Bristol-Myers Squibb Company (“BMS”) through its wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. (“E.R. Squibb”). We manufacture ERBITUX for clinical studies and for commercial sales. According to our agreements with BMS and Merck KGaA, each is obligated to pay us certain royalties on their sales of ERBITUX.

In addition to achieving approval in the above indications, we also have undertaken a comprehensive clinical development program to evaluate the broader use of ERBITUX in colorectal cancer, including three Phase III randomized studies known as EMR-013 (also known as CRYSTAL; first-line metastatic setting), BMS-006 (also known as EPIC; second-line metastatic setting) and BMS-025 (refractory metastatic setting). We have reported topline results for these randomized studies. The first-line metastatic study EMR-013 met its primary endpoint by significantly improving progression-free survival. The National Cancer Institute of Canada’s BMS-025 study met its primary endpoint by significantly improving overall survival. In the Phase III randomized study BMS-006, the primary endpoint, overall survival, was not met, possibly because a high proportion of patients in the control (irinotecan only) arm received treatment with ERBITUX following development of progressive cancer, potentially confounding the interpretation of this endpoint. However, the secondary endpoints strongly favor the ERBITUX combination arm.

In collaboration with the National Cancer Institute (NCI) Cooperative groups, studies in first line colorectal cancer (CALGB 80203) and first line pancreatic cancer (SWOG 0205) enrolled patients in 2004. Subsequently CALGB 80203 was closed to enrollment after accruing 238 patients and a new first line colorectal cancer protocol that incorporates both ERBITUX and Avastin® (bevacizumab) developed by CALGB (80405) began enrolling patients in late 2005 by all of the NCI Cooperative groups (Intergroup). Furthermore, the NCI Cooperative groups began a Phase III randomized study to evaluate the merits of adding ERBITUX in the adjuvant setting following definitive surgical treatment of Stage C (locoregional) colorectal cancer. A similar adjuvant study (PETACC-8) was also begun in Europe and other regions outside the United States. Numerous registration-directed studies of ERBITUX are underway in various other locoregional and advanced disease settings (colorectal cancer, non-small cell lung cancer, head and neck cancer and pancreatic cancer) and pilot studies are either underway or planned to further evaluate the development of ERBITUX for other indications and tumor types.

In addition to our work developing and commercializing ERBITUX, we have also advanced a number of investigational agents to various stages of clinical development and we are developing monoclonal antibodies that inhibit angiogenesis, which can be used to treat various kinds of cancer and other diseases.

We continue to conduct research, both independently and in collaboration with academic, community and corporate partners, in a number of areas related to our core focus of tumor cell growth factor inhibitors and angiogenesis inhibitors. We also have developed diagnostic products and vaccines for certain infectious diseases, and we have licensed the rights to these products and vaccines to corporate partners. However, we are no longer actively developing product candidates in the areas of diagnostic and infectious diseases.

5

CLINICAL DEVELOPMENT PROGRAMS

ERBITUX Cancer Therapeutic

ERBITUX is an IgG1 chimerized (part human, part mouse) monoclonal antibody that selectively binds to the EGFR and thereby inhibits growth of tumors dependent upon activation of the EGFR for cell division and survival. The activation of the EGFR is believed to play a critical role in the growth and survival of certain types of tumor cells and select normal cells and in vitro has been shown to be a mediator of antibody-dependent cellular cytotoxicity (ADCC). Certain cancer types are characterized by the expression of the EGFR. For example, IMCL-9923 and other studies conducted by us have indicated that approximately 75% of advanced stage refractory colorectal cancer cases have been shown by immunohistochemistry (IHC) to have detectable EGFR in tumor cells as assessed by IHC, although it appears that nearly all colorectal cancer have the genetic machinery for EGFR and manufacture EGFR mRNA. Similarly, according to the literature in this area, nearly all patients diagnosed with SCCHN have been shown to express the EGFR on the surface of the tumor cells, as assessed by IHC. Other types of cancer are also characterized, in certain patients, by expression of the EGFR, including non-small cell lung, renal, and pancreatic cancers. By preventing the binding of critical growth factors to the EGFR, we believe it is possible to inhibit the growth and survival of these and other cancers.

ERBITUX Clinical Studies

The charts presented below reflect potentially pivotal studies in selected tumor types that we and our partners, Merck KGaA and BMS, are developing or collaborating on with the National Cancer Institute and various European cooperative groups, and are designed both for registration purposes and exploratory development in these indications. It should be noted that a large number of other clinical evaluations of ERBITUX, including investigator-initiated studies and studies sponsored by ImClone, BMS, and Merck KGaA, are progressing in a broad array of tumor types.

6

Colorectal Cancer

Study	Description	Population	Target Enrollment
CALGB 80203 (Discontinued)	Phase III Randomized Study (FOLFOX +/- ERBITUX) (Saltz +/- ERBITUX)	First-line	2,200
CALGB 80405 (Intergroup) (Ongoing)	Phase III Randomized study of chemotherapy (FOLFOX or FOLFIRI) plus Avastin® vs. ERBITUX vs. Avastin® + ERBITUX	First-line	2,289
EMR-013 (CRYSTAL) (Primary endpoint result reported)	Phase III Randomized Study of FOLFIRI +/ ERBITUX	First-line	1,220
OPUS (Enrollment complete)	Phase III Randomized Study of FOLFOX +/- ERBITUX	First-line	300
680 CAIRO II (Ongoing)	Phase III Randomized Study (XELOX/Avastin®  +/- ERBITUX)	First-line	750
608 COIN (Clinical Research Council, UK) (Ongoing)	Phase III Randomized Study (FOLFOX [regimen 1] vs. FOLFOX [regimen 2] vs. FOLFOX + ERBITUX)	First-line	2,400
BMS-014 (EXPLORE) (Discontinued)	Phase III Randomized Study    (FOLFOX +/- ERBITUX)	Second-line (previously treated with irinotecan)	1,100
BMS-006 (EPIC) (Primary endpoint result reported)	Phase III Randomized Study of Irinotecan +/- ERBITUX	Second-line	1,300
SWOG (Intergroup) (approved by NCI; to begin 1Q07)	Phase III Study of FOLFIRI + ERBITUX +/- Avastin®	Second-line (previously treated with FOLFOX/ Avastin®)	650
BMS-025 (Primary endpoint result reported)	Phase III Randomized Study of ERBITUX vs. Best Supportive Care	Refractory	572
NCCTG 147 (Intergroup) (Ongoing)	Phase III Randomized Study (FOLFOX +/- ERBITUX)	Adjuvant	2,300
PETACC-8 (Europe) (Ongoing)	Phase III Randomized Study (FOLFOX +/- ERBITUX)	Adjuvant	2,000

As part of our confirmatory obligation to the FDA in regard to the approval of ERBITUX for colorectal cancer, we initiated a Phase II study enrolling 80 patients with refractory, EGFR-non-detectable (by IHC), metastatic colorectal cancer. This study is designed to estimate the overall response rate and duration obtained with single agent ERBITUX use and is targeted to complete accrual in 2007.

In conjunction with our U.S. partner, BMS, and our partner in the rest of the world, Merck KGaA, we have opened or expect to open additional studies in colorectal cancer, including randomized studies in

7

first-line, second-line, and refractory settings for metastatic colorectal cancer, as well as in the adjuvant setting involving patients with locoregionally advanced disease following definitive surgical resection. Upon the approval of ERBITUX for colorectal cancer under the accelerated approval mechanism, studies BMS-006 (EPIC) and BMS-014 (EXPLORE) were designated as studies in the second-line metastatic setting to confirm the clinical benefit of ERBITUX. BMS-006, which opened for patient enrollment in May 2003, evaluated the merits of adding ERBITUX to irinotecan in patients who have failed oxaliplatin, 5-fluorouracil, and leucovorin in the first-line of therapy. BMS-006, which was conducted in collaboration with Merck KGaA, finished patient accrual in February 2006. Preliminary toxicity data, substantiating the safety of the regimen, was presented at the annual American Society of Clinical Oncology (ASCO) meeting in 2005, and the results of efficacy evaluations will be reported at the American Association  of Cancer Research (AACR) meeting in 2007. In November 2006, we reported that the primary endpoint, overall survival was not met, possibly due to a high proportion of patients in the control (irinotecan only) arm receiving treatment with ERBITUX following disease progression on the study, potentially confounding the interpretation of this endpoint. However, the secondary endpoints strongly favor the ERBITUX combination arm.

BMS-014 (EXPLORE), a second-line randomized study opened for patient enrollment and treatment in March 2003, was closed with FDA approval due to decreased feasibility of the study and was removed from the list of post-approval commitments. EXPLORE tested the addition of ERBITUX and the combination of oxaliplatin, 5-fluorouracil, and leucovorin (FOLFOX-4) in patients who have failed irinotecan, 5-fluorouracil, and leucovorin. A pooled analysis of the preliminary results of this study was presented at the annual ASCO meeting in 2005. In the pooled analysis, the incidence of the characteristic ERBITUX and FOLFOX-4 toxicities does not seem to be increased as compared to the reported incidences in the ERBITUX and Eloxatin package inserts. Based on our limited investigational experience the combination of FOLFOX-4 and ERBITUX appears to be a feasible regimen.

EMR-013 (CRYSTAL), a randomized Phase III study that evaluates the merits of adding ERBITUX to irinotecan and infusional 5-fluorouracil (FOLFIRI) as first-line therapy in patients with metastatic disease, completed patient accrual in December 2005. In January 2007, we announced that EMR-013 met its primary endpoint by significantly improving progression-free survival, and that the results of the study were to be presented at the annual meeting of ASCO in June 2007. In November 2006, we also announced that BMS-025, a randomized Phase III study of ERBITUX versus best supportive care that completed patient enrollment in August 2005, met its primary endpoint of overall survival, with the results presented at the annual meeting of the AACR in April 2007. Many other randomized Phase III trials sponsored by either Merck KGaA, ImClone, and/or BMS and/or various national cooperative oncology groups in US and Europe are evaluating the merits of adding ERBITUX to many different chemotherapy regimens plus or minus Avastin® in the first- and second-line metastatic and adjuvant treatment settings. Many other Phase I, II and pilot studies are evaluating alternate administration schedules (e.g. every 2-weeks) and utilizing ERBITUX in novel therapeutic regimens in various clinically relevant settings.

8

Head and Neck Cancer

Study	Description	Population	Target Enrollment
IMCL-9815 (Completed)	Phase III Randomized Study (Radiation +/- ERBITUX)	First-line	424
EMR-001 (Enrollment completed)	Phase II Study (Platinum + ERBITUX)	Recurrent/ Refractory or Metastatic	96
EMR-008 (Enrollment completed)	Phase I/II Study ERBITUX + Platinum (Carboplatin or Cisplatin) + 5FU (Low, Medium or High Dose)	Recurrent or Metastatic	53
ECOG-5397 (Enrollment completed)	Phase III Randomized Study (Cisplatin + Placebo vs. Cisplatin + ERBITUX)	Recurrent or Metastatic	123
EMR-002 (EXTREME) (Enrollment completed)	Phase III Randomized Study (Cisplatin + 5-Fluorouracil +/- ERBITUX)	Recurrent or Metastatic (no prior chemotherapy in the metastatic setting)	420
RTOG 0522 (Ongoing)	Phase III Randomized Study (Cisplatin Radiation +/- ERBITUX)	Locally Advanced	720

The final results of IMCL-9815, a Phase III locally advanced head and neck cancer study, conducted in cooperation with Merck KGaA, that were published in the New England Journal of Medicine in February 2006, demonstrate that ERBITUX, when added to definitive radiation therapy, significantly improves the duration of both locoregional disease control and overall survival. IMCL-9815 was the principal clinical trial supporting the regulatory approval of ERBITUX. On March 1, 2006, the FDA approved ERBITUX for use in combination with radiation therapy for the treatment of locally or regionally advanced SCCHN, and regulatory approval was granted subsequently in Europe and other regions worldwide. In addition, based on the results of single agent ERBITUX studies in patients with metastatic SCCHN refractory to platinum therapy, particularly EMR-016, the FDA also approved ERBITUX as a single agent in recurrent or metastatic SCCHN where prior platinum-based chemotherapy has failed.

RTOG 0522, which opened to patient enrollment in November 2005, was designed to extend the positive results with ERBITUX reported from study IMCL-9815. In this Phase III study, patients with locally advanced head and neck cancer are being randomized to treatment with either radiation plus chemotherapy or radiation plus chemotherapy plus ERBITUX.

The Eastern Cooperative Oncology Group (ECOG) published the final results of ECOG-5397, a randomized Phase III study of cisplatin plus ERBITUX versus cisplatin in the Journal of Clinical Oncology. In this study, the objective response rate was significantly higher for the ERBITUX arm (26.3% versus 9.8%). Both overall survival and progression-free survival were higher in patients receiving ERBITUX plus cisplatin, but the study lacked sufficient statistical power (i.e. too few patients) to demonstrate clinically relevant differences in these endpoints. Based on the results of ECOG-5397, as well as non-randomized studies demonstrating the activity of ERBITUX in patients with recurrent and metastatic head and neck cancer following treatment with platinum-based regimens, Merck KGaA developed EMR-002 (EXTREME), a randomized Phase III study of platinum (cisplatin  or carboplatin) plus 5-fluorouracil versus a platinum agent plus 5-fluorouracil plus ERBITUX. The study, which was

9

completely accrued in February 2006, may support registering ERBITUX in this indication in both the US and worldwide. The availability of top-line results of the trial is anticipated in the second quarter of 2007.

ImClone and its partners, BMS and Merck KGaA, have also begun a large number of Phase I and II studies, some of which are randomized, to evaluate the merits of adding ERBITUX to a wide variety of chemotherapies, radiation and chemoradiation regimens in many different settings of  SCCHN including the neoadjuvant, adjuvant, metastatic, locoregional settings.

Non-Small Cell Lung Cancer

Study	Description	Population	Target Enrollment
CP02-0452 (SELECT) (Ongoing)	Phase III, randomized study of ERBITUX in combination with docetaxel or pemetrexed compared to docetaxel or pemetrexed alone	Second-line Metastatic or Recurrent	800
EMR-011 (LUCAS) Enrollment completed)	Phase II randomized, chemotherapy-naïve, advanced non-small cell lung cancer (ERBITUX + Cisplatin + Vinorelbine vs. Cisplatin + Vinorelbine)	First-line Stage IIIb or IV	86
BMS-012 (Enrollment completed)	Phase II single-arm study (ERBITUX)	Recurrent or progressive	100
EMR-046 (FLEX) (Enrollment completed)	Phase III Cisplatin/Vinorelbine  +/– ERBITUX	First-line Stage IIIb or IV	1,100
BMS-099 (Enrollment completed)	Phase II Taxane/Carbo or Cisplatin +/– ERBITUX	First-line Stage IIIb or IV	660
BMS-100 (Enrollment completed)	Phase II Gemcitabine/Carbo or Cisplatin +/– ERBITUX	First-line Stage IIIb or IV	131
IMCL-0554 (Ongoing)	Phase II randomized, Taxol/Carbo two different schedules + ERBITUX/Avastin®	First-line Stage IIIb or IV	120
RTOG-0324 (Completed)	Phase II Radiation + Taxol/Carbopatin + ERBITUX	First-line Stage IIIa	84
SWOG-0342 (Completed)	Phase II Randomized Study of Taxol/Carboplatin/ERBITUX or Taxol/Carbopatin followed by ERBITUX	First-line Stage IIIb or IV	236

Based on the findings of a Phase II randomized trial, EMR-011 (LUCAS), involving 61 evaluable patients with chemotherapy-naïve advanced non-small cell lung cancer, which showed that the addition of ERBITUX to cisplatin and vinorelbine significantly increased tumor response rates (53.3% versus 32.3%) and median survival (8.3 vs. 7.0 months), Merck KGaA began a Phase III randomized clinical trial (FLEX), which finished target patient accrual in the first quarter of 2006. Although this trial may be used to support the registration of ERBITUX, BMS-099 and BMS-100 were initiated to provide further support for ERBITUX in the first-line treatment setting of patients with advanced non-small cell lung cancer. In 2005, the size of BMS-099 was increased from 300 to 660 patients and the principal endpoint was modified

10

from response rate to progression-free survival, whereas the size of BMS-100 was decreased from 300 to 131. FLEX, BMS-099, and BMS-100 met accrual targets in 2005-2006.

At ASCO 2005, the Radiation Therapy Oncology Group (RTOG) presented preliminary toxicity and feasibility data on RTOG-0324 which evaluated the feasibility, safety and efficacy of ERBITUX combined with Taxol/Carboplatin and radiation, in patients with locoregionally-advanced stage IIIa non-small lung cancer. The RTOG reported that the regimen was both safe and feasible. In addition, the Southwest Oncology Group (SWOG) completed accrual to SWOG-0342, a randomized Phase II study evaluating combined therapy with ERBITUX/paclitaxel/carboplatin (combined) versus paclitaxel/carboplatin followed by ERBITUX (sequential) in patients with stages IIIb or IV non-small cell lung cancer. Both treatment arms of the study, especially the combined treatment arm, met endpoints that were predetermined by SWOG for levels for further development of ERBITUX.

Furthermore, IMCL-0452 (SELECT), which began in 2004, is actively accruing patients to evaluate the merits of adding ERBITUX to chemotherapy in the second-line metastatic setting. The trial is currently undergoing an amendment through the Special Protocol Assessment process to modify the randomization between docetaxel and pemetrexed to physician’s choice, adapting to changes in standard therapy. The second randomization is between ERBITUX and no ERBITUX. The principal focus of the study will be on the merits of ERBITUX in patients receiving pemetrexed, and the study will also generate useful information on the merits of ERBITUX in patients receiving docetaxel. A wide range of both randomized and non-randomized Phase I and Phase II studies, sponsored by ImClone, BMS, and Merck KGaA, are also evaluating ERBITUX in combination with many chemotherapy and chemoradiation regimens in neoadjuvant, adjuvant, locoregionally-advanced, and advanced non-small cell lung cancer disease settings.

Pancreatic Cancer

Study	Description	Population	Target Enrollment
SWOG-0205 (Enrollment completed)	Phase III Randomized Study (ERBITUX + Gemcitabine vs. Gemcitabine)	First-line Stage IV Pancreatic Cancer	720
ECOG-8200 (Enrollment completed)	Phase II Randomized Study of Irinotecan + Docetaxel +/- ERBITUX	First-line Stage IV Pancreatic Cancer	92
NCI-6580 (Enrollment completed)	Phase II Randomized Study Gemcitabine + Avastin® + ERBITUX or Gemcitabine + Avastin® + Erlotinib	First-line Stage IV Pancreatic Cancer	54-126
IMCL-0555 (Ongoing)	Phase II Randomized Study Gemcitabine + Avastin® + ERBITUX or Avastin® + ERBITUX	First-line Stage IV Pancreatic Cancer	120

Based on the encouraging response rate, survival rates, and survival reported from a Phase I/II study of ERBITUX plus gemcitabine, as well as the tolerability of the regimen in patients with advanced pancreatic cancer, the Southwest Oncology Group activated SWOG-0205, a first-line study in pancreatic cancer in January 2004. This study is a randomized comparative study comparing ERBITUX plus gemcitabine versus gemcitabine alone in first-line, stage IV, pancreatic cancer patients. Accrual completed in 2006, with top-line data available sometime during the first half of 2007. A number of Phase II randomized studies sponsored by ImClone and BMS or the NCI cooperative oncology groups were

11

initiated in 2006. These studies are designed to evaluate the merits of adding ERBITUX to various chemotherapy regimens consisting of either gemcitabine or irinotecan plus docetaxel, and several of these studies will evaluate ERBITUX combined with chemotherapy as well as the VEGF inhibitor Avastin®. Further, we, in collaboration with our partners BMS and Merck KGaA, as well as the NCI cooperative oncology groups are evaluating the feasibility and activity of administering ERBITUX with several other gemcitabine-based chemotherapy regimens in patients with advanced pancreatic cancer, as well as evaluating the feasibility of administering ERBITUX with chemotherapy and/or radiotherapy in earlier stages of the diseases, particularly in the neoadjuvant and adjuvant settings.

Other Cancers

In collaboration with our partners BMS and Merck KGaA, we are in the process of supporting a wide array and large number of Phase I and II evaluations of ERBITUX administered alone or combined with other therapeutic modalities in adult malignancies that express EGFR, including carcinomas of the brain, esophagus, stomach, rectum, cervix, endometrium, ovary, bladder, prostate, and breast, as well as pediatric malignancies. In 2007, ImClone will sponsor a series of multicenter randomized Phase II studies to evaluate the merits of adding ERBITUX to standard therapy used to treat patients with bladder, prostate, esophageal, and ovarian cancers. Both non-randomized and randomized Phase II studies are and will also explore the merits of alternate ERBITUX administration schedules, particularly every-2-week dosing.

We and BMS also presented preliminary results from study BMS-045, in which tumor biopsies were performed on approximately 100 patients with refractory colorectal cancer prior to treatment with ERBITUX to ascertain biomarker and/or pharmacogenomic predictors of drug activity. A wide variety of genomic markers, signaling proteins, and relevant ligands are being assessed by our scientists and our collaborators, BMS and Genomic Health, Inc.

ERBITUX Safety Information

Grade 3/4 infusion reactions, rarely with fatal outcome (<1 in 1000), occurred in approximately 3% (46/1,485) of patients receiving ERBITUX (cetuximab) therapy. These reactions are characterized by rapid onset of airway obstruction (bronchospasm, stridor, hoarseness), urticaria, hypotension, and/or cardiac arrest. Severe infusion reactions require immediate and permanent discontinuation of ERBITUX therapy.

Most reactions (90%) were associated with the first infusion of ERBITUX despite the use of prophylactic antihistamines. Caution must be exercised with every ERBITUX infusion as there were patients who experienced their first severe infusion reaction during later infusions. A 1-hour observation period is recommended following the ERBITUX infusion. Longer observation periods may be required in patients who experience infusion reactions.

Cardiopulmonary arrest and/or sudden death occurred in 2% (4/208) of patients with squamous cell carcinoma of the head and neck treated with radiation therapy and ERBITUX as compared to none of 212 patients treated with radiotherapy alone. Fatal events occurred within 1 to 43 days after the last ERBITUX treatment. ERBITUX in combination with radiation therapy should be used with caution in patients with known coronary artery disease, congestive heart failure and arrhythmias. Close monitoring of serum electrolytes, including serum magnesium, potassium, and calcium during and after ERBITUX therapy is recommended.

Severe cases of interstitial lung disease (ILD), which was fatal in one case, occurred in less than 0.5% of 774 patients with advanced colorectal cancer (mCRC) receiving ERBITUX. There was one case of ILD reported in 796 patients with head and neck  cancer receiving ERBITUX in clinical studies.

In clinical studies of ERBITUX, dermatologic toxicities, including acneform rash, skin drying and fissuring, and inflammatory and infectious sequelae (e.g., blepharitis, cheilitis, cellulitis, cyst) were

12

reported. In 208 patients receiving ERBITUX plus radiation therapy, acneform rash was reported in 87% (17% severe) as compared to 10% in 212 patients treated with radiation therapy alone (1% severe). In patients receiving ERBITUX alone, 76% (n=103) experienced acneform rash (1% severe). In patients with mCRC, acneform rash was reported in 89% (686/774) of all treated patients, and was severe in 11% (84/774). Subsequent to the development of severe dermatologic toxicities, complications including S.aureus sepsis and abscesses requiring incision and drainage were reported. Sun exposure may exacerbate these effects. A related nail disorder, occurring in 12% (0.4% Grade 3) of patients, was characterized as a paronychial inflammation.

The safety of ERBITUX in combination with radiation therapy and cisplatin has not been established. Death and serious cardiotoxicity were observed in a single-arm trial with ERBITUX, delayed, accelerated (concomitant boost) fractionation radiation therapy, and cisplatin (100 mg/m2) conducted in patients with locally advanced squamous cell carcinoma of the head and neck. Two of 21 patients died, one as a result of pneumonia and one of an unknown cause. Four patients discontinued treatment due to adverse events. Two of these discontinuations were due to cardiac events (myocardial infarction in one patient and arrhythmia, diminished cardiac output, and hypotension in the other patient).

The incidence of hypomagnesemia (both overall and severe [NCI CTC Grades 3 & 4]) was increased in patients receiving ERBITUX alone or in combination with chemotherapy as compared to those receiving best supportive care or chemotherapy alone based on ongoing, controlled clinical trials in 244 patients. Approximately one-half of these patients receiving ERBITUX experienced hypomagnesemia and 10-15% experienced severe hypomagnesemia. Electrolyte repletion was necessary in some patients and in severe cases, intravenous replacement was required. Patients receiving ERBITUX therapy should be periodically monitored for hypomagnesemia, and accompanying hyocalcermia and hypokalemia during, and up to 8 weeks following the completion of, ERBITUX therapy.

The most serious adverse reactions associated with ERBITUX in combination with radiation therapy in 208 patients with head and neck cancer were infusion reaction (3%), cardiopulmonary arrest (2%), dermatologic toxicity (2.5%), mucositis (6%), radiation dermatitis (3%), confusion (2%) and diarrhea (2%).

The most serious adverse reactions associated with ERBITUX in mCRC clinical trials (N=774) were infusion reaction (3%), dermatoloic toxicity (1%), interstitial lung disease (0.4%), fever (5%), sepsis (3%), kidney failure (2%), pulmonary embolus (1%), dehydration (5% in patients receiving ERBITUX with irinotecan, 2% in patients receiving ERBITUX as a single agent) and diarrhea (6% in patients receiving ERBITUX with irinotecan, 0.2% in patients receiving ERBITUX as a single agent).

The overall incidence of late radiation toxicities (any grade) was higher with ERBITUX in combination with radiation therapy compared with radiation therapy alone. The following sites were affected: salivary glands (65%/56%), larynx (52%/36%), subcutaneous tissue (49%/45%), mucous membranes (48%/39%), esophagus (44%/35%), skin (42%/33%), brain (11%/9%), lung (11%/8%), spinal cord (4%/3%), and bone (4%/5%) in the ERBITUX and radiation versus radiation alone arms, respectively.

The incidence of Grade 3 or 4 late radiation toxicities were generally similar between the radiation therapy alone and the ERBITUX plus radiation therapy arms.

The most common adverse events seen in patients with carcinomas of the head and neck receiving ERBITUX in combination with radiation therapy (n=208) versus radiation alone (n=212) were mucositis-stomatitis (93%/94%), acneform rash (87%/10%), radiation dermatitis (86%/90%), weight loss (84%/72%), xerostomia (72%/71%), dysphagia (65%/63%), asthenia (56%/49%), nausea (49%/37%), constipation (35%/30%) and vomiting (29%/23%). The most common adverse events seen in patients with

13

carcinomas of the head and neck receiving ERBITUX as a single agent (n=103) were acneform rash (76%), asthenia (45%), pain (28%), fever (27%) and weight loss (27%).

The most common adverse events seen in patients with mCRC receiving ERBITUX with irinotecan (n=354) or ERBITUX as a single agent (n=420) were acneform rash (88%/90%), asthenia/malaise (73%/48%), diarrhea (72%/25%), nausea (55%/29%), abdominal pain (45%/26%), vomiting (41%/25%), fever (34%/27%), constipation (30%/26%), and headache (14%/26%).

Please see full prescribing information, available at www.ERBITUX.com for important safety information relating to ERBITUX, including boxed warnings.

Human IgG1Monoclonal EGFR Inhibitor

We have developed an IgG1 fully-human monoclonal antibody, referred to as IMC-11F8, which targets the human EGFR. IMC-11F8 is a high affinity antibody that blocks ligand-dependent activation of the EGFR. Pre-clinical in vitro studies have shown that IMC-11F8 inhibits EGFR activation, downstream signaling pathways and growth of human tumor cells an in vitro it has been shown to be a mediator of antibody-dependent cellular cytotoxicity (ADCC). In pre-clinical human tumor xenograft models, IMC-11F8 suppresses the growth of EGFR-positive tumors and enhances the activity of chemotherapeutic drugs when used in combination. We intend to commercialize this antibody in Europe and  other regions outside the United States and potentially in the United States and we believe that we have rights to do so under our agreements with BMS and Merck KGaA. ImClone’s full rights to develop IMC-11F8 outside the United States was upheld in arbitration between ImClone and Merck KGaA in 2006. Binding arbitration upheld that IMC-11F8 was not covered under the Merck KGaA development and license agreement.

The Company received approval to begin Phase I clinical trials of IMC-11F8 from the National Institute for Public Health and the Environment (RIVM), the Dutch regulatory agency. The first patient began treatment in fourth quarter of 2004 in a Phase I clinical trial of patients with solid tumors and the trial reached its endpoints and completed enrollment in the fourth quarter of 2006. The two-center study conducted at the Free University in Amsterdam and Utrecht University in Utrecht, evaluated the safety and pharmacology of IMC-11F8 administered weekly or bi-weekly by intravenous infusion. Doses of IMC-11F8 above 800 mg were consistently associated with headache, whereas the 800 mg dose was well tolerated and achieved plasma concentrations above target levels associated with biological activity in preclinical studies. Biologically relevant plasma concentrations persisted for the entire 2-week period following antibody administration. No hypersensitivity reactions were noted and major antitumor responses were noted in several patients at the lower dose levels. Interim results of this trial were reported at the ASCO 2006 meeting. Disease-directed developmental trials of 11F8 are projected to begin in the first half of 2007, with a pivotal trial beginning in the fourth quarter of 2007 or first quarter of 2008.

Study	Description	Population	Target Enrollment
CP11-0401 (Enrollment completed)	Phase I Study of Weekly and Bi-Weekly Human Anti-Epidermal Growth Factor Receptor Monoclonal Antibody 11F8	In Patients with Advanced Solid Tumors	40

Monoclonal Antibody Inhibitors of Angiogenesis

Our general experience with growth factors, particularly the use of ERBITUX to block the EGFR, is mirrored in our pursuit of what may be another promising approach for the treatment of cancer, the inhibition of angiogenesis. Angiogenesis is the natural process of new blood vessel growth. The VEGF family of ligands are a group of molecules that helps regulate angiogenesis. Tumor cells, as well as normal cells, produce VEGF. Once produced by the tumor cells, VEGF stimulates the production of new blood

14

vessels and ensures an adequate blood supply to the tumor, enabling the tumor to grow. KDR (VEGFR-2) is a growth factor receptor found almost exclusively on the surface of human endothelial cells, which are the cells that line all blood vessels. Various VEGF ligands recognize and bind to this receptor in order to stimulate the endothelial cells to grow and cause new blood vessels to form. We believe that interference with the binding of VEGF to the KDR receptor inhibits angiogenesis and potentially can be used to slow or halt tumor growth. We have identified potential inhibitors collectively known by us as IMC-KDR antibodies.

In 2001, we concluded a Phase I clinical study with an IgG1 chimeric (part human, part mouse) anti-KDR antibody known as IMC-1C11. In 2002, we identified several fully-human IgG1monoclonal anti-KDR antibodies with potent anti-KDR activity. In 2003, we initiated pre-clinical development of one of these antibodies, IMC-1121B. This fully-human antibody replaced IMC-1C11 in our development pipeline. We filed an Investigational New Drug Application (“IND”) for IMC-1121B in July 2004 and initiated a clinical study assessing Phase I endpoints (safety, pharmacokinetics, preliminary activity) of IMC-1121B administered weekly in cancer patients in the fourth quarter of 2004. A second study, evaluating Phase I endpoints of IMC-1121B administered every 2-weeks, was initiated in 2006. The preliminary results of the weekly study were reported at the annual meeting of ASCO in 2006 and the EORTC-AACR-NCI Molecular Targeting meeting in 2006. As a single agent, 1121B treatment has been associated with tumor regression in several patients with refractory advanced cancer, whereas toxicity has not been preclusive. In addition to overt tumor regression, stable disease exceeding six months has been observed in a notable proportion of patients with refractory solid tumors. Preliminary pharmacokinetic studies indicate that biologically-relevant concentrations are achieved and persist for at least 2 weeks following treatment. One of these ongoing studies has been amended to explore Phase I endpoints of 1121B on an every 3-week schedule, as well. It is projected that these studies will achieve their objectives in the first half of 2007, and disease-directed trials, several of which will be randomized Phase II and Phase III studies, will begin soon thereafter.

Subject to further investigation, we believe that such anti-KDR antibodies could be effective in treating other diseases, such as diabetic retinopathy and age-related macular degeneration that, like cancer, depend on the growth of new blood vessels.

Study	Description	Population	Target Enrollment
CP12-0401 (Ongoing)	Phase I Study of Weekly Anti-Vascular Endothelial Growth Factor Receptor 2 Monoclonal Antibody	In Patients with Advanced Solid Tumors	33
CP12-0402 (Ongoing)	Phase I Study of Every 2 Week Anti-Vascular Endothelial Growth Factor Receptor 2 Monoclonal Antibody	In Patients with Advanced Solid Tumors	33

In August 2005, the Company entered into a Collaboration and License Agreement with UCB S.A. (“UCB”), a company registered in Belgium, for the development and commercialization of CDP-791, UCB’s novel, investigational PEGylated di-Fab antibody targeting VEGFR-2. No upfront or milestone payments were payable under the Agreement. In the first quarter of 2007, the Company terminated this agreement with UCB, largely due to substantial progress made in the development of 1121B.

Study	Description	Population	Target Enrollment
RPCE05A3166 (Ongoing)	Phase I/II Randomized Study of Paclitaxel/ Carboplatin administered either alone or combined with CDP-791 at 10 or 20 mg/kg	In Patients with Advanced Stage IIIB or IV Non-small Cell Lung Cancer	150

15

Monoclonal Antibody to Insulin-Like Growth Factor Receptor-1

In 2005, we successfully filed an IND for IMC-A12, a unique human monoclonal antibody against insulin-like growth factor-1 receptor (IGF-1R) which is expressed in diverse human tumor types. Activation of IGF-1R in cancer cells in preclinical models increases the cells’ ability to survive, especially under conditions of chemotherapy or radiotherapy, and it also contributes to cancer cell growth, as well as the development of resistance to chemotherapeutics, hormones (estrogens and androgens), and signal transduction inhibitors. IMC-A12 prevents binding of insulin-like growth factor-1 to the receptor, thus preventing its activation and triggering of survival and growth mechanisms in cancer cells. The antibody also causes rapid internalization (removal from the cell surface) of IGF-1R, thus further interfering with cancer growth-supporting properties of the receptor.

Following successful filing of an IND for IMC-A12 in 2005, we began a Phase I study of the agent on a weekly dosing schedule in patients with solid malignancies in December 2005. A second Phase I study of IMC-A12 on an every 2-week schedule was begun in 2006. The preliminary results of the initial trial, which demonstrated tolerability, preliminary evidence of antitumor activity as a single agent, and a pharmacokinetic profile supporting an every 2-week dosing schedule, were reported at the EORTC-AACR-NIC Molecular Targeting meeting in 2006. It is projected that the Phase I studies will achieve their objectives and conclude in the first half of 2007, and broad disease-directed evaluations, including non-randomized and randomized studies will begin in the second half of 2007. Although most disease-directed evaluations of IMC-A12 in 2007 will be sponsored by ImClone, the National Cancer Institute will begin a series of disease-directed evaluations in both adult and pediatric malignancies under a Clinical Trials Agreement with ImClone.

Study	Description	Population	Target Enrollment
CP13-0501 (Ongoing)	Phase I Study of IMC-A12, an Anti-IGF-1R Human Monoclonal Antibody, Administered Weekly	In Patients with Advanced Solid Tumors	40
CP13-0502 (Ongoing)	Phase I Study of IMC-A12, an Anti-IGF-1R Human Monoclonal Antibody, Administered Every 2 Weeks	In Patients with Advanced Solid Tumors	40

Monoclonal Antibody to Vascular Endothelial Growth Factor Receptor-1 (VEGFR-1)

Like VEGFR-2, the target of our anti-KDR antibodies, the VEGFR-1 receptor (also known as flt-1) is believed to be involved in blood vessel formation, but recent data suggest that it may function in novel ways unrelated to angiogenesis. We have discovered that VEGFR-1 is expressed by a number of human tumors, most notably breast and colorectal cancer. We have developed specific antibodies that block the function of VEGFR-1 and have conducted pre-clinical studies showing that these antibodies can inhibit the growth of human breast and colorectal tumors in pre-clinical models. It is believed that VEGFR-1 inhibitors could be useful in the treatment of VEGFR-1-positive tumors, such as breast or colorectal cancer and we are developing therapeutic antibodies against this target for future clinical studies.

We successfully filed an IND for IMC-18F1, an IgG1 fully-human monoclonal antibody to VEGFR-1, in December 2005, for which we initiated patient accrual to a Phase I study in the first half of 2006.

Study	Description	Population	Target Enrollment
CP14-0501 (Ongoing)	Phase I Study of IMC-18F1, an Anti-VEGFR-1 Human Monoclonal Antibody	In Patients with Advanced Solid Tumors	40

16

Monoclonal Antibody Against Platelet-Derived Growth Factor Receptor Alpha (PDGFRa)

PDGFRa is a receptor tyrosine kinase that is activated by the binding of platelet-derived growth factors. Studies have shown that PDGFRa is expressed on ovarian, prostate, breast, lung, glial, skin and bone tumors. We have developed an IgG1 fully-human antibody, designated IMC-3G3, that effectively blocks the function of PDGFRa and inhibits the growth of glioblastoma and leiomyosarcoma tumors in animal models. We are conducting additional pre-clinical studies to evaluate if our antibody can also inhibit the growth of other cancers. We filed an IND for IMC-3G3 in the first half of 2006 and initiated patient accrual into a Phase I trial in the fourth quarter of 2006.

Study	Description	Population	Target Enrollment
CP15-0601 (Ongoing)	Phase I Study of IMC-3G3, an Anti-PDGFa Human Monoclonal Antibody	In Patients with Advanced Solid Tumors	40

RESEARCH PROGRAMS

General

Our research programs have been focused on clear goals: the identification of antibodies with growth inhibiting activity against human tumors. To this end we have discontinued our small molecule and vaccine programs. After an extensive analysis we determined that our strengths and expertise lie in the identification of new tumor targets and the selection and production of antibodies that bind and inhibit the activity of these targets.

In addition to concentrating on our products in development, we perform ongoing research, including research in each of the areas of our ongoing clinical programs of growth factor blockers, other tumor cell growth inhibitors and angiogenesis inhibitors. We have assembled a scientific staff with expertise in a variety of disciplines, including oncology, immunology, molecular and cellular biology, antibody engineering, bioinformatics and protein chemistry. We have centralized our target identification group into a new Tumor Biology department. These scientists have the primary responsibility of identifying new targets and validating their role in tumor growth and development. New targets are both engendered internally and obtained from external partners. Our primary goal is to identify a number of targets sufficient to support and expand our portfolio beyond our current level. In addition to pursuing research programs in-house, we collaborate with academic institutions and corporations to support our research and development efforts.

Research on Growth Factor Blockers

Research on modulators of apoptosis (programmed cell death):   We are developing antibody therapeutics that interfere with anti-apoptotic signaling and survival mechanisms of cancer cells. One mechanism involves the insulin-like growth factor-1 receptor (IGF-1R) which is frequently over-expressed in diverse human tumor types. Activation of IGF-1R in cancer cells increases the cells’ ability to survive, especially under conditions of chemotherapy or radiotherapy, and it also contributes to cancer cell growth. We have developed and evaluated an antibody to IGF-1R, designated IMC-A12, that blocks binding of insulin-like growth factor-1 to the receptor, thus preventing its activation and triggering of survival and growth mechanisms in cancer cells. The antibody also causes rapid internalization (removal from the cell surface) of IGF-1R, thus further interfering with cancer growth-supporting properties of the receptor. The IMC-A12 IND was accepted by the FDA and our Phase I study was initiated and is ongoing.

Research on VEGFR-1 inhibitors:   We are investigating the activities of antibodies that block the function of VEGFR-1 (flt-1), another receptor to which VEGF binds. Like VEGFR-2, the target of our anti-KDR antibodies, the VEGFR-1 receptor is believed to be involved in blood vessel formation, but recent data suggest that it may function in novel ways unrelated to angiogenesis. We have discovered that VEGFR-1 is expressed by a number of human tumors, most notably breast and colorectal cancer. We have

17

developed specific antibodies that block the function of VEGFR-1 and have conducted pre-clinical studies showing that these antibodies can inhibit the growth of human breast and colorectal tumors in pre-clinical models. It is believed that VEGFR-1 inhibitors could be useful in the treatment of VEGFR-1-positive tumors, such as breast or colorectal cancer and we are developing therapeutic antibodies against this target for future clinical studies. One such agent, IMC-18F1, is a fully-human monoclonal antibody for which an IND has been filed and accepted. Phase I studies began in the first half of 2006.

Research on PDGFR alpha inhibitors:   Platelet-derived growth factor receptor alpha (PDGFRa ) is a receptor tyrosine kinase that is activated by the binding of platelet-derived growth factors. Studies have shown that PDGFRa is expressed on ovarian, prostate, breast, lung, glial, skin and bone tumors. We have developed a fully-human antibody, designated IMC-3G3, that effectively blocks the function of PDGFRa and inhibits the growth of glioblastoma and leiomyosarcoma tumors in animal models. We are conducting additional pre-clinical studies to evaluate if our antibody can also inhibit the growth of other cancers. We filed an IND for IMC-3G3 in the first half of 2006. Phase I studies began in the fourth quarter of 2006.

Anti-FGFR:   Dysregulation of the fibroblast growth factor (FGF) and receptor (FGFR) pathway has been linked to the development of both solid tumors and hematological malignancies. Inhibiting this pathway may therefore have therapeutic benefit. Two neutralizing antibodies were generated that target FGFR-1 and FGFR-3, respectively. These antibodies have been tested for anti-tumor effects in vitro and have shown activity in prostate and bladder carcinoma, multiple myeloma and leukemia. Significant tumor inhibition in vivo was observed in human prostate xenografts treated with anti-FGFR-1, and in human multiple myeloma xenografts treated with anti-FGFR-3.

Anti-RON:   The Macrophage-Stimulating Protein receptor (RON) belongs to the c-MET family of receptor tyrosine kinases. Since its discovery in 1993, several lines of evidence suggest that RON is expressed in several major cancers and contributes to tumorigenesis. Antagonists of RON activity, however, have not been reported. Consequently, we generated several fully-human monoclonal antibodies that bind to human RON with high affinity and block ligand binding. By preventing RON signaling, these antibodies have significantly inhibited cancer cell line invasion/migration as well as tumor formation in several tumor xenograft models. These findings are the first to validate RON as a cancer target and underscore the potential of RON antibodies for therapeutic intervention in the treatment of human cancer. We are currently studying the activity of RON antibodies in additional pre-clinical models.

Anti-gp75:   gp75 is a melanoma antigen and an ideal target for antibody-based therapy. A novel fully-human antibody to gp75, 20D7, was generated. This antibody is effective against a panel of human melanomas grown as xenografts in nude mice. We are currently studying the activity of 20D7 in additional pre-clinical models.

Anti-flt3:   flt3 is a receptor tyrosine kinase that is overexpressed in the majority of acute myelogenous leukemias and lymphocytic leukeumia. We have developed a fully-human anti-flt3 antagonist antibody named IMC-EB10. Preclinical studies have shown that IMC-EB10 significantly inhibits leukemia cell growth in human leukemia xenograft models in mice. In another approach, we have recently developed an immunotoxin conjugate named EB10-MMAF using IMC-EB10 antibody in collaboration with Seattle Genetics. Preclinical data have demonstrated that EB10-MMAF has a potent, antigen-specific therapeutic activity in xenograft models.

Research on Angiogenesis Inhibitors

Research on VEGFR-2 inhibitors:   We are continuing to work with an experimental antibody known as DC101 in animal models in order to support the clinical development of our IMC-KDR monoclonal antibody known as IMC-1121B. DC101 neutralizes the flk-1 receptor, which is the mouse receptor to VEGF that corresponds to KDR in humans. Tumor models in mice have shown that DC101 inhibits tumor growth as a single agent or in combination with chemotherapy or radiation therapy. We filed an IND for

18

IMC-1121B in August 2004 and have since started a clinical Phase I trial to study its potential for angiogenesis inhibition in cancer patients.

Research on VE-cadherin inhibitors:   In another approach to angiogenesis inhibition, we are exploring the therapeutic potential of antibodies against vascular-specific cadherin (“VE-cadherin”). Cadherins are a family of cell surface molecules that help organize tissue structures. VE-cadherin is believed to play an important role in angiogenesis by organizing endothelial cells into vascular tubes, which is a necessary step in the formation of new blood vessels. Advanced tumor growth is dependent on the formation of a capillary blood vessel network in the tumor to ensure an adequate blood supply to the tumor. Therefore, antibodies that inhibit VE-cadherin may inhibit such capillary formation in tumors, and help fight cancer by cutting off adequate blood supply to the tumor. Pre-clinical studies using monoclonal antibodies against VE-cadherin have demonstrated that inhibition of angiogenesis, tumor growth and metastasis occurs as a consequence of interfering with the ability of VE-cadherin to form tubular structures. We are evaluating in pre-clinical studies antibodies that are efficacious in inhibiting angiogenesis and tumor growth without negatively affecting existing vessels.

In connection with our VE-cadherin research program, we have an exclusive license from ICOS Corporation to certain patent rights pertaining to VE-cadherin and antibodies thereto for the treatment of cancer in humans.

Research on VEGFR-3 inhibitors:   Antagonist antibodies to VEGFR-3 (also known as flt-4) have several potential therapeutic uses: blocking of metastasis by inhibiting lymphangiogenesis, blocking tumor angiogenesis, inhibiting the growth of tumors stimulated by flt-4/VEGF-C or D autocrine loops and inhibiting inflammation. Systemic treatment of mice with monoclonal antibody, mF4-31C1, directed to the mouse VEGFR-3 results in inhibition of new lymphatic formation in tumor models, leading to significant inhibition of metastasis. Administration of mF4-31C1 reduces the growth of primary human tumors in mice most likely by blocking angiogenesis or tumor inflammation and this effect appears to act additively with chemotherapy. In a model of lung inflammation, this antibody greatly reduced bronchial lymphangiogenesis and regional lymphadenopathy and prolonged retinal graft survival in mice. A candidate therapeutic fully-human anti-human VEGFR-3 antibody called hF4-3C5 has been produced and its antagonist activity for VEGFR-3 has been verified.

In connection with our VEGFR-3 research program, we have an extensive license from the Ludwig Institute for Cancer Research to certain patent rights pertaining to VEGFR-3 and antibodies thereto for the treatment of cancer in humans.

Research Support for Clinical Programs:   ImClone presently has five antibodies in various stages of clinical development—fully-human anti-EGFR, anti-IGF-1R, anti-VEGFR-2, anti-VEGFR-1 and PDGRFa. While all these agents are being assessed clinically as single agents, our research scientists are performing studies to determine which potential combinations would be most useful in future clinical studies. These combinations include chemotherapeutic small molecules, signaling inhibitors and selective antibodies.

CORPORATE COLLABORATIONS

In addition to our collaborations in the research and clinical areas with academic and medical institutions, we have a number of collaborations with other corporations, the most significant of which are discussed below.

Collaborations with Bristol-Myers Squibb Company

On September 19, 2001, we entered into an acquisition agreement (the “Acquisition Agreement”) with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation (“BMS Biologics”), which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of our common stock for $70.00 per share, net to the seller in cash. In connection with the Acquisition Agreement, we entered into a stockholder agreement with BMS and BMS Biologics,

19

dated as of September 19, 2001 (the “Stockholder Agreement”), pursuant to which all parties agreed to various arrangements regarding the respective rights and obligations of each party with respect to, among other things, the ownership of shares of our common stock by BMS and BMS Biologics. Concurrent with the execution of the Acquisition Agreement and the Stockholder Agreement, we entered into a commercial agreement (the “Commercial Agreement”) with BMS and E.R. Squibb relating to ERBITUX, pursuant to which, among other things, BMS and E.R. Squibb are co-developing and co-promoting ERBITUX in the United States with us, and are co-developing and co-promoting ERBITUX in Japan with us and either together or co-exclusively with Merck KGaA.

On March 5, 2002, we amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and expanded the clinical and strategic roles of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that we received payments of $140.0 million on March 7, 2002 and $60.0 million on March 5, 2003. Such payments are in lieu of the $300.0 million milestone payment we would have received upon acceptance by the FDA of the ERBITUX BLA under the original terms of the Commercial Agreement. The terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in more detail below.

Commercial Agreement

Rights Granted to E.R. Squibb—Pursuant to the Commercial Agreement, as amended on March 5, 2002, we granted to E.R. Squibb (1) the exclusive right to distribute, and the co-exclusive right to develop and promote (together with us) any prescription pharmaceutical product using the compound ERBITUX (the “product”) in the United States and Canada, (2) the co-exclusive right to develop, distribute and promote (together with us and together or co-exclusively with Merck KGaA and its affiliates) the product in Japan, and (3) the non-exclusive right to use our registered trademarks for the product in the United States, Canada and Japan (collectively, the “territory”) in connection with the foregoing. In addition, we agreed not to grant any right or license to any third-party, or otherwise permit any third party, to develop ERBITUX for animal health or any other application outside the human health field without the prior consent of E.R. Squibb (which consent may not be unreasonably withheld).

Rights Granted to the Company—Pursuant to the Commercial Agreement, E.R. Squibb has granted to us and our affiliates a license, without the right to grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan and to any third-party for use outside the territory), to use solely for the purpose of developing, using, manufacturing, promoting, distributing and selling ERBITUX or the product, any process, know-how or other invention developed solely by E.R. Squibb or BMS that has general utility in connection with other products or compounds in addition to ERBITUX or the product (“E.R. Squibb Inventions”).

Up-Front and Milestone Payments—The Commercial Agreement provides for up-front and milestone payments by E.R. Squibb to the Company of $900.0 million in the aggregate, of which $200.0 million was paid on September 19, 2001, $140.0 million was paid on March 7, 2002, $60.0 million was paid on March 5, 2003 $250.0 million was paid on March 12, 2004 and $250.0 million was paid on March 31, 2006. All such payments are non-refundable and non-creditable.

Distribution Fees—The Commercial Agreement provides that E.R. Squibb shall pay us distribution fees based on a percentage of “annual net sales” of the product (as defined in the Commercial Agreement) by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. During the year ended December 31, 2006, we have recorded royalty revenues of approximately $254.4 million, representing 39% of net sales of ERBITUX by BMS. The Commercial Agreement also provides that the distribution fees for the sale of the product in Japan by E.R. Squibb or ImClone Systems shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb shall pay us the amount of such distribution fee, and in the event of an operating loss, we shall credit E.R. Squibb the amount of such distribution fee.

20

Development of the Product—Responsibilities associated with clinical and other ongoing studies are apportioned between the parties as determined by the product development committee described below. The Commercial Agreement provides for the establishment of clinical development plans setting forth the activities to be undertaken by the parties for the purpose of obtaining marketing approvals, providing market support and developing new indications and formulations of the product. After transition of responsibilities for certain clinical and other studies, each party is primarily responsible for performing the studies designated to it in the clinical development plans. In the United States and Canada, the Commercial Agreement provides that E.R. Squibb is responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an IND (e.g. Phase IV studies), the cost of which is shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and ImClone Systems, each is responsible for 50% of the costs of all studies in Japan. We have also agreed, and may agree in the future, to share with E.R. Squibb, on terms other than the foregoing, costs of clinical trials that we believe are not potentially registrational but should be undertaken prior to launch in the United States, Canada or Japan. In addition, to the extent that BMS and we, in 2005 and 2006, exceed expenditures specified under the annual contractual clinical development budget, we have agreed to share such excess with BMS. We have incurred approximately $20.8 million, $19.9 million and $9.1 million pursuant to such cost sharing for the years ended December 31, 2006, 2005 and 2004, respectively. We have also incurred approximately $3.1 million, $1.4 million and $721,000 related to the agreement with respect to development in Japan for the years ended December 31, 2006, 2005 and 2004, respectively. Except as otherwise agreed upon by the parties, the Company will own all registrations for the product and will be primarily responsible for the regulatory activities leading to registration in each country. E.R. Squibb is primarily responsible for the regulatory activities in each country after the product has been registered in that country. Pursuant to the terms of the Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice President, Strategy and Medical & External Affairs of BMS, and a member of our Board of Directors, is entitled to oversee the implementation of the clinical and regulatory plan for ERBITUX.

Distribution and Promotion of the Product—Pursuant to the Commercial Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to launch, promote and sell the product in the territory with the objective of maximizing the sales potential of the product and promoting the therapeutic profile and benefits of the product in the most commercially beneficial manner. In connection with its responsibilities for distribution, marketing and sales of the product in the territory, E.R. Squibb is performing all relevant functions, including but not limited to the provision of all sales force personnel, marketing (including advertising and promotional expenditures), warehousing and physical distribution of the product.

However, we have the right, at our election and sole expense, to co-promote with E.R. Squibb the product in the territory. Pursuant to this co-promotion option, which we have exercised, we are entitled on and after April 11, 2002 (at our sole expense) to have our field organization participate in the promotion of the product consistent with the marketing plan and development plans agreed upon by the parties, provided that E.R. Squibb retains the exclusive rights to sell and distribute the product. Except for our expenses incurred pursuant to the co-promotion option, E.R. Squibb is responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between E.R. Squibb and ImClone Systems, each is responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. During the third quarter of 2004, we decided to establish a sales force to maximize the potential commercial opportunities for ERBITUX and to serve as a foundation for the marketing of future products derived either from within our pipeline or through business development opportunities.

Manufacture and Supply—The Commercial Agreement provides that the Company is responsible for the manufacture and supply of all requirements of ERBITUX in bulk form active pharmaceutical ingredient (“API”) for clinical and commercial use in the territory, and that E.R. Squibb will purchase all of its requirements of API for commercial use from the Company. The Company supplies API for clinical

21

use at the Company’s fully burdened manufacturing cost plus a mark-up of 10%. The agreement also specifies that the Company should use reasonable efforts to reduce the fully burdened manufacturing cost of producing bulk ERBITUX over time. Specifically, beginning with 2006 production of bulk ERBITUX, the agreement provides that the cost of API should not exceed a predetermined price per gram. Any excess over such amount will be shared equally by the Company and BMS.

Upon the expiration, termination or assignment of any existing agreements between ImClone Systems and third party manufacturers, E.R. Squibb will be responsible for processing API into the finished form of the product. Sales of ERBITUX to BMS for commercial use are reflected in the Company’s Consolidated Statements of Operations as Manufacturing revenue.

Management—The parties have formed the following committees for purposes of managing their relationship and their respective rights and obligations under the Commercial Agreement:

·a Joint Executive Committee (the “JEC”), which consists of certain senior officers of each party. The JEC is co-chaired by a representative of each of BMS and us. The JEC is responsible for, among other things, managing and overseeing the development and commercialization of ERBITUX pursuant to the terms of the Commercial Agreement, approving the annual budgets and multi-year expense forecasts, and resolving disputes, disagreements and deadlocks arising in the other committees;

·a Product Development Committee (the “PDC”), which consists of members of senior management of each party with expertise in pharmaceutical drug development and/or marketing. The PDC is chaired by our representative. The PDC is responsible for, among other things, managing and overseeing the development and implementation of the clinical development plans, comparing actual versus budgeted clinical development and regulatory expenses, and reviewing the progress of the registrational studies;

·a Joint Commercialization Committee (the “JCC”), which consists of members of senior management of each party with clinical experience and expertise in marketing and sales. The JCC is chaired by a representative of BMS. The JCC is responsible for, among other things, overseeing the preparation and implementation of the marketing plans, coordinating the sales and commercial support efforts of E.R. Squibb and us, and reviewing and approving the marketing and promotional plans for the product in the territory; and

·a Joint Manufacturing Committee (the “JMC”), which consists of members of senior management of each party with expertise in manufacturing. The JMC is chaired by our representative (unless a determination is made that a long-term inability to supply API exists, in which case the JMC will be co-chaired by representatives of E.R. Squibb and us). The JMC is responsible for, among other things, overseeing and coordinating the manufacturing and supply of API and the product, and formulating and directing the manufacturing strategy for the product.

Any matter that is the subject of a deadlock (i.e., no consensus decision) in the PDC, the JCC or the JMC will be referred to the JEC for resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved as follows: (1) if the matter was also the subject of a deadlock in the PDC, by the co-chairperson of the JEC designated by us, (2) if the matter was also the subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by BMS, or (3) if the matter was also the subject of a deadlock in the JMC, by the co-chairperson of the JEC designated by us. All other deadlocks in the JEC will be resolved by arbitration.

Restriction on Competing Products—During the period from the date of the Commercial Agreement until September 19, 2008, the parties have agreed not to, directly or indirectly, develop or commercialize a competing product (defined as a product that has as its only mechanism of action an antagonism of the EGFR) in any country in the territory. In the event that any party proposes to commercialize a competing product or purchases or otherwise takes control of a third party which has developed or commercialized a

22

competing product, then such party must either divest the competing product within 12 months or offer the other party the right to participate in the commercialization and development of the competing product on a 50/50 basis (provided that if the parties cannot reach agreement with respect to such an agreement, the competing product must be divested within 12 months).

Ownership—The Commercial Agreement provides that we own all data and information concerning ERBITUX and the product and, except for E.R. Squibb inventions, all processes, know-how and other inventions relating to the product and developed by either party or jointly by the parties. E.R. Squibb, however, has the right to use all such data and information, and all such processes, know-how or other inventions, in order to fulfill its obligations under the Commercial Agreement.

Product Recalls—If E.R. Squibb is required by any regulatory authority to recall the product in any country in the territory (or if the JCC determines such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall bear the costs and expenses associated with such a recall (1) in the United States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R. Squibb and (2) in Japan, in the proportion for which each party is entitled to receive operating profit or loss (unless, in the territory, the predominant cause for such a recall is the fault of either party, in which case all such costs and expenses shall be borne by such party).

Mandatory Transfer—Each of BMS and E.R. Squibb has agreed under the Commercial Agreement that in the event it sells or otherwise transfers all or substantially all of its pharmaceutical business or pharmaceutical oncology business, it must also transfer to the transferee its rights and obligations under the Commercial Agreement.

Indemnification—Pursuant to the Commercial Agreement, each party has agreed to indemnify the other for (1) its negligence, recklessness or wrongful intentional acts or omissions, (2) its failure to perform certain of its obligations under the agreement, and (3) any breach of its representations and warranties under the agreement.

Termination—Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the product in each country in the territory on the later of September 19, 2018 and the date on which the sale of the product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may also be terminated prior to such expiration as follows:

·by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice;

·by E.R. Squibb, if the JEC determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products.

Stockholder Agreement

BMS received the right to nominate two directors to our Board (each a “BMS director”) so long as its ownership interest in ImClone Systems is 12.5% or greater. If BMS’ ownership interest is 5% or greater but less than 12.5%, BMS will have the right to nominate one BMS director, and if BMS’ ownership interest is less than 5%, BMS will have no right to nominate a BMS director. If the size of the Board is increased to a number greater than twelve, the number of BMS directors would be increased, subject to rounding, such that the number of BMS directors is proportionate to the lesser of BMS’ then-current ownership interest and 19.9%. Notwithstanding the foregoing, BMS will have no right to nominate any BMS directors if (1) we have terminated the Commercial Agreement due to a material breach by BMS or (2) BMS’ ownership interest were to remain below 5% for 45 consecutive days.

Based on the number of shares of common stock acquired pursuant to the tender offer and the fact that we currently have ten directors, BMS has the right to nominate two directors. BMS designated Andrew G. Bodnar, M.D., J.D., BMS’ Senior Vice President, Strategy and Medical & External Affairs, as

23

one of the initial BMS directors. The nomination of Dr. Bodnar was approved by the Board on November 15, 2001. BMS has not yet designated an individual to fill the open Board seat.

Voting of Shares—During the period in which BMS has the right to nominate up to two BMS directors, BMS and its affiliates are required to vote all of their shares in the same proportion as the votes cast by all of our other stockholders with respect to the election or removal of non-BMS directors.

Committees of the Board of Directors—During the period in which BMS has the right to nominate up to two BMS directors, BMS also has the right, subject to certain exceptions and limitations, to have one member of each committee of the Board be a BMS director. In order to maintain independence of the Audit, Nominating and Corporate Governance, and Compensation Committees, no BMS director is serving on these committees.

Transfers of Shares—Neither BMS nor any of its affiliates may transfer any shares or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares, except (1) pursuant to registration rights granted to BMS with respect to the shares, (2) pursuant to Rule 144 under the Securities Act of 1933, as amended or (3) for certain hedging transactions. Any such transfer is subject to the following limitations: (1) the transferee may not acquire beneficial ownership of more than 5% of the then-outstanding shares of common stock; (2) no more than 10% of the total outstanding shares of common stock may be sold in any one registered underwritten public offering; and (3) neither BMS nor any of its affiliates may transfer shares of common stock (except for registered firm commitment underwritten public offerings pursuant to the registration rights described below) or enter into hedging transactions in any twelve-month period that would, individually or in the aggregate, have the effect of reducing the economic exposure of BMS and its affiliates by the equivalent of more than 10% of the maximum number of shares of common stock owned by BMS and its affiliates at any time after September 19, 2001. Notwithstanding the foregoing, BMS Biologics may transfer all, but not less than all, of the shares of common stock owned by it to BMS or to E.R. Squibb or another wholly-owned subsidiary of BMS.

Registration Rights—We granted BMS customary registration rights with respect to shares of common stock owned by BMS or any of its affiliates.

Collaborations with Merck KGaA

ERBITUX Development and License Agreement—In December 1998, the Company entered into a development and license agreement with Merck KGaA with respect to ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-exclusive development rights in Japan, the Company received $30.0 million through December 31, 2001 in up-front cash fees and early cash payments based on the achievement of defined milestones. An additional $30.0 million was received through December 31, 2004, based upon the achievement of further milestones for which Merck KGaA received equity in the Company. The equity interests underlying the milestone payments were priced at varying premiums to the then market price of the common stock depending upon the timing of the achievement of the respective milestones.

Merck KGaA pays us a royalty on sales of ERBITUX outside of the United States and Canada. In August 2001, Merck KGaA and we amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third-party to do so upon our reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30.0 million credit facility relating to the build-out of BB36. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by us of ERBITUX in our territory. In consideration for the amendment, we agreed to a reduction in royalties’ payable by Merck KGaA on sales of ERBITUX in Merck KGaA’s territory.

24

In September 2002, the Company entered into a binding term sheet, effective as of April 15, 2002, for the supply of ERBITUX to Merck KGaA, which replaces previous supply arrangements. The term sheet provides for Merck KGaA to purchase bulk and finished ERBITUX ordered from us during the term of the December 1998 development and license agreement at a price equal to our fully loaded cost of goods. The term sheet also provided for Merck KGaA to use reasonable efforts to enter into its own contract manufacturing agreements for supply of ERBITUX and obligates Merck KGaA to reimburse us for costs associated with transferring technology and any other services requested by Merck KGaA relating to establishing its own manufacturing or contract manufacturing capacity.

In July 2006, the Company and Merck KGaA entered into agreements amending and supplementing the 1998 development and license agreement. As part of the agreements, the Company consented to Merck KGaA’s sublicense of certain intellectual property rights relating to the development and commercialization of an anti-EGFR antibody to Takeda Pharmaceutical Company (“Takeda”). Merck KGaA and Takeda signed an alliance in September 2005 for the development and commercialization of matuzumab (EMD-72000), a humanized EGFR-targeting monoclonal antibody. In consideration for the Company’s consent, Merck KGaA agreed to pay the Company €2.5 million within 30 days of the execution of the agreements and a further €5.0 million within 30 days of the Company’s written consent to the sublicense. The Company received the first payment of €2.5 million in August of 2006 and has deferred the revenue associated with this payment and is recognizing it over the estimated service period. The Company expects to give written consent to sublicense in the first quarter of 2007. In addition, Merck KGaA agreed to increase its fixed royalty to 9.5% on net sales of ERBITUX outside the U.S. and Canada, effective July 1, 2006. The agreements also promote freedom to operate in the development and commercialization of matuzumab outside the United States and Canada and of IMC-11F8 (a fully-human EGFR-targeted IgG1 monoclonal antibody being developed by ImClone Systems) within the United States and Canada through the granting of certain reciprocal rights, including the sharing of confidential technical information. This is in addition to the exclusive rights held by the Company to develop and commercialize IMC-11F8 outside of the United States and Canada. The agreements do not extend to key intellectual property rights in the U.S. and Canada, where the Company and its partner Bristol-Myers Squibb continue to hold exclusive licenses to key patents covering certain uses of EGFR-targeted monoclonal antibodies.

UCB S.A.

In August 2005, the Company entered into a Collaboration and License Agreement with UCB S.A. (“UCB”), a company registered in Belgium, for the development and commercialization of CDP-791, UCB’s novel, investigational PEGylated di-Fab antibody targeting VEGFR-2. No upfront or milestone payments were payable under the Agreement. In the first quarter of 2007, the Company terminated this agreement with UCB, largely due to substantial progress made in the development of 1121B and agreed to pay UCB $450,000 as settlement of all previous amounts due related to expenses associated with the co-development activities under the agreement. As part of this settlement, the Company will receive a single-digit royalty on net sales worldwide upon commercialization of such indications. The Company had recorded as of December 31, 2005 an expense of approximately $2.5 million in its financial statements related to this agreement. As a result of the termination of this contract, the Company reversed approximately $2.0 million in 2006 of the previously expensed amount  Therefore, the Company had a liability due to UCB of $450,000 and $2.5 million as of December 31, 2006 and 2005, respectively.

MANUFACTURING

ImClone Systems Manufacturing Facilities

We own and operate a pilot manufacturing facility (“BB22”) for biologics in Branchburg, New Jersey for the manufacture of clinical study materials. At our pilot facility, we previously manufactured a portion of the ERBITUX utilized for clinical studies. We now are using our pilot facility for supporting the scale-up of ERBITUX manufacturing process improvements, developing the cell culture and purification processes for new antibodies and producing antibodies for anticipated clinical studies. Our pilot facility is

25

operated in accordance with current Good Manufacturing Practices (“cGMP”), which is a requirement for product manufactured for use in clinical studies and for commercial sale.

In July 2001, we completed construction and put into operation an 80,000 square foot manufacturing facility, BB36, on our Branchburg, New Jersey campus. BB36 contains three 10,000 liter (production volume) fermenters and is dedicated to the clinical and commercial production of ERBITUX. During 2006, we completed a 5,000 square foot expansion for additional office space in this facility. The total construction of BB36 was approximately $57.3 million. In December 2003, Swissmedic approved ERBITUX manufactured at BB36 for commercial use in Switzerland. On June 18, 2004, the FDA granted a license to the BB36 facility for U.S. commercial supply. In May 2005, Team Biologics conducted a routine biannual cGMP inspection. Additionally, BB36 had a satisfactory cGMP inspection by the Regierungspräsidium Darmstadt that resulted in a Product Import license being granted to Merck KGaA in April 2003, covering the period November 2003 to October 2004. The Regierungspräsidium completed and successfully closed a reinspection of BB36 in July 2005. Another reinspection will be scheduled in approximately two years from the last inspection date.

We constructed a 250,000 square foot multiple product manufacturing facility (“BB50”) in Branchburg, New Jersey with capacity of up to 110,000 liters (production volume). Mechanical completion of BB50 was reached in the fourth quarter of 2005. This facility has three distinct suites capable of producing up to three different products concurrently. We also have the ability to produce multiple products at each of the three suites. We completed the commissioning and initial validation of Suite 1 by the end of the second quarter of 2006, and began production of ERBITUX for commercial use in the second half of 2006. We have fitted Suite 2 with equipment but have not determined when we will begin commissioning and validation of this Suite. At this point, Suite 3 remains vacant until further determination of its ultimate use. The total cost of BB50 through December 31, 2006 amounted to approximately $331.4 million.

Contract Manufacturing

On March 17, 2005, the Company entered into a five-year multi-product supply agreement (the “Agreement”) with Lonza Biologics PLC (“Lonza”) for the manufacture of biological material at the 5,000 liter scale. The Company has discretion over which products to manufacture, which may include later-stage clinical production of the Company’s antibodies currently in Phase I clinical testing and those nearing Phase I testing. The value of producing all batches allocated under the Agreement is approximately $68.0 million, unless terminated earlier. The Agreement provides that the Company can cancel any batches at any time; however, depending on how much notice the Company provides Lonza, the Company could incur a cancellation fee that varies based on timing of the cancellation. This cancellation fee is only applicable if Lonza does not resell the slots reserved for the cancelled batches.

We rely entirely on third-party manufacturers for filling and finishing services. 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.

MARKETING AND SALES

Pursuant to the terms of the Commercial Agreement, E.R. Squibb has primary responsibility for distribution, marketing and sales of ERBITUX in the United States and Canada and will provide sales force personnel and marketing services for ERBITUX. We have the right, at our election and sole expense, to co-promote ERBITUX with E.R. Squibb. As part of our strategy to develop the capacity to market our cancer therapeutic products, we have exercised this co-promotion right and are therefore entitled to have our field organization participate in activities supporting the sale and further commercial launch of ERBITUX. Pursuant to the terms of the Commercial Agreement, E.R. Squibb retains the exclusive rights to sell and distribute the product. Pursuant to our co-promotion rights, during the third quarter of 2004 the Company decided to establish a field force of oncology sales professionals to increase

26

the Company’s presence and prominence within the oncology community and help maximize the market potential for ERBITUX in its approved indications.

We will continue to evaluate future arrangements and opportunities with respect to other products we may develop in order to optimize our profits and our distribution, marketing and sales capabilities.

PATENTS AND TRADEMARKS

General

We seek patent protection for our proprietary technology and products in the United States and abroad. Patent applications have been submitted and are pending in the United States, Canada, Europe and Japan, as well as other countries. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal questions. Our success will depend, in part, on whether we can:

·obtain patents to protect our own products;

·obtain licenses to use the technologies of third parties, which may be protected by patents;

·protect our trade secrets and know-how; and

·operate without infringing the intellectual property and proprietary rights of others.

Patent Rights; Licenses

We currently have exclusive licenses or assignments to 91 issued patents worldwide that relate to our proprietary technology in the United States and foreign countries, 48 of which are issued United States patents. In addition, we currently have exclusive licenses or assignments to approximately 81 families of patent applications.

ERBITUX.   We have an exclusive license from the University of California to an issued United States patent for the murine form of ERBITUX, our EGFR antibody product. We believe that this patent’s scope should be its literal claim scope as well as other antibodies not literally embraced but potentially covered under the patent law doctrine of equivalents. Whether or not a particular antibody is found to be an equivalent to the antibodies literally covered by the patent can only be determined at the time of a potential infringement, and in view of the technical details of the potentially infringing antibody in question. Our licensor of this patent did not obtain patent protection outside the United States for this antibody.

We are pursuing additional patent protection relating to the field of EGFR antibodies in the treatment of cancer that may limit the ability of third parties to commercialize EGFR antibodies for such use. Specifically, we are pursuing patent protection for the use of EGFR antibodies in combination with chemotherapy to inhibit tumors or tumor growth. We have exclusively licensed from Rhone-Poulenc Rorer Pharmaceuticals, now known as Sanofi-Aventis, patent applications seeking to cover the therapeutic use of antibodies to the EGFR in conjunction with anti-neoplastic agents. A U.S. patent, a Canadian patent and a European patent were issued in this family. In December 2002, Opposition Proceedings seeking to revoke the European patent were brought by the 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 our European patent will be revoked. The Company has vigorously defended its position in this matter, which is suspended pending a final determination of the Yeda matter discussed under Item 3— “Legal Proceedings”. We have filed additional patent applications, based in part on our own research, that would cover the use of ERBITUX and other EGFR antibodies in conjunction with radiation therapy, and the use of ERBITUX and other EGFR inhibitors in refractory patients, either alone or in combination with chemotherapy or radiation therapy. We have also filed patent applications that include claims on the use of conjugated forms of ERBITUX, as well as humanized forms of the antibody and fragments.

27

Our license agreements with the University of California and Sanofi-Aventis require us to pay royalties on sales of ERBITUX that are covered by these licenses. We have entered into license agreements with Genentech for rights to patents covering certain use of epidermal growth factor receptor antibodies and with both Genentech and Centocor for rights to patents covering various aspects of antibody technology. Our agreements with both Genentech and Centocor require us to pay royalties on the sale of ERBITUX that are covered by these licenses.

There can be no assurance that patent applications related to the field of antibodies in the treatment of cancer to which we hold rights will result in the issuance of patents, that any patents issued or licensed to our company related to ERBITUX or its use will not be challenged and held to be invalid or of a scope of coverage that is different from what we believe the patent’s scope to be, or that our present or future patents related to these technologies will ultimately provide adequate patent coverage for or protection of our present or future EGFR antibody technologies, products or processes. Until recently, patent applications were secret until patents were issued in the U.S., or corresponding applications were published in foreign countries, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions, or that we were the first to file patent applications for such inventions. In addition, patents do not give the holder the right to commercialize technology covered by the patents, should our production or our use be found by a court to be embraced by the patent of another.

In the event that we are called upon to defend and/or prosecute patent suits and/or related legal or administrative proceedings, such proceedings are costly and time consuming and could result in loss of our patent rights, infringement penalties or both. Litigation and patent interference proceedings could result in substantial expense to us and significant diversion of efforts by our technical and management personnel. An adverse determination in any such interference proceedings or in patent litigation, particularly with respect to ERBITUX, to which we may become a party could subject us to significant liabilities to third-parties or require us to seek licenses from third-parties. If required, the necessary licenses may not be available on acceptable financial or other terms or at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us, in whole or in part, from commercializing our products, which could have a material adverse effect on our business, financial condition and results of operations.

In the event that there is patent litigation involving one or more of the patents issued to us, there can be no guarantee that the patents will be held valid and enforceable. The scope of patents may be called into question and could result in a decision by a court that the claims have a different scope than we believe them to have. Further, the outcome of patent litigation is subject to intangibles that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses that will be called to testify and the identity of the adverse party. This is especially true in biotechnology-related patent cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree.

There can be no assurance that we will not be subject to claims in patent suits that one or more of our products or processes infringe third parties’ patents or violate the proprietary rights of third parties. Defense and prosecution of such patent suits can result in the diversion of substantial financial, management and other resources from our other activities. An adverse outcome could subject us to significant liability to third-parties, require us to obtain licenses from third-parties, or require that we cease any related product development activities or product sales.

An adverse determination by a court in any such patent litigation, or by the U.S. Patent and Trademark Office in a patent interference proceeding, particularly with respect to ERBITUX, to which we may become a party, could subject us to significant liabilities to third-parties or require us to seek licenses from third-parties, or result in loss in whole or part of our ability to continue to sell our product. If required, the necessary licenses may not be available on acceptable terms or at all. Adverse determinations

28

in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us, in whole or in part, from commercializing our products, which could have a material adverse effect on our business, financial condition and results of operations.

Angiogenesis Inhibitors.   With respect to our research on inhibitors of angiogenesis based on the flk-1 receptor (VEGFR-2), we are the exclusive licensee from Princeton University of a family of patents and patent applications covering recombinant nucleic acid molecules that encode the murine flk-1 receptor and antibodies to extracellular portions of the receptor and its human homolog, KDR. We are also the assignee of a family of patents and patent applications filed by our scientists generally related to angiogenesis-inhibiting antibodies to receptors that bind VEGF, for example human flt-1 (VEGFR-1) and KDR (VEGFR-2). One of the patents licensed from Princeton University claims the use of flk-1 receptor antibodies to isolate cells expressing the flk-1 receptor on their cell surfaces. Additionally, we are a co-owner of a patent application claiming the use of flk-1/KDR receptor antibodies to isolate endothelial stem cells that express flk-1/KDR on their cell surfaces. At present, we are seeking exclusive rights to this invention from the co-owners. We have an exclusive license from the Ludwig Institute for Cancer Research for patent rights pertaining to antibodies that specifically bind flt-4 (VEGFR-3) and their use in cancer.

Our license from Princeton University requires us to pay royalties on sales that would otherwise infringe the licensed patents, which cover antibodies to the flk-1/KDR receptor.

IMC-1121B and other antibodies of the IMC-KDR family are fully-human monoclonal antibodies. Patents have been issued to other biotechnology companies that relate to the selection of fully human antibodies or their manufacture. Therefore, though we have licensed such patents from certain companies in this field we may be required to obtain additional licenses before we can commercialize our own fully-human monoclonal antibodies, including IMC-1121B.

We cannot be certain that we will ever be able to obtain such additional patent licenses related to fully-human and/or phage-derived monoclonal antibodies in the U.S. or in other territories of the world where we would want to commercialize such IMC-KDR antibodies. Even if we are able to obtain other licenses as requested, there can be no assurance that we would be able to obtain a license on financial or other terms acceptable to us or that we would be able to successfully redesign our products or processes to avoid the scope of such patents. In either such case, such inability could have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that the cost of such licenses would not materially affect the ability to commercialize IMC-KDR antibodies.

There can be no assurance that others will not be, or have not been, issued patents that may prevent the sale of one or more of our products or the practice of one or more of our processes, or require licensing and the payment of significant fees or royalties by us to third-parties in order to enable us to conduct business.

There can be no assurance that we will not be subject to claims that one or more of our products or processes infringe other patents or violate the proprietary rights of third-parties. In the event that we are called upon to defend and/or prosecute patent suits, the related legal and administrative proceedings would be costly and time consuming and could result in loss of patent rights, infringement penalties or both. In addition, defense and prosecution of patent suits can result in the diversion of substantial financial, management and other resources from our other activities. An adverse outcome could subject us to significant liability to third-parties, require us to obtain licenses from third-parties, or require us to cease any related product development activities or product sales and might have a material adverse effect on our business.

VE-Cadherin.   We have obtained an exclusive license from ICOS Corporation to certain patent rights pertaining to VE-cadherin and antibodies thereto for the treatment of cancer in humans. We are also the assignee of a family of patent applications filed by an employee related to methods of generating

29

therapeutically valuable antibodies that bind VE-cadherins. These two families of patent applications cover cadherin molecules that are involved in endothelial cell interactions. These interactions are believed to be involved in angiogenic processes. The subject patents and patent applications also cover antibodies that bind to, and affect the cadherin molecules. Our license from ICOS requires us to pay royalties on the sale of certain VE-cadherin antibodies.

Phage Display Technology.   A number of antibodies that we are developing, including our fully-human anti-EGFR monoclonal antibody IMC-11F8 and our fully-human anti-KDR monoclonal antibody IMC-1121B are phage-derived antibodies, which means they are made using phage technology. Since patents have been issued to biotechnology companies that relate to phage-derived antibodies and their manufacture, we may be required to obtain licenses under these patents before we can commercialize certain phage-derived antibodies. In March 2003, we entered into a license with Dyax Corp. (“Dyax”) for certain of Dyax’s patent rights and know-how covering certain phage display technology and a proprietary phage display library. This license also includes sublicense or non-enforcement covenant rights from other companies that possess patent and other intellectual property rights relating to phage display technology. We believe, though we cannot be certain, that this license will provide us with the freedom to operate in the development of IMC-11F8 and IMC-1121B as well as certain other phage-derived antibodies.

Trademarks.   ERBITUX, ERBITUX/cetuximab & antibody design logo, IMCLONE, IMCLONE SYSTEMS, IMCLONE SYSTEMS INCORPORATED, TARGETED ONCOLOGY and the ANTIBODY DESIGN (pantone #172 “Orange”), our corporate icon, are trademarks and/or service marks of ImClone Systems Incorporated. Applications are pending or registrations have been issued for various of these marks in the United States and/or foreign jurisdictions. In October 2003, ExxonMobil Corporation (“ExxonMobil”) filed a Notice of Opposition against our ERBITUX/cetuximab & antibody design logo. We have entered into a settlement agreement with ExxonMobil that allows us to continue using the ERBITUX/cetuximab & antibody logo.

Trade Secrets.   With respect to certain aspects of our technology, we rely, and intend to continue to rely, on our confidential trade secrets, unpatented proprietary know-how and continuing technological innovation to protect our competitive position. Such aspects of our technology include methods of isolating and purifying antibodies and other proteins, collections of plasmids in viable host systems, and antibodies that are specific for proteins that are of interest to us. We cannot be certain that others will not independently develop substantially equivalent proprietary information or techniques, or that we are free of the patent or other rights of third parties to commercialize this technology.

Relationships between us and our employees, scientific consultants and collaborators provide these persons with access to our trade secrets, know-how and technological innovation under confidentiality agreements with the parties involved. Similarly, our employees and consultants enter into agreements with us that require that they do not disclose confidential information of ours and that they assign to us all rights to any inventions relating to our activities made while in our employ or while consulting for us.

GOVERNMENT REGULATION

The research and development, manufacture and marketing of human therapeutic and diagnostic products are subject to regulation, primarily by the FDA in the United States and by comparable authorities in other countries. These national agencies and other federal, state and local entities regulate, among other things, research and development activities (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, distribution, import, export, record keeping, reporting, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including delay in approval or refusal to approve product licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recall or seizure of

30

products, injunctions against shipping products and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts.

The process of obtaining requisite FDA approval has historically been costly, time consuming, and uncertain. Current FDA requirements for a new human drug or biological product to be marketed in the United States include: (1) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the product’s safety; (2) filing with the FDA of an IND, to conduct human clinical studies for drugs or biologics; (3) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; (4) filing by a company and acceptance and approval by the FDA of a New Drug Application (“NDA”) for a drug product or a BLA for a biological product to allow commercial distribution of the drug or biologic, and (5) FDA review of whether the facility in which the drug or biologic is manufactured, processed, packed or held meets standards designed to assure the product’s continued quality. Overall, conducting clinical studies is a lengthy, time-consuming and expensive process.

Pre-clinical tests include the evaluation of the product in the laboratory and in animal studies to assess the potential safety and efficacy of the product and its formulation. The results of the pre-clinical tests are submitted to the FDA as part of an IND to support the evaluation of the product in human patients. Historically, the results from pre-clinical testing and early clinical studies have often not been predictive of results obtained in later clinical studies. A number of new drugs and biologics have shown promising results in early clinical studies, but for which there was a subsequent failure to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval.

In addition, we may encounter regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of pre-clinical and clinical development.

Clinical studies involve administration of the product to patients under supervision of a qualified principal investigator. Such studies are typically conducted in three sequential Phases, although the Phases may overlap. In Phase I, the initial introduction of the drug into human patients, the product is generally tested for safety, dosage tolerance, absorption, metabolism, distribution, and excretion. Phase II typically involves studies in a limited patient population to: (1) determine the biological or clinical activity of the product for specific, targeted indications; (2) determine dosage tolerance and optimal dosage; and (3) identify possible adverse effects and safety risks. If Phase II evaluations indicate that a product is effective and has an acceptable benefit-to-risk relationship, Phase III studies may be undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population. Phase III studies are often the pivotal studies upon which commercial approval is sought, although earlier Phase studies can sometimes support approval, particularly in the case of products approved on an accelerated or fast track basis. Phase IV studies, or post-regulatory approval studies, may also be required to provide additional data on safety or efficacy.

United States law requires that studies conducted to support approval for product marketing be “adequate and well controlled.” In general, this means that either a placebo or a product already approved for the treatment of the disease or condition under study must be used as a reference control. Studies must also be conducted in compliance with all applicable laws and regulations including good clinical practice, or GCP, and informed consent requirements.

The FDA may prevent clinical studies from beginning if, among other reasons, it concludes that clinical subjects would be exposed to an unacceptable health risk. Studies may also be prevented from beginning by institutional review boards, who must review and approve all research involving human subjects. The FDA and institutional review boards review the results of the clinical studies and may order the temporary or permanent discontinuation of clinical studies at any time if they believe the product

31

candidate exposes clinical subjects to an unacceptable health risk. Investigational products used in clinical studies must be produced in compliance with cGMP pursuant to FDA regulations.

Side effects or adverse events that are reported during clinical studies can delay, impede, or prevent regulatory approval. Similarly, adverse events that are reported after regulatory approval can result in additional limitations being placed on a product’s use and, potentially, withdrawal of the product from the market. Any adverse event, either before or after marketing authorization, can result in product liability claims against the Company.

During the course of, and following the completion of clinical studies, the data are analyzed to determine whether the studies successfully demonstrated safety and effectiveness, and whether a product approval application may be submitted. In the United States, if the product is regulated as a drug, a New Drug Application, or NDA, must be submitted and approved before commercial marketing may begin. If the product is regulated as a biologic, such as antibodies, a Biologics License Application, or BLA, must be submitted and approved before commercial marketing may begin. The FDA Center for Drug Evaluation and Research, or CDER, has responsibility for the review and approval of drugs, and, following  reorganization at FDA, also has responsibility for the review and approval of certain therapeutic biologics such as monoclonal antibodies, cytokines, growth factors, enzymes, interferons and certain proteins. The FDA Center for Biologics Evaluation and Research, or CBER, has responsibility for other biologics. Based on this re-distribution of responsibility, we expect that most of our products will be reviewed by CDER. The NDA or BLA must include a substantial amount of data and other information concerning the safety and effectiveness (and, in the case of a biologic, purity and potency) of the compound from laboratory, animal and clinical testing, as well as data and information on manufacturing, product stability, and proposed product labeling.

Under the Prescription Drug User Fee Act, as amended, the FDA receives fees for reviewing an NDA or BLA and supplements thereto, as well as annual fees for commercial manufacturing establishments and for approved products. These fees can be significant. The NDA or BLA review fee alone can exceed $500,000, although certain limited deferrals, waivers and reductions may be available.

Under applicable laws and FDA regulations, each NDA or BLA submitted for FDA approval is usually reviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If deemed complete, the FDA will “file” the NDA or BLA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA or BLA that it deems incomplete or not properly reviewable. If the FDA refuses to file an application, the FDA will retain 25% percent of the user fee as a penalty. The FDA has established performance goals for the review of NDAs and BLAs—six months for priority applications and ten months for regular applications. However, the FDA is not legally required to complete its review within these periods and these performance goals may change over time. Moreover, the outcome of the review, even if generally favorable, typically is not an actual approval but an “action letter” that describes additional work that must be done before the application can be approved. The FDA’s review of an application may involve review and recommendations by an independent FDA advisory committee. Even if the FDA approves a product, it may limit the approved therapeutic uses for the product as described in the product labeling, require that warning statements be included in the product labeling, require that additional studies be conducted following approval as a condition of the approval, impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval.

Some of our cancer treatments may be used in conjunction with in vitro diagnostic products to test patients for particular traits. In vitro diagnostic products are generally regulated by the FDA as medical devices. Before a medical device may be marketed in the United States, the manufacturer generally must obtain either clearance through a 510(k) pre-market notification (“510(k)”) process or approval through

32

the pre-market approval application (“PMA”) process. Section 510(k) notifications may be filed only for those devices that are “substantially equivalent” to a legally marketed predicate device. If a device is not “substantially equivalent” to a legally marketed predicate device, a PMA must be filed. The pre-market approval procedure generally involves more complex and lengthy testing, and a longer review process than the 510(k) process.

Under current law, each domestic and foreign drug and device product-manufacturing establishment must be registered with the FDA before product approval. Domestic and foreign manufacturing establishments must meet strict standards for compliance with cGMP regulations and licensing specifications after the FDA has approved an NDA, BLA or PMA for a product manufactured at such facility. The FDA and foreign regulatory authorities periodically inspect domestic and foreign manufacturing facilities where applicable.

Significant additional legal and regulatory requirements also apply after FDA approval to market under an NDA or BLA. Along with the requirement for ongoing adherence to cGMPs these requirements include, among other things, requirements related to adverse events and other reporting, product advertising and promotion, and the need to submit appropriate new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process.

In the United States, the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), and state and local governments. For example, sales and marketing and medical affairs programs must comply with a variety of federal, state and local laws, and regulations and principles, such as the Medicare-Medicaid Anti-Fraud and Abuse Act, as amended, the False Claims Act, also as amended, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

Moreover, we are now, and may become subject to, additional federal, state and local laws, regulations and policies relating to safe working conditions, laboratory practices, the experimental use of animals, and/or the use, storage, handling, transportation and disposal of human tissue, waste and hazardous substances, including radioactive and toxic materials and infectious disease agents used in conjunction with our research work.

Sales outside the United States of products we develop will also be subject to regulatory requirements governing human clinical studies and marketing for drugs and biological products and devices. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. In most cases, if the FDA has not approved a product for sale in the United States the product may be exported to any country if it complies with the laws of that country and has valid marketing authorization by the appropriate authority (1) in Canada, Australia, New Zealand, Japan, Israel, Switzerland or South Africa, or (2) in the European Union or a country in the European Economic Area if the drug is marketed in that country or the drug is authorized for general marketing in the European Economic Area. There are specific FDA regulations that govern this process.

33

Our ability to earn sufficient returns on our products may depend in part on the extent to which government health administration authorities, private health coverage insurers and other organizations will provide reimbursement for the costs of such products and related treatments. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and there can be no assurance that adequate third-party coverage will be available.

In the United States, debate over the reform of the health care system has resulted in an increased focus on pricing. Although there are currently no government price controls over private sector purchases in the United States, federal legislation requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs to enable them to be eligible for reimbursement under certain public health care programs. Various states have adopted mechanisms under Medicaid and otherwise that seek to control drug prices, including by disfavoring certain higher priced drugs and by seeking supplemental rebates from manufacturers. In the absence of new government regulation, managed care has become a potent force in the market place that increases downward pressure on the prices of pharmaceutical products. New federal legislation, enacted in December 2003, has altered the way in which physician-administered drugs covered by Medicare are reimbursed, generally leading to lower reimbursement for physicians. As of January 1, 2005, physicians are reimbursed for physician-administered drugs, such as ERBITUX, based on the Average Sales Price of the drug plus six (6) percent. The Average Sales Price is the average net price of a drug to all non-federal purchasers. Price discounts will affect the drug reimbursement rates. To date, the Company has not discounted the sale of ERBITUX to non-federal purchasers, other than routine prompt payment discounts.

This focus on pricing has led to other government action, and may lead to other action in the future. For example, in December 2003 federal legislation was enacted to change United States import laws and expand the ability to import lower priced versions of pharmaceutical products from Canada, where there are government price controls. These changes to the import laws will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will lead to substantial savings for consumers and will not create a public health safety issue. The current Secretary of Health and Human Services has indicated that there is not a basis to make such a certification at this time. However, it is possible that this Secretary or a subsequent Secretary could make the certification in the future. In addition, legislative proposals have been made to implement the changes to the import laws without any certification, and to broaden permissible imports in other ways. Even if the changes to the import laws do not take effect, and other changes are not enacted, imports from Canada and elsewhere may increase due to market and political forces, and the limited enforcement resources of the FDA, the Customs Service, and other government agencies. For example, numerous states and localities have proposed programs to facilitate Canadian imports, and at least one locality has already begun such a program, notwithstanding questions raised by FDA about the legality of such actions. We expect that pressures on pricing results will continue.

In the EU, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of such products to consumers. The approach taken varies from member state to member state. Some jurisdictions operate positive and/or negative list systems under which products may only be marketed once a reimbursement price has been agreed. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products, as exemplified by the National Institute for Clinical Excellence in the United Kingdom which evaluates the data supporting new medicines and passes reimbursement recommendations to the government. In addition, in some countries cross-border imports from low-priced markets (parallel imports) exert a commercial pressure on pricing within a country.

34

In Japan, the National Health Ministry biannually reviews the pharmaceutical prices of individual products. In the past, these reviews have resulted in price reductions.

ENVIRONMENTAL AND SAFETY MATTERS

We use hazardous chemicals, biological agents and various radioactive isotopes and compounds in our research and development and our manufacturing activities. Accordingly, we are subject to and seek to comply with, applicable regulations under federal, state and local laws regarding employee safety, environmental protection and hazardous substance control. We have made and will continue to make expenditures for environmental compliance, environmental protection and employee safety. Such expenditures have not had, and in the opinion of management are not expected to have a material effect on our financial position, results of operation, capital expenditures or competitive position. However, these laws may change, our processes may change, or other facts may emerge which could affect our operations, business or assets and therefore the amount and timing of expenditures in the future may vary substantially from those currently anticipated.

COMPETITION

Competition in the biopharmaceutical industry is intense and based significantly on scientific, technological and market factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical and large pharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. Further, such companies have substantially greater financial resources and greater access to the capital markets than we do. These companies, as well as academic institutions, governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific, technical and professional personnel and consultants.

We are aware of certain products under development or manufactured by competitors that are used or marketed for the prevention, diagnosis, or treatment of certain diseases that we have targeted for product development. Various companies are developing or commercializing biopharmaceutical products that potentially compete directly with our commercial product and product candidates. These include areas such as: (1) the use of biopharmaceutical and pharmaceutical products targeted to the EGFR or antibodies to that receptor to treat cancer; (2) the existence and development of inhibitors to angiogenesis; and (3) the existence and development of inhibitors to IGF. Currently there is one small molecule EGFR inhibitor approved by the FDA. OSI Pharmaceuticals, Inc. and Genentech, Inc. received approval from the FDA for Tarceva™ (erlotinib) for the treatment of patients with locally advanced or metastatic non-small cell lung cancer after failure of at least one prior chemotherapy regimen and for first-line pancreatic cancer when used in combination with Gemzar. AstraZeneca Pharmaceutical’s IRESSA® (gefitinib), a small molecule EGFR inhibitor has been withdrawn from the market after failing its confirmatory study with non-small cell lung cancer, yet they have ongoing studies in various tumor types. In addition, several product candidates are in advanced stages of clinical studies. We are aware of several companies that have potential antibody or other product candidates in clinical testing that target the EGFR and therefore may compete with our lead product, ERBITUX. These companies include, but are not limited to: (1) Amgen, Inc. which received approval in September 2006 for their IgG2 fully-human monoclonal antibody, panitumumab, for use as a single agent for highly refractory colorectal cancer (2) Pfizer, Inc.;

35

(3) GlaxoSmithKline plc; (4) Novartis; (5) Merck KGaA; (6) Wyeth; (7) Medarex; and (8) YM Bioscience Inc.

On February 26, 2004, Genentech received FDA approval for Avastin® for treatment in first-line metastatic colorectal cancer. Avastin® (including second-line CRC and first-line non-small cell lung cancer indications) is an approved therapeutic antibody designed to inhibit vascular endothelial growth factor (VEGF). While Avastin® does not target the EGFR and is indicated for a patient population different than the patient population in the pivotal studies we submitted as the basis of the FDA’s approval for ERBITUX (i.e., previously-untreated metastatic colorectal cancer patients versus irinotecan-refractory metastatic colorectal cancer patients), it is competing significantly with ERBITUX as a treatment for colorectal cancer and may compete significantly with ERBITUX as a treatment for other cancers. We believe that, notwithstanding the fact that the FDA has approved Avastin® and ERBITUX for the treatment of metastatic colorectal cancer in different indications, physicians have prescribed Avastin® outside of its approved indication and within ERBITUX’s approved indications. If physicians continue or accelerate such prescription of Avastin® outside of its approved indication, the prescription volume or market share of ERBITUX within its approved indication may be limited or may diminish.

During the third quarter of 2006, Amgen received FDA approval for Vectibix™ (panitumumab), which is indicated as a monotherapy for the treatment of patients with EGFR-expressing metastatic colorectal cancer who have disease progression, on or following fluoropyrimidine-, oxaliplatin- and irinotecan- containing regimens. We believe that ERBITUX’s strength and leadership in clinical data, the product’s established market presence, combined with our strategic planning and tactical execution will effectively position us to address our competition within the colorectal marketplace, however the addition of this direct competitor’s drug will likely adversely impact the marketability of ERBITUX.

We expect that our products under development and in clinical studies will address major markets within the cancer sector, and potentially markets in other therapeutic areas. Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our potential products or of competitors’ products may be an important competitive factor. Accordingly, the relative speed with which we can develop products, complete pre-clinical testing, clinical studies and approval processes and supply commercial quantities to market are expected to be important competitive factors. We expect that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price, patent position, manufacturing capacity and capability, distribution capability and government action.

OUR EMPLOYEES

We have assembled a qualified business, professional and scientific staff with a variety of complementary skills in a broad base of areas, including legal, finance, advanced research technologies, oncology, immunology, molecular and cell biology, antibody engineering, protein and medicinal chemistry and high-throughput screening. We believe that we have been successful to date in attracting and retaining skilled and experienced business and scientific professionals. We have also recruited a staff of technical and professional employees to carry out manufacturing at our Branchburg, New Jersey facilities. Of our 993 full-time personnel on January 31, 2007, 865 were employed at our New Jersey facilities and 128 were employed at our New York headquarters. Our staff includes 53 persons with Ph.D.’s and 16 with M.D.’s.

INDUSTRY SEGMENT

We operate in only one industry segment—biotechnology. We do not have any foreign operations, and our business is not seasonal.

36

ITEM 1A.RISK FACTORS

Risks Relating to Our Business and Other Matters

The recent changes in the composition of our Board of Directors do not constitute a “change in control.” However, if in the future additional persons are added to the Board of Directors who are not deemed incumbent directors under certain of our employee benefit plans, a “change in control” may occur which may adversely affect our business.

The recent changes in the composition of our Board of Directors did not constitute a “change in control” for purposes of certain severance and compensation agreements entered into by the Company. However, if in the future additional persons who are not deemed incumbent directors for purposes of such agreements are added to the Board of Directors, a “change in control” may occur. Those agreements define incumbent directors as the directors serving on the date of the agreement and directors whose election was approved by two-thirds vote of the incumbent directors; provided that directors initially elected as a result of an actual or threatened proxy solicitation or election will not be deemed incumbent directors. If a “change in control” is deemed to occur, covered employees may become eligible for additional compensation if their employment is terminated without cause or if they leave the Company for good reason (as defined in the relevant agreements and plan documents) following such change in control. In addition, under certain circumstances, covered employees’ equity awards may also vest in full. If this occurs, we may bear additional expenditures to retain or replace the services of covered employees.

ERBITUX now faces direct competition, which will likely hurt its marketability.

During the third quarter of 2006, the FDA approved the drug Vectibix™ (panitumumab), which is manufactured by Amgen, a major pharmaceutical company that has considerably greater financial, research, clinical, regulatory, manufacturing, and marketing resources than we do. Vectibix™ competes directly with ERBITUX in one of the four indications for which ERBITUX has been approved and the addition of this direct competitor’s drug may hurt the marketability of ERBITUX.

Royalty and manufacturing revenue from sales of ERBITUX represent a substantial portion of our revenues. If ERBITUX does not receive continued market acceptance, sales may not continue and we may not earn sufficient revenues.

Our future growth and a significant portion of our future revenues depend on the continued commercial success of ERBITUX, our only FDA-approved product. We cannot be certain that ERBITUX will continue to be licensed or approved in the United States or in any foreign market. A number of factors may affect the rate and level of market acceptance of ERBITUX, including:

·The perception by physicians and other members of the healthcare community of ERBITUX’s safety or efficacy or that of competing products;

·The effectiveness of our and BMS’ sales and marketing efforts in the United States and the effectiveness of Merck KGaA’s sales and marketing efforts outside the United States;

·The ability to obtain additional FDA approvals to market ERBITUX in additional treatment indications and tumor types;

·Any unfavorable publicity concerning the Company, ERBITUX or competitive drugs;

·The price of ERBITUX relative to other drugs or competing treatments;

·The availability and level of third-party reimbursement for sales of ERBITUX;

·The continued availability of adequate supplies of ERBITUX to meet demand; and

37

·Regulatory developments related to the manufacture or continued use of ERBITUX.

If ERBITUX does not continue to be accepted, our revenues would decline, which would impact our profitability and the price of our common stock.

We depend on BMS and Merck KGaA to co-promote market and sell ERBITUX. If either BMS or Merck KGaA becomes unable to meet its obligations, or we fail to adequately maintain our relationship with these partners, it would negatively impact our revenues and harm our business.

Under our agreement with BMS, BMS has the exclusive right to distribute ERBITUX in the United States and Canada, in exchange for which we receive royalty payments of 39% of BMS’ net sales of ERBITUX in the United States and Canada. Under our agreement with Merck KGaA, Merck has the exclusive right to market ERBITUX outside of the United States, Canada and Japan, in exchange for which we receive royalty payments based on Merck’s gross profit from ERBITUX sales. These royalty payments from BMS and Merck represent a significant portion of our current revenues. In addition, we receive milestone payments and reimbursements of various regulatory and clinical expenses as well as certain marketing and administrative expenses from BMS and Merck. Our reliance on these relationships creates a number of potential risks, including the risk that our corporate partners may not devote sufficient resources to our programs or product. If either BMS or Merck becomes unable to market effectively and sell sufficient quantities of ERBITUX, or otherwise unable to meet its contractual obligations, our revenues and/or profitability may be negatively impacted due to decreased revenues or increased commercial expenses on our part.

Recently, we informed BMS that we are not generally pleased with the results of our relationship with them. This led to a series of discussions between us and BMS with respect to the relationship. No agreements, arrangements or understandings have been reached with respect to the matters under discussion and no assurance can be given that any will result.

We operate in a highly competitive industry, including in terms of product pricing, that is subject to rapid and significant technological change.

The pharmaceutical industry in which we operate is highly competitive. Our present and potential competitors include major pharmaceutical and biotechnology companies, as well as specialty pharmaceutical firms. Certain of these companies have considerably greater financial, research, clinical, regulatory, manufacturing, and marketing resources than we do. We have already experienced significant competition to ERBITUX from Avastin® (bevacizumab) (a non-chemotherapeutic biopharmaceutical product manufactured by Genentech, Inc. and approved by the FDA as first- and second-line treatment for patients with metastatic colorectal cancer and as first-line treatment in non-small cell lung cancer). Xeloda® (capecitabine) (a chemotherapeutic biopharmaceutical product manufactured by Roche Laboratories, Inc. and also approved by the FDA as a first-line treatment for patients with metastatic colorectal cancer) has also presented competitive challenges. Vectibix™ (panitumumab) (an IgG2 anti-EGFR monoclonal antibody manufactured by Amgen and approved by the FDA as a single agent for patients where fouracil, oxaliplatin and irinotecan have failed). We believe that, notwithstanding the fact that the FDA has approved Avastin®, Xeloda®. Vectibix™ and ERBITUX for the treatment of metastatic colorectal cancer in different indications, physicians have prescribed each outside of their approved indications and within ERBITUX’s approved indications. ERBITUX is priced at a premium to all of these agents for a monthly course of therapy. We are also aware of products in development at other biotechnology or pharmaceutical companies that, if successful in clinical trials and approved for marketing, may be priced competitively and compete with ERBITUX for the indication for which we have FDA approval, or for indications for which we are seeking, or may seek, FDA approval. Business arrangements among our competitors may increase competition and the resources available to these competitors. In addition, the pharmaceutical industry has undergone, and is expected to continue to undergo, rapid and

38

significant technological change, and we expect competition to increase with technical advances. The development of products or processes by our competitors with significant advantages over those that we are seeking to develop could cause the marketability of our products to stagnate or decline.

We are subject to extensive governmental regulation. If we are unable to obtain or maintain regulatory approvals for our product or product candidates, we will not be able to market our product or further develop our product candidates.

We are subject to stringent regulation with respect to product safety and efficacy by various international and U.S. federal, state and local authorities. Of particular significance are the FDA’s requirements covering research and development, testing, manufacturing, quality control, labeling and promotion of drugs for human use. Any biopharmaceutical that we may develop cannot be marketed in the United States until it has been approved by the FDA, and then can only be marketed for the indications and claims approved by the FDA. As a result of these requirements, the length of time, the level of expenditures and the laboratory and clinical information required for approval of an NDA or a BLA, or any supplements thereto, are substantial and can require a number of years, and the ability to obtain regulatory approval is uncertain. In addition, after any of our products receives regulatory approval, it remains subject to ongoing FDA regulation, including with respect to, for example, changes to the product, its manufacturing or label, new or revised regulatory requirements for manufacturing practices, additional clinical study requirements, restricted distribution, written warnings to physicians, a product recall, and withdrawal of a previously obtained approval. Similarly extensive regulation exists outside of the United States, including in Europe and Japan.

We cannot be sure that we will be able to receive necessary regulatory approvals on a timely basis, if at all, for any of the product candidates we are developing or that we can maintain or receive any additional necessary regulatory approvals for ERBITUX. Any delay in obtaining such approval or failure to maintain regulatory approvals could prevent us from marketing our product and would have a material adverse effect on our business.

Moreover, it is possible that the current regulatory framework could change or additional regulations could arise at any stage during our product development or marketing processes, which may affect our ability to obtain or maintain approval of our products.

Our revenues will diminish if our collaborators fail to obtain acceptable prices or adequate reimbursement for ERBITUX from third-party payors.

All our revenues from ERBITUX are based on sales of the product by our two collaborators, BMS and Merck KGaA. The continuing efforts of U.S. and foreign government and third-party payors to contain or reduce the costs of health care may limit the revenues that we earn from these sales of ERBITUX. If government and other third-party payors do not provide adequate coverage and reimbursement for our product, physicians may not prescribe it.

In some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, there is, and we expect that there will continue to be, federal, state and local legislation aimed at imposing similar controls. In addition, we expect managed care and government initiatives in the United States to continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives would decrease the price received by our collaborators for any of our products in the future. Further, cost control initiatives would impair or diminish our ability or incentive, or the ability or incentive of our partners or potential partners, to commercialize our other product candidates, and accordingly, our ability to earn revenues.

39

Our ability to commercialize any other product candidates, alone or with collaborators, will continue to depend in part on the availability of reimbursement from:

·government and health administration authorities, including Medicare and Medicaid;

·private health insurers; and

·other third-party payors.

Third-party payors, including Medicare, are increasingly challenging the prices charged for medical products and services. Government and other third-party payors increasingly are limiting both coverage and level of reimbursement for new drugs and, in some cases, refusing to provide coverage for a patient’s use of an approved drug for purposes not approved by the FDA.

Our royalty and collaborative agreement revenues could vary significantly and may adversely impact our business.

Royalty and collaborative agreement revenues in future periods could vary significantly. Major factors affecting these revenues include, but are not limited to:

·Variations in BMS’ and Merck KGaA’s and other licensees’ sales of licensed products;

·The expiration or termination of existing arrangements with our collaborative partners, particularly Merck KGaA and BMS, which may include development and marketing arrangements for our products in the U.S., Europe and other countries outside the United States;

·The timing of U.S. and non-U.S. approvals, if any, for our products licensed to BMS, Merck KGaA and other licensees;

·The initiation of new collaborative agreements with other companies;

·The failure or refusal of a licensee to pay royalties;

·The expiration or invalidation of our patents or licensed intellectual property;

·Decreases in licensees’ sales of our products due to competition, manufacturing difficulties or other factors affecting sales of products, including any safety issues; and

·Disputes arising with respect to the interpretation of provisions in existing or future agreements with our collaborative partners.

If we are unable to earn sufficient revenues from ERBITUX, our operating results or financial condition could be adversely affected.

We will be required to expend significant resources for research and development of our products in development and these products may not be developed successfully, which would adversely affect our prospects for future revenue growth and our stock price.

Our only approved product is ERBITUX while our product candidates are still undergoing clinical trials and are in the early stages of development. Any successful development of our product candidates is highly uncertain and depends on a number of factors, many of which are beyond our control. In addition, each of our product candidates under development will require significant additional research and development resources to be expended prior to their commercialization. Even if we spend substantial amounts on research and development, our potential products may not be developed successfully. If the product candidates on which we have expended significant amounts for research and development are not commercialized, we will not earn a return on their research and development expenditures, which would adversely affect our prospects for future revenue growth and our stock price.

40

Difficulties or delays in product manufacturing and finishing could cause shortfalls in the supply of ERBITUX or our product candidates currently being developed which would harm our business and, in the case of ERBITUX, our ability to meet our financial obligations.

Cardinal Health Inc. (“Cardinal”) is currently our primary provider of filling and finishing services—the final stage of manufacturing for ERBITUX. On January 25, 2007, Cardinal announced it had reached an agreement to sell its Pharmaceutical Technologies and Services segment (which includes its fill-finish business) to Blackstone Group. In addition, we currently manufacture ERBITUX at our BB36 manufacturing facility, our BB50 manufacturing facility and through Cardinal. Any prolonged interruption in the operations of our or our contractors’ manufacturing and finishing facilities could result in cancellations of shipments, loss of product in the process of being manufactured, or a shortfall of available product inventory. A number of factors could cause interruptions, including a failure of our or our contractors’ manufacturing and finishing facilities to obtain FDA approval and maintain compliance with current good manufacturing practice requirements, changes in the FDA’s regulatory requirements or standards that require modifications to our manufacturing processes, action by the FDA that results in the halting of production of one or more of our products due to regulatory issues, a contract manufacturer going out of business, natural or other disasters, or other similar factors. Because our manufacturing and finishing processes and those of our contractors are highly complex and are subject to a lengthy FDA approval process and extensive ongoing regulation, alternative qualified production capacity may not be available on a timely basis or at all. We may also experience insufficient available capacity to manufacture existing or new products which could cause shortfalls of available product inventory. Difficulties or delays in our and our contractors’ manufacturing and supply of existing or new products could increase our costs, cause us to lose revenue or market share and damage our reputation. However, we are currently in the processs of taking the steps necessary to qualify an additional fill-finish provider.

Although the FDA has approved our BB36 manufacturing facilities and the facilities have passed multiple subsequent inspections, if we are unable to maintain FDA approval for BB36, it may cause shortfalls in our product inventory which would negatively impact our revenues and our business.

The Company expects to file a supplemental Biological License Application with the FDA for approval of our BB50 manufacturing facility in the first quarter of 2007, however, there are no guarantees that the FDA will approve it. If the FDA does not approve our BB50 manufacturing facility, then we will not be able to sell the ERBITUX manufactured there. As of December 31, 2006, we have capitalized approximately $35.5 million of inventory produced in BB50.

Our marketing partners may experience pressure to lower the price of ERBITUX because of new and/or proposed federal legislation, which would reduce our royalty revenue and may harm our business.

Federal legislation has altered the way in which physician administered drugs covered by Medicare, such as ERBITUX, are reimbursed, generally leading to lower reimbursement levels. This legislation also added an outpatient prescription drug benefit to Medicare, effective January 2006. The outpatient prescription drug benefit is provided primarily through private entities, which will attempt to negotiate price concessions from pharmaceutical manufacturers, including our collaborators. These negotiations may increase pressures to lower pricing for ERBITUX. While the law specifically prohibits the United States government from interfering in price negotiations between manufacturers and Medicare drug plan sponsors, some members of Congress are pursuing legislation that would permit the United States government to use its enormous purchasing power to demand discounts from pharmaceutical companies, thereby creating de facto price controls on prescription drugs, such as ERBITUX. In addition, the new law contains triggers for Congressional consideration of cost containment measures for Medicare in the event Medicare cost increases exceed a certain level. These cost containment measures could include some sorts of limitations on prescription drug prices that our collaborators charge for ERBITUX which would reduce our royalty revenue and harm our business.

41

If we become subject to importation of products from Canada and other countries, it will affect our profitability and harm our business.

ERBITUX and other products that we may develop may become subject to competition from lower priced imports from Canada, Mexico and other countries where government price controls or other market dynamics have resulted in lower priced products. The ability of patients and other customers to obtain these lower priced imports has grown significantly as a result of the Internet, an expansion of pharmacies in Canada and elsewhere targeted to American purchasers, the increase in U.S.-based businesses affiliated with Canadian pharmacies marketing to American purchasers and other factors. Many of these foreign imports are illegal under current law. However, the volume of imports continues to rise due to the limited enforcement resources of the FDA and the U.S. Customs Service, and the pressure in the current political environment to permit the imports as a mechanism for expanding access to lower priced medicines.

In addition, in December 2003, federal legislation was enacted to modify United States import laws and expand the ability for lower priced pharmaceutical products to be imported from Canada, where government price controls have been enacted. These changes to the import laws will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will lead to substantial savings for consumers and will not create a public health safety issue. The current Secretary of Health and Human Services has indicated that there is not a basis to make such a certification at this time. However, it is possible that this Secretary or a subsequent Secretary could make such a certification in the future.

In addition, legislation has been proposed to implement the changes to the import laws without any requirement for certification from the Secretary of Health and Human Services, and to broaden permissible imports in other ways. Even if these changes to the import laws do not take effect, and other changes are not enacted, lower priced imports of products from Canada and elsewhere may continue to increase due to market and political forces, and the limited enforcement resources of the FDA, the U.S. Customs Service, and other government agencies. For example, state and local governments have suggested that they may import drugs from Canada for employees covered by state health plans or others, and some have already enacted such plans.

Lower priced imports will adversely affect our profitability. This impact could become more significant in the future, and the impact could be even greater if there is a further change in the law or if state or local governments take further steps to permit lower priced imports from abroad.

We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees would affect our ability to develop our business.

We are highly dependent on the principal members of our management, operations and scientific staff. We experience intense competition for qualified personnel. Our future success depends in part on the continued service of our executive management and scientific personnel and our ability to recruit, train and retain highly qualified management, scientific, manufacturing and sales and marketing personnel. If we lose the services of any of these personnel, our research and product development and marketing goals, including the maintenance of relationships with leading research institutions and key collaborators, could be delayed or curtailed. In addition, we do not maintain “key man” life insurance on any of our employees. As a result, we may be unable to minimize the negative impact on our business stemming from the loss of a key employee.

The law or FDA policy could change and expose us to competition from “generic” or “follow-on” versions of our products, which may impact our market share and harm our business.

Under current U.S. law and FDA policy, generic versions of conventional chemical drug compounds, sometimes referred to as small molecule compounds, may be approved through an abbreviated approval process. In general terms, the generic applicant references an approved innovator product for which full

42

clinical data demonstrating safety and effectiveness exist for the approved conditions of use. The generic applicant in turn need only demonstrate that its product has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use (labeling) as the referenced innovator drug, and that the generic product is absorbed in the body at the same rate and to the same extent as the referenced innovator drug (this is known as bioequivalence). In addition, the generic application must contain information regarding the manufacturing processes and facilities that will be used to ensure product quality, and must contain certifications to patents listed with the FDA for the referenced innovator drug.

There is no such abbreviated approval process under current law for biological products approved under the Public Health Service Act through a BLA, such as monoclonal antibodies, cytokines, growth factors, enzymes, interferons and certain other proteins. However, various proposals have been made to establish an abbreviated approval process to permit approval of generic or follow-on versions of these types of biological products. The proposals include proposals for legislation, and proposals for the FDA to extend its existing authority to this area. For example, some have proposed that the FDA allow a generic or follow-on copy of certain therapeutic biologics to be approved under an existing mechanism known as a 505(b)(2) application. A 505(b)(2) application is a form of an NDA, where the applicant does not have a right to reference some of the data being relied upon for approval. Under current regulations, 505(b)(2) applications can be used where the applicant is relying in part on published literature or on findings of safety or effectiveness in another company’s NDA 505(b)(2) applications have not been used to date for therapeutic biologic products. In addition, the use of 505(b)(2)  applications even for conventional chemical drug products is the subject of ongoing legal challenge. It is thus not clear what the permitted use of a 505(b)(2) application might be in the future for biologics products, or whether any other proposals on generic or follow-on biologics will be adopted. However, if the law is changed or if the FDA somehow extends its existing authority in new ways, and third parties are permitted to obtain approvals of versions of our products through an abbreviated approval mechanism and without conducting full clinical studies of their own, it could adversely affect our business. Such products would be significantly less costly than ours to bring to market, and could lead to the existence of multiple lower priced competitive products. This would substantially limit our ability to obtain a return on the investments we have made in those products.

Risks Relating to Intellectual Property and Legal Matters

Protecting our proprietary rights is difficult and costly. If we fail to adequately protect or enforce our proprietary rights, we could lose revenue.

Our success depends in large part on our ability to obtain, maintain and enforce our patents. Our ability to commercialize any product successfully will largely depend on our ability to obtain and maintain patents of sufficient scope to prevent third parties from developing similar or competitive products. In the absence of patent protection, competitors may cause a negative impact to our business by developing and marketing substantially equivalent products and technology.

Patent disputes are frequent and can preclude the commercialization of products. We have in the past been, are currently, and may in the future be, involved in material patent litigation, such as the matters discussed under “Part I—Item 3. Legal Proceedings”. Patent litigation is time-consuming and costly in its own right and could subject us to significant liabilities to third parties. In addition, an adverse decision could force us to either obtain third-party licenses at a material cost or cease using the technology or product in dispute.

The existence of patents or other proprietary rights belonging to other parties may lead to our termination of the research and development of a particular product or cause us to obtain third-party licenses at potentially material costs. We believe that we have strong patent protection or the potential for strong patent protection for our product and product candidates. However, it is for the courts and/or other governmental agencies in the U.S. and in other jurisdictions ultimately to determine the strength of that

43

patent protection. We hold patents or licenses to patents relating to murine antibodies as well as patents and licenses relating to the therapeutic use of EGFR antibodies. These patents expire on various dates, the earliest of which is in 2007. Risks related to our patent position with respect to ERBITUX and our product candidates are more fully discussed under “Item 1—Business—Patents and Trademarks”.

Several lawsuits have been filed against us which may be costly to defend and the outcome of which are uncertain and may harm our business.

Litigations or arbitrations to which we are currently or have been subjected relate to, among other things, our patent and other intellectual property rights, licensing arrangements with other persons and those other claims more fully described under “Part I—Item 3. Legal Proceedings”, including an action brought by Yeda Research and Development Company Ltd. (“Yeda”) in which the U.S. District Court for the Southern District of New York ruled that three individuals associated with Yeda be named as sole inventors on U.S. Patent No. 6,217,866 relating to the therapeutic use of EGFR antibodies. We have appealed the ruling of the U.S. District Court for the Southern District of New York in this matter. If the Company’s appeal is unsuccessful and Yeda’s sole inventorship rights to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action more fully described under “Part 1—Item 3. Legal Proceedings.” the Company may become obligated to pay Yeda a royalty and may be liable to Yeda for other damages.

Related actions are currently pending in the United Kingdom, Germany, France and Austria.

We cannot provide any assurance as to the outcome of these pending lawsuits or arbitrations. Any conclusion of these matters in a manner adverse to us could have a material adverse effect on our business and operating results. In addition, the costs to us of defending these claims or any other proceedings, even if resolved in our favor, could be substantial. Uncertainties resulting from the initiation and continuation of any litigation or other proceedings could also harm our ability to compete in the marketplace.

Our operations use hazardous materials, which may lead to environmental liability, and may harm our business.

We use certain hazardous materials in connection with our research and manufacturing activities. These hazardous materials include various flammable solvents, corrosives, oxidizers and toxics. We also use radioactive isotopes in our scientific research. In the event such hazardous materials are stored, handled or released into the environment in violation of law or any permit, or in a manner that adversely affects the environment, we could be subject to loss of our permits, government fines or penalties and/or other adverse governmental or third party action. We do not maintain any specific insurance to cover any accidents associated with the hazardous materials that we use in our manufacturing and research activities. The levy of a substantial fine or penalty, the payment of significant environmental remediation costs or the loss of a permit or other authorization to operate or engage in our ordinary course of business could materially adversely affect our business.

We could be exposed to material product liability claims that could prevent or interfere with the commercialization of any other products that we may develop.

The testing, manufacturing, marketing and sale of medical products entail an inherent risk of product liability. Liability exposures for biopharmaceuticals, such as ERBITUX, could prevent or interfere with continued sales of ERBITUX or the commercialization of any other products that we may develop. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. We currently have $30.0 million of aggregate product liability insurance coverage. Our business may be materially and adversely affected by a successful product liability claim or claims in excess of or outside our insurance coverage.

44

Risks Relating to our Common Stock

Certain provisions of Delaware law, our charter and bylaws and our stockholder rights plan could hinder, delay or prevent changes in control.

Certain provisions of Delaware law, our charter and our bylaws, as well as our stockholder rights plan have the effect of discouraging, delaying or preventing transactions that involve an actual or threatened change in control. These provisions include the following:

Stockholder Rights Plan.   We adopted a stockholder rights plan on February 15, 2002. Our stockholder rights plan, as amended May 4, 2006, may discourage any potential acquirer from acquiring more than 19.9% of our outstanding common stock since, subject to certain exceptions, upon this type of acquisition without approval of our Board of Directors, all other common stockholders will have the right to purchase a specified amount of our common stock at a substantial discount from market price, thus significantly increasing the acquisition cost to a potential acquirer.

Special Meetings.   According to our bylaws, special meetings of stockholders may be called only by our Board of Directors.

Removal of Directors.   Subject to the rights of BMS to elect at least one director, our bylaws provide that a director can be removed with or without cause by the affirmative vote of at least a majority of all votes entitled to be cast.

Advance Notice Provisions for Stockholder Nominations and Proposals.   Our bylaws require advance written notice for stockholders to nominate persons for election as directors at, or to bring other business before, any meeting of stockholders. This bylaw provision limits the ability of stockholders to make nominations of persons for election as directors or to introduce other proposals unless we are notified in a timely manner prior to the meeting.

Preferred Stock.   Under our charter, our Board of Directors has authority to issue preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders.

Delaware Business Combinations.   We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, restricts certain transactions and business combinations between a corporation and a stockholder owning 15% or more of the corporation’s outstanding voting stock for a period of three years from the date the stockholder becomes a 15% stockholder.

In addition to discouraging a third party from acquiring control of us, the foregoing provisions could impair the ability of existing stockholders to remove and replace our management and/or our Board of Directors.

Our stock price is highly volatile. It may be difficult for you to resell our common stock.

Over the past three years our common stock price has ranged from a high of $86.79 per share to a low of $26.28 per share. The market price of our common stock has been and may continue to be volatile.

In addition, the following factors may have a significant impact on the market price of our common stock:

·Announcements of technological innovations or new commercial products by us or our competitors;

·Publicity regarding actual or potential medical results relating to products under development or being commercialized by us or our competitors;

45

·Developments or outcomes of investigations and litigation generally, including litigation relating to proprietary rights and patents;

·Regulatory developments or delays concerning our products in the United States and foreign countries;

·Issues concerning the safety of our products or of biotechnology products generally;

·Economic and other external factors or a disaster or crisis; and

·Period-to-period fluctuations in our financial results.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None

ITEM 2.PROPERTIES

180 Varick Street, New York, New York

We have occupied certain leased space at 180 Varick Street in New York City since 1986. The property serves as our corporate headquarters and biologics research facility. The original lease for two floors (sixth and seventh, totaling 45,000 square feet) was effective as of January 1, 1999. From 1999 to 2003 we have added additional space on the fifth and eighth floors of 11,786 square feet. In August 2004, we modified our existing operating lease to extend the term of the lease, which was to expire on December 31, 2004, for an additional ten years (with renewal rights) for a portion of the premises and by an additional three years (with renewal rights) for the space that currently houses our research department. The modification also added additional space on the fifth and eighth floors of 4,286 square feet in 2004 and granted us the right to add additional space in the future. Our rent expense was approximately $2.1 million for the year ended December 31, 2006.

325 Spring Street, New York, New York

On October 5, 2001, we entered into a 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 just under 22 years, expiring on April 29, 2023, followed by two five-year renewal option periods. The future minimum lease payments remaining at December 31, 2006, are approximately $46.5 million over the term of the sublease. In order to induce the sub landlord to enter into the sublease, we made a loan to the sub landlord in the principal amount of a $10.0 million note receivable, of which approximately $8.4 million is outstanding as of December 31, 2006. The loan is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sub landlord. The loan is payable by the sub landlord 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, we 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 approximately  $1.7 million. In 2006, we incurred rent expense of approximately $2.4 million for this sublease.

22 ImClone Drive, Branchburg, New Jersey

In 1992, we acquired a 5.1 acre parcel of land and a 54,400 square foot building located at 22 ImClone Drive, Branchburg, New Jersey at a cost of approximately $4.7 million, including expenses. We have retrofitted the building to serve as our pilot facility for biologics manufacturing. When purchased, the facility had in place various features, including clean rooms, air handling, electricity, and water for

46

injection systems and administrative offices. The cost for completion of facility modifications was approximately $5.4 million. We currently operate the facility to develop and manufacture biologics for a portion of our clinical studies. In January 1998, we completed the construction and commissioning of a 1,750 square foot process development center at this facility dedicated to manufacturing process optimization for existing products and the pre-clinical and Phase I development of new biological therapeutics. The cost of this construction activity was approximately $1.7 million.

33 ImClone Drive, Branchburg, New Jersey

On May 20, 2002, we purchased a 45,800 square foot warehouse on 6.94 acres of property located at 33 ImClone Drive. The purchase price for both land and building was $4.5 million. Extensive site work and exterior and interior renovations began in late June 2002. The location houses the clinical, regulatory, field operations, marketing, finance, human resources, legal, project management and MIS departments, as well as certain executive offices and other campus amenities. We have incurred approximately $4.5 million, for the renovation and fit-out of this facility. The administrative facility was ready for its intended use and put in operation in December 2002.

36 ImClone Drive, Branchburg, New Jersey

In July 2001, we completed the construction and placed into operation our 80,000 square foot manufacturing facility, BB36, adjacent to the pilot facility in Branchburg, New Jersey. BB36 was built on a 5.7 acre parcel of land we purchased in December 1999 for $700,000. During 2006, we completed a 5,000 square foot expansion for additional office space in this facility. BB36 contains three 10,000 liter (production volume) fermenters and is dedicated to the production of ERBITUX. BB36 cost a total of approximately $57.3 million.

50 ImClone Drive, Branchburg, New Jersey

The facility was built on a 7.12 acre parcel of land that we purchased in July 2000 for $950,000. The BB50 facility has a capacity of up to 110,000 liters (production volume) and three distinct manufacturing suites. BB50 cost a total of approximately $331.4 million.

41 ImClone Drive, Branchburg, New Jersey

This facility consists of  approximately 7,600 square feet of office space that is  leased by the Company. Effective September 1, 2005, we amended the lease for a five-year term to expire August 31, 2010, with the option to renew for two additional five-year terms, so the lease will automatically renew each term for up to two additional terms, unless terminated by our notice three months prior to the expiration of that term. In the year ended December 31, 2006, we incurred rent expense of $114,000 for this lease.

59-61 ImClone Drive, Branchburg, New Jersey

In June 2004, we entered into an operating lease for a 54,247 square foot facility located at 59-61 ImClone Drive in Branchburg, New Jersey. This lease expires on December 31, 2022, with no option to renew or extend beyond such date. Extensive interior renovations of approximately 24,000 square feet of the facility began in August 2004. The newly renovated areas house various laboratories used by our Quality Control and Clinical Pharmacology departments, as well as office space occupied by the Quality Assurance organization. The administrative area of the facility and the laboratories were put in operation in December 2004. The Phase I renovation and fit-out of this facility was completed in 2005 and had a total cost of approximately $5.4 million. We expect to incur an additional estimated $13.0 million for the Phase II renovation of this facility, which we expect to complete in 2007. In the year ended December 31, 2006, we incurred rent expense of $686,000 for this lease.

47

1181 Route 202N, Branchburg, New Jersey

On January 31, 2002, we purchased a 7.36 acre parcel of land located at 1181 Route 202. The parcel includes a 51,400 square foot building, 39,000 square feet of which is warehouse space and 12,000 square feet of which is office space. The purchase price for the property, initial improvements and renovation was approximately $8.1 million. We are currently using this property for warehousing and logistics for our Branchburg campus. Extensive renovations to the 12,000 square feet of office area were completed in the first quarter of 2003 to accommodate the relocation and consolidation of engineering, warehousing, logistics and quality assurance personnel from other campus locations. Interior renovations included office space, as well as the construction of a raw materials sampling laboratory, associated temperature-controlled storage locations and the addition of emergency power generation.

ITEM 3.LEGAL PROCEEDINGS

A.   Litigation

1.   Federal Securities Actions

As previously reported, beginning in January 2002, a number of complaints asserting claims under the federal securities laws against the Company and certain of the Company’s directors and officers were filed in the U.S. District Court for the Southern District of New York. Those actions were consolidated under the caption Irvine v. ImClone Systems Incorporated, et al., No. 02 Civ. 0109 (RO). In the corrected consolidated amended complaint plaintiffs asserted claims against the Company, its former President and Chief Executive Officer, Dr. Samuel D. Waksal, its former Chief Scientific Officer and then-President and Chief Executive Officer, Dr. Harlan W. Waksal, and several of the Company’s other present or former officers and directors, for securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, on behalf of a purported class of persons who purchased the Company’s publicly traded securities between March 27, 2001 and January 25, 2002. The complaint also asserted claims against Dr. Samuel D. Waksal under section 20A of the Exchange Act on behalf of a separate purported sub-class of purchasers of the Company’s securities between December 27, 2001 and December 28, 2001. The complaint sought to proceed on behalf of the alleged classes described above, sought monetary damages in an unspecified amount and sought recovery of plaintiffs’ costs and attorneys’ fees. On January 24, 2005, the Company announced that it had reached an agreement in principle to settle the consolidated class action for a cash payment of $75.0 million, a portion of which would be paid by the Company’s insurers. The parties signed a definitive stipulation of settlement and as  provided for under the stipulation of settlement, on March 11, 2005, the Company paid $50.0 million into an escrow account, subject to Court approval of the proposed settlement. On July 29, 2005 the Court approved the proposed settlement and on August 5, 2005, the Company paid the remaining $25.0 million into the escrow account, with such funds to be held and distributed pursuant to the terms of the settlement documents. The Company received $20.5 million from its insurers with respect to these matters. The foregoing $20.5 million included $8.75 million, less attorneys fees of $875,000, that was paid to the Company under the derivative settlement discussed below.

2.   Derivative Actions

As previously reported, beginning on January 13, 2002, and continuing thereafter, nine separate purported shareholder derivative actions were filed against members of the Company’s board of directors, certain of the Company’s present and former officers, and the Company, as nominal defendant, advancing claims based on allegations similar to the allegations in the federal securities class action complaints. Four of these derivative cases were filed in the Delaware Court of Chancery and have been consolidated in that court under the caption In re ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC. Three of these derivative actions were filed in New York State Supreme Court in

48

Manhattan. All of these state court actions were stayed in deference to the proceedings in the U.S. District Court for the Southern District of New York, which were consolidated under the caption In re ImClone Systems, Inc. Shareholder Derivative Litigation, Master File No. 02 CV 163 (RO). A supplemental verified consolidated amended derivative complaint in these consolidated federal actions was filed on August 8, 2003. It asserted, purportedly on behalf of the Company, claims including breach of fiduciary duty by certain current and former members of the Company’s board of directors, among others, based on allegations including that they failed to ensure that the Company’s disclosures relating to the regulatory and marketing prospects for ERBITUX were not misleading and that they failed to maintain adequate controls and to exercise due care with regard to the Company’s ERBITUX application to the FDA. On January 24, 2005, the Company announced that it had reached an agreement in principle to settle the consolidated derivative action. The parties entered into a definitive stipulation of settlement on March 14, 2005, which was subject to Court approval. On July 29, 2005, the Court approved the proposed settlement. Thereafter, the Company was paid $8.75 million by its insurers, which the Company has contributed toward the settlement of the Irvine securities class action described above after deducting $875,000 for Court awarded plaintiffs’ attorney’s fees and expenses. Following Court approval of the settlement of the consolidated derivative action, all of the state court derivative actions that had been pending in Delaware and New York were dismissed with prejudice, with no further payment required by the Company.

B.   Government Inquiries and Investigations

As previously reported, the Company received subpoenas and requests for information in connection with an investigation by the SEC relating to the circumstances surrounding the disclosure of the FDA “refusal to file” letter dated December 28, 2001, and trading in the Company’s securities by certain ImClone Systems insiders in 2001. The Company also received subpoenas and requests for information pertaining to document retention issues in 2001 and 2002, and to certain communications regarding ERBITUX in 2000. On June 19, 2002, the Company received a written “Wells Notice” from the staff of the SEC, indicating that the staff of the SEC is considering recommending that the SEC bring an action against the Company relating to the Company’s disclosures immediately following the receipt of a “refusal to file” letter from the FDA on December 28, 2001 for the Company’s BLA for ERBITUX. The Company filed a Wells submission on July 12, 2002 in response to the staff’s Wells Notice. There have been no developments in connection with this SEC investigation since February 2003.

In January 2003, New York State notified the Company that the Company was liable for the New York State and City income taxes that were not withheld because one or more the Company’s employees who exercised certain non-qualified stock options in 1999 and 2000 failed to pay New York State and City income taxes for those years. On March 13, 2003, the Company entered into a closing agreement with New York State, paying $4.5 million to settle the matter. The Company believes that substantially all of the underpayment of New York State and City income tax identified by New York State is attributable to the exercise of non-qualified stock options by the Company’s former President and Chief Executive Officer, Dr. Samuel D. Waksal. At the same time, the Company informed the IRS, the SEC and the United States Attorney’s Office, responsible for the prosecution of Dr. Samuel D. Waksal, of this issue. In order to confirm whether the Company’s liability in this regard was limited to Dr. Samuel D. Waksal’s failure to pay income taxes, the Company contacted current and former officers and employees who had exercised non-qualified stock options to confirm that those individuals had properly reported and paid their personal income tax liabilities for the years 1999 and 2000 in which they exercised options, which would reduce or eliminate the Company’s potential liability for failure to withhold income taxes on the exercise of those options. In the course of doing so, the Company became aware of another potential income and employment tax withholding liability associated with the exercise of certain warrants granted in the early years of the Company’s existence that were held by certain former officers, directors and employees, including the Company’s former President and Chief Executive Officer, Samuel D. Waksal, the Company’s former General Counsel, John B. Landes, the Company’s former Chief Scientific Officer,

49

Harlan W. Waksal, and the Company’s former director and Chairman of the Board, Robert F. Goldhammer. Again, the Company promptly informed the IRS, the SEC and the United States Attorney’s Office of this issue. The Company also informed New York State of this issue. On June 17, 2003, New York State notified the Company that based on this issue, they were continuing a previously conducted audit and were evaluating the terms of the closing agreement to determine whether it should be re-opened. On March 31, 2004, the Company entered into a new closing agreement pursuant to which the Company paid New York State an additional $1.0 million in full satisfaction of all the deficiencies and determinations of withholding taxes for the years 1999-2001. Therefore, the Company has eliminated the liability of approximately $2.8 million which was accrued as of December 31, 2003, primarily attributable to New York State withholding taxes on stock options and warrants exercised by Dr. Samuel D. Waksal and has recognized a benefit of approximately $1.8 million as a recovery in the Consolidated Statements of Operations in the first quarter of 2004.

On March 31, 2003, the Company received notification from the SEC that it was conducting an informal inquiry into the matters discussed above and, subsequently, the Company received and responded to a request from the SEC for the voluntary production of related documents and information. There have been no other requests for documents or information or other developments in connection with this SEC informal inquiry since April 2003.

After disclosure to the IRS in 2003, the IRS commenced audits of the Company’s income tax and employment tax returns for the years 1999-2001. The Company has cooperated in full with this audit and has responded to all requests for information and documents received from the IRS. On February 8, 2006, the Company received a draft of the IRS’s report of its preliminary findings with respect to the employment tax audit. The draft report indicated that the IRS, in addition to imposing liability on the Company for taxes not withheld, intended to assert penalties with respect to both the failure to withhold on non-qualified stock options and the failure to report and withhold on the warrants described above. On March 14, 2006, the Company reached an agreement in principle with the IRS to resolve the employment tax audit, which includes the Company’s agreement to the imposition of an accuracy-related penalty under Section 6662 of the Internal Revenue Code. Under this agreement in principle, the Company made a total payment of approximately $31.7 million to the IRS. The Company had previously recorded a withholding tax liability of $18,096,000 and a withholding tax asset of $274,000 in its consolidated Balance Sheet as of December 31, 2004. Based on the agreement in principle reached with the IRS, the Company has eliminated the withholding tax asset of $274,000 and recorded an additional withholding tax liability of approximately $13.9 million, or a total of $32.0 million, in its Consolidated Balance Sheet as of December 31, 2005. As a result, the Company recorded a net withholding tax expense of approximately $14.2 million  in the fourth quarter of 2005. In the fourth quarter of 2006, the Company reversed the remaining $264,000 of excess liability related to this settlement.

C.   Actions Against Dr. Samuel D. Waksal

As previously reported, on August 14, 2002, after the federal grand jury indictment of Dr. Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal’s guilty plea to certain counts of that indictment, the Company filed an action in New York State Supreme Court seeking recovery of certain compensation, including advancement of certain defense costs, that the Company had paid to or on behalf of Dr. Samuel D. Waksal and cancellation of certain stock options. That action was styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 02/602996. On July 25, 2003, Dr. Samuel D. Waksal filed a Motion to Compel Arbitration seeking to have all claims in connection with the Company’s action against him resolved in arbitration. By order dated September 19, 2003, the Court granted Dr. Samuel D. Waksal’s motion and the action was stayed pending arbitration. On September 25, 2003, Dr. Samuel D. Waksal submitted a Demand for Arbitration with the American Arbitration Association (the “AAA”), by which Dr. Samuel D. Waksal asserts claims to enforce the terms of his separation agreement, including provisions

50

relating to advancement of legal fees, expenses, interest and indemnification, for which Dr. Samuel D. Waksal claims unspecified damages of at least $10.0 million.

As previously reported, on March 10, 2004, the Company commenced a second action against Dr. Samuel D. Waksal in the New York State Supreme Court. That action is styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 04/600643. Specifically, by this action, the Company seeks to recover: (a) $4.5 million that the Company paid to the State of New York in respect of exercises of non-qualified stock options and certain warrants in 2000; (b) at least $16.6 million that the Company paid to Samuel D. Waksal in the form of ImClone common stock, in lieu of withholding federal income taxes from exercises of non-qualified stock options and certain warrants in 2000; and (c)  approximately $1.1 million that the Company paid in the form of ImClone common stock to Samuel D. Waksal and his beneficiaries, in lieu of withholding federal, state and local income taxes from certain warrant exercises in 1999-2001. The complaint asserts claims for unjust enrichment, common law indemnification, moneys had and received and constructive trust. On June 18, 2004, Dr. Samuel D. Waksal filed an Answer to the Company’s Complaint.

On December 21, 2005, the Company and Dr. Samuel D. Waksal entered into a settlement agreement with respect to the foregoing actions, providing for, among other things, judgments in both actions in the Company’s favor. The settlement agreement includes the payment of director and officer legal fee expense indemnification by the Company, for which the Company paid approximately $2.0 million in the fourth quarter of 2005.

D.   Intellectual Property Litigation

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

On September 20, 2006, subsequent to the Court’s inventorship decision, the Company also filed an action (06 CV 7190) against Yeda in the U.S. District Court for the Southern District of New York seeking a declaratory judgment that the patent is invalid due to the removal of the originally named inventors. On October 31, 2006, Yeda filed an answer and counterclaim to the Company’s declaratory judgment complaint in which Yeda alleges the Company is liable to Yeda for willful patent infringement, unjust enrichment and conversion, and seeks damages from the Company and an order requiring the Company to license the patent and pay Yeda royalties until the patent expires. The declaratory judgment action is in its early stages. The Company,  having had the advice of its patent counsel, believes that the claims asserted in the declaratory judgment action are sound, and that Yeda’s counterclaims are not sound, and it plans to vigorously pursue this action. If the Company’s appeal is unsuccessful and Yeda’s sole inventorship rights

51

to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action, the Company may become obligated to pay Yeda a royalty and may be liable to Yeda for other damages.

As previously reported, on March 25, 2004, an action was filed in the United Kingdom Patent Office entitled Referrer’s Statement requesting transfer of co-ownership and amendment of patent EP (UK) 0 667 165 to add three Yeda employees as inventors. Also on March 25, 2004, a German action entitled Legal Action was filed in the Munich District Court I, Patent Litigation Division, in which Yeda sought a 75% ownership interest in patent EP (DE) 0 667 165 based on its allegation that the inventorship on that patent was incorrect. The Company was not named as a party in these actions which relate to the European equivalent of U.S. Patent No. 6,217,866 discussed above. Accordingly, the Company intervened in the U.K. and German actions. Yeda sought to amend its pleadings in the United Kingdom and Germany to seek sole inventorship and sole ownership. Following hearings, both the U.K. and German courts held that Yeda was not entitled to amend its pleadings. In the U.K., Yeda sought leave from the House of Lords to appeal the High Court’s decision, and such leave was granted in November 2006. In Germany, Yeda has appealed the lower court’s decision to the Higher Regional Court of Munich. Additionally, on or about March 25, 2005 and March 29, 2005, respectively, Yeda filed legal actions in Austria and France against both Aventis and ImClone Systems seeking full inventorship of EP (AU) 0 667 165 and EP (FR) 0 667 165, as well as payment of legal costs and fees. The Company, having had the advice of its patent counsel, believes there are sound defenses to these actions, and it presently plans to vigorously defend against the claims asserted. In addition, in December 2002, Opposition Proceedings seeking to revoke the European patent discussed above 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 European patent will be revoked. The Company has vigorously defended its position in this matter, which is suspended pending a final determination on the Yeda matter discussed above.

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

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. As of this time, the Company has not yet filed an answer to this complaint. The Company plans to vigorously defend against any claims asserted in this action. The Company is unable to predict the outcome of this action at the present time.

52

No reserve has been established in the financial statements for any of the items described in this “Part I—Item 3. Legal Proceedings. D. Intellectual Property Litigation” immediately set out above because the Company does not believe that such a reserve is required to be established at this time under Statement of Financial Accounting Standards No. 5. However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred and if such loss is reasonably estimable, the Company will establish such a reserve. Thus, it is possible that legal proceedings and settlements arising therefrom, if any, may have a material adverse impact on operating results for that period, on our balance sheet or both.

The Company is developing a fully-human monoclonal antibody referred to as IMC-11F8. The Company believes it has the right to do so under its existing development and license agreement with Merck KGaA. However, Merck KG&A had advised the Company that it believed that IMC-11F8 was covered under the development and license agreement with Merck KGaA and that it could therefore have the exclusive rights to market IMC-11F8 outside the United States and Canada and co-exclusive development rights in Japan, for which it would pay the same royalty as it pays for ERBITUX. In agreement with Merck KGaA, the Company submitted this dispute to binding arbitration through an expedited process outside of the provisions of the development and license agreement. Merck KGaA subsequently took the position that the expedited arbitration provision was no longer valid and the Company sued Merck KGaA in federal court in the Southern District of New York to either enforce the arbitration provision previously agreed to or to have the court decide the question of whether IMC-11F8 is or is not covered under the development and license agreement with Merck KGaA. On November 29, 2005, the Court granted the Company’s motion to enforce the expedited arbitration provision previously agreed to, and subsequently appointed a new arbitrator to hear and decide this dispute. On March 31, 2006, the arbitrator decided the matter in favor of the Company, finding that Merck KGaA had no rights to IMC-11F8. That decision is binding and unappealable pursuant to the parties’ arbitration agreement and the parties have subsequently confirmed the arbitration award.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

53

PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(a)   MARKET INFORMATION

Our common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “IMCL”.

The following table sets forth, for the periods indicated, the range of high and low sale prices for our common stock on the Nasdaq Global Select Market, as reported by Nasdaq. The quotations shown represent inter-dealer prices without adjustment for retail mark-ups, mark-downs or commissions, and may not necessarily reflect actual transactions.

	High		Low
Year ended December 31, 2006
First Quarter	$	39.17	$	33.26
Second Quarter	$	43.08	$	32.67
Third Quarter	$	39.80	$	27.40
Fourth Quarter	$	33.74	$	26.28
Year ended December 31, 2005
First Quarter	$	46.12	$	34.50
Second Quarter	$	35.53	$	30.11
Third Quarter	$	36.55	$	29.90
Fourth Quarter	$	36.11	$	28.65

On February 20, 2007, the closing price of our common stock as reported by Nasdaq was $29.20.

(b)   STOCKHOLDERS

As of the close of business on February 20, 2007, there were 331 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of holders of record because a large portion of our common stock is held in broker “street names.”

(c)   DIVIDENDS

We have never declared cash dividends on our common stock and have no present intention to declare any cash dividends in the foreseeable future.

(d)   SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The information regarding securities authorized for issuance under our equity compensation plans is disclosed in Item 12—“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

(e)   PERFORMANCE GRAPH

The following graph compares total stockholder returns from December 31, 2001 through December 31, 2006 to The Nasdaq Stock Market (U.S. Companies) Total Return Index and The Nasdaq Pharmaceutical Stocks Total Return Index. The Nasdaq Stock Market (U.S. Companies) Total Return Index comprises all domestic common shares traded on the Nasdaq National Market and the Nasdaq SmallCap Market. The Nasdaq Pharmaceutical Stocks Total Returns Index represents all companies, including biotechnology companies, trading on Nasdaq classified under the Standard Industrial Classification Code for pharmaceuticals.

54

The graph assumes that the value of the investment in the Company’s Common Stock and in the above referenced indices was $100.00 at December 31, 2001 and that all dividends were reinvested. The Company’s Common Stock price on December 31, 2001 (on which the graph is based) was $46.46. The stockholder return shown on the following graph is not necessarily indicative of future performance.

	ImClone		Nasdaq US			Nasdaq Pharmaceutical Stocks
December 31, 2001	$	100.00		$	100.00		$	100.00
December 31, 2002	22.86			72.20			64.92
December 31, 2003	85.36			108.58			93.35
December 31, 2004	99.18			120.76			100.02
December 31, 2005	73.70			136.22			114.24
December 31, 2006	57.60			149.66			111.83

(f)   RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES; PURCHASES OF EQUITY SECURITIES

We did not sell any unregistered securities in the years ended December 31, 2006, 2005 or 2004. On September 19, 2005, we announced the approval, by our Board of Directors, of a stock repurchase program permitting the repurchase of up to $100.0 million of outstanding shares of the Company’s common stock during a two year period. We did not repurchase any shares of the Company’s common stock during 2006. During the fourth quarter of 2005, we purchased 811,416 shares at an average price of $30.62 per share, for aggregate consideration of approximately $24.8 million.

55

ITEM 6.SELECTED FINANCIAL DATA.

The following selected consolidated financial information for the five years ended December 31, 2006 has been derived from the audited consolidated financial statements. The information below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and the consolidated financial statements and related notes thereto included in Item 8 of this Form 10-K in order to fully understand factors that may affect the comparability of the information presented below.

	2006		2005		2004		2003		2002
	(in thousands, except per share data)
Revenues(1)	$	677,847	$	383,673	$	388,690	80,830		$	60,005
Operating expenses(2)	388,622		316,894		263,424		189,681		214,854
Net income (loss)(3)	370,674		86,496		113,563		(112,502	)	(157,949		)
Basic income (loss) per common share	4.40		1.03		1.43		(1.52	)	(2.15		)
Diluted income (loss) per common share	4.11		1.01		1.33		(1.52	)	(2.15		)
Total assets	1,839,836		1,343,415		1,434,776		381,595		484,506
Long-term obligations	603,391		602,491		603,434		242,979		241,972
Deferred revenue	379,877		359,025		457,808		337,232		322,504
Accumulated deficit	71,785		442,459		528,955		642,608		530,106
Total stockholders’ equity (deficit)(4)	759,649		252,404		178,838		(270,593	)	(185,629		)

Wehave paid no dividends.

(1)Revenues in 2006, 2005 and 2004 include royalties related to the sales of ERBITUX by our corporate partners BMS and Merck KGaA and manufacturing revenue related to sales of ERBITUX to these partners for commercial use.

(2)Operating expenses include charges in 2005 of approximately $14.2 million related to withholding taxes and $6.2 million related to the discontinuation of our small molecule research program, and a charge in 2004 of approximately $55.4 million related to a stockholders’ litigation settlement.

(3)Net income in 2006 includes the recognition of $112.7 million of revenue for a one-time catch-up adjustment related to the achievement of a $250.0 million milestone from BMS, as well as a release of  approximately $111.3 million related to a portion of the valuation allowance against deferred taxes.

(4)In 2005, the Company’s Board of Directors approved a share repurchase plan permitting the repurchase of the Company’s common stock up to a total aggregate amount of $100.0 million. During the fourth quarter of 2005, we purchased 811,416 shares at an average price of $30.62 per share, for aggregate consideration of approximately $24.8 million.

56

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

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. This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes included in this 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 Item 1A and elsewhere in this 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 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, for the potential treatment of lung and pancreatic cancers, as well as other potential indications.

On February 12, 2004, the FDA approved ERBITUX for use in combination with irinotecan in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In September 2005, Health Canada approved the use of ERBITUX for use in combination with irinotecan for the treatment of EGFR-expressing metastatic colorectal carcinoma in patients who are refractory to other irinotecan-based chemotherapy regimens and for use as a single agent for the treatment of EGFR-expressing, metastatic colorectal carcinoma in patients who are intolerant to irinotecan-based chemotherapy. On March 1, 2006, the FDA approved ERBITUX for use in combination with radiation therapy for the treatment of locally or regionally advanced squamous cell carcinoma of the head and neck (“SCCHN”) and as a single agent in recurrent or metastatic SCCHN where prior platinum-based chemotherapy has failed. Please see full prescribing information, available at www.ERBITUX.com, for important safety information relating to ERBITUX, including boxed warnings.

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

57

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:

·the amount and timing of revenues earned from commercial sales of ERBITUX;

·the timing of recognition of license fees and milestone revenues;

·the status of development of our various product candidates;

·whether or not we achieve specified research or commercialization objectives;

·any business development transactions;

·fluctuations in our effective tax rate and timing on when we may revise our conclusions regarding the realization of our net deferred tax assets, which currently have a partial valuation allowance;

·legal costs and the outcome of outstanding legal proceedings; and

·the addition or termination of research programs or funding support and variations in the level of expenses related to our proprietary product candidates during any given period.

As a result of our substantial investment in research and development, we have incurred significant operating losses and have an accumulated deficit of approximately $71.8 million as of December 31, 2006. We anticipate that our accumulated deficit may continue to 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 ERBITUX. We rely entirely on third-party manufacturers for filling and finishing services with respect to ERBITUX. If our current third-party manufacturers or critical raw material suppliers fail to meet our expectations, we cannot be assured that we will be able to enter into new agreements with other suppliers or third-party manufacturers without an adverse effect on our business.

HIGHLIGHTS AND OUTLOOK

2006 was a year of transformation for ImClone. During the first quarter of 2006, the Company’s  Board of Directors engaged an investment bank to conduct a full review of the Company’s strategic alternatives to maximize shareholder value. At the completion of this effort, in August 2006, the Board of Directors concluded that the Company should remain independent. In September 2006, Carl C. Icahn, Alexander J. Denner, Ph.D., Barberry Corp and High River Limited Partnership  filed a consent solicitation to remove six members of the Company’s  Board of Directors as well as to add Peter S. Liebert, M.D. to the Board. In October 2006, David M. Kies, then Chairman of the Company’s Board of Directors, and William W. Crouse resigned from the Board of Directors. Peter S. Liebert, M.D., was appointed to fill one of the vacancies resulting from the resignations and Carl C. Icahn was appointed  Chairman of the Board of Directors. In addition, on October 24, 2006,  Joseph L. Fischer resigned as Interim Chief Executive Officer and as a member of the Board of Directors and was replaced by a newly formed Executive Committee of the Board (the “Executive Committee”), chaired by Alexander J. Denner, Ph.D., and including Directors Richard Mulligan, Ph.D., and Charles Woler, M.D., Ph.D. The Executive Committee will serve as the principal executive body for the Company until a Chief Executive Officer is named. The Company also announced that Directors Vincent T. DeVita, Jr., M.D., John A. Fazio and William R. Miller will not stand for reelection to the Board of Directors at the Company’s next annual meeting. In addition, the Board determined that it would waive all director fees for six months and all option grants for directors for the next year. As a result of these developments, Carl C. Icahn and related parties withdrew their shareholder consent solicitation.

2006 also marked a significant milestone for ERBITUX, which reached $1 billion in annual in-market global sales. From a clinical perspective, in the fourth quarter of 2006, we began to obtain much

58

anticipated Phase III clinical data from a number of trials that could result in the utilization of ERBITUX in novel therapeutic regimens. Specifically, on November 6, 2006, we and our partner BMS announced results from two randomized Phase III trials of ERBITUX in patients with metastatic colorectal cancer. A randomized, multicenter, Phase III trial compared ERBITUX plus best supportive care to best supportive care alone in 572 patients with metastatic colorectal cancer whose disease was refractory to all available chemotherapy, including irinotecan, oxaliplatin, and fluoropyrimidines. The study, conducted by the National Cancer Institute of Canada Clinical Trials Group in collaboration with the Australasian Gastro-Intestinal Trials Group, met its primary efficacy endpoint showing a statistically significant improvement in overall survival. A second Phase III, randomized study, compared irinotecan to irinotecan plus ERBITUX in approximately 1,300 patients whose disease was not responding to first-line oxaliplatin-based chemotherapy. After randomization, patients were treated until their disease progressed. Upon disease progression, study treatment was stopped and further treatment was at the discretion of the physician. Secondary efficacy endpoints (progression free survival, response rate) strongly favored the combination of ERBITUX plus irinotecan over irinotecan alone; however, the primary endpoint (overall survival) was not met, possibly because a high proportion of patients in the control (irinotecan only) arm received treatment with ERBITUX following development of progressive cancer, potentially confounding the interpretation of this endpoint.  In January 2007, we and our partner BMS announced that a Phase III study of ERBITUX plus FOLFIRI (an irinotecan- based chemotherapy) met the primary endpoint of increasing median duration of progression-free survival over FOLFIRI alone in patients with previously untreated metastatic colorectal cancer. More than 1,000 patients were recruited from around the world to participate in the study, known as the CRYSTAL study. These studies represent the beginning of a series of data milestones from a number of registrational quality clinical studies of ERBITUX expected to mature through 2008 and most importantly, provide new important information with patients with metastatic colorectal cancer.

Looking ahead, the Executive Committee is planning substantial activity for the Company during 2007. In addition to analyzing the implications of the on-going clinical data for our business, we are also addressing a number of other issues of key importance to the Company, such as (1) optimizing the Company’s business and assets; (2) identifying the principal impediments to the realization of the Company’s potential; and (3) assigning individual responsibility for achieving the targets we set. Our goal is to invest our resources wisely, take significant but calculated risks, and rebalance the Company’s assets to make them more appropriate for its current position. As we continue our search for a permanent Chief Executive Officer, the Executive Committee intends to provide effective leadership and work aggressively in the best interest of the Company.

ERBITUX remains the engine of the Company and the principal focus of our efforts. We are continually evaluating the optimal internal investment relative to the opportunities we see for its continued growth and development and, as we have disclosed in the past, we are in discussions with our corporate partner, BMS regarding the best way to take advantage of such opportunities. We believe that ERBITUX’s future remains very attractive, and we are committed to ensuring the most effective commercial strategy and clinical development plan. The Company’s pipeline is just as critical. We believe the potential of each of ImClone’s antibodies is extraordinary, particularly in light of the robust development plans we look forward to implementing beginning in 2007. While we hope to demonstrate some of this value through select partnerships, we are keen to reserve for ourselves as much of this potential value as our development resources will allow. 2007 will be a significant year for the pipeline. We are also taking significant steps to energize the discovery activities at ImClone, as we believe that commitment to science will continue to drive the development of innovative therapeutic products.

Finally, we are also evaluating our physical infrastructure needs, including our second commercial manufacturing facility, BB50, and our facility at 325 Spring Street in New York. Given the anticipated excess capacity of BB50, we may consider ways to better achieve the economic opportunities afforded by

59

this facility, including but not limited to the initiation of contract manufacturing activities. As for the Company’s legal proceedings, we are diligently pursuing legal strategies that we believe will lead to acceptable resolutions, however legal proceedings can take time to resolve.

With respect to financial guidance for 2007, we anticipate that milestone revenues will range between $100 to $140 million, depending on the level of clinical spending for ERBITUX; and we anticipate a range of $60-$70 million of collaborative agreement revenue. Starting in the first quarter of 2007, the reimbursement rate from BMS for third party royalty expense will decrease from 4.5% to 2.5% based on our contractual agreement. We anticipate spending approximately 45% more in 2007 in research and development activities. The increase in this category is primarily due to an increase in projected clinical shipments of ERBITUX with the remaining increase due to increased development cost related to our pipeline. Clinical and regulatory expenses in 2007 are expected to nearly double from 2006 based on a focused investment strategy to develop our pipeline candidates beyond Phase I as well as Phase III studies of ERBITUX in multiple tumor types. Marketing, general and administrative expenses in 2007 are expected to be consistent with 2006, reflecting our continued focus on efficiencies and cost saving initiatives. Finally, from a cash tax perspective, it is important to note that we have sufficient tax operating losses to offset taxable income on our tax return, thereby substantially eliminating our need to pay cash taxes. From a financial statement perspective, we expect that our effective tax rate in 2007 will be in the range of 40%-43%. This rate is calculated without assuming any change in the valuation allowance in 2007. We expect capital expenditures in 2007 in the range of $25.0 million. It should be noted that the guidance above assumes continuation of our current operating structure, without the impact of any possible business development opportunities.

CRITICAL ACCOUNTING POLICIES

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

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

Revenues from license fees and milestone payments primarily consist of up-front license fees and milestone payments received under the Commercial Agreement with BMS, relating to ERBITUX, and milestone payments received under the development and license agreement with Merck KGaA. We recognize all non-refundable up-front license fees as revenues in accordance with the guidance provided in the SEC’s Staff Accounting Bulletin No. 104. Our most critical application of this policy, to date, relates to the $900.0 million in license fees received from BMS under the Commercial Agreement which are being deferred and recognized as revenue based upon the actual product research and development costs incurred since September 19, 2001 to date by BMS and ImClone as a percentage of the estimated total of such costs to be incurred over the 17 year term of the Commercial Agreement. The estimated total of such costs is based on the clinical development budget which establishes joint responsibilities that will be carried out by both the Company and BMS for certain clinical and other studies. Of the $900.0 million in payments received through December 31, 2006, approximately $231.9 million was recognized as revenue in 2006 and

60

approximately $525.8 million from the commencement of the Commercial Agreement in 2001 through December 31, 2006. The methodology used to recognize deferred revenue involves a number of estimates and judgments, such as the estimate of total product research and development costs to be incurred under the Commercial Agreement. Changes in these estimates and judgments can have a significant effect on the size and timing of revenue recognition. In addition, if management had chosen a different methodology to recognize the license fee and milestone payments received under the Commercial Agreement, the Company’s financial position and results of operations could have differed materially. For example, if the Company were to recognize the revenues earned from the Commercial Agreement on a straight-line basis over the life of the agreement, the Company would have recognized approximately $60.4 million and $189.2 million as revenue for 2006 and from the commencement of the Commercial Agreement, respectively, through December 31, 2006. Management believes that the current methodology used to recognize revenues under the Commercial Agreement, which reflects the level of effort consistent with the product development activities, is the most appropriate methodology because it reflects the level of expenditure and activity in the period in which it is being spent as compared to the total expected expenditure over the life of the Commercial Agreement. This cost to cost approach is systematic and rational, it provides a factually supportable pattern to track progress, and is reflective of the level of effort, which varies over time.

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

Manufacturing revenue consists of revenue earned on the sale of ERBITUX to our corporate partners for subsequent commercial sale. The Company recognizes manufacturing revenue when the product is shipped, which is when our partners take ownership and title has passed, collectibility is reasonably assured, the sales price is fixed or determinable, and there is persuasive evidence of an arrangement. We are contractually obligated to sell ERBITUX to BMS at our cost of production plus a 10% markup on bulk. We sell bulk inventory to Merck KGaA at our full absorption cost of production. The continuing level of manufacturing revenue in future periods may fluctuate significantly based on market demand, our cost of production, as well as BMS’s required level of safety stock inventory for ERBITUX and whether Merck KGaA orders ERBITUX for commercial use.

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

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

61

Inventories—Until February 12, 2004, all costs associated with the manufacturing of ERBITUX were included in research and development expenses when incurred. Effective February 13, 2004, the date after the Company received approval from the FDA for ERBITUX, we began to capitalize in inventory the cost of manufacturing ERBITUX and will expense such costs as cost of manufacturing revenue at the time of sale. Since we had previously expensed all inventory produced, the costs of manufacturing revenue in 2004 reflected minimal costs that primarily consisted of shipping and storage charges. In 2005, we continued to sell inventory that was previously expensed and gradually began to sell inventory that was partially expensed, since there was inventory in process on the date that we received FDA approval of ERBITUX. In the first quarter of 2006, we sold all partially expensed inventory and we expect that our quarterly margins on sales of ERBITUX will therefore begin to stabilize beginning in 2007. The fluctuation in our margin is based on various circumstances such as the level of demand from our partners and the costs of filling and finishing the product (which does not include a markup when selling to BMS), relative to the overall costs of the bulk product.

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

In June 2006, we began producing ERBITUX for commercial use at our BB50 manufacturing facility. Based on our current timeline, we expect to file a sBLA with the FDA for approval of our BB50 facility in the first quarter of 2007. Until such time as we receive approval of BB50 from the FDA, we will not be able to sell the ERBITUX inventory produced in BB50. Based on management’s current expectations, we expect that the costs of such inventory will be fully realizable once we obtain approval of BB50. Therefore, in June 2006 we began to capitalize the costs of producing ERBITUX in BB50 and will continue to do so, as long as we can conclude that the costs of such inventory will be fully realizable. As of December 31, 2006, we have capitalized approximately $35.5 million of inventory produced in BB50.

Litigation—The Company is currently involved in certain legal proceedings more fully described under “Part I—Item 3. Legal Proceedings” and as disclosed in the notes to the consolidated financial statements. As of December 31, 2006, we have not established a legal reserve in our financial statements because we do not believe that such a reserve is required to be established at this time, in accordance with Statement of Financial Standards No. 5. However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred, and if such loss is reasonably estimable at that time, we will establish such a reserve. Thus, it is possible that legal proceedings may have a material adverse impact on the operating results for that period, on our balance sheet or both.

Long-Lived Assets—We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and written down to fair value if expected associated undiscounted cash flows are less than carrying amounts. Fair value is generally determined as the present value of the expected associated cash flows. As noted under Item 2- “Properties”, we own a number of buildings that are primarily dedicated to the manufacturing of ERBITUX and other clinical products in our pipeline. Based on management’s current estimates, we expect to recover the carrying value of such assets. Changes in regulatory or other business conditions in the future could change our judgments about the carrying value of these facilities, which could result in the recognition of material impairment losses.

62

Income Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Significant estimates are required in determining our provision for income taxes. In 2006, we released a portion of our valuation allowance against our deferred tax assets. This partial release was based on revised expectations of our projected book and taxable income which caused us to conclude that it is more likely than not that a portion of the benefits of these deferred tax assets would be realized. This release resulted in net tax benefit of approximately $111.3 million. The financial projections supporting our conclusion to release a portion of our valuation allowance contain significant assumptions based on current facts about our market share and our competitive landscape. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. We will continue to monitor our current performance and future financial projections, including market share and competitive landscape, in order to determine the effect on the valuation allowance.

Impact of Recent Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes.” It also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification of interest and penalties, accounting in interim periods, disclosure and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. We have reviewed our tax positions and we do not expect that the Interpretation will have a material impact on our results of operations or financial position.

RESULTS OF OPERATIONS

Selected financial and operating data for the three years ended December 31, 2006, 2005 and 2004 are as follows: (in thousands)

	2006			2005		2004			2006 vs. 2005 Variance			2005 vs. 2004 Variance
Royalty revenue	$	290,599		$	177,440	$	106,274		$	113,159		$	71,166
License fees and milestone revenue	232,269			97,239		129,386			135,030			(32,147		)
Manufacturing revenue	86,476			44,090		99,041			42,386			(54,951		)
Collaborative agreement revenue	68,503			64,904		53,989			3,599			10,915
Total revenues	$	677,847		$	383,673	$	388,690		$	294,174		$	(5,017	)
Research and development	$	112,145		$	99,303	$	82,658		$	12,842		$	16,645
Clinical and regulatory	54,244			50,136		30,254			4,108			19,882
Marketing, general and administrative	72,476			72,334		59,800			142			12,534
Royalty expense	73,958			58,376		36,065			15,582			22,311
Litigation settlement	—			—		55,363			—			(55,363		)
Cost of manufacturing revenue	76,063			16,367		1,099			59,696			15,268
Discontinuation of small molecule program	—			6,200		—			(6,200		)	6,200
Withholding tax (recovery) expense	(264		)	14,178		(1,815		)	(14,442		)	15,993
Total operating expenses	$	388,622		$	316,894	$	263,424		$	71,728		$	53,470

63

Years Ended December 31, 2006 and 2005

Revenues

Royalty Revenue

Royalty revenues consist of royalty payments earned on the sales of ERBITUX by our partners, BMS and Merck KGaA. Under our agreement with BMS, we are entitled to royalty payments equal to 39% of BMS’s net sales of ERBITUX in the United States and Canada. Under our agreement with Merck KGaA, we were entitled to royalty payments based on a percentage of gross margin of Merck KGaA’s sales of ERBITUX outside the United States and Canada. Beginning in July of 2006, we are entitled to 9.5% of Merck’s KGaA net sales outside of the United States and Canada. In 2006, global in-market sales of ERBITUX reached $1.1 billion. In North America, in-market net sales by BMS in 2006 amounted to approximately $652.2 million compared to approximately $413.1 million in 2005. Outside of North America, in-market net sales by Merck KGaA in 2006 amounted to approximately $428.2 million compared to approximately $265.3 million in 2005.

In 2006, total royalty revenues increased by approximately $113.2 million or 64% from 2005 primarily due to an increase in net sales of ERBITUX and the change in royalties earned under the Merck KGaA agreement.

License Fees and Milestone Revenue

License fees and milestone revenues consist of the recognition of up-front license fees and milestone payments received under the Commercial Agreement with BMS and recognition of payments received under the development and license agreements with Merck KGaA. In 2006, total license fee and milestone revenue consisted of approximately $231.9 million earned from BMS and $348,000 earned from Merck KGaA as compared to 2005 in which approximately $94.2 million was earned from BMS and approximately $3.0 million was earned from Merck KGaA.

In 2006, total license fees and milestone revenues increased by approximately $135.0 million or 139% from 2005 primarily due to the receipt of $250.0 million in March 2006 from BMS as a result of obtaining FDA approval for ERBITUX in head and neck indication. The milestone revenue earned in the first quarter of 2006 included a “catch-up” adjustment of approximately $112.7 million related to the actual product clinical development costs to be incurred from inception through December 31, 2005 as a percentage of estimated total costs incurred over the life of the Commercial Agreement. The remaining increase is due primarily to the higher amount of deferred revenue being recognized through year-end as a result of the receipt of the $250.0 million milestone payment from BMS. These increases were partially offset by a decrease in amortization related to the Merck KGaA development and license agreements of approximately $2.7 million related to the termination of the BEC2 and gp75 antigen agreement in the fourth quarter of 2005.

In 2007, license fees and milestone revenues is estimated to range for the full year between  $100.0 million to $140.0 million.

Manufacturing Revenue

Manufacturing revenues consist of sales of ERBITUX to our corporate partners for commercial use. In accordance with the Commercial Agreement, we are contractually obligated to sell ERBITUX to BMS at our cost of production plus a 10% markup on bulk. We sell bulk inventory to Merck KGaA at our full absorption cost of production. In 2006, purchases by BMS amounted to approximately $82.4 million and purchases by Merck KGaA amounted to approximately $4.0 million.

In 2006, total manufacturing revenues increased by $42.4 million or 96% from 2005 primarily due to increased commercial sales of ERBITUX to BMS of approximately $38.4 million and to Merck KGaA of approximately $4.0 million.

64

Collaborative Agreement Revenue

Collaborative agreement revenues consist of reimbursements from our partners BMS and Merck KGaA under our collaborative agreements. There are certain categories for which we receive reimbursement from our partners: the cost of ERBITUX supplied to our partners for use in clinical studies, clinical and regulatory expenses, certain marketing and administrative expenses, and a portion of royalty expense. Of the total $68.5 million in collaborative agreement revenues earned in 2006, approximately $50.9 million was earned from BMS and approximately $17.6 million was earned from Merck KGaA. In comparison, of the $64.9 million in collaborative agreement revenues earned in 2005, approximately $42.9 million was earned from BMS and approximately $22.0 million was earned from Merck KGaA.

In 2006, total collaborative agreement revenues increased by approximately $3.6 million or 6% from 2005 primarily due to an increase in royalty expense reimbursement of approximately $14.5 million, partly offset by decreases in reimbursement of clinical drugs of approximately $7.9 million, clinical and regulatory costs of approximately $2.3 million, and reimbursements for certain marketing, general and administrative expenses of $749,000. It is important to note that beginning January 1, 2007, reimbursement for royalty expense from our corporate partner BMS, decreases from 4.5% to 2.5% of North American net sales in accordance with the existing terms of our contractual agreement.

Expenses

Research and Development

Research and development expenses consist of costs associated with our in-house research programs, product and process development expenses, costs to manufacture product candidates for clinical studies, quality assurance and quality control infrastructure and costs of ERBITUX supplied to our corporate partners, BMS and Merck KGaA, for use in clinical studies. Research and development expenses also include our cost of inventory supplied to our partners for use in clinical studies that are reimbursable from our corporate partners. As a result, a total of approximately $19.5 million in 2006 and approximately $27.4 million in 2005 of these expenses are also reflected as revenues under collaborative agreement revenue.

In 2006, total research and development expenses increased by approximately $12.8 million or 13% from 2005 primarily due to an increase in third-party costs associated with manufacturing some of our pipeline products of approximately $9.9 million and an increase in shipments of ERBITUX to our partners for clinical studies of approximately $4.3 million. The increase in the manufacturing of pipeline products in 2006 is part of the overall clinical development strategy related to our pipeline candidates, which we plan to take from Phase I to Phase II, beginning in 2007. The production of these products will provide the Company with the ability to have sufficient product available for the various clinical trials that we plan to begin for a number of our pipeline candidates in the second quarter of 2007.

In 2007, we anticipate spending approximately 45% more than in 2006 in research and development activities. The increase in this category is primarily due to an increase in projected clinical shipments of ERBITUX with the remaining increase due to increased development costs related to our pipeline products.

Clinical and Regulatory

Clinical and regulatory expenses consist of costs to conduct our clinical studies and associated regulatory activities. Clinical and regulatory expenses also include certain amounts that are reimbursable from our corporate partners. As a result, a total of approximately $12.4 million in 2006 and $14.7 million in 2005 of these expenses are also reflected as revenues under collaborative agreement revenue.

In 2006, total clinical and regulatory expenses increased by approximately $4.1 million, or 8% from 2005. This increase is due to the fact that during the last half of 2006, we made significant efforts to increase personnel and add to the infrastructure in the clinical and regulatory functions. This effort will

65

continue during 2007 until we have the adequate resources in place so that we are able to advance our pipeline candidates while concurrently investing a significant amount of effort in the continued development of ERBITUX in other indications. The increase in clinical and regulatory expenses in 2006 was partially offset by a decrease of approximately $2.0 million, related to the termination of our collaborative agreement with UCB.

In 2007, we expect that clinical and regulatory expenses to nearly double from 2006 based on a focused investment strategy to develop our pipeline candidates beyond Phase I as well Phase III studies of ERBITUX in multiple tumor types.

Marketing, General and Administrative

Marketing, general and administrative expenses consist of marketing 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. Marketing, general and administrative expenses also include certain amounts that are reimbursable from our corporate partners. As a result, a total of approximately $1.2 million in 2006 and $2.0 million in 2005 of these expenses are also reflected as revenues under collaborative agreement revenue.

In 2006, total marketing, general and administrative expenses  increased by $142,000 or less than 1% from 2005 primarily due to increases in salaries and benefits of approximately $6.4 million, including share-based compensation of approximately $5.2 million, due to increased headcount and merit increases from the prior year. This increase was primarily offset by decreases in severance expense of approximately $2.9 million related to the resignation of our former chief executive officer in October 2005, and a decrease in legal expenses from the prior year.

In 2007, we expect that marketing, general and administrative expenses will be consistent with the prior year, reflecting our continued focus on efficiencies and cost-saving initiatives.

Royalty Expense

Royalty expenses consist of obligations related to certain licensing agreements related to ERBITUX.  We are obligated to pay royalties of 9.25% of North American net sales and a low single-digit royalty on net sales outside North America, which will increase if net sales outside North America consist of ERBITUX produced in the United States. In 2006, we received reimbursements from our corporate partners of 4.5% on North American net sales and a low single-digit percentage on net sales outside of North America, which is reflected in collaborative agreement revenues. As a result, a total of approximately $35.4 million in 2006 and $20.9 million in 2005 of these expenses are also reflected as revenues under collaborative agreement revenue.

In 2006, total royalty expenses increased by approximately $15.6 million, or 27% from 2005 primarily due to the increase in net sales as described in royalty revenue above.

Cost of Manufacturing Revenue

We began to capitalize in inventory the cost of manufacturing ERBITUX after we received approval in February of 2004. In 2005, we continued to sell inventory that was previously expensed as well as inventory that was partially expensed, since there was inventory in process on the date that we received FDA approval of ERBITUX. It took nearly two years to sell all inventory that was previously expensed or partially expensed. In the first quarter of 2006, we exhausted the remaining batches of ERBITUX with partial costs and we expect our margins to normalize going forward. We sell ERBITUX to BMS at our costs of production plus a 10% mark-up on bulk and to Merck KGaA at our cost of production. Therefore, depending on certain circumstances, such as the mix of demand from our partners, the formulation used in the production of ERBITUX, and the costs of filling and finishing ERBITUX bulk (for which we do not

66

charge a 10% markup when selling to BMS), we expect that our gross margins on sales of ERBITUX may fluctuate from quarter to quarter.

In 2006, cost of manufacturing revenue amounted to $76.1 million representing a gross margin of approximately 12% compared to costs of manufacturing revenue for 2005 of approximately $16.4 million, or a gross margin of 63%. The fluctuation in our gross margin is based on the explanation noted above.

Withholding Tax (Recovery) Expense

The Company had recorded a liability of $32.0 million as of December 31, 2005 to resolve a previously pending withholding tax matter. Payments totaling approximately $31.7 million were made during the year as final settlement of this matter. During the fourth quarter of 2006, the Company recorded a recovery of the remaining liability of $264,000 into income.

Interest Income and Interest Expense

In 2006, interest income increased by  approximately $12.5 million or 45% from 2005 primarily due to increases in interest rates and higher average cash and securities balances during 2006 as compared with 2005, due to receiving a $250.0 million milestone payment from BMS in April 2006.

Interest expense in 2006 increased by approximately $2.8 million or 42% from 2005 primarily due to the fact that we finalized construction of our BB50 manufacturing facility in May 2006, and therefore ceased capitalizing interest on the construction of this facility.

Provision for Income Taxes

The effective tax rate for the year ended December 31, 2006 amounted to approximately 19.0%. The effective tax rate for 2006 excludes the effect of the partial release of our valuation allowance described below. The effective tax rate for 2006 is less than the federal statutory rate of 35%, mainly due to the utilization of fully reserved deferred tax assets. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in the notes to the consolidated financial statements. We expect our 2007 effective tax rate to be in the range of approximately 40% to 43%, which does not include the effect of any change in the valuation allowance on deferred tax assets.

In 2006, we  released a portion of our valuation allowance against our total deferred tax assets. This partial release was based on expectations of projected book and taxable income, which caused us to conclude that it is more likely than not that  a portion of the benefit of these deferred tax assets would be realized. This release resulted in a net tax benefit of approximately $111.3 million. The financial projections supporting our conclusion to release a portion of our valuation allowance contain significant assumptions based on current facts about our market share and our competitive landscape. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. We will continue to monitor our current performance and future financial projections, including market share and competitive landscape, in order to determine the effect on the valuation allowance.

Net Income

We had net income of approximately $370.7 million, or $4.40 per basic common share and $4.11 per diluted common share for the year ended December 31, 2006, compared with net income of approximately $86.5 million, or $1.03 per basic common share and $1.01 per diluted common share for the year ended December 31, 2005. The fluctuation in results was due to the factors noted above.

67

Years Ended December 31, 2005 and 2004

Revenues

Royalty Revenue

Royalty revenues consist of royalty payments earned on the sales of ERBITUX by our partners, BMS and Merck KGaA. Under our agreement with BMS, we are entitled to royalty payments equal to 39% of BMS’s net sales of ERBITUX in the United States and Canada. Under our agreement with Merck KGaA, we are entitled to royalty payments based on a percentage of gross margin of Merck KGaA’s sales of ERBITUX outside the United States and Canada. In 2005, our royalty revenue increased by approximately $71.2 million from 2004 due to an increase in net sales of ERBITUX. In North America, sales by BMS in 2005 amounted to approximately $413.1 million compared to net sales in 2004 of approximately $260.8 million. Outside of North America, sales of ERBITUX by Merck KGaA increased to approximately $265.0 million in 2005 as compared to approximately $100.0 million in 2004.

License Fees and Milestone Revenue

License fees and milestone revenues in 2005 of approximately $97.2 million consists of the recognition of up-front license fees and milestone payments received under the Commercial Agreement with BMS of approximately $94.2 million and recognition of payments received under the development and license agreements with Merck KGaA of approximately $3.0 million. The decrease of approximately $32.1 million from 2004 is primarily due to a decrease of approximately $35.5 million in amortization related to the Commercial Agreement with BMS primarily due to the fact that in 2004 we received $250.0 million from BMS when we obtained FDA approval of ERBITUX, resulting in incremental amortization. Such decrease was partially offset by an increase in amortization related to the Merck KGaA development and license agreements of approximately $1.6 million related to the termination of the BEC2 and gp75 antigen agreement in the fourth quarter of 2005.

Manufacturing Revenue

Manufacturing revenues in 2005 of approximately $44.1 million consists of sales of ERBITUX to BMS for commercial use. The decrease of approximately $55.0 million from 2004 is mainly due to a lower selling price in 2005. 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 full absorption cost of production. During 2004, the price charged to BMS included the costs of inventory produced by Lonza, which is significantly higher than our cost of production at our BB36 manufacturing plant. During 2004, we depleted all inventory produced by Lonza, therefore our costs in 2005 reflect only costs associated with manufacturing inventory at our BB36 manufacturing facility.

Collaborative Agreement Revenue

Collaborative agreement revenues consist of reimbursements from our partners BMS and Merck KGaA under our collaborative agreements. There are certain categories for which we receive reimbursement from our partners:  the cost of ERBITUX supplied to our partners for use in clinical studies, clinical and regulatory expenses, certain marketing and administrative expenses, and a portion of royalty expense. During 2005, we earned approximately $64.9 million in collaborative agreement revenue, of which approximately $42.9 million represents amounts earned from BMS and approximately $22.0 million represents amounts earned from Merck KGaA, as compared to approximately $54.0 million earned in the comparable period in 2004, of which approximately $38.9 million was earned from BMS and approximately $15.0 million was earned from Merck KGaA. The increase in collaborative agreement revenue of  approximately $10.9 million  is principally due to an increase in reimbursement for clinical drugs of approximately $2.9 million and an increase in royalty expense reimbursement of approximately $8.1 million, partly offset by minor decreases in the reimbursement of certain marketing, general and administrative expenses.

68

Expenses

Research and Development

Research and development expenses in 2005 of approximately $99.3 million increased by approximately $16.6 million, or 20% from 2004. The increase is primarily due to shipments of ERBITUX to our partners for clinical studies of approximately $13.0 million and an increase in costs associated with the development of our non-ERBITUX pipeline. Research and development expenses include costs associated with our in-house and collaborative research programs, product and process development expenses, costs to manufacture ERBITUX (until February 12, 2004) and other product candidates and quality assurance and quality control costs. Research and development expenses include inventory supplied to our partners for use in clinical trials that are reimbursable from our corporate partners. Approximately $27.4 million and $24.5 million of costs representing and development expenses in 2005 and 2004, respectively, were reimbursed and included under collaborative agreement revenue since they represent inventory supplied to our partners for use in clinical studies.

Clinical and Regulatory

Clinical and regulatory expenses consist of costs to conduct our clinical studies and associated regulatory activities. Clinical and regulatory expenses in 2005 amounted to approximately $50.1 million, an increase of approximately $19.9 million, or 66% from 2004. The increase is primarily due to an increase of approximately $10.5 million due BMS for reimbursement of clinical expenses related to ERBITUX, an increase of approximately $4.2 million in third-party clinical trial costs, and an increase in salaries and benefits of approximately $3.5 million. During 2005, we increased our headcount in our clinical and regulatory department as well as our investment in clinical trials for ERBITUX and other products in our pipeline in order to invest in the continued growth of ERBITUX and to develop other product candidates. Approximately $14.7 million and $13.9 million of the costs included in this category for 2005 and 2004, respectively, are reflected as revenues under collaborative agreement revenue since they represent costs that are reimbursable by our corporate partners.

Marketing, General and Administrative

Marketing, general and administrative expenses consist of  marketing 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. Marketing, general and administrative expenses also include certain amounts that are reimbursable from our corporate partners.

Marketing, general and administrative expenses in 2005 amounted to approximately $72.3 million, an increase of approximately $12.5 million, or 21% from 2004. This increase is partly due to increases in salaries and benefits of approximately $6.0 million due to increased headcount and merit increases from the prior year and an increase in professional services of approximately $5.3 million due to increases in legal, tax consulting and marketing programs, and a charge of approximately $2.9 million in severance expense related to the resignation of Daniel S. Lynch (our former chief executive officer) in October 2005. Approximately $2.0 million and $2.8 million of costs representing marketing and general expenses in 2005 and 2004, respectively, are reimbursed and included in collaborative agreement revenue.

Royalty Expense

Royalty expense consists of obligations related to certain licensing agreements related to ERBITUX. Prior to the third quarter of 2005, we were obligated to pay royalties of approximately 12.75% of North American net sales and a single digit royalty on sales outside of North America, which will increase if sales outside of North America consist of ERBITUX produced in the United States. Beginning in the third quarter of 2005, gross royalty expense decreased as a percentage of net sales in North America from 12.75% to 12.25%. We receive reimbursements from our corporate partners of 4.5% on North

69

American net sales and a minimum of 1% on net sales outside of North America, which is reflected in collaborative agreement revenue. In 2005, we incurred royalty expense of approximately $58.4 million as compared to $36.1 million in 2004, an increase of approximately $22.3 million, or 62%. The increase is primarily associated with the increase in North American net sales, which consisted of approximately $413.1 million in 2005 as compared to approximately $260.8 million in 2004. Approximately $20.8 million and $12.7 million of royalty expense was reimbursable by our corporate partners and included as collaborative agreement revenue in 2005 and 2004, respectively.

Cost of Manufacturing Revenue

Effective February 13, 2004, the date after we received approval from the FDA for ERBITUX, we began to capitalize in inventory the cost of manufacturing ERBITUX and to expense such costs as cost of manufacturing revenue at the time of sale. Since we had previously expensed all inventory produced prior to February 13, 2004, the costs of manufacturing revenue in 2004 reflected minimal costs that primarily consisted of shipping and storage charges. In 2005, we continued to sell inventory that was previously expensed as well as inventory that was partially expensed, since there was inventory in process on the date that we received FDA approval of ERBITUX. In the fourth quarter of 2005, we sold substantially all the inventory with partial costs and thereafter our cost of manufacturing reflects full absorption costs of production.

Discontinuation of Small Molecule Program

On May 11, 2005, we announced a plan to discontinue our small molecule research program. This decision was made after evaluating our investment in such program against the time horizon before commercial benefits would be realized. As a result of this decision, we recorded in the second quarter of 2005 approximately $6.2 million of costs associated with the discontinuation of this program. Such costs include approximately $2.2 million of costs related to severance for 45 employees that were terminated, approximately $3.7 million of costs related to the write-off of fixed assets used in such program and approximately $60,000 of contract termination costs related to the cancellation of the lease at the Brooklyn facility where the employees were conducting such research and approximately $280,000 of other shutdown expenses. The disposition of this program was substantially complete and the majority of the termination benefits were paid as of December 31, 2005.

Withholding Tax Expense (Recovery)

The increase of approximately $16.0 million was due to the fact that, in the fourth quarter of 2005, we recorded a net withholding tax expense of approximately $14.2 million as a result of reaching an agreement in principle with the IRS to resolve a pending withholding tax matter. The agreement in principle reached with the IRS provides for the imposition of an accuracy-related penalty under Section 6662 of the Internal Revenue Code, which increased the estimated withholding tax liability from approximately $18.1 million as previously recorded in our Balance Sheet as of December 31, 2004 to a total of $32.0 million. In 2004, we recorded a recovery of withholding tax of approximately $1.8 million because we reversed a liability that was settled at an amount less than originally estimated.

Interest Income and Interest Expense

In 2005, interest income amounted to approximately $27.9 million, an increase of approximately $13.8 million, or 98% from the comparable period in 2004. This increase is attributable to increases in interest rates from the comparable period in 2004 as well as well as a higher average cash and securities balance during 2005 as compared with 2004, a result of receiving $600.0 million  from the issuance of convertible debt in May 2004 and receiving a $250.0 million milestone payment from BMS in March of 2004.

70

Interest expense in 2005 amounted to approximately $6.6 million, a decrease of approximately $1.9 million, or 22% from 2004. The decrease is due to lower interest rates than in the comparable period of 2004, partly offset by an increase in debt outstanding.

Provision for Income Taxes

The effective tax rate for the year ended December 31, 2005 amounted to approximately 2.0%. The effective tax rate for 2005 includes an adjustment of approximately $440,000 resulting from the reconciliation of the 2004 tax provision to our filed tax returns. The primary reason for the increase in the effective rate from the rate previously estimated is due to the impact of a withholding tax expense of approximately $14.2 million recorded in the fourth quarter of 2005 as a result of reaching a tentative agreement with the IRS to resolve an employment tax matter that had been outstanding since 2003. The difference from the statutory rate of 35% is due to the utilization of fully reserved deferred tax assets, primarily the amortization of deferred revenue associated with license fees and milestones, which were taxable in prior periods. A reconciliation of the statutory federal income tax rate to the effective income tax rate for each period is included in the notes to the consolidated financial statements.

Net Income

We had net income of approximately $86.5 million, or $1.03 per basic common share and $1.01 per diluted common share for the year ended December 31, 2005, compared with net income of approximately $113.6 million, or $1.43 per basic common share and $1.33 per diluted common share for the year ended December 31, 2004. The fluctuation in results was due to the factors noted above.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2006, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately $1.0 billion. Historically, we have financed our operations through a variety of sources, most significantly through the issuance of convertible notes, the receipt of license fees and milestone payments and from reimbursement of certain expenses from our corporate partners. Since the approval of ERBITUX on February 12, 2004, we began to generate royalty revenue and manufacturing revenue from the commercial sale of ERBITUX by our corporate partners and we have generated positive cash flows from operations in 2004 and in 2006. As we continue to generate revenues from royalties and sales of ERBITUX for commercial distribution,  our cash flows from operating activities are expected to increase as a source to fund our operations. As previously discussed, we are planning to invest significantly in the development of our pipeline candidates in 2007, while also continuing to develop ERBITUX in other indications. Therefore, the utilization of our existing cash will be dependent on the level of in-market sales for ERBITUX in 2007, which will have a direct impact on whether we will generate positive or negative cash flows from operations in 2007.

SUMMARY OF CASH FLOWS

	Years Ended December 31,										Variance
	2006				2005			2004			2006 vs. 2005				2005 vs. 2004
	(Thousands of dollars)
Cash provided by (used in):
Operating activities		$	205,100		$	(64,592	)	$	255,657			$	269,692			$	(320,249	)
Investing activities		(312,460		)	(5,053		)	(872,249		)		(307,407		)		867,196
Financing activities		124,525			(6,273		)	665,048				130,798				(671,321		)
Net increase (decrease) in cash and cash equivalents		$	17,165		$	(75,918	)	$	48,456			$	93,083			$	(124,374	)

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 year ended December 31, 2006, we

71

generated approximately $205.1 million in cash for operating activities, as compared to net cash used  in operating activities in 2005 of approximately $64.6 million. The increase in operating cash flows in 2006 is primarily due to the receipt of a $250.0 million milestone payment from our corporate partner BMS, as a result of obtaining approval from the FDA for ERBITUX in a second indication, partly offset by a payment to the IRS of approximately $31.7 million for withholding taxes related to an employment tax audit for the years 1999-2001. The fluctuation in operating cash flows is also due to the fact that in 2005 we paid approximately $55.4 million in litigation expenses, net of insurance reimbursements related to the securities class action settled in January 2005, and approximately $30.0 million of royalty payments to Genentech and Centocor related to 2004 for license agreements that we finalized during January 2005. These uses of cash from operations in 2005 were partially offset by cash generated from operations due to increased royalty income in 2005 as a result of higher in-market net sales of ERBITUX by our partners BMS and Merck KGaA. In 2004, we generated cash flows from operating activities of approximately $255.7 million, mainly due to receipt of a milestone payment of $250.0 million from BMS as a result of the FDA’s approval of ERBITUX in the first quarter of 2004. As we continue to earn revenues and operating income from the sale of ERBITUX, we expect that our operating cash flows will continue to experience significant fluctuations from prior period results.

Our primary sources and uses of cash under 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 year ended December 31, 2006, we used net cash from investing activities of approximately $312.5 million, comprised of net purchases of investments of approximately $266.6 million and acquisition of fixed assets of approximately $45.9 million. During the year ended December 31, 2005, we used net cash from investing activities of approximately $5.1 million comprised of approximately $84.3 million in acquisition of fixed assets, primarily related to the construction of our BB50 manufacturing facility, offset by net proceeds from the sale and maturity of securities in our investment portfolio of approximately $79.2 million. In 2004, we used approximately $872.2 million from investing activities mainly due to the fact that in 2004 we had net purchases of approximately $766.0 million in investment securities for our portfolio, which we classified as securities available for sale and we spent approximately $106.3 million on fixed assets, primarily related to the construction of our BB50 manufacturing facility. The cash used in 2004 for investing purposes was generated from the issuance of the $600.0 million of senior convertible notes in the second quarter of 2004 and from the $250.0 million milestone payment received from BMS in March 2004.

Net cash flows generated in financing activities in 2006 were approximately $124.5 million, of which approximately $29.8 million of proceeds were generated from the exercise of stock options and sales under the Company’s employee stock purchase plan and from tax benefits associated with equity net operating losses that will be taken as a reduction on our tax returns. In 2005, we used approximately $6.3 million  for financing activities due to the purchase of 811,416 shares of our common stock at an average price of $30.62 per share for aggregate consideration of approximately $24.8 million, which was partially offset by proceeds from the exercise of stock options by employees of approximately $18.0 million. In 2004, we generated approximately $665.0 million in net cash from financing activities primarily as a result of the issuance of the $600.0 million in senior convertible notes and also as a result of proceeds of approximately $77.9 million from employees’ exercise of stock options.

We believe that our existing cash and cash equivalents and marketable securities and our cash provided by operating activities will provide us with sufficient liquidity to support our operations at least through the first quarter of 2008. We are also entitled to reimbursement for certain marketing, royalty expense, and research and development expenditures. Our future working capital and capital requirements will depend upon numerous factors, including, but not limited to:

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

72

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

·our corporate partners fulfilling their obligations to us;

·timing and cost of seeking and obtaining additional regulatory approvals;

·possible business development transactions;

·level of resources that we devote to the development of marketing and field operations capabilities;

·costs involved in filing, prosecuting and enforcing patent claims; and legal costs associated with the outcome of outstanding legal proceedings and investigations;

·status of competition; and

·our ability to maintain existing corporate collaborations and establish new collaborative arrangements with other companies to provide funding to support these activities.

Below is a table that presents our contractual obligations and commercial commitments as of December 31, 2006: (in thousands)

	Payments due by Year(1)
	Total		2007		2008		2009		2010		2011		2012 and Thereafter
Long-term debt(2)	$	600,000	$	—	$	—	$	—	$	—	$	—	$	600,000
Interest on long-term debt	143,344		8,250		8,250		8,250		8,250		8,250		102,094
Operating leases	66,133		5,411		4,253		4,281		4,174		4,050		43,964
Purchase obligations	9,827		9,827		—		—		—		—		—
Contract services obligations	14,220		8,280		1,350		1,620		2,970		—		—
Total contractual cash obligations	$	833,524	$	31,768	$	13,853	$	14,151	$	15,394	$	12,300	$	746,058

(1)Amounts in the above table do not include milestone-type payments payable by us under development agreements, if the achievement of that milestone is uncertain or the obligation amount is not determinable.

(2)On May 15 of 2009, 2014 and 2019, or upon the occurrence of certain designated events, holders may require the Company to repurchase the notes at a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest.

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.

73

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our holdings of financial instruments comprise a mix of U.S. dollar denominated securities that may include U.S. corporate debt, foreign corporate debt, U.S. government debt, foreign government debt, asset-backed securities, auction rate securities and commercial paper. All such instruments are classified as securities available for sale. Generally, we do not invest in portfolio equity securities, commodities, foreign exchange contracts or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in investment grade fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We invest in securities that have a range of maturity dates.

The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of December 31, 2006: (in thousands, except interest rates)

	2007			2008			2009			2010			2011			2012 and Thereafter				Total			Fair Value
Fixed Rate	$	212,400		$	100,000		$	55,000		$	20,000			$	—		$	—		$	387,400		$	382,375
Average Interest Rate	3.51		%	3.86		%	4.33		%	4.54		%		—			—			3.77		%
Variable Rate	—			1,802		(1)	—			10,000		(1)		—			629,470		(1)	641,272			641,234
Average Interest Rate	—			4.85		%	—			4.00		%		—			5.35		%	5.33		%
	$	212,400		$	101,802		$	55,000		$	30,000			$	—		$	629,470		$	1,028,672		$	1,023,609

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

Our outstanding 13¤8% fixed rate convertible senior notes in the principal amount of $600.0 million due May 15, 2024 are convertible into our common stock at a conversion price of $94.69 per share, subject to adjustment and to certain restrictions as outlined in the indenture agreement. The fair value of fixed interest rate instruments is affected by changes in interest rates and in the case of the convertible notes by changes in the price of our common stock as well. The fair value of the convertible senior notes was approximately $545.6 million at December 31, 2006.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted as a separate section of this report as Part II commencing on Page F-1.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not Applicable.

ITEM 9A.CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management, with the participation of our Executive Committee of the Board, Chairman and Senior Vice President, Finance, has evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on such evaluation, Executive Committee of the Board, Chairman and

74

Senior Vice President, Finance, have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information that we are required to disclose in the reports that we file or submit under the Exchange Act.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Executive Committee of the Board, Chairman and Senior Vice President, Finance, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, (1) on our management’s assessment of the effectiveness of our internal control over financial reporting and (2) on the effectiveness of our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during our fourth fiscal quarter of 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

75

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
ImClone Systems Incorporated:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that ImClone Systems Incorporated maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ImClone Systems Incorporated’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that ImClone Systems Incorporated maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, ImClone Systems Incorporated maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

76

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ImClone Systems Incorporated and subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated March 1, 2007 expressed an unqualified opinion on those consolidated financial statements.

	/s/ KPMG LLP
Princeton, New Jersey
March 1, 2007

ITEM 9B.OTHER INFORMATION.

Not Applicable.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNACE.

The information required by Item 10 is incorporated into Part III of this Annual Report on Form 10-K by reference to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 11.EXECUTIVE COMPENSATION.

The information required by Item 11 is incorporated into Part III of this Annual Report on Form 10-K by reference to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by Item 12 is incorporated into Part III of this Annual Report on Form 10-K by reference to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by Item 13 is incorporated into Part III of this Annual Report on Form 10-K by reference to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by Item 14 is incorporated into Part III of this Annual Report on Form 10-K by reference to our definitive Proxy Statement for the 2007 Annual Meeting of Stockholders.

77

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1) and (2)	The response to this portion of Item 15 is submitted as a separate section of this report commencing on page F-1.
(a)(3)	Exhibits (numbered in accordance with Item 601 of Regulation S-K).

	Exhibit No.		Description		Incorporated by Reference
3.1		Certificate of Incorporation, as amended through December 31, 1998		C(3.1)
3.2		Amendment dated June 4, 1999 to the Company’s Certificate of Incorporation, as amended		G(3.1A)
3.3		Amendment dated June 12, 2000 to the Company’s Certificate of Incorporation, as amended		I(3.1A)
3.4		Amendment dated August 9, 2002 to the Company’s Certificate of Incorporation, as amended		O(3.1C)
3.5		Amended and Restated By-Laws of the Company		X(3.1)
4.1		Rights Agreement dated as of February 15, 2002 between the Company and EquiServe Trust Company, N.A., as Rights Agent, as amended May 4, 2006		K(Ex-1,Ex-2)
4.2		Stockholder Agreement, dated as of September 19, 2001, among Bristol-Myers Squibb Company, Bristol-Myers Squibb Biologics Company and the Company		J(99.2D2)
4.3		Indenture dated as of May 7, 2004 by and between the Company and The Bank of New York, as Trustee and Form of 13/8% Convertible Notes Due 2024		T(4.5)
4.4		Registration Rights Agreement dated as of May 7, 2004 by and between the Company, as Issuer, and Morgan Stanley & Co., Incorporated and UBS Securities LLC, as the Initial Purchasers		T(4.6)
10.1		1996 Incentive Stock Option Plan, as amended		M(99.1)
10.2		1996 Non-Qualified Stock Option Plan, as amended		M(99.2)
10.3		ImClone Systems Incorporated 1998 Non-Qualified Stock Option Plan, as amended		M(99.2)
10.4		ImClone Systems Incorporated 2002 Stock Option Plan		O(99.8)
10.5		ImClone Systems Incorporated 1998 Employee Stock Purchase Plan		H(99.4)
10.6		Option Agreement, dated as of September 1, 1998, between the Company and Ron Martell		E(99.3)
10.7		License Agreement between the Company and the Regents of the University of California dated April 9, 1993		A(10.48)
10.8		License Agreement between the Company and Rhone-Poulenc Rorer dated June 13, 1994		B(10.56)
10.9		Development and License Agreement between the Company and Merck KGaA dated December 14, 1998		D(10.70)

78

10.10	Lease dated as of December 15, 1998 for the Company’s premises at 180 Varick Street, New York, New York	F(10.69)
10.11	Amendment dated March 2, 1999 to Development and License Agreement between the Company and Merck KGaA	F(10.71)
10.12	Acquisition Agreement dated as of September 19, 2001, among the Company, Bristol-Myers Squibb Company and Bristol-Myers Squibb Biologics Company	J(99.D1)
10.13	Development, Promotion, Distribution and Supply Agreement, dated as of September 19, 2001, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C.	J(99.D3)
10.14	Employment Agreement, dated as of March 19, 2004, between the Company and Daniel S. Lynch	S(10.1)
10.15	Agreement of Sublease dated October 5, 2001, by and between 325 Spring Street LLC and the Company	M(10.86)
10.16	Promissory Note in the principal amount of $10,000,000, dated October 5, 2001, executed by 325 Spring Street LLC in favor of the Company	M(10.86.1)
10.17	Amendment No. 1 to Development, Promotion, Distribution and Supply Agreement, dated as of March 5, 2002, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C.	L(99.2)
10.18	Amendment, dated as of August 16, 2001 to the Development and License Agreement between the Company and Merck KGaA	N(10.88)
10.19	Agreement of Sale and Purchase between Building Associates, LP and ImClone Systems Incorporated pertaining to 33 Chubb Way, Branchburg, New Jersey executed as of March 1, 2002	O(10.92)
10.20	Target Price Contract, dated as of July 15, 2002, between ImClone Systems Incorporated and Kvaerner Process, a division of Kvaerner U.S. Inc., for the Architectural, Engineering, Procurement Assistance, Construction Management and Validation of a Commercial Manufacturing Project in Branchburg, New Jersey	P(10.93)
10.21	Modifications Agreement dated as of December 15, 2000 by an between 180 Varick Street Corporation and the Company	Q(10.94)
10.22	Amendment number 4 to the Company’s lease at 180 Varick Street dated August 13, 2004 by and between 180 Varick Street Corporation and the Company	U(10.28)
10.23	ImClone Systems Incorporated Annual Incentive Plan	R(A.C)
10.24	Supply Agreement between the Company and Lonza Biologics PLC dated March 17, 2005	W(10.30)
10.25	ImClone Systems Incorporated Senior Executive Severance Plan	V(10.29)
10.26	ImClone Systems Incorporated Change in Control Plan, as amended	EE(10.32)
10.27	Terms of inducement stock option grants to Dr. Philip Frost and Dr. Eric Rowinsky on March 1, 2005 and February 21, 2005, respectively, as approved by the Compensation Committee of Board of Directors	Y

79

10.28†	Collaboration and License Agreement between the Company and UCB S.A. dated August 15, 2005	AA
10.29	Approval by Board of Directors of certain compensation related matters and Company stock repurchase program	Z
10.30	ImClone Systems Incorporated 2005 Inducement Stock Option Plan	BB(10.1)
10.31	Terms of accelerated Company stock options and form of lock-up agreement	CC(10.1)
10.32	ImClone Systems Incorporated 2006-2008 Retention Plan	DD(10.1)
10.33	ImClone Systems Incorporated Transition Severance Plan	EE(10.40)
10.34	Approval by the Compensation Committee of the Board of Directors of performance criteria for executive officer cash bonus awards under the Company’s Annual Incentive Plan for the year ended December 31, 2006	FF
10.35	Letter Agreement, dated March 21, 2006, by and between Joseph L. Fischer and ImClone Systems Incorporated	GG(10.42)
10.36	Letter Agreement, dated August 23, 2006, by and between Joseph L. Fischer and ImClone Systems Incorporated	HH(99.1)
10.37	Letter Agreement, dated October 24, 2006, by and between Joseph L. Fischer and ImClone Systems Incorporated	II(99.1)
10.38†	Settlement Agreement, dated July 19, 2006, by and between ImClone Systems Incorporated and Merck KGaA, including an amendment to the Development and License Agreement between the Company and Merck KGaA, as amended	JJ(10.38)
10.39*	ImClone Systems Incorporated 2006 Stock Incentive Plan
10.40*†	Letter Agreement between the Company and UCB S.A. dated February 1, 2007
12.1*	Calculation of Ratio of Earnings to Fixed Charges
21.1*	Subsidiaries of the Company
23.1*	Consent of KPMG LLP, Independent Registered Public Accountants
31.1*	Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*	Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed herewith.

†A request for confidential treatement was filed for certain portions of the indicated document. Confidential portions have been omitted and filed separately with the Commission as required by Rule 24b-2 of the Commission.

80

(A)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, File No. 0-19612, for the fiscal year ended December 31, 1993. Confidential Treatment was granted for a portion of this Exhibit.

(B)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, File No. 0-19612, for the fiscal year ended December 31, 1994.

(C)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q, File No. 0-19612, for the quarter ended June 30, 1997.

(D)Previously filed with the Commission; incorporated by reference to the Company’s Registration Statement on Form S-3, File No. 333-67335. Confidential treatment was granted for a portion of this Exhibit.

(E)Previously filed with the Commission; incorporated by reference to the Company’s Registration Statement on Form S-8, File No. 333-64827.

(F)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, File No. 0-19612, for the fiscal year ended December 31, 1998.

(G)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

(H)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

(I)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

(J)Previously filed with the Commission; incorporated by reference to the Company’s Schedule 14D-9 filed on September 28, 2001.

(K)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated May 4, 2006.

(L)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-A/A dated March 6, 2002.

(M)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, for the year ended December 31, 2001.

(N)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, for the year ended December 31, 2001, and Confidential Treatment has been requested for a portion of this exhibit.

(O)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

(P)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

(Q)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K, for the year ended December 31, 2002.

(R)Previously filed with the Commission; incorporated by reference to the Company’s Proxy Statement for its 2003 Annual Meeting of Shareholders, filed August 21, 2003, as appendix C.

(S)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated March 19, 2004.

81

(T)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(U)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.

(V)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(W)Previously filed with the Commission; incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.

(X)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated October 3, 2006.

(Y)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated July 15, 2005.

(Z)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated September 19, 2005.

(AA)Previously filed with the Commission, incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2005.

(BB)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated October 21, 2005.

(CC)Previously filed with the Commission, incorporated by reference to the Company’s Current Report on Form 8-K dated December 21, 2005.

(DD)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated January 23, 2006.

(EE)Previously filed with the Commission; incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

(FF)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated March 22, 2006.

(GG)Previously filed with the Commission; incorporated by reference to the Company’s amended Annual Report on Form 10-K/A for the year ended December 31, 2005.

(HH)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated August 24, 2006.

(II)Previously filed with the Commission; incorporated by reference to the Company’s Current Report on Form 8-K dated October 25, 2006.

(JJ)Previously filed with the Commission; incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

82

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Imclone Systems Incorporated
Date: March 1, 2007	By:	/s/ ALEXANDER J. DENNER
		Alexander J. Denner Executive Committee of the Board, Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

	Name		Title		Date
/s/ ALEXANDER J. DENNER		Executive Committee of the Board, Chairman		March 1, 2007
Alexander J. Denner		Director (Principal Executive Officer)
/s/ ANA I. STANCIC		Senior Vice President, Finance		March 1, 2007
Ana I. Stancic		(Principal Financial Officer)
/s/ ANDREW G. BODNAR		Director		March 1, 2007
Andrew G. Bodnar
/s/ VINCENT T. DE VITA, JR.		Director		March 1, 2007
Vincent T. DeVita, Jr.
/s/ JOHN A. FAZIO		Director		March 1, 2007
John A. Fazio
		Director		March 1, 2007
Carl C. Icahn
/s/ PETER S. LIEBERT		Director		March 1, 2007
Peter S. Liebert
/s/ WILLIAM R. MILLER		Director		March 1, 2007
William R. Miller
/s/ RICHARD C. MULLIGAN		Director		March 1, 2007
Richard C. Mulligan
/s/ DAVID SIDRANSKY		Director		March 1, 2007
David Sidransky
/s/ CHARLES WOLER		Director		March 1, 2007
Charles Woler

83

INDEX TO FINANCIAL STATEMENTS

Audited Financial Statements:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets at December 31, 2006 and 2005	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004	F-4
Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income for the Years Ended December 31, 2006, 2005 and 2004	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
ImClone Systems Incorporated:

We have audited the consolidated financial statements of ImClone Systems Incorporated and subsidiary as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ImClone Systems Incorporated and subsidiary as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in notes 2(i) and 11(d) to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” effective January 1, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ImClone Systems Incorporated’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 1, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Princeton, New Jersey
March 1, 2007

F-2

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

	December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	20,568		$	3,403
Securities available for sale	1,023,609			752,973
Prepaid expenses	3,972			3,766
Amounts due from corporate partners	78,030			59,271
Inventories	102,215			81,394
Deferred income taxes, net	29,715			—
Other current assets	12,123			8,311
Total current assets	1,270,232			909,118
Property, plant and equipment, net	423,000			406,595
Deferred financing costs, net	8,818			12,531
Deferred income taxes, net	124,033			—
Notes receivable, less current portion	7,844			8,313
Other assets	5,909			6,858
Total assets	$	1,839,836		$	1,343,415
LIABILITES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (including $4,765 and $4,610 due Bristol-Myers Squibb Company (“BMS”) at December 31, 2006 and 2005, respectively)	$	26,421		$	35,530
Accrued expenses (including $21,705 and $11,427 due BMS at December 31, 2006 and 2005, respectively)	69,080			60,934
Withholding tax liability	—			32,000
Current portion of deferred revenue	142,013			112,624
Other current liabilities	1,418			1,031
Total current liabilities	238,932			242,119
Deferred revenue, less current portion	237,864			246,401
Long-term debt	600,000			600,000
Share-based compensation, less current portion	261			—
Deferred rent, less current portion	3,130			2,491
Total liabilities	1,080,187			1,091,011
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000 series B participating cumulative preferred stock, none issued or outstanding	—			—
Common stock, $0.001 par value; authorized 200,000,000 shares; issued 86,143,604 and 84,412,408 at December 31, 2006 and 2005, respectively; outstanding 85,138,930 and 83,407,734 at December 31, 2006 and 2005, respectively	86			84
Additional paid-in capital	865,560			733,069
Accumulated deficit	(71,785		)	(442,459		)
Treasury stock, at cost; 1,004,674 shares at December 31, 2006 and 2005	(29,149		)	(29,149		)
Accumulated other comprehensive loss:
Net unrealized loss on securities available for sale	(5,063		)	(9,141		)
Total stockholders’ equity	759,649			252,404
Total liabilities and stockholders’ equity	$	1,839,836		$	1,343,415

See accompanying notes to consolidated financial statements.

F-3

IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Year Ended December 31,
	2006			2005			2004
Revenues:
Royalty revenue	$	290,599		$	177,440		$	106,274
License fees and milestone revenue	232,269			97,239			129,386
Manufacturing revenue	86,476			44,090			99,041
Collaborative agreement revenue	68,503			64,904			53,989
Total revenues	677,847			383,673			388,690
Operating expenses:
Research and development	112,145			99,303			82,658
Clinical and regulatory	54,244			50,136			30,254
Marketing, general and administrative	72,476			72,334			59,800
Royalty expense	73,958			58,376			36,065
Litigation settlement	—			—			55,363
Cost of manufacturing revenue	76,063			16,367			1,099
Discontinuation of small molecule research program	—			6,200			—
Withholding tax (recovery) expense	(264		)	14,178			(1,815		)
Total operating expenses	388,622			316,894			263,424
Operating income	289,225			66,779			125,266
Other (income) expense:
Interest income	(40,418		)	(27,877		)	(14,049		)
Interest expense	9,323			6,569			8,432
Loss (gain) on sale of securities, net	—			13			(131		)
Other income, net	(31,095		)	(21,295		)	(5,748		)
Income before income taxes	320,320			88,074			131,014
(Benefit) provision for income taxes	(50,354		)	1,578			17,361
Net income	$	370,674		$	86,496		$	113,653
Income per common share:
Basic	$	4.40		$	1.03		$	1.43
Diluted	$	4.11		$	1.01		$	1.33
Shares used in calculation of income per common share:
Basic	84,235			83,582			79,500
Diluted	92,012			92,183			91,193

See accompanying notes to consolidated financial statements.

F-4

IMCLONE SYSTEMS INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME

Years Ended December 31, 2006, 2005 and 2004

(in thousands, except share data)

																	Accumulated
																	Other
								Additional									Comprehensive
	Preferred Stock				Common Stock			Paid-in			Accumulated			Treasury			Income
	Shares		Amount		Shares	Amount		Capital			Deficit			Stock			(Loss)			Total
Balance at December 31, 2003		—		$ —	75,296,117		$ 75		$ 375,731			$ (642,608	)		$ (4,100	)		$    309		$ (270,593	)
Options exercised					3,522,003		4		78,056											78,060
Issuance of shares on conversion of 51¤2% notes					4,356,468		4		239,993											239,997
Issuance of shares to Merck KGaA					58,807		—		5,000											5,000
Issuance of shares through employee stock purchase plan					16,751		—		802											802
Compensation related to options granted to non-employees									2,420											2,420
Tax benefit of stock options									9,982											9,982
Unamortized deferred financing costs on the 51¤2% notes									(1,193	)										(1,193	)
Compensation related to modification of options granted to employees									2,028											2,028
Treasury shares															(200	)				(200	)
Comprehensive income:
Net income												113,653								113,653
Other comprehensive loss:
Unrealized loss on marketable securities arising during the period																		(987	)	(987	)
Less: Reclassification adjustment for realized gain included in net income																		131		131
Total other comprehensive loss																		(1,118	)	(1,118	)
Comprehensive income																				112,535
Balance at December 31, 2004		—		—	83,250,146		83		712,819			(528,955	)		(4,300	)		(809	)	178,838
Options exercised					1,128,642		1		17,643											17,644
Issuance of shares through employee stock purchase plan					33,620		—		932											932
Tax benefit of stock options									1,675											1,675
Treasury shares															(24,849	)				(24,849	)
Comprehensive income:
Net income												86,496								86,496
Other comprehensive loss:
Unrealized loss on marketable securities arising during the period																		(8,345	)	(8,345	)
Less: Reclassification adjustment for realized loss included in net income																		(13	)	(13	)
Total other comprehensive loss																		(8,332	)	(8,332	)
Comprehensive income																				78,164
Balance at December 31, 2005		—		—	84,412,408		84		733,069			(442,459	)		(29,149	)		(9,141	)	252,404
Options exercised					1,701,447		2		28,998											29,000
Issuance of shares through employee stock purchase plan					29,749		—		806											806
Share-based compensation expense									8,798											8,798
Tax benefit of stock options									93,889											93,889
Comprehensive income:
Net income												370,674								370,674
Other comprehensive income:
Unrealized gain on marketable securities arising during the period																		4,078		4,078
Total other comprehensive income																		4,078		4,078
Comprehensive income																				374,752
Balance at December 31, 2006		—		$ —	86,143,604		$ 86		$ 865,560			$ (71,785	)		$ (29,149	)		$ (5,063	)	$ 759,649

See accompanying notes to consolidated financial statements.

F-5

IMCLONE SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended December 31,
	2006			2005			2004
Cash flows from operating activities:
Net income	$	370,674		$	86,496		$	113,653
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	29,616			13,227			13,062
Amortization of deferred financing costs	3,713			3,713			3,107
Share-based compensation	8,798			—			4,448
Tax benefit from share-based compensation	(94,719		)	1,675			9,982
Loss on disposal of fixed assets	2			3,668			1
Recovery of withholding tax asset	—			—			(1,815		)
Loss (gain) on securities available for sale, net	—			13			(131		)
Deferred income taxes	(153,748		)	—			—
Other	(183		)	438			—
Changes in:
Prepaid expenses	(206		)	288			(426		)
Amounts due from corporate partners	(18,759		)	10,482			(60,774		)
Inventories	(20,821		)	(40,776		)	(40,618		)
Other current assets	(3,812		)	19,929			(24,625		)
Other assets	1,216			1,182			(5,824		)
Accounts payable	(9,109		)	(2,962		)	9,770
Other current liabilities	387			—			(3,369		)
Accrued expenses	102,035			(243		)	43,320
Share-based compensation	261			—			—
Withholding tax liability	(31,736		)	13,904			(1,076		)
Litigation settlement	—			(75,900		)	75,900
Deferred rent, less current portion	639			(943		)	496
Deferred revenue	20,852			(98,783		)	120,576
Net cash provided by (used in) operating activities	205,100			(64,592		)	255,657
Cash flows from investing activities:
Acquisitions of property, plant and equipment	(45,902		)	(84,263		)	(106,286		)
Purchases of securities available for sale	(1,595,970		)	(574,072		)	(3,457,174		)
Proceeds from sale of securities available for sale	1,130,990			575,598			1,967,058
Maturities of securities available for sale	198,422			77,607			724,161
Other	—			77			(8		)
Net cash used in investing activities	(312,460		)	(5,053		)	(872,249		)
Cash flows from financing activities:
Proceeds from exercise of stock options	29,000			17,644			77,860
Proceeds from issuance of common stock under the employee stock purchase plan	806			932			802
Tax benefit from share-based compensation	94,719			—			—
Proceeds from issuance of 13¤8% convertible notes	—			—			600,000
Repurchase of common stock	—			(24,849		)	—
Payment of financing costs	—			—			(18,559		)
Proceeds from issuance of common stock to Merck KGaA	—			—			5,000
Other	—			—			(55		)
Net cash provided by (used in) financing activities	124,525			(6,273		)	665,048
Net increase (decrease) in cash and cash equivalents	17,165			(75,918		)	48,456
Cash and cash equivalents at beginning of period	3,403			79,321			30,865
Cash and cash equivalents at end of period	$	20,568		$	3,403		$	79,321

See accompanying notes to consolidated financial statements.

F-6

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(1)Business Overview and Basis of Preparation

ImClone Systems Incorporated (the “Company”) 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. A substantial portion of the Company’s efforts and resources are devoted to research and development conducted on its own behalf and through collaborations with corporate partners and academic research and clinical institutions. The Company does not operate separate lines of business or separate business entities and does not conduct any of its operations outside of the United States. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and does not have separately reportable segments.

On September 28, 2006, Carl C. Icahn, Alexander J. Denner, Ph.D., Barberry Corp and High River Limited Partnership filed a consent solicitation to remove six members of the Company’s Board of Directors as well as to add Peter S. Liebert, M.D. to the Board. On October 9,2006, David M. Kies and William W. Crouse resigned from the Board of Directors of the Company. On October 19, 2006, Peter S. Liebert, M.D. was appointed by the Company’s Board of Directors to fill one of the vacancies resulting from the resignation of the two Directors discussed above. On October 24, 2006, the Company’s Board of Directors appointed Carl C. Icahn as Chairman of the Board. In addition, on October 24, 2006,  Joseph L. Fischer resigned as Interim Chief Executive Officer and as a member of the Company’s Board of Directors and was replaced by a newly formed Executive Committee of the Board (the “Executive Committee”), chaired by Alexander J. Denner, Ph.D., and including Directors Richard Mulligan, Ph.D., and Charles Woler, M.D., Ph.D. The Executive Committee will serve as the principal executive body for the Company until such time as a Chief Executive Officer is named. The Company also announced that Directors Vincent T. DeVita, Jr., M.D., John A. Fazio and William R. Miller will not stand for reelection to the Board of Directors at the Company’s next annual meeting. In addition, the Board determined that it would waive all director fees for six months and all option grants for directors for the next year. As a result of these developments, Carl C. Icahn and related parties withdrew their shareholder consent solicitation.

On February 12, 2004, the United States Food and Drug Administration (“FDA”) approved ERBITUX® (cetuximab) injection for use in combination with irinotecan in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In September 2005, Health Canada approved the use of ERBITUX for use in combination with irinotecan for the treatment of EGFR-expressing metastatic colorectal carcinoma in patients who are refractory to other irinotecan-based chemotherapy regimens and for use as a single agent for the treatment of EGFR expressing, metastatic colorectal carcinoma in patients who are intolerant to irinotecan-based chemotherapy. On March 1, 2006, the FDA approved ERBITUX for use in combination with radiation therapy for the treatment of locally or regionally advanced squamous cell carcinoma of the head and neck (“SCCHN”) and as a single agent in recurrent or metastatic SCCHN where prior platinum-based chemotherapy has failed. Please see full prescribing information, available at www.ERBITUX.com, for important safety information relating to ERBITUX, including boxed warnings.

On December 1, 2003, Swissmedic, the Swiss agency for therapeutic products, approved ERBITUX in Switzerland for the treatment of patients with colorectal cancer who no longer respond to standard chemotherapy treatment with irinotecan. Merck KGaA licensed the right to market ERBITUX outside the United States and Canada from the Company in 1998. On June 30, 2004, Merck KGaA received marketing approval by the European Commission to sell ERBITUX for use in combination with irinotecan for the

F-7

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

treatment of patients with EGFR-expressing metastatic colorectal cancer after failure of irinotecan including cytotoxic therapy. On December 22, 2005, Swissmedic approved ERBITUX in Switzerland in combination with radiation in the treatment of patients with previously untreated, advanced SCHHN. On April 3, 2006, Merck KGaA was granted marketing authorization by the European Commission to extend the use of ERBITUX, in combination with radiotherapy, to the treatment of patients with locally advanced SCCHN. In Japan, Merck KGaA has marketing rights to ERBITUX, which are co-exclusive to the co-development rights of the Company and BMS. In February 2007, an application was submitted with the Japanese Pharmaceuticals and Medical Devices Agency for the use of ERBITUX in treating patients with advanced colorectal cancer. ERBITUX is the first IgG1 monoclonal antibody that inhibits EGFR to be submitted for marketing authorization in Japan.

The Company believes that its existing cash and cash equivalents and marketable securities and its cash provided from operating activities will provide it with sufficient liquidity to support the Company’s operations at least through the first quarter of 2008. The Company is also entitled to reimbursement for certain marketing and research and development expenditures.

The Company relies entirely on third-party manufacturers for filling and finishing services with respect to ERBITUX. If the Company’s current third-party manufacturers or critical raw material suppliers fail to meet the Company’s expectations, the Company cannot be assured that it will be able to enter into new agreements with other suppliers or third-party manufacturers without an adverse effect on the Company’s business.

(2)Summary of Significant Accounting Policies

(a) Principles of Consolidation

The consolidated financial statements include the financial statements of ImClone Systems Incorporated and its wholly-owned subsidiary, Endoclone Incorporated. All intercompany balances and transactions have been eliminated in consolidation.

(b) Cash Equivalents

Cash equivalents may consist of money market funds, commercial paper and other readily marketable debt instruments. The Company considers all highly liquid debt instruments with original maturities at date of purchase not exceeding three months to be cash equivalents.

(c) Investments in Securities

The Company classifies its investments in debt and marketable equity securities as available-for-sale. The Company invests primarily in asset-backed securities, auction rate securities and corporate notes. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. If the fair value of a security in the portfolio is below its carrying value, the Company evaluates whether it has the intent and ability to retain the investment for a period of time sufficient to allow for recovery in the market value of the investment. In making a determination of whether an impairment is other-than-temporary the Company considers a number of factors, including the liquidity position and credit worthiness of the issuer of such securities. A decline in the market value of any available-for-sale security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to Other

F-8

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(income) expense and a new cost basis for the security is established. Dividend and interest income are recognized when earned.

(d) Inventories

Inventories are stated at the lower of cost or market. Cost is determined on the first-in first-out (FIFO) basis. The Company’s policy is to capitalize inventory product costs when, based on management’s judgment, future economic benefit is expected to be realized. The Company’s accounting policy addresses the attributes that should be considered in evaluating whether the costs to manufacture a product have met the definition of an asset as stipulated in Financial Accounting Standards Board (“FASB”) Concepts Statement No. 6. If applicable, the Company assesses the regulatory and approval process including any known constraints and impediments to approval. The Company also considers the shelf-life of the product in relation to the expected timeline for approval. The Company reviews its inventory for excess or obsolete inventory and writes down obsolete or otherwise unmarketable inventory to its estimated net realizable value.

(e) Long-Lived Assets

Property, plant and equipment are stated at cost. Equipment under capital leases are stated at the present value of the minimum lease payments. Leasehold improvements are amortized on the straight-line method over the related lease term or the useful life of the improvement, whichever is shorter. Depreciation of fixed assets is provided on the straight-line method over the estimated useful life of the asset. Estimated useful lives are generally as follows: buildings 20 to 50 years; manufacturing equipment 10 to 20 years; laboratory and other machinery and equipment 3 to 10 years; and furniture and fixtures 8 years.

Patent and patent application costs that have been capitalized are amortized on a straight-line basis over their respective expected useful lives, up to a 15-year period. Gross patent costs were $1,888,000 and $2,080,000 at December 31, 2006 and 2005, respectively. Accumulated amortization was $1,218,000 and $1,208,000 at December 31, 2006 and 2005, respectively. Amortization expense was $121,000, $161,000 and $169,000 for the three years ended December 31, 2006, 2005 and 2004, respectively. Amortization expense is estimated to be $95,000 for each of the next five years. For the years ended December 31, 2006, 2005 and 2004 the Company had net patent write-offs of $81,000, $288,000, and $0, respectively, reflected in Marketing, general and administrative expenses on the Consolidated Statements of Operations.

The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and are written down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is generally the present value of the expected associated cash flows.

(f) Deferred Financing Costs

Costs incurred in issuing the 13¤8% convertible senior notes are amortized and the 5½% convertible subordinated notes that were outstanding until June 2004, were amortized using the straight-line method over the shorter of: the term of the related instrument or the initial date on which the holders can require repurchase of the notes. The amortization of deferred financing costs is included in Interest expense in the Consolidated Statements of Operations. Upon redemption of the Company’s 5½% convertible subordinated notes in 2004, the remaining unamortized deferred financing costs of approximately $1.2 million were reclassified to stockholders’ equity.

F-9

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(g) Revenue Recognition

The Company recognizes all non-refundable up-front license fees as revenues in accordance with the guidance provided in the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition, corrected copy” (“SAB 104”) and Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). Non-refundable fees received upon entering into license and other collaborative agreements where the Company has continuing involvement are recorded as deferred revenue and recognized over the estimated service period. Payments received under the Commercial Agreement are being deferred and recognized as revenue based on the percentage of actual product research and development costs incurred to date by both BMS and the Company to the estimated total of such costs to be incurred over the term of the agreement. Other than the Commercial Agreement, non-refundable milestone payments, which represent the achievement of a significant step in the research and development process, pursuant to collaborative agreements, are recognized as revenue upon the achievement of the specified milestone.

Pursuant to the guidance in EITF Issues No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” and No. 01-14, “Income Statement Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” the Company characterizes reimbursements received for research and development, clinical and regulatory, royalty expense and marketing and administrative expenses incurred as Collaborative agreement revenue in the Consolidated Statements of Operations. In analyzing whether to categorize reimbursed expenses from the Company’s corporate partners as a) the gross amount billed or b) the net amount retained, the Company has analyzed the relevant facts and circumstances related to these expenses and considered the factors, as specified in the EITF Issues noted above. These expenses, which are associated with ERBITUX, are broader than would ordinarily result in central ongoing operations. These expenses have been incurred as a result of entering into the collaborative agreements that the Company has in place with its partners. In assessing whether revenue should be reported gross or net, the Company considered various factors, among them: (1) the Company is the primary obligor with respect to all expenses incurred and reimbursed; (2) the Company bears credit risk and inventory risk; (3) the Company bears responsibility for manufacturing the product and its specification; and (4) the Company has pricing latitude and supplier discretion. Based on the factors considered, the Company has concluded that costs reimbursed by its corporate partners should be characterized as revenue in its Consolidated Statements of Operations.

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

Manufacturing revenue consists of revenue earned on the sale of ERBITUX to the Company’s corporate partners for subsequent commercial sale. The Company recognizes manufacturing revenue when the product is shipped which is when the Company’s partners take ownership and title has passed, collectibility is reasonably assured, the sales price is fixed or determinable, and there is persuasive evidence of an arrangement.

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

F-10

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue recognized in the accompanying Consolidated Statements of Operations is not subject to repayment. Payments received that are related to future performance are classified as deferred revenue and recognized when the revenue is earned. Amounts receivable from the sale of inventories, reimbursement of expenses and royalty receivable are reflected in the Company’s Consolidated Balance Sheet as Amounts due from corporate partners and the cash flows associated with such revenues are classified in the Company’s Consolidated Statements of Cash Flows as operating activities.

(h) Foreign Currency Transactions

Gains and losses from foreign currency transactions, such as those resulting from the translation and settlement of receivables and payables denominated in foreign currencies, are included in the Consolidated Statements of Operations. The Company does not currently use derivative financial instruments to manage the risks associated with foreign currency fluctuations. The Company recorded gains on foreign currency transactions of approximately $20,000 for the year ended December 31, 2005, and losses on foreign currency transactions of approximately $10,000 and $26,000 for the years ended December 31, 2006 and 2004, respectively. Gains and losses from foreign currency transactions are included as a component of operating expenses.

(i) Stock-Based Compensation Plans

The Company has three types of stock-based compensation plans: stock option plans, an employee stock purchase plan, and effective as of January 1, 2006, a retention plan. On January, 1, 2006, the Company adopted  FASB Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method. Under this method, prior periods are not revised for comparative purposes and the Company recognizes compensation cost using a fair-value based method for all share-based payments granted after December 31, 2005, plus any awards granted to employees prior to December 31, 2005 that remain unvested at that time. Prior to January 1, 2006, the Company accounted for its share-based compensation plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation—An Interpretation of APB Opinion No. 25” (FIN 44). On November 10, 2005, the FASB issued FASB Staff Position No. FAS123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company has elected to adopt the alternative transition method provided in this FASB Staff Position for purposes of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

(j) Research and Development and Clinical and Regulatory

Research and development and clinical and regulatory expenses are comprised of the following types of costs: salaries and benefits, allocated overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services and other outside costs. These expenses also include costs related to activities performed on behalf of corporate partners that are subject to reimbursement. Research and development and clinical and regulatory costs are expensed as incurred. The Company is producing clinical and commercial grade ERBITUX in its BB36 and BB50 facilities. Prior to the receipt of approval of ERBITUX for commercial sale on February 12, 2004, the Company had expensed all costs associated with the production of ERBITUX to research and development expense.

F-11

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(k) Interest

Interest costs are expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is capitalized. Interest costs capitalized for the years ended December 31, 2006, 2005 and 2004 were approximately $2.6 million, $5.4 million, and $6.1 million, respectively. Interest expense includes the amortization of deferred financing costs associated with the Company’s 13¤8% convertible senior notes, and the 5½% convertible subordinated notes until their redemption in June 2004.

(l) Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income or expense in the period that includes the enactment date of the rate change.

(m) Use of Estimates

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 U.S. generally accepted accounting principles. Actual results could differ materially from those estimates.

(n) Income Per Common Share

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

(o) Comprehensive Income

Comprehensive income consists of net income and net unrealized gains (losses) on securities and is presented in the Consolidated Statements of Stockholders’ Equity (Deficit). The tax (provision) benefit on the items included in Other comprehensive income (loss), assuming they were recognized in income, would be approximately $(772,000), $108,000 and $148,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

(p) Legal Defense Costs

Legal defense costs are expensed as incurred.

F-12

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(q) Impact of Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This Interpretation is effective for fiscal years beginning after December 15, 2006. The Company has reviewed its tax positions and does not expect that the Interpretation will have a material impact on its results of operations or financial position.

(3)Securities Available for Sale

The securities available for sale by major security type at December 31, 2006 and 2005 were as follows: (in thousands)

				Gross			Gross
				Unrealized			Unrealized
December 31, 2006	Amortized Cost			Holding Gains			Holding Losses				Fair Value
Asset-backed securities		$	397,400		$	—		$	(5,062	)	$	392,338
Foreign corporate debt		1,802			—			(1		)	1,801
Auction rate securities		629,470			—			—			629,470
Total securities available for sale		$	1,028,672		$	—		$	(5,063	)	$	1,023,609

				Gross			Gross
				Unrealized			Unrealized
December 31, 2005	Amortized Cost			Holding Gains			Holding Losses				Fair Value
Asset-backed securities		$	552,400		$	—		$	(9,132	)	$	543,268
Foreign corporate debt		3,662			—			(9		)	3,653
Auction rate securities		206,052			—			—			206,052
Total securities available for sale		$	762,114		$	—		$	(9,141	)	$	752,973

Unrealized loss positions for which other-than-temporary impairments have not been recognized at December 31, 2006 and 2005, is summarized below (in thousands):

	Less Than 12 Months						12 Months or Greater						Total
	Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
December 31, 2006	Value		Losses				Value		Losses				Value		Losses
Asset-backed securities	$	210,374		$	(2,026	)	$	181,964		$	(3,036	)	$	392,338		$	(5,062	)
Foreign corporate debt	—			—			1,801			(1		)	1,801			(1		)
Total	$	210,374		$	(2,026	)	$	183,765		$	(3,037	)	$	394,139		$	(5,063	)

	Less Than 12 Months						12 Months or Greater						Total
	Fair		Unrealized				Fair		Unrealized				Fair		Unrealized
December 31, 2005	Value		Losses				Value		Losses				Value		Losses
Asset-backed securities	$	228,754		$	(3,646	)	$	314,514		$	(5,486	)	$	543,268		$	(9,132	)
Foreign corporate debt	—			—			3,653			(9		)	3,653			(9		)
Total	$	228,754		$	(3,646	)	$	318,167		$	(5,495	)	$	546,921		$	(9,141	)

F-13

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized losses relate to various debt securities including asset-backed securities and foreign corporate debt. For these securities, the unrealized losses are primarily due to increases in interest rates. Because the Company has the ability and intent to hold these investments until recovery of fair value, which may be maturity, it does not consider these investments to be other-than-temporarily impaired as of December 31, 2006.

Maturities of debt securities classified as available for sale were as follows at December 31, 2006: (in thousands)

	Amortized Cost		Fair Value
2007	$	212,400	$	210,374
2008	101,802		100,089
2009	55,000		54,038
2010	30,000		29,638
2011	—		—
2012 and thereafter	629,470		629,470
	$	1,028,672	$	1,023,609

Gross realized gains included in income in the years ended December 31, 2006, 2005 and 2004 were approximately $0, $3,000 and $142,000, respectively, and gross realized losses included in income in the years ended December 31, 2006, 2005 and 2004 were approximately $0, $16,000 and $11,000, respectively. These gains and losses were determined on a specific identification basis. Interest on certain securities is adjusted monthly, quarterly or semi-annually, depending on the instrument, using prevailing interest rates. These holdings are highly liquid and the Company considers the potential for loss of principal to be minimal. All holdings are denominated in U.S. currency.

(4)Inventories

Inventories consist of the following: (in thousands)

	December 31,			December 31,
	2006			2005
Raw materials and supplies		$	17,818		$	22,664
Work in process		79,048			49,149
Finished goods		5,349			9,581
Total		$	102,215		$	81,394

In June 2006, the Company began producing ERBITUX for commercial use at its multiple product manufacturing facility (“BB50”), located in Branchburg, New Jersey. The Company expects to file a supplemental Biological License Application with the FDA for approval of BB50 in the first quarter of 2007. Until such time as the Company receives approval of BB50 from the FDA, the ERBITUX inventory produced in BB50 cannot be used for commercial distribution. Based on management’s current expectations, the Company expects that the costs of such inventory will be fully realizable once the Company obtains approval of BB50, which is expected in the second half of 2007. As of December 31, 2006, the Company has capitalized approximately $35.5 million related to the costs of producing

F-14

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ERBITUX in BB50. The Company will continue to capitalize the costs of producing ERBITUX in BB50 as long as management can conclude that the costs of such inventory will be fully realizable in the future.

(5)Property, Plant and Equipment

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

	December 31,				December 31,
	2006				2005
Land		$	4,899			$	4,899
Building		281,556				67,597
Leasehold improvements		14,595				13,969
Machinery and equipment		164,869				62,806
Furniture and fixtures		6,368				4,596
Construction in progress		45,924				318,446
Total cost		518,211				472,313
Less accumulated depreciation		(95,211		)		(65,718		)
Property, plant and equipment, net		$	423,000			$	406,595

The Company constructed a 250,000 square foot multiple product manufacturing facility in Branchburg, New Jersey with capacity of up to 110,000 liters (production volume). Mechanical completion was reached in the fourth quarter of 2005 and commissioning and validation of a portion of the building was reached in the second quarter of 2006. In June 2006, the Company transferred, from construction in progress, the cost associated with this facility into the appropriate fixed asset categories, with the exception of costs related to equipment in a portion of the building which is not yet ready for its intended use. The total cost of building this facility amounted to approximately $331.4 million.

The process of preparing consolidated financial statements in accordance with U.S. generally accepted accounting principles 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. Based on management’s current estimates, the Company expects to recover the carrying value of such assets.

(6)Accrued Expenses

The following items are included in accrued expenses: (in thousands)

	December 31,			December 31,
	2006			2005
Salaries and employee benefits		$	13,964		$	18,976
Research and development contract services		23,802			20,540
License fee and royalty expense		21,159			16,397
Other		10,155			5,021
		$	69,080		$	60,934

(7)Withholding Tax Assets and Liability

On March 14, 2006, the Company reached an agreement in principle with the IRS to resolve the employment tax audit related to the years 1999-2001, which included the Company’s agreement to the

F-15

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

imposition of an accuracy-related penalty under Section 6662 of the Internal Revenue Code. Under this agreement, the Company’s liability to the IRS was calculated to be approximately $32.0 million. The Company had previously recorded a withholding tax liability of $18.1 million and a withholding tax asset of $274,000 in its consolidated Balance Sheet as of December 31, 2004. Based on the agreement in principle reached with the IRS, the Company eliminated the withholding tax asset of $274,000 and recorded an additional withholding tax liability of approximately $13.9 million, or a total of $32.0 million, in its consolidated Balance Sheet as of December 31, 2005. As a result, the Company recorded in the fourth quarter of 2005 a net withholding tax expense of approximately $14.2 million. On April 19, 2006, the Company signed an agreement with the IRS to resolve the employment tax audit. Pursuant to such agreement the Company paid approximately $28.7 million to the IRS on April 21, 2006, and on April 28, 2006, the Company paid the IRS approximately $3.1 million consisting of interest. The remaining $264,000 of excess withholding tax liability was reversed into income during the fourth quarter of 2006 after the Company had concluded that the payments were accepted by the IRS and the matter had been finalized.

(8)Long-Term Debt

The Company’s long-term debt was $600.0 million at December 31, 2006 and 2005.

In May 2004, the Company completed a private placement of $600.0 million in convertible senior notes due 2024. The notes bear interest at 13¤8% per annum payable semi-annually. The Company received net proceeds from this offering of approximately $581.4 million. Holders may convert the notes into shares of the Company’s common stock at a conversion rate of 10.5613 shares per $1,000 principal amount of notes which is equivalent to a conversion price of $94.69 per share, subject to adjustment, before the close of business on the business day immediately prior to May 15, 2024, subject to prior redemption or repurchase of the notes, only under the following circumstances: (1) on or prior to May 15, 2019, during any calendar quarter commencing after June 30, 2004, if the closing sale price of the Company’s common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the preceding calendar quarter and after May 15, 2019, if the closing sale price of the Company’s common stock exceeds 120% of the conversion price on the immediately preceding trading day; (2) during the five business day period after any five consecutive trading day period in which the trading price per note for each day of that period was less than 98% of the product of the closing sale price of the Company’s common stock and the conversion rate; (3) if the notes have been called for redemption; or (4) upon the occurrence of certain corporate events. Beginning May 20, 2009, the Company may redeem all or any portion of the notes at a redemption price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest. On May 15 of 2009, 2014 and 2019, or upon the occurrence of certain designated events, holders may require the Company to repurchase the notes at a repurchase price equal to 100% of the principal amount of the notes plus accrued and unpaid interest. The notes are unsubordinated unsecured debt and will rank on a parity with all of the Company’s other existing and future unsubordinated unsecured debt and prior to all of the Company’s existing and future subordinated debt. Deferred financing costs of approximately $18.6 million associated with the issuance of this debt are being amortized over five years.

In June 2004, the Company redeemed all of the outstanding 51¤2 % convertible subordinated notes due in 2005. All of the outstanding notes which amounted to approximately $240.0 million, were converted by June 17, 2004, into 4,356,000 shares of the Company’s common stock. At the time of redemption there was approximately $1.2 million of unamortized deferred financing cost which was recorded against additional paid-in capital.

F-16

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(9)Income Per Common Share

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

	Year Ended December 31,
	2006		2005		2004
EPS Numerator—Basic:
Net income	$	370,674	$	86,496	$	113,653
EPS Denominator—Basic:
Weighted-average number of shares of common stock outstanding	84,235		83,582		79,500
EPS Numerator—Diluted:
Net income	$	370,674	$	86,496	$	113,653
Adjustment for interest, net of amounts capitalized and income tax effect	7,557		6,484		7,315
Net income, adjusted	$	378,231	$	92,980	$	120,968
EPS Denominator—Diluted:
Weighted-average number of shares of common stock outstanding	84,235		83,582		79,500
Effect of dilutive securities:
Stock options	1,441		2,265		5,589
Convertible subordinated notes	6,336		6,336		6,104
Dilutive potential common shares	7,777		8,601		11,693
Weighted-average common shares and dilutive potential common shares	92,012		92,183		91,193
Basic income per common share	$	4.40	$	1.03	$	1.43
Diluted income per common share	$	4.11	$	1.01	$	1.33

For the year ended December 31, 2004, potentially diluted common shares applicable to the 51¤2% convertible notes that were converted during 2004 have been weighted and included for the period the convertible securities were outstanding prior to conversion. The dilutive effect of the 13¤8% convertible notes issued in 2004 has been weighted and included in the diluted share computation for the period the convertible securities were outstanding.

For the years ended December 31, 2006, 2005, and 2004, there were an aggregate of 8,671,000, 8,277,000 and 2,333,000, respectively, potential common shares, excluded from the diluted loss per share computation because their inclusion would have had an anti-dilutive effect.

(10)Collaborative Agreements

(a) Merck KGaA

In April 1990, the Company entered into an agreement with Merck KGaA relating to the development and commercialization of BEC2 and the recombinant gp75 antigen. Under this agreement, the Company:

·granted Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 antigen outside North America;

F-17

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

·granted Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make, BEC2 within North America in conjunction with ImClone Systems;

·retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 antigen in North America

·was required to give Merck KGaA the opportunity to negotiate a license in North America to gp75 antigen before granting such a license to any third party.

In return, Merck KGaA:

·made research support payments to us totaling $4.7 million;

·was required to make milestone payments to us of up to $22.5 million, of which $5.0 million was received through December 31, 2005 based on milestones achieved in the product development of BEC2;

·was required to make royalty payments to us on all sales of the licensed products outside North America, if any, with a portion of the earlier funding received under the agreement being creditable against the amount of royalties due.

Following an analysis of the results of various clinical studies involving BEC2 and work on the recombinant gp75 antigen, the Company and Merck KGaA determined to discontinue their further development and terminated the related agreement in the fourth quarter of 2005. Approximately $1.6 million of deferred revenue related to this agreement was recorded as revenue upon the cancellation of the contract. The Company incurred expenses of approximately $0, $19,000 and $333,000 for the years ended December 31, 2006, 2005 and 2004, respectively, related to this contract.

In December 1998, the Company entered into a development and license agreement with Merck KGaA with respect to ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-exclusive development rights in Japan, the Company received $30.0 million in up-front cash fees and early cash payments based on the achievement of defined milestones, all of which were received by December 31, 2001. An additional $30.0 million was received through December 31, 2004, based upon the achievement of further milestones for which Merck KGaA received equity in the Company. The equity interests underlying the milestone payments were priced at varying premiums to the then-market price of the common stock depending upon the timing of the achievement of the respective milestones.

Merck KGaA pays the Company a royalty on its sales of ERBITUX outside of the United States and Canada. In August 2001, the Company and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third-party to do so upon the Company’s reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30.0 million credit facility relating to the build-out of BB36. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by the Company of ERBITUX in the Company’s territory. In consideration for the amendment, the Company agreed to a reduction in royalties’ payable by Merck KGaA on sales of ERBITUX in Merck KGaA’s territory.

F-18

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In September 2002, the Company entered into a binding term sheet, effective as of April 15, 2002, for the supply of ERBITUX to Merck KGaA, which replaced previous supply arrangements. The term sheet provided for Merck KGaA to purchase bulk and finished ERBITUX ordered from the Company during the term of the December 1998 development and license agreement at a price equal to the Company’s fully loaded cost of goods. The term sheet also provided for Merck KGaA to use reasonable efforts to enter into its own contract manufacturing agreements for supply of ERBITUX and obligates Merck KGaA to reimburse the Company for costs associated with transferring technology and any other services requested by Merck KGaA relating to establishing its own manufacturing or contract manufacturing capacity.

In July 2006, the Company and Merck KGaA entered into agreements amending and supplementing the 1998 development and license agreement. As part of the agreements, the Company consented to Merck KGaA’s sublicense of certain intellectual property rights relating to the development and commercialization of an anti-EGFR antibody to Takeda Pharmaceutical Company (“Takeda”). Merck KGaA and Takeda signed an alliance in September 2005 for the development and commercialization of matuzumab (EMD-72000), a humanized EGFR-targeting monoclonal antibody. In consideration for the Company’s consent, Merck KGaA agreed to pay the Company €2.5 million within 30 days of the execution of the agreements and a further €5.0 million within 30 days of the Company’s written consent to the sublicense. The Company received the first payment of €2.5 million in August of 2006 and has deferred the revenue associated with this payment and is recognizing it over the estimated service period. The Company expects to give written consent to sublicense in the first quarter of 2007. In addition, Merck KGaA agreed to increase its fixed royalty to 9.5% on net sales of ERBITUX outside the U.S. and Canada, effective July 1, 2006. The agreements also promote freedom to operate in the development and commercialization of matuzumab outside the United States and Canada and of IMC-11F8 (a fully-human EGFR-targeted IgG1 monoclonal antibody being developed by ImClone Systems) within the United States and Canada through the granting of certain reciprocal rights, including the sharing of confidential technical information. This is in addition to the exclusive rights held by the Company to develop and commercialize IMC-11F8 outside of the United States and Canada. The agreements do not extend to key intellectual property rights in the U.S. and Canada, where the Company and its partner Bristol-Myers Squibb continue to hold exclusive licenses to key patents covering certain uses of EGFR-targeted monoclonal antibodies. The Company has a liability due Merck KGaA of approximately $58,000 and $2.5 million as of December 31, 2006 and 2005, respectively.

(b) Bristol-Myers Squibb Company

On September 19, 2001, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation (“BMS Biologics”), which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of the Company’s common stock for $70.00 per share, net to the seller in cash. In connection with the Acquisition Agreement, the Company entered into a stockholder agreement with BMS and BMS Biologics, dated as of September 19, 2001 (the “Stockholder Agreement”), pursuant to which all parties agreed to various arrangements regarding the respective rights and obligations of each party with respect to, among other things,  the ownership of shares of the Company’s common stock by BMS and BMS Biologics. Concurrent with the execution of the Acquisition Agreement and the Stockholder Agreement, the Company entered into the Commercial Agreement with BMS and E.R. Squibb, relating to ERBITUX, pursuant to which, among other things, BMS and E.R. Squibb are co-developing and co-promoting ERBITUX in the United States and Canada with the Company, and are

F-19

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

co-developing and co-promoting ERBITUX in Japan with the Company and either together or co-exclusively with Merck KGaA.

On March 5, 2002, the Company amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and expanded the clinical and strategic roles of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that the Company received payments of $140.0 million on March 7, 2002 and $60.0 million on March 5, 2003. Such payments are in lieu of the $300.0 million milestone payment the Company would have received upon acceptance by the FDA of the ERBITUX BLA under the original terms of the Commercial Agreement. The terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in more detail below.

Commercial Agreement

Rights Granted to E.R. Squibb—Pursuant to the Commercial Agreement, as amended on March 5, 2002, the Company granted to E.R. Squibb (1) the exclusive right to distribute, and the co-exclusive right to develop and promote (together with the Company) any prescription pharmaceutical product using the compound ERBITUX (the “product”) in the United States and Canada, (2) the co-exclusive right to develop, distribute and promote (together with the Company and together or co-exclusively with Merck KGaA and its affiliates) the product in Japan, and (3) the non-exclusive right to use the Company’s registered trademarks for the product in the United States, Canada and Japan (collectively, the “territory”) in connection with the foregoing. In addition, the Company agreed not to grant any right or license to any third party, or otherwise permit any third party, to develop ERBITUX for animal health or any other application outside the human health field without the prior consent of E.R. Squibb (which consent may not be unreasonably withheld).

Rights Granted to the Company—Pursuant to the Commercial Agreement, E.R. Squibb has granted to the Company and the Company’s affiliates a license, without the right to grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan and to any third party for use outside the territory), to use solely for the purpose of developing, using, manufacturing, promoting, distributing and selling ERBITUX or the product, any process, know-how or other invention developed solely by E.R. Squibb or BMS that has general utility in connection with other products or compounds in addition to ERBITUX or the product (“E.R. Squibb Inventions”).

Up-Front and Milestone Payments—The Commercial Agreement provided for up-front and milestone payments by E.R. Squibb to the Company of $900.0 million in the aggregate, of which $200.0 million was paid on September 19, 2001, $140.0 million was paid on March 7, 2002, $60.0 million was paid on March 5, 2003,  $250.0 million was paid on March 12, 2004, and  $250.0 million was paid on March 31, 2006, as a result of obtaining FDA approval on March 1, 2006 of ERBITUX for use in the treatment of SCCHN. All such payments are non-refundable and non-creditable.

Distribution Fees—The Commercial Agreement provides that E.R. Squibb shall pay the Company distribution fees based on a percentage of “annual net sales” of the product (as defined in the Commercial Agreement) by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of the product in Japan by E.R. Squibb or ImClone Systems shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb

F-20

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

shall pay the Company the amount of such distribution fee, and in the event of an operating loss, the Company shall credit E.R. Squibb the amount of such distribution fee.

Development of the Product—Responsibilities associated with clinical and other ongoing studies are apportioned between the parties as determined by the product development committee described below. The Commercial Agreement provides for the establishment of clinical development plans setting forth the activities to be undertaken by the parties for the purpose of obtaining marketing approvals, providing market support and developing new indications and formulations of the product. After transition of responsibilities for certain clinical and other studies, each party is primarily responsible for performing the studies designated to it in the clinical development plans. In the United States and Canada, the Commercial Agreement provides that E.R. Squibb is responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an IND (e.g. Phase IV studies), the cost of which is shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and ImClone Systems, each is responsible for 50% of the costs of all studies in Japan. The Company has also agreed, and may agree in the future, to share with E.R. Squibb, on terms other than the foregoing, costs of clinical trials that the Company believes are not potentially registrational but should be undertaken prior to launch in the United States, Canada or Japan. In addition, to the extent that in 2005 and 2006 the Company and BMS exceed the contractual maximum registrational costs for clinical development, the Company has agreed to share such cost with BMS. The Company has incurred approximately $20.8 million,  $19.9 million and $9.1 million pursuant to such cost sharing for the years ended December 31, 2006, 2005 and 2004, respectively. The Company has also incurred approximately $3.1 million, $1.4 million and $721,000 for the years ended December 31, 2006, 2005 and 2004, respectively, related to the agreement with respect to development in Japan. Except as otherwise agreed upon by the parties, the Company will own all registrations for the product and is primarily responsible for the regulatory activities leading to registration in each country. E.R. Squibb will be primarily responsible for the regulatory activities in each country after the product has been registered in that country. Pursuant to the terms of the Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice President, Strategy and Medical & External Affairs of BMS, and a member of the Company’s Board of Directors, is entitled to oversee the implementation of the clinical and regulatory plan for ERBITUX.

Distribution and Promotion of the Product—Pursuant to the Commercial Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to launch, promote and sell the product in the territory with the objective of maximizing the sales potential of the product and promoting the therapeutic profile and benefits of the product in the most commercially beneficial manner. In connection with its responsibilities for distribution, marketing and sales of the product in the territory, E.R. Squibb is performing all relevant functions, including but not limited to the provision of sales force personnel, marketing, warehousing and physical distribution of the product.

However, the Company has the right, at its election and sole expense, to co-promote with E.R. Squibb the product in the territory. Pursuant to this co-promotion option, which the Company has exercised, the Company is entitled on and after April 11, 2002 (at the Company’s sole expense) to have the Company’s field organization participate in the promotion of the product consistent with the marketing plan agreed upon by the parties, provided that E.R. Squibb retains the exclusive rights to sell and distribute the product. Except for the Company’s expenses incurred pursuant to the co-promotion option, E.R. Squibb is responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between E.R. Squibb and ImClone Systems, each is responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. During the third quarter of 2004, the

F-21

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company established a sales force to maximize the potential commercial opportunities for ERBITUX and to serve as a foundation for the marketing of future products derived either from within the Company’s pipeline or through business development opportunities.

Manufacture and Supply—The Commercial Agreement provides that the Company is responsible for the manufacture and supply of all requirements of ERBITUX in bulk form (“API”) for clinical and commercial use in the territory, and that E.R. Squibb will purchase all of its requirements of API for commercial use from the Company. The Company supplies API for clinical use at the Company’s fully burdened manufacturing cost, and supplies API for commercial use at the Company’s fully burdened manufacturing cost plus a mark-up of 10%. The agreement also specifies that the Company should use reasonable efforts to reduce the fully burdened manufacturing cost of producing bulk ERBITUX over time. Specifically, beginning with 2006 production of bulk ERBITUX, the agreement provides that the cost of API should not exceed a predetermined price per gram. Any excess over such amount will be shared equally by the Company and BMS.

Upon the expiration, termination or assignment of any existing agreements between ImClone Systems and third party manufacturers, E.R. Squibb will be responsible for processing API into the finished form of the product. Sales of ERBITUX to BMS for commercial use are reflected in the Company’s Consolidated Statements of Operations as Manufacturing revenue.

Management—The parties have formed the following committees for purposes of managing their relationship and their respective rights and obligations under the Commercial Agreement:

·a Joint Executive Committee (the “JEC”), which consists of certain senior officers of each party. The JEC is co-chaired by a representative of each of BMS and the Company. The JEC is responsible for, among other things, managing and overseeing the development and commercialization of ERBITUX pursuant to the terms of the Commercial Agreement, approving the annual budgets and multi-year expense forecasts, and resolving disputes, disagreements and deadlocks arising in the other committees;

·a Product Development Committee (the “PDC”), which consists of members of senior management of each party with expertise in pharmaceutical drug development and/or marketing. The PDC is chaired by the Company’s representative. The PDC is responsible for, among other things, managing and overseeing the development and implementation of the clinical development plans, comparing actual versus budgeted clinical development and regulatory expenses, and reviewing the progress of the registrational studies;

·a Joint Commercialization Committee (the “JCC”), which consists of members of senior management of each party with clinical experience and expertise in marketing and sales. The JCC is chaired by a representative of BMS. The JCC is responsible for, among other things, overseeing the preparation and implementation of the marketing plans, coordinating the sales efforts of E.R. Squibb and the Company, and reviewing and approving the marketing and promotional plans for the product in the territory; and

·a Joint Manufacturing Committee (the “JMC”), which consists of members of senior management of each party with expertise in manufacturing. The JMC is chaired by the Company’s representative (unless a determination is made that a long-term inability to supply API exists, in which case the JMC will be co-chaired by representatives of E.R. Squibb and the Company). The JMC is

F-22

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

responsible for, among other things, overseeing and coordinating the manufacturing and supply of API and the product, and formulating and directing the manufacturing strategy for the product.

Any matter that is the subject of a deadlock (i.e., no consensus decision) in the PDC, the JCC or the JMC will be referred to the JEC for resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved as follows: (1) if the matter was also the subject of a deadlock in the PDC, by the co-chairperson of the JEC designated by the Company, (2) if the matter was also the subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by BMS, or (3) if the matter was also the subject of a deadlock in the JMC, by the co-chairperson of the JEC designated by the Company. All other deadlocks in the JEC will be resolved by arbitration.

Restriction on Competing Products—During the period from the date of the Commercial Agreement until September 19, 2008, the parties have agreed not to, directly or indirectly, develop or commercialize a competing product (defined as a product that has as its only mechanism of action an antagonism of the EGFR) in any country in the territory. In the event that any party proposes to commercialize a competing product or purchases or otherwise takes control of a third party which has developed or commercialized a competing product, then such party must either divest the competing product within 12 months or offer the other party the right to participate in the commercialization and development of the competing product on a 50/50 basis (provided that if the parties cannot reach agreement with respect to such an agreement, the competing product must be divested within 12 months).

Ownership—The Commercial Agreement provides that the Company owns all data and information concerning ERBITUX and the product and (except for the E.R. Squibb Inventions) all processes, know-how and other inventions relating to the product and developed by either party or jointly by the parties. E.R. Squibb, however, has the right to use all such data and information, and all such processes, know-how or other inventions, in order to fulfill its obligations under the Commercial Agreement.

Product Recalls—If E.R. Squibb is required by any regulatory authority to recall the product in any country in the territory (or if the JCC determines such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall bear the costs and expenses associated with such a recall (1) in the United States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R. Squibb and (2) in Japan, in the proportion for which each party is entitled to receive operating profit or loss (unless, in the territory, the predominant cause for such a recall is the fault of either party, in which case all such costs and expenses shall be borne by such party).

Mandatory Transfer—Each of BMS and E.R. Squibb has agreed under the Commercial Agreement that in the event it sells or otherwise transfers all or substantially all of its pharmaceutical business or pharmaceutical oncology business, it must also transfer to the transferee its rights and obligations under the Commercial Agreement.

Indemnification—Pursuant to the Commercial Agreement, each party has agreed to indemnify the other for (1) its negligence, recklessness or wrongful intentional acts or omissions, (2) its failure to perform certain of its obligations under the agreement, and (3) any breach of its representations and warranties under the agreement.

F-23

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Termination—Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the product in each country in the territory on the later of September 19, 2018 and the date on which the sale of the product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may also be terminated prior to such expiration as follows:

·by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice;

·by E.R. Squibb, if the JEC determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products.

Stockholder Agreement

Pursuant to the Stockholder Agreement, the Company’s Board was increased from ten to twelve members in October 2001. Our Board has subsequently been reduced to eleven members. BMS received the right to nominate two directors to the Company’s Board (each a “BMS director”) so long as its ownership interest in ImClone Systems is 12.5% or greater. If BMS’ ownership interest is 5% or greater but less than 12.5%, BMS will have the right to nominate one BMS director, and if BMS’ ownership interest is less than 5%, BMS will have no right to nominate a BMS director. If the size of the Board is increased to a number greater than twelve, the number of BMS directors would be increased, subject to rounding, such that the number of BMS directors is proportionate to the lesser of BMS’ then-current ownership interest and 19.9%. Notwithstanding the foregoing, BMS will have no right to nominate any BMS directors if (1) the Company has terminated the Commercial Agreement due to a material breach by BMS or (2) BMS’ ownership interest were to remain below 5% for 45 consecutive days.

Based on the number of shares of common stock acquired pursuant to the tender offer and the fact that we currently have ten, BMS has the right to nominate two directors. BMS designated Andrew G. Bodnar, M.D., J.D., BMS’ Senior Vice President, Strategy and Medical & External Affairs, as one of the initial BMS directors. The nomination of Dr. Bodnar was approved by the Board on November 15, 2001. BMS has not yet designated an individual to fill the open Board seat.

Voting of Shares—During the period in which BMS has the right to nominate up to two BMS directors, BMS and its affiliates are required to vote all of their shares in the same proportion as the votes cast by all of the Company’s other stockholders with respect to the election or removal of non-BMS directors.

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

Transfers of Shares—Neither BMS nor any of its affiliates may transfer any shares or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares, except (1) pursuant to registration rights granted to BMS with respect to the shares, (2) pursuant to Rule 144 under the Securities Act of 1933, as amended or (3) for certain hedging transactions. Any such transfer is subject to the following limitations: (1) the transferee may not acquire beneficial ownership of more than 5% of the then-outstanding shares of common stock; (2) no more than 10% of the total outstanding shares of common stock may be sold in any one registered underwritten public offering; and (3) neither BMS nor any of its affiliates may transfer shares of common stock (except for registered firm

F-24

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

commitment underwritten public offerings pursuant to the registration rights described below) or enter into hedging transactions in any twelve-month period that would, individually or in the aggregate, have the effect of reducing the economic exposure of BMS and its affiliates by the equivalent of more than 10% of the maximum number of shares of common stock owned by BMS and its affiliates at any time after September 19, 2001. Notwithstanding the foregoing, BMS Biologics may transfer all, but not less than all, of the shares of common stock owned by it to BMS or to E.R. Squibb or another wholly-owned subsidiary of BMS.

Registration Rights—The Company granted BMS customary registration rights with respect to shares of common stock owned by BMS or any of its affiliates.

(c)UCB S.A.

In August 2005, the Company entered into a Collaboration and License Agreement with UCB S.A. (“UCB”), a company registered in Belgium, for the development and commercialization of CDP-791, UCB’s novel, investigational PEGylated di-Fab antibody targeting the vascular endothelial growth factor receptor-2 (“VEGFR-2”). No upfront or milestone payments were payable under the Agreement. In the first quarter of 2007, the Company terminated this agreement with UCB, largely due to substantial progress made in the development of 1121B and agreed to pay UCB $450,000 as settlement of all previous amounts due related to expenses associated with the co-development activities under the agreement. As part of this settlement, the Company will receive a single-digit royalty on net sales worldwide upon commercialization of such indications. The Company had recorded as of December 31, 2005 an expense of $2.5 million in its financial statements related to the agreement. As a result of the termination of this contract, the Company reversed $2.0 million in 2006 of the previously expensed amount. Therefore, the Company had a liability due to UCB of $450,000 and $2.5 million as of December 31, 2006 and 2005, respectively.

Collaborative Agreement Tables

Royalty revenue consists of the following: (in thousands)

	Year Ended December 31,
	2006		2005		2004
BMS	$	254,359	$	161,116	$	101,703
Merck KGaA	35,971		16,229		4,314
Other	269		95		257
Total royalty revenue	$	290,599	$	177,440	$	106,274

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

	Year Ended December 31,
	2006		2005		2004
BMS:
ERBITUX license fee revenue	$	231,921	$	94,232	$	128,943
Merck KGaA:
ERBITUX and BEC2 license fee revenue	348		3,007		385
Other license fee revenue	—		—		58
Total license fees and milestone revenue	$	232,269	$	97,239	$	129,386

F-25

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

	Year Ended December 31,
	2006		2005		2004
BMS	$	82,428	$	44,090	$	99,041
Merck KGaA	4,048		—		—
Total collaborative agreement revenue	$	86,476	$	44,090	$	99,041

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

	Year Ended December 31,
	2006		2005		2004
BMS:
Drug	$	8,026	$	8,926	$	13,062
ERBITUX clinical and regulatory expenses	12,424		13,748		12,105
ERBITUX marketing, general and administrative expenses	1,093		1,594		2,017
ERBITUX royalty expenses	29,349		18,591		11,735
Total BMS	50,892		42,859		38,919
Merck KGaA:
Drug	11,468		18,455		11,446
ERBITUX clinical and regulatory expenses	—		928		1,753
ERBITUX marketing, general and administrative expenses	110		358		774
ERBITUX royalty expenses	6,018		2,292		1,003
BEC2 expenses	—		—		42
Total Merck KGaA	17,596		22,033		15,018
Other	15		12		52
Total collaborative agreement revenue	$	68,503	$	64,904	$	53,989

Amounts due from corporate partners in the table below are net of allowance for doubtful accounts in 2006, 2005 and 2004 of $0, $0, and $430, respectively. Amounts due from corporate partners were written-off against the allowance of $430 in 2005. There were no write-offs in 2006 or 2004 and no additions to the allowance in 2006 or 2005. All amounts including the table below are in thousands:

	December 31, 2006			December 31, 2005
BMS:
ERBITUX		$	64,991		$	51,503
Merck KGaA:
ERBITUX and BEC2		13,039			7,768
Total amounts due from corporate partners		$	78,030		$	59,271

F-26

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred revenue consists of the following: (in thousands)

	December 31, 2006				December 31, 2005
BMS:
ERBITUX commercial agreement		$	374,215			$	356,136
Merck KGaA:
ERBITUX development and license agreement		5,662				2,889
Total deferred revenue		379,877				359,025
Less: current portion		(142,013		)		(112,624		)
Total long-term deferred revenue		$	237,864			$	246,401

(11) Stockholder’ Equity

(a)Common Stock

The Company is authorized to issue 200,000,000 shares of common stock.

(b)Stockholder Rights Plan

On February 15, 2002, the Company’s Board of Directors approved a Stockholder Rights Plan and declared a dividend of one right for each share of the Company’s common stock outstanding at the close of business on February 19, 2002. In connection with the Board of Directors’ approval of the Stockholders Rights Plan Series B Participating Cumulative Preferred Stock was created. Under certain conditions, each right entitles the holder to purchase from the Company one-hundredth of a share of Series B Participating Cumulative Preferred Stock at an initial purchase price of $175 per share. The Stockholder Rights Plan is designed to enhance the Board’s ability to protect stockholders against, among other things, unsolicited attempts to acquire control of the Company which do not offer an adequate price to all of the Company’s stockholders or are otherwise not in the best interests of the Company and the Company’s stockholders.

Subject to certain exceptions, rights become exercisable (i) on the tenth day after public announcement that any person, entity, or group of persons or entities has acquired ownership of 19.9% or more of the Company’s outstanding common stock, or (ii) 10 business days following the commencement of a tender offer or exchange offer, other than certain qualifying tender offers, by any person which would, if consummated, result in such person acquiring ownership of 19.9% or more of the Company’s outstanding common stock, (collectively an “Acquiring Person”).

In such event, each right holder (other than the Acquiring Person and its affiliates) will have the right to receive the number of shares of common stock having a then-current market value equal to two times the aggregate exercise price of such rights. If the Company were to enter into certain business combination or disposition transactions with an Acquiring Person, each right holder will have the right to receive shares of common stock of the acquiring company having a value equal to two times the aggregate exercise price of the rights.

The Company may redeem these rights in whole at a price of $.001 per right. The rights expire on February 15, 2012.

F-27

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(c)Stock Repurchase Program

On September 19, 2005, the Company announced the approval by the Board of Directors of a stock repurchase program permitting the repurchase of up to $100.0 million in aggregate principal amount of outstanding shares of the Company’s common stock during a two year period. The stock repurchase program is to be employed for general corporate purposes, including to offset dilution resulting from future grants of stock options or other dilutive incentive compensation granted to the Company’s employees and directors. Stock repurchases under this program may be made through open market or privately negotiated transactions at such times and in such amounts as the Company deems appropriate, based on a variety of factors such as price, corporate and regulatory requirements and overall market conditions. The stock repurchase program may be limited or terminated at any time without prior notice. As of December 31, 2006 the Company has repurchased 811,416 shares at an average price of $30.62 per share for aggregate consideration of approximately $24.8 million under the program.

(d)Share-Based Compensation Plans

The Company has three types of share-based compensation plans: stock option plans, an employee stock purchase plan and effective as of January 1, 2006, a retention plan.

Stock Option Plans

In February 1996, the Company’s Board of Directors adopted and the shareholders thereafter approved an Incentive Stock Option Plan and Non-Qualified Stock Option Plan (the “96 Plans”). In May 1998, the Company’s Board of Directors adopted an additional Non-Qualified Stock Option Plan (the “98 Plan”), which shareholders were not required to approve. On June 11, 2002, the shareholders approved and the Company adopted the 2002 Stock Option Plan (the “02 Plan”). Effective with the adoption of the 02 Plan, the Company will not award new grants from the 96 Plans or the 98 Plan. The 02 Plan provides for the granting of both incentive stock options and non-qualified stock options to purchase, subject to adjustment under the plan, 3,300,000 shares of the Company’s common stock to employees, directors, consultants and advisors of the Company. Any common stock subject to an option which is cancelled, forfeited or expires prior to exercise whether such option was granted under this plan or the 96 Plans or the 98 Plan, shall again become available for grant under the 02 Plan. Options granted under the 02 Plan become fully vested and exercisable upon the occurrence of a change in control, as defined. Incentive stock options granted under the 02 Plan may not exceed 825,000 shares of common stock, may not be granted at a price less than the fair market value of the stock at the date of grant and may not be granted to non-employees. In September 2003, the shareholders approved an amendment to the 02 Plan that increased the maximum total number of shares of common stock currently available for grant of options under the plan from 3,300,000 shares to 6,600,000 shares, and increased the number of shares of common stock with respect to which incentive stock options may be granted under the plan from 825,000 shares to 1,650,000 shares.

In November 2001, the Board of Directors approved the amendment of the 96 Plans and the 98 Plan whereby upon the occurrence of a change in control, as defined in the amended plan documents, each outstanding option under the 96 Plans and the 98 Plan shall become fully vested and exercisable.

On October 17, 2005, the Compensation Committee of the Board of Directors approved the adoption of a stock option plan for the sole purpose of making one-time grants of stock options to newly hired key employees who have not previously been employees or directors of the Company as an inducement to such persons entering into employment with the Company (the “Inducement Plan”), in accordance with

F-28

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NASDAQ Marketplace Rule 4350(i)(1)(A)(iv). The Inducement Plan permitted the Company to issue up to a total of 600,000 “inducement” options to eligible participants to purchase shares of common stock of the Company on terms and conditions set forth therein and in individual award agreements under the Inducement Plan, in each case on terms commensurate with options granted under the Company’s 2002 Stock Option Plan. The Inducement Plan was cancelled on September 20, 2006.

On September 20, 2006, the shareholders approved and the Company adopted the 2006 Stock Incentive Plan (the “06 Plan”). Under the 06 Plan, the Company has the ability to grant (i) stock options; (ii) stock appreciation rights; (iii) restricted stock awards; (iv) restricted stock unit awards; (v) performance awards; and (vi) other stock-based awards. Effective with the adoption of the 06 Plan, the Company will not award new grants from the 02 Plan. Any common stock option which is cancelled, forfeited or expires prior to exercise whether such option was granted under this plan, the 96 Plans, the 98 Plan or the 02 Plan, shall again become available for grant under the 06 Plan. Options granted under the 06 Plan generally vest over one-to-four-year periods and unless earlier terminated, and expire ten years from the date of grant. The aggregate number of shares of common stock that may be granted or used for reference purposes under the 06 Plan shall not exceed 5,500,000 shares plus common stock available for grant under prior plans. Any shares of common stock that are subject to awards of stock options or stock appreciation rights will be counted against this limit as one share for every share granted. Any shares of common stock that are subject to awards other than stock options or stock appreciation rights will be counted against this limit as two shares for every share granted.

As of December 31, 2006, the number of remaining shares authorized and currently available for grant under plans discussed above is approximately 7,136,000. Incentive stock options may not be granted at a price less than the fair market value of the stock at the date of grant and may not be granted to non-employees. Options under all the plans, unless earlier terminated, expire ten years from the date of grant. Options granted under these plans generally vest over one-to-four-year periods.

In September 2001, and in connection with the Board of Directors’ approval of certain employment the Company granted options to purchase, in the aggregate, 2,450,000 shares of its common stock to its former President and Chief Executive Officer, Dr. Samuel D. Waksal, its then-current Chief Operating Officer, and now-former Chief Scientific Officer, Dr. Harlan W. Waksal and its then-current Senior Vice President, Finance, and Chief Financial Officer and former Chief Executive Officer, Daniel S. Lynch. The options have a per-share exercise price equal to $50.01, the last reported sale price of the common stock preceding the date Board of Director approval was obtained. The terms of the options granted to Dr. Samuel D. Waksal and Dr. Harlan W. Waksal provided that they vest in their entirety three years from the date of grant, but may vest earlier as to 33.33% of the shares if certain targets in the Company’s common stock price were achieved. The options granted to Daniel S. Lynch vested equally over three years. In connection with the resignation of Dr. Samuel D. Waksal, and the associated May 24, 2002 Separation Agreement between the Company and Dr. Samuel D. Waksal, the Company amended Dr. Samuel D. Waksal’s September 2001 stock option award such that the then unvested portion totaling 833,332 shares would vest immediately as of the date of termination. In December 2005, the Company and Dr. Samuel D. Waksal entered into a settlement agreement providing for the return to the Company of 416,667 of stock options that were previously issued to Dr. Samuel D. Waksal. Such options were returned to the Company and were cancelled as of December 31, 2005.

The Company’s employee stock option plans generally permit option holders to pay for the exercise price of stock options and any related income tax withholding with shares of the Company’s common stock

F-29

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that have been held by the option holders for at least six months. During the year ended December 31, 2004, 4,008 shares of common stock were delivered to the Company in payment of the aggregate exercise price and related to income tax withheld associated with the exercise of stock options to purchase an aggregate of 19,044 shares of common stock. The 4,008 shares delivered to the Company had a value of $200,000 determined by multiplying the closing price of the common stock on the date of deliver for the number of shares presented for payment. These shares are included as treasury stock in the Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income at December 31, 2004.

The Company granted options to purchase 45,000 shares of its common stock to certain Scientific Advisory Board members in consideration for future services during the year ended December 31, 2003. The fair value of these options was subject to remeasurement through the vesting date using the Black-Scholes option-pricing model. The Company recognized compensation expense associated with the options granted to Scientific Advisory Board members of approximately $0, $0 and $2.4 million in the years ended December 31, 2006, 2005 and 2004, respectively. All of these options were either exercised or cancelled as of February 16, 2006.

During the years ended December 31, 2006, 2005 and 2004, the Company granted options to non-employee members of its Board of Directors to purchase 310,000, 255,000 and 352,000 shares, respectively, of its common stock. The annual grant of stock options to non-employee members of the Board of Directors vest quarterly, however if a Board member ceases to be a Director, the stock options vest pro rata up to the last day the Board member serves as a Director of the Company. During 2004, the Company recognized compensation expense of approximately $2.0 million associated with the modification of stock options for a number of terminated employees.

On December 16, 2005, the Company’s Board of Directors approved the acceleration of vesting of unvested stock options with exercise prices equal to or greater than $33.44 per share outstanding as of December 16, 2005 that had been previously awarded to Company employees and other eligible participants, including officers and non-employee directors. Options to purchase 2,805,169 shares of the Company’s common stock were subject to this acceleration. Of this amount, 163,750 options were held by non-employee directors, with a weighted average exercise price of $45.00 per share, and 628,347 options were held by officers of the Company with a weighted average exercise price of $44.32 per share. The Board required each non-employee director and, as a condition to continued employment, each officer of the Company, to agree to refrain from selling, transferring, pledging or otherwise disposing of shares of Company common stock acquired upon any exercise of subject stock options (other than sales by such persons to fund the exercise price or to satisfy minimum statutory withholding on such exercise, each in accordance with the applicable Plan and the Company’s existing policies and procedures) until the date on which the exercise would have been permitted under the stock option’s pre-acceleration vesting terms or pursuant to the Company’s Change-in-Control Plan or, if earlier, the officer’s last day of employment with, or director’s last day of service as a director of, the Company. The decision to accelerate vesting of these stock options, which were “out-of-the-money” was made primarily to minimize future compensation expense that the Company would otherwise have been required to recognize in its Consolidated Statements of Operations pursuant to FAS123R, which the Company adopted on January 1, 2006. The Company estimates that the aggregate future expense that will be eliminated as a result of this acceleration of vesting is approximately $22.5 million in 2006 and $9.5 million in 2007.

F-30

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee Stock Purchase Plan

In April 1998, the Company’s Board of Directors adopted the ImClone Systems Incorporated 1998 Employee Stock Purchase Plan (the “ESPP”), subject to shareholders’ approval, which was received in May 1998. The ESPP, as amended, allows eligible employees to purchase shares of the Company’s common stock through payroll deductions at the end of quarterly purchase periods. To be eligible, an individual must be an employee, work more than 20 hours per week for at least five months per calendar year and not own greater than 5% of the Company’s common stock. Pursuant to the ESPP, the Company has reserved 1,000,000 shares of common stock for issuance. Prior to the first day of each quarterly purchase period, each eligible employee may elect to participate in the ESPP. The participant is granted an option to purchase a number of shares of common stock determined by dividing each participant’s contribution accumulated prior to the last day of the quarterly period by the purchase price. The participant has the ability to withdraw from the ESPP until the second-to-last day of the quarterly purchase period. The purchase price is equal to 85% of the market price per share on the last day of each quarterly purchase period. An employee may purchase stock from the accumulation of payroll deductions up to the lesser of 15% of such employee’s compensation or $25,000 in aggregate purchase price, per year.

Retention Plan

In January 2006, the Compensation Committee of the Board of Directors approved a Retention Plan, effective as of January 1, 2006, for performance periods ending December 31, 2007 and December 31, 2008 (each, a “Performance Period”). The Plan is intended to reward employees for achieving specified performance goals over specified performance periods. Specifically, the Compensation Committee approved the share performance criteria that will be used to determine cash bonus awards under the Retention Plan, and the terms of the individual awards to eligible employees under the Retention Plan for each of the two Performance Periods. Cash awards under the Retention Plan will depend on the performance of the Company’s common stock against specified targets, generally measured by comparing the Company’s share price at the beginning of the Performance Period to the Company’s share price at the conclusion of the Performance Period, in each case based on a 30-day average. In particular, at the end of an applicable Performance Period, the percentage of the cash award earned (if any) and, correspondingly, the amount of the actual award payouts to an employee for such Performance Period will be (i) equal to the employee’s target award opportunity, (ii) greater than the target award opportunity (but in no event more than 150% of the target award opportunity), or (iii) zero, in each case directly corresponding to actual Company common stock performance at the conclusion of the Performance Period compared to the beginning of the Performance Period. No awards will be payable in respect of a Performance Period if the Company’s share price at the conclusion of the Performance Period is less than the share price at the beginning of the Performance Period. The Company’s share price at the beginning of the Performance Periods was calculated to be $32.99. Special measurement dates and payment conditions apply in the event of a change in control of the Company occurring during a Performance Period. The Company has determined that awards granted under this plan should be classified as liability awards.

F-31

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the effect of compensation cost arising from share-based payment arrangements on the Company’s statements of income for the year ended December 31, 2006 for the Company’s Stock Option Plans, the ESPP, and the Retention Plan: (in thousands)

Research and development	$	2,995
Clinical and regulatory	1,296
Marketing, general and administrative	5,155
Total cost of share-based compensation for the year	9,446
Amount capitalized in inventory and fixed assets during the year	(1,328		)
Amount recognized in income for amounts previously capitalized in inventory and fixed assets	326
Amounts charged against income, before income tax benefit	$	8,444

As a result of adopting SFAS 123R, the Company’s income before income taxes and net income for the year ended December 31, 2006 was approximately $8.4 million and $6.8 million, respectively, lower than if it had continued to account for share-based compensation in accordance with the provisions of APB No. 25. Basic and diluted income per share for the year ended December 31, 2006, would have been $4.48 and $4.18, respectively, if the Company had not adopted SFAS 123R, compared to reported basic and diluted income per share of $4.40 and $4.11, respectively. In addition, for the year ended December 31, 2006, the adoption of SFAS 123R resulted in net cash provided by operating activities being lower and net cash provided by financing activities being higher by approximately $94.7 million. This amount represents the benefit of equity net operating losses that will be taken as a reduction on our tax returns and therefore, saving us cash by reducing our federal and state taxes due.

Prior to the adoption of SFAS 123R, all tax benefits for deductions resulting from the exercise of stock options were presented as operating cash flows on the Consolidated Statements of Cash Flows. Upon adoption of SFAS 123R, cash flows resulting from the tax benefits of tax deductions are classified as financing cash flows.

Determining Fair Value

Valuation and Amortization Method:   The fair value of stock options granted under the Company’s Stock Option Plans and the ESPP is estimated using the Black-Scholes option pricing model. The fair value of stock options granted after January 1, 2006 is amortized on a straight-line basis. The fair value of stock options granted before January 1, 2006 is amortized using the graded vesting attribution approach. Compensation expense is amortized over the requisite service periods of the awards, which are generally the vesting periods. The fair value of awards granted under the Retention Plan were calculated using a Monte-Carlo simulation pricing model. The fair value of these awards is being amortized based on the proportionate amount of the requisite service period that has been rendered to date for each respective performance period.

Expected Term:   The expected term of an employee share option is the period of time for which the option is expected to be outstanding. The Company has made a determination of expected term by analyzing employees’ historical exercise experience and post-vesting employment termination behavior from its history of grants and exercises in the Company’s option database. The historical pattern of option exercises has been analyzed in an effort to determine if there were any discernable patterns of activity based on certain demographic characteristics such as employees’ length of service, salary and job level.

F-32

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Expected Volatility:   Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility). The expected volatility of stock option awards at the date of grant is estimated based on the implied volatility of greater than one-year publicly traded options. The decision to use implied volatility was based upon the availability of actively traded options on the Company’s common stock and the assessment that implied volatility is more representative of future stock price trends than historical volatility. Prior to the adoption of SFAS 123R, the Company calculated expected volatility using only historical stock price volatility.

Risk-Free Interest Rate:   The risk-free interest rate used in the Black-Scholes option pricing model is based on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used. The risk free rate used in the Monte-Carlo valuation model is based on the implied yield in effect at the time of grant from the constant maturity treasury yield curve over the contractual terms of the award.

Dividends:   Cash dividends have never been declared on the Company’s common stock and the Company has no present intention to declare cash dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used in both the Black-Scholes and Monte-Carlo valuation models.

Forfeitures:   The Company uses historical data to estimate pre-vesting option forfeitures. Share-based compensation expense is recorded only for those awards that are expected to vest.

The following assumptions were used to estimate the fair value of options granted under the Company’s Stock Option Plans:

	Year Ended December 31,
	2006		2005		2004
Expected term (years)	3.95-5.72		4.49		4.47
Risk-free interest rate	4.31-5.21	%	3.62	%	2.63	%
Expected volatility	27.45-42.70	%	82.92	%	85.42	%
Expected dividend rate	0	%	0	%	0	%

The assumptions used in the Monte-Carlo simulation modeling to estimate the fair value of awards under the Retention Plan for the year ended December 31, 2006 were: expected volatility of 42.23 %, risk-free interest rate ranging from 4.87% to 5.03% and expected dividend yield of 0%. The fair value of the Company’s ESPP awards during the year ended December 31, 2006 were calculated using the intrinsic value of the common stock purchased on the end of each quarter based on the fact that the Company’s offering period is three months and the ESPP does not contain a look-back provision.

F-33

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Option Activity and Share-Based Compensation Expense

Stock option activity for the year ended December 31, 2006 is summarized as follows:

	Number of Shares		Weighted Average Exercise Price Per Share			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(Years)		(in thousands)
Outstanding at December 31, 2005	12,619,193			$	37.38
Granted	1,763,905			34.32
Exercised	(1,701,447	)		17.04
Forfeitures	(2,171,921	)		45.14
Expired	(436	)		6.01
Outstanding at December 31, 2006	10,509,294			$	38.55		6.12		$	19,331
Vested and expected to vest	10,327,285			$	38.64		6.01		$	19,325
Exercisable at December 31, 2006	9,089,017			$	39.42		5.65		$	18,587

The weighted average fair value of options granted during the years ended December 31, 2006, 2005 and 2004 was $14.64,  $25.34 and $33.21, respectively. The aggregate intrinsic value of options outstanding at December 31, 2006 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 1,486,837 shares that had exercise prices that were lower than the $26.76 market price of our common stock at December 31, 2006. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 was approximately $27.3 million, $22.5 million and $150.8 million, respectively, determined as of the date of exercise.

The Company recognized for the year ended December 31, 2006 approximately $7.4 million in share-based compensation expense, net of amounts capitalized, for stock options granted under the Company’s Stock Option Plans. As of December 31, 2006, there was approximately $14.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s Stock Option Plans. This amount assumes the Company’s expected forfeiture rate. That cost is expected to be recognized over a weighted average period of approximately 2.6 years. The Company utilizes newly issued shares to satisfy the exercise of stock options.

Upon issuance of the awards, the grant date fair value for the Retention Plan was approximately $3.7 million. The fair value (based on the December 31, 2006 valuation) of the Retention Plan awards outstanding at December 31, 2006 was approximately $1.8 million. The combined fair value of the Retention Plan awards that were cancelled during the year ended December 31, 2006 was approximately $591,000 (based on the December 31, 2006 valuation). The aggregate intrinsic value of the awards outstanding at December 31, 2006, all of which are not vested, is $0 because the 30-day average closing stock price preceding December 31, 2006 did not exceed the trigger price of $32.99. The aggregate intrinsic value of the awards expected to vest at December 31, 2006 is $0. The weighted average remaining contractual term for both the awards outstanding and the awards that are vested and expected to vest at December 31, 2006 is approximately 1.5 years.

F-34

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recognized for the year ended December 31, 2006 approximately $557,000 in share-based compensation expense, net of amounts capitalized, for the Retention Plan. As of December 31, 2006, there was approximately $910,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Retention Plan. This amount assumes the Company’s expected forfeiture rate. The costs associated with the awards are expected to be recognized over the Performance Periods.

During the year ended December 31, 2006, the Company granted  29,749 shares for the ESPP for a total of 213,144 shares that have been issued under the plan and recognized approximately $122,000 in share-based compensation expense, net of amounts capitalized. The Company utilizes newly issued shares to satisfy the issuance of shares under the ESPP.

Comparable Disclosures

The following table illustrates the effect on net income and net income per share for the years ended December 31, 2005 and 2004, if the compensation cost for the Company’s stock option grants had been determined based on the fair value at the grant dates for awards consistent with the fair value method of Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation (“SFAS 123”). The stock-based employee compensation expense determined under the fair value based method was calculated using the graded vesting attribution approach.

	Year Ended December 31,
	2005			2004
	(in thousands, except per share amounts)
Net income, as reported	$	86,496		$	113,653
Add: Stock-based employee compensation expense included in net income, tax effected	—			1,759
Deduct: Total stock-based employee compensation expense determined under fair value based method, tax effected	(89,365		)	(46,283		)
Pro forma net (loss) income	$	(2,869	)	$	69,129
Net (loss) income per common share:
Basic, as reported	$	1.03		$	1.43
Basic, pro forma	$	(0.03	)	$	0.87
Diluted, as reported	$	1.01		$	1.33
Diluted, pro forma	$	(0.03	)	$	0.85

For the years ended 2005 and 2004 there were 19,552,000, and 3,487,000, respectively, of potential common shares excluded from the pro forma diluted income per share computation because their inclusion would have had an anti-dilutive effect. The potential common shares excluded from the computation consist of anti-dilutive stock options for all periods and shares related to the 13¤8% convertible notes and 51¤2% convertible notes for the year ended December 31, 2005. The pro forma effect on the net income (loss) for the years ended December 31, 2005 and 2004 is not necessarily indicative of the effect on future years’ operating results. Pro-forma stock-based compensation expense in 2005 includes expenses associated with the accelerated vesting of options in the fourth quarter of 2005.

F-35

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Income Taxes

The (benefit) provision for income taxes includes the following: (in thousands)

	Year Ended December 31,
	2006			2005		2004
Current:
Federal	$	78,993		$	861	$	5,947
State and local	24,401			717		11,414
Total provision for income taxes	103,394			1,578		17,361
Deferred:
Federal	(130,846		)	—		—
State and local	(22,902		)	—		—
Total benefit for income taxes	(153,748		)	—		—
(Benefit) provision for income taxes	$	(50,354	)	$	1,578	$	17,361

The Company recorded as increases to additional paid-in capital approximately $93.9 million, $1.7 million and $10.0 million of tax benefit from the exercise of stock options for the years ended December 31, 2006, 2005 and 2004, respectively. As a result of legislation in New Jersey passed in 2002 an Alternative Minimum Assessment (AMA) tax is computed and may be applicable. This AMA tax impacted the Company’s tax provision for the year ended December 31, 2005.

Reconciliations between the total tax provision and the tax provision based on the federal statutory rate are presented below: (in thousands)

	Year Ended December 31,
	2006			2005			2004
Pre-tax income	$	320,320		$	88,074		$	131,014
Tax provision at federal statutory rate of 35%	112,112			30,826			45,855
State and local income taxes (net of federal benefit)	5,159			338			8,005
Change in valuation allowance	(161,095		)	(28,418		)	(33,023		)
Research and development credits	(5,989		)	(4,331		)	(3,585		)
Non-deductible expenses	(541		)	3,163			109
(Benefit) provision for income taxes	$	(50,354	)	$	1,578		$	17,361

F-36

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The tax effects of temporary differences that give rise to significant portions of the gross deferred tax assets and gross deferred tax liabilities are presented below: (in thousands)

	December 31,
	2006			2005
Gross deferred tax assets:
Research and development credit carryforwards and other credits	$	73,619		$	77,012
Compensation relating to the issuance of stock options and warrants	3,413			894
Net operating loss carryforwards	49,614			173,096
Deferred revenue	156,118			142,135
Withholding tax liability	—			9,422
Capital loss carryforward	3,909			3,761
Other	12,218			10,470
Total gross deferred tax assets	298,891			416,790
Less valuation allowance	(133,589		)	(415,510		)
Net deferred tax assets	165,302			1,280
Gross deferred tax liabilities:
Other	3,538			1,280
State taxes	8,016			—
Net deferred tax asset	$	153,748		$	—

In 2006, the Company released a portion of its valuation allowance against our total deferred tax assets. This partial release was based on revised expectations of projected book and taxable income, which caused the Company to conclude that it is more likely than not that a portion of the benefit of these deferred tax assets would be realized. This release resulted in a net tax benefit of approximately $111.3 million. The financial projections supporting our conclusion to release a portion of our valuation allowance contain significant assumptions based on current facts about our market share and our competitive landscape. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. The Company will continue to monitor its current performance and future financial projections, including market share and competitive landscape, in order to determine the effect on the valuation allowance.

The net change in the total valuation allowance for the years ended December 31, 2006, 2005 and 2004 were decreases of approximately $281.9 million, $14.6 million and $2.7 million, respectively. Approximately $120.7 million of the total valuation allowance pertains to tax deductions relating to stock option exercises for which any subsequently recognized tax benefit will be recorded as an increase to additional paid-in capital.

At December 31, 2006, the Company had net operating loss carryforwards for federal and certain state income tax purposes of approximately $124.0 million, which expire at various dates from 2010 through 2025. At December 31, 2006, the Company had research credit carryforwards for federal and New Jersey state purposes of $49.6 million and $14.5 million, respectively, and federal alternative minimum tax credits of $9.4 million. The federal and state research credits expire at various dates from 2007 through 2026. The American Jobs Creation Act of 2004 provides for a tax deduction up to 9% (when fully phased in) of qualified production activities income. This deduction does not yet provide any material benefit to the Company.

F-37

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13) Discontinuation of Small Molecule Program

On May 11, 2005, the Company announced a plan to discontinue its small molecule research program. This decision was made after evaluating the Company’s investment in such program against the time horizon before commercial benefits would be realized. As a result of this decision, the Company reflected $6.2 million of costs associated with the discontinuation of this program in the Consolidated Statements of Operations for the year ended December 31, 2005. Such costs included approximately $2.2 million of costs related to severance for 45 employees that were terminated, approximately $3.7 million of costs related to the write-off of fixed assets used in such program (shown net of $227,000 from the subsequent sale of equipment that was previously written off as part of this discontinuance), approximately $60,000 of contract termination costs related to the cancellation of the lease at the Brooklyn facility where the employees were conducting such research and approximately $282,000 of other shutdown expenses. The Company had no additional other shutdown expenses and paid the remaining  amount of $12,000 that was accrued at December 31, 2005 during the year ended December 31, 2006 to complete the disposition of this program.

(14) Contingencies

In January 2002, a number of complaints asserting claims under the federal securities laws against the Company and certain of the Company’s directors and officers were filed in the U.S. District Court for the Southern District of New York. Those actions were consolidated under the caption Irvine v. ImClone Systems Incorporated, et al., No. 02 Civ. 0109 (RO). In the corrected consolidated amended complaint, plaintiffs asserted claims against the Company, its former President and Chief Executive Officer, Dr. Samuel D. Waksal, its former Chief Scientific Officer and then-President and Chief Executive Officer, Dr. Harlan W. Waksal, and several of the Company’s other present or former officers and directors, for securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, on behalf of a purported class of persons who purchased the Company’s publicly traded securities between March 27, 2001 and January 25, 2002. The complaint also asserted claims against Dr. Samuel D. Waksal under section 20A of the Exchange Act on behalf of a separate purported sub-class of purchasers of the Company’s securities between December 27, 2001 and December 28, 2001. The complaint sought to proceed on behalf of the alleged classes described above, sought monetary damages in an unspecified amount and sought recovery of plaintiffs’ costs and attorneys’ fees. On January 24, 2005, the Company announced that it had reached an agreement in principle to settle the consolidated class action for a cash payment of $75.0 million, a portion of which would be paid by the Company’s insurers. Therefore, the Company recorded in its Consolidated Balance Sheet as of December 31, 2004, as Litigation settlement, a liability of  approximately $75.9 million and a receivable from our insurers of approximately $20.5 million, included in Other assets. Net expense of approximately $55.4 million was recorded in the fourth quarter of 2004 and reflected in the Consolidated Statement of Operations as Litigation settlement. The parties signed a definitive stipulation of settlement and as provided for under the stipulation of settlement, on March 11, 2005, the Company paid $50.0 million into an escrow account, subject to Court approval of the proposed settlement. On July 29, 2005 the Court approved the proposed settlement and on August 5, 2005, the Company paid the remaining $25.0 million into the escrow account, with such funds to be held in and distributed pursuant to the terms of the settlement. The Company has collected from its insurers all of the outstanding receivable amounting to $20.5 million. The amount received from the insurers includes $8.75 million, less attorneys fees of $875,000, that was paid to the Company under the derivative settlement discussed below.

F-38

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On January 13, 2002, and continuing thereafter, nine separate purported shareholder derivative actions were filed against members of the Company’s board of directors, certain of the Company’s present and former officers, and the Company, as nominal defendant, advancing claims based on allegations similar to the allegations in the federal securities class action complaints. Four of these derivative cases were filed in the Delaware Court of Chancery and have been consolidated in that court under the caption In re ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC. Three of these derivative actions were filed in New York State Supreme Court in Manhattan. All of these state court actions have been stayed in deference to the proceedings in the U.S. District Court for the Southern District of New York, which have been consolidated under the caption In re ImClone Systems, Inc. Shareholder Derivative Litigation, Master File No. 02 CV 163 (RO). A supplemental verified consolidated amended derivative complaint in these consolidated federal actions was filed on August 8, 2003. It asserted, purportedly on behalf of the Company, claims including breach of fiduciary duty by certain current and former members of the Company’s board of directors, among others, based on allegations  including that they failed to ensure that the Company’s disclosures relating to the regulatory and marketing prospects for ERBITUX were not misleading and that they failed to maintain adequate controls and to exercise due care with regard to the Company’s ERBITUX application to the FDA. On January 24, 2005, the Company announced that it had reached an agreement in principle to settle the consolidated derivative action. The parties entered into a definitive stipulation of settlement on March 14, 2005, which was approved by the Court on July 29, 2005. In August 2005, the Company received $8.75 million from its insurers, which was contributed toward the settlement of the Irvine securities class action described above, after deducting $875,000 for Court awarded plaintiffs’ attorney’s fees and expenses. Following Court approval of the settlement of the consolidated derivative action, all of the state court derivative actions that had been pending in Delaware and New York were dismissed with prejudice, with no further payment required by the Company.

On August 14, 2002, after the federal grand jury indictment of Dr. Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal’s guilty plea to certain counts of that indictment, the Company filed an action in New York State Supreme Court seeking recovery of certain compensation, including advancement of certain defense costs, that the Company had paid to or on behalf of Dr. Samuel D. Waksal and cancellation of certain stock options. That action was styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 02/602996. On July 25, 2003, Dr. Samuel D. Waksal filed a Motion to Compel Arbitration seeking to have all claims in connection with the Company’s action against him resolved in arbitration. By order dated September 19, 2003, the Court granted Dr. Samuel D. Waksal’s motion and the action was stayed pending arbitration. On September 25, 2003, Dr. Samuel D. Waksal submitted a Demand for Arbitration with the American Arbitration Association (the “AAA”), by which Dr. Samuel D. Waksal asserted claims to enforce the terms of his separation agreement, including provisions relating to advancement of legal fees, expenses, interest and indemnification, for which Dr. Samuel D. Waksal claimed unspecified damages of at least $10.0 million. On March 10, 2004, the Company commenced a second action against Dr. Samuel D. Waksal in the New York State Supreme Court. That action was styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 04/600643. Specifically, by this action, the Company sought to recover: (a) $4.5 million that the Company paid to the State of New York in respect of exercises of non-qualified stock options and certain warrants in 2000; (b) at least $16.6 million that the Company paid to Samuel D. Waksal in the form of ImClone common stock, in lieu of withholding federal income taxes from exercises of non-qualified stock options and certain warrants in 2000; and (c)  approximately $1.1 million that the Company paid in the form of ImClone common stock to Samuel D. Waksal and his beneficiaries, in lieu of withholding federal, state and local

F-39

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

income taxes from certain warrant exercises in 1999-2001. The complaint asserted claims for unjust enrichment, common law indemnification, moneys had and received and constructive trust. On June 18, 2004, Dr. Samuel D. Waksal filed an Answer to the Company’s Complaint.

On December 21, 2005, the Company and Dr. Samuel D. Waksal entered into a settlement agreement with respect to the foregoing actions, providing for, among other things, judgments in both actions in the Company’s favor. The settlement agreement included the payment of director and officer legal fee expense indemnification by the Company, for which the Company paid approximately $2.0 million in the fourth quarter of 2005. The settlement agreement also provided for the return to the Company of 416,667 of stock options that were previously issued to Dr. Samuel D. Waksal. Such options were returned to the Company and were cancelled as of December 31, 2005.

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

On September 20, 2006, subsequent to the Court’s inventorship decision, the Company also filed an action (06 CV 7190) against Yeda in the U.S. District Court for the Southern District of New York seeking a declaratory judgment that the patent is invalid due to the removal of the originally named inventors. On October 31, 2006, Yeda filed an answer and counterclaim to the Company’s declaratory judgment complaint in which Yeda alleges the Company is liable to Yeda for willful patent infringement, unjust enrichment and conversion, and seeks damages from the Company and an order requiring the Company to license the patent and pay Yeda royalties until the patent expires. The declaratory judgment action is in its early stages. The Company,  having had the advice of its patent counsel, believes that the claims asserted in the declaratory judgment action are sound, and that Yeda’s counterclaims are not sound, and it plans to vigorously pursue this action. The Company is unable to predict the outcome of these actions at this time. If the Company’s appeal is unsuccessful and Yeda’s sole inventorship rights to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action, the Company may become obligated to pay Yeda a royalty and may be liable to Yeda for other damages.

F-40

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On March 25, 2004, an action was filed in the United Kingdom Patent Office entitled Referrer’s Statement requesting transfer of co-ownership and amendment of patent EP (UK) 0 667 165 to add three Yeda employees as inventors. Also on March 25, 2004, a German action entitled Legal Action was filed in the Munich District Court I, Patent Litigation Division, in which Yeda sought a 75% ownership interest in patent EP (DE) 0 667 165 based on its allegation that the inventorship on that patent was incorrect. The Company was not named as a party in these actions which relate to the European equivalent of U.S. Patent No. 6,217,866 discussed above. Accordingly, the Company has intervened in the U.K. and German actions. Yeda sought to amend its pleadings in the United Kingdom and Germany to seek sole inventorship and sole ownership. Following hearings, both the U.K. and German courts held that Yeda was not entitled to amend its pleadings. In the U.K., Yeda sought leave from the House of Lords to appeal the High Court’s decision, and such leave was granted in November 2006. In Germany, Yeda has appealed the lower court’s decision to the Higher Regional Court of Munich. Additionally, on or about March 25, 2005 and March 29, 2005, respectively, Yeda filed legal actions in Austria and France against both Aventis and ImClone Systems seeking full inventorship of EP (AU) 0 667 165 and EP (FR) 0 667 165, as well as payment of legal costs and fees. The Company, having had the advice of its patent counsel, believes there are sound defenses to these actions, and it presently plans to vigorously defend against the claims asserted. The Company is unable to predict the outcome of these actions at this time. In addition, in December 2002, Opposition Proceedings seeking to revoke the European patent discussed above were brought by the 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 European patent will be revoked. The Company has vigorously defended its position in this matter, which is suspended pending a final determination of the Yeda matter discussed above.

On May 4, 2004, a complaint was filed against the Company by Massachusetts Institute of Technology (“MIT”) and Repligen Corporation (“Repligen”) in the U.S. District Court for the District of Massachusetts (04-10884 RGS). This action alleges that ERBITUX infringes U.S. Patent No. 4,663,281, which is owned by MIT and exclusively licensed to Repligen and that the Company should therefore pay damages. On July 28, 2006, the Court denied the Company’s motion for summary judgment seeking to dismiss all claims on the basis that the patent rights at issue were exhausted as a matter of law and granted MIT and Repligen’s cross motion that their patent rights were not exhausted. On September 26, 2006, a hearing was held in response to a Motion for Sanctions filed by Repligen, which alleged that the Company’s counsel, Kenyon & Kenyon, and the Company acted improperly during and after the deposition of one of Repligen’s potential witnesses. Repligen seeks evidentiary sanctions which may limit the Company’s proofs on non-infringement issues, and the Court has raised the possibility that Kenyon & Kenyon may be disqualified from further representation of the Company in the case. The Company and Kenyon & Kenyon deny any improper conduct. The Court has not ruled on the motion, and it is not possible to predict what impact, if any, this collateral matter may have in the case. Upon a ruling by the Court, the case will proceed to trial on the merits of the Company’s other defenses. The Company, having had the advice of its patent counsel, believes that its defenses are sound, and it presently plans to vigorously defend against the claims asserted.

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. As of this time, the Company has not yet filed an answer to this complaint. The Company plans to vigorously defend against any claims asserted in this action. The Company is unable to predict the outcome of this action at the present time.

F-41

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

No reserve has been established in the financial statements for any of the intellectual property-related legal proceedings described above because the Company does not believe that such a reserve is required to be established at this time under Statement of Financial Accounting Standards No. 5. However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred and if such loss is reasonably estimable 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.

The Company is developing a fully-human monoclonal antibody, referred to as IMC-11F8. The Company believes it has the right to do so under its existing development and license agreement with Merck KGaA. However, Merck KGaA had advised the Company that it believed that IMC-11F8 was covered under the development and license agreement with Merck KGaA and that it could therefore have the exclusive rights to market IMC-11F8 outside the United States and Canada and co-exclusive development rights in Japan, for which it would pay the same royalty as it pays for ERBITUX  (see Note 10- Corporate Collaborations—Collaborations with Merck KGaA). In agreement with Merck KGaA, the Company submitted this dispute to binding arbitration through an expedited process outside of the provisions of the development and license agreement. Merck KGaA subsequently took the position that the expedited arbitration provision was no longer valid and the Company sued Merck KGaA in federal court in the Southern District of New York to either enforce the arbitration provision previously agreed to or to have the court decide the question of whether IMC-11F8 is or is not covered under the development and license agreement with Merck KGaA. On November 29, 2005, the Court granted the Company’s motion to enforce the expedited arbitration provision previously agreed to, and subsequently appointed a new arbitrator to hear and decide this dispute. On March 31, 2006, the arbitrator decided the matter in favor of the Company, finding that Merck KGaA had no rights to IMC-11F8. That decision is binding and unappealable pursuant to the parties’ arbitration agreement and the parties have subsequently confirmed the arbitration award.

(15) Commitments

Leases

The Company leases office, operating and laboratory space under various operating lease agreements. The effects of scheduled and specified rent increases or any “rent holidays” are recognized on a straight-line basis over the lease term. Rent expense was approximately $5.7 million, $5.6 million and $4.0 million for the years ended December 31, 2006, 2005 and 2004, respectively.

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 approximately $8.4 million is outstanding as of December 31, 2006. 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 approximately $1.7

F-42

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

million which is being amortized, as a reduction in lease expense, over the respective term of the Sublease. The future minimum lease payments remaining at December 31, 2006, are approximately $46.5 million.

The Company leases its research and corporate headquarters in New York City. In August 2004, the Company modified its existing operating lease for its corporate headquarters in New York City. The modification extends the term of the lease, which was to expire at December 31, 2004, for an additional ten years for a portion of the premises and by an additional three years with renewal rights for the space that houses its research department. The future minimum lease payments remaining at December 31, 2006, are approximately $8.4 million.

In June 2004, the Company entered into an operating lease for a building located at 59-61 ImClone Drive in Branchburg, New Jersey. The building contains 54,247 square feet of floor area. The lease expires on December 31, 2022 with no option to renew or extend beyond such date. The future minimum lease payments at December 31, 2006, are approximately $9.8 million.

In August 2005, the Company entered into an operating lease for a portion of a building located at 41A ImClone Drive in Branchburg, New Jersey. The Company is leasing 10,704 square feet of floor area. The lease expires on August 31, 2010, with two options to renew for five additional years each. The future minimum lease payments at December 31, 2006, are $412,000.

Future minimum lease payments under all of the Company’s operating leases are as follows: (in thousands)

Year ending December 31,
2007	$	5,411
2008	4,253
2009	4,281
2010	4,174
2011	4,050
2012 and thereafter	43,964
	$	66,133

Employment Agreements

On March 19, 2004, the Company entered into an employment agreement with Daniel S. Lynch in regards to his employment as Chief Executive Officer. In connection with Mr. Lynch’s resignation effective November 10, 2005 by mutual agreement with the Company’s Board of Directors, such resignation was treated as a termination by the Company without cause under Mr. Lynch’s employment agreement. As a result, the Company has recorded severance benefit expense due Mr. Lynch of approximately $2.9 million in Marketing, general and administrative expenses in the fourth quarter of 2005. Payment of this severance was made in 2006.

Supported Research

The Company has entered into various research and license agreements with certain academic institutions and others to supplement the Company’s research activities and to obtain rights to certain technologies. The agreements generally require the Company to fund the research, to pay milestones upon the achievement of defined events, such as the submission or approval of regulatory filings and to pay royalties based upon percentages of revenues, if any, on sales of products developed from technology arising under these agreements.

F-43

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contract Services

On March 17, 2005, the Company entered into a five year multi-product supply agreement with Lonza Biologics PLC (“Lonza”) for the manufacture of biological material at the 5,000 liter scale. The Company has discretion over which products to manufacture, which may include later-stage clinical production of the Company’s antibodies currently in Phase I clinical testing and those nearing Phase I testing. The value of producing all batches under the Agreement is $68.0 million, unless terminated earlier. The Agreement provides that the Company can cancel any batches at any time; however, depending on how much notice the Company provides Lonza, the Company could incur a cancellation fee that varies based on timing of the cancellation. This cancellation fee is only applicable if Lonza does not resell the slots reserved for the cancelled batches.

License Agreements

The Company has an exclusive license from the University of California to an issued United States patent for the murine form of ERBITUX, the Company’s EGFR antibody product. The Company has exclusively licensed from Rhone-Poulenc Rorer Pharmaceuticals, now known as Aventis, patent applications seeking to cover the therapeutic use of antibodies to the EGFR in conjunction with anti-neoplastic agents. The agreements with the University of California and Aventis require the Company to pay royalties on sales of ERBITUX that are covered by these licenses. The Company has license agreements with Genentech, Inc. (“Genentech”) for rights to patents covering certain use of epidermal growth factor receptor antibodies and with both Genentech and Centocor, Inc. (“Centocor”) for rights to patents covering various aspects of antibody technology. These agreements with both Genentech and Centocor require us to pay royalties on the sale of ERBITUX that are covered by these licenses. The Company is obligated to pay royalties of approximately 9.25% of North American net sales and a single-digit royalty on sales outside of North America, which will increase if sales outside of North America consist of ERBITUX produced in the United States. In 2006, the Company received reimbursements from its corporate partners of 4.5% on North American net sales and a single-digit percentage on net sales  outside of North America. Effective January 1, 2007, the reimbursement from our corporate partners will decrease to 2.5% on North American net sales.

(16) 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 approximately $2.2 million, $1.9 million and $580,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Change in Control Plan

During 2004, the Board of Directors of the Company adopted a Change in Control Plan to maintain the focus of certain key employees of the Company on the business, mitigate the distractions that could be caused if the Company were to become the target of an acquisition strategy, and provide certain benefits to the covered employees if a change in control of the Company (as such term is defined in the plan) occurs

F-44

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and/or the employee’s employment is terminated in connection with such change in control. Participants in the Change in Control Plan are determined by the Compensation Committee.

In the event of a change in control, all equity-based compensation awards held by the plan participants will vest in full (unless the Compensation Committee determines that the participants’ awards will be substituted for equity awards in the surviving entity of equivalent economic value) and any deferred compensation of participants will become nonforfeitable. In addition, if a participant in the Change in Control Plan is terminated in connection with a change in control by the Company without cause or by the participant for good reason (as such terms are defined in the plan), the Company will pay to the participant a cash payment equal to the participant’s earned but unpaid base salary and bonus, unreimbursed expenses, any other accrued obligations, a pro rata bonus based on target bonus for the year of termination, and a multiple of base salary and bonus (with the multiplier ranging from 0.5 to three based on the tier assigned to the participant under the plan).

In connection with a termination described in the preceding sentence, if the participant signs a waiver and release of claims against the Company, each participant will vest in full in all long-term incentive arrangements he or she has with the Company and be entitled to continued health coverage for six to 18 months (based on the participant’s plan tier) and outplacement services for six months. These benefits are reduced by any other severance amounts for which the participants are eligible under any other arrangement of the Company or its subsidiary. As a condition to receipt of these benefits, each participant agrees to be bound by noncompetition, nonsolicitation, confidentiality, return of Company property, and cooperation covenants contained in the plan. If a plan participant becomes subject to the change-in-control golden parachute excise tax under Section 4999 of the Internal Revenue Code and the aggregate parachute payment exceeds the safe harbor amount by ten percent or more, the plan provides that the Company shall pay to the participant a tax gross-up payment such that after payment by the participant of all federal, state and local excise, income, employment, Medicare and other taxes resulting from the payment of the parachute payments and the tax gross-up payments, the participant retains an after-tax amount equal to the amount that he or she would have retained in the absence of the parachute excise tax.

Severance Plans

The Compensation Committee of the Board of Directors approved on February 10, 2005, a Senior Executive Severance Plan (the “Plan”) to enhance the predictability of treatment for executives at the level of Vice President, Senior Vice President and Executive Vice President whose employment with the Company is terminated by the Company without cause (as such concept is explained in the Plan).

As a condition to receipt of benefits under the Plan, a participating employee must sign an agreement and general release in a form acceptable to the Plan administrator under which the participant agrees to certain confidentiality and non-solicitation provisions for a period of one year following his or her employment termination date, agrees to certain non-competition provisions for the duration of the employee’s receipt of severance pay, and releases and discharges the Company and related entities (as well as any third party for whom the employee provides services on the Company’s behalf) from any and all claims and liabilities relating to the employee’s employment with the Company or the termination of the employee’s employment. Receipt of benefits under the Plan is also contingent upon the employee’s continued employment through the employment termination date designated by the Company. The severance amounts payable to an employee under the Plan will be reduced, dollar-for-dollar, by the amount of any other termination payments paid or payable to the employee under any other plan, program or law (excluding any right to exercise stock options, any unemployment benefits payable in accordance with state law and payment for accrued but unused vacation).

F-45

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Senior Vice Presidents and Executive Vice Presidents who participate in the Plan and sign the above-described agreement and release upon their termination without cause are entitled to receive an amount equal to one year’s base salary as severance and, if the employee would otherwise be eligible to elect employee-paid continued coverage under COBRA, Company-provided health insurance coverage for one year following a termination without Cause, subject to cessation upon the employee’s becoming eligible for similar coverage offered by another employer. Senior Vice Presidents and Executive Vice Presidents would also be entitled continue their non-voluntary life insurance coverage provided by the Company with the premiums paid by the Company for 12 months after a termination without cause, subject to cessation when the employee becomes eligible for coverage under a life insurance plan or policy of another employer. Vice Presidents who meet the above criteria are entitled to the greater of six months base salary or two weeks base salary for each year of service with the Company, as well as six months Company-paid health and life insurance coverage, subject to the conditions described above.

On February 16, 2006, the Compensation Committee of the Board of Directors adopted a transition severance plan for certain employees of the Company whereby each such employee is eligible to receive a severance payment from the Company (varying between six and twelve months of the employee’s base salary) upon any involuntary termination of his or her employment by the Company without cause and, following any change in control of the Company, upon his or her voluntary termination of employment for good reason. The severance plan’s duration is 18 months.

Annual Incentive Plan

In September 2003, the shareholders approved and the Company adopted the Annual Incentive Plan. The plan permits the Compensation Committee to grant performance awards based upon pre-established performance goals to executives of the Company and its subsidiaries selected by the Compensation Committee, whether or not such executives, at the time of grant, are subject to the limit on deductible compensation under Section 162(m) of the Internal Revenue Code. The Annual Incentive Plan became effective as of January 1, 2003.

(17) Supplemental Cash Flow Information and Non-cash Investing and Financing Activities:

(in thousands)

	Year Ended December 31,
	2006		2005			2004
Cash paid for:
Interest, net of amounts capitalized of $2,640, $5,394 and $6,087 for the years ended December 31, 2006, 2005 and 2004, respectively	$	5,610	$	2,856		$	8,729
Income taxes	5,358		1,400			6,167
Non-cash investing and financing activities:
Change in net unrealized gain (loss) in securities available-for-sale	4,078		(8,345		)	(987		)
Options exercised and exchanged for mature shares of common stock	—		—			200
Common stock issued from conversion of 51¤2% subordinated convertible notes	—		—			239,997
Reclassification of unamortized deferred financing costs on the 51¤2% subordinated convertible notes to stockholders’ equity	—		—			1,193

F-46

IMCLONE SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(18) Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, receivables from corporate partners, accounts payable, and other current liabilities at December 31, 2006 and 2005 approximate fair value because maturities are less than one year in duration. The fair value of the 13¤8% convertible senior notes of $600.0 million was approximately $545.6 million and $502.5 million at December 31, 2006 and 2005, respectively, based on their quoted market price. See Note 3 for the fair value disclosures of securities available for sale.

(19) Quarterly Financial Data (Unaudited)

The tables below summarize the Company’s unaudited quarterly operating results for 2006 and 2005 (in thousands, except per share data):  

	Three months ended
	March 31, 2006		June 30, 2006		September 30, 2006			December 31, 2006
Revenues	$	245,131	$	149,856		$	150,697		$	132,163
Net income	$	229,591	$	37,209		$	57,316		$	46,558
Basic net income per share allocable to common stockholders	$	2.75	$	0.44		$	0.68		$	0.55
Diluted net income per share allocable to common stockholders	$	2.51	$	0.42		$	0.65		$	0.53

	Three months ended
	March 31, 2005			June 30, 2005		September 30, 2005			December 31, 2005
Revenues		$	85,771	$	92,385		$	106,525		$	98,992
Net income		$	28,820	$	26,031		$	30,951		$	694
Basic net income per share allocable to common stockholders		$	0.35	$	0.31		$	0.37		$	0.01
Diluted net income per share allocable to common stockholders		$	0.33	$	0.30		$	0.35		$	0.01

F-47

EX-10.39

Exhibit 10.39

IMCLONE SYSTEMS INCORPORATED

2006 STOCK INCENTIVE PLAN

ARTICLE I
PURPOSE

The purpose of this ImClone Systems Incorporated 2006 Stock Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer Eligible Employees, Consultants and Non-Employee Directors stock-based incentives (thereby creating a means to raise the level of equity ownership by such individuals) and provide other incentives in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders.

ARTICLE II
DEFINITIONS

For purposes of the Plan, the following terms shall have the following meanings:

2.1   “Acquisition Event” has the meaning set forth in Section 4.2(d).

2.2   “Affiliate”   means each of the following: (a) any Subsidiary or Parent; (b) any corporation, trade or business (including, without limitation, a partnership or limited liability company) that is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company or one of its Affiliates; and (c) any other entity in which the Company or any of its Affiliates has a material equity interest and that is designated as an “Affiliate” by resolution of the Committee.

2.3   “Award” means any award under the Plan of any Option, Stock Appreciation Right, Restricted Stock Award, RSU Award, Performance Award or Other Stock-Based Award.

2.4   “Board” means the Board of Directors of the Company.

2.5   “Cause” means with respect to a Participant’s Termination of Employment or Termination of Consultancy, the following: (a) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines “cause” (or words or a concept of like import), “cause” as defined under such agreement; provided, however, that with regard to any agreement under which the definition of “cause” applies only on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually takes place and then only with regard to a termination in the period covered thereby; or (b) if such an agreement does not exist or “cause” is not defined in any such agreement, termination due to a Participant’s insubordination, dishonesty, fraud, incompetence, moral turpitude, willful misconduct, refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity or materially unsatisfactory performance of his or her duties for the Company or an Affiliate, as determined by the Committee in its sole discretion. With respect to a Participant’s Termination of Directorship, “cause” means an act or failure to act that constitutes cause for removal of a director under applicable Delaware law.

2.6   “Change in Control” has the meaning set forth in Article XI.

2.7   “Change in Control Price” has the meaning set forth in Section 11.1.

A-1

2.8   “Code” means the Internal Revenue Code of 1986, as amended. Any reference to any section of the Code shall also be a reference to any successor provision and any Treasury Regulation promulgated thereunder.

2.9   “Committee”

(a)   with respect to the application of the Plan to Eligible Employees and Consultants, the “Committee” means the Compensation Committee of the Board appointed from time to time by the Board (or another committee or committees of the Board appointed for the purposes of administering the Plan). In the event that more than one Committee is appointed by the Board, the Board shall specify with respect to each Committee the group of Persons with respect to which such Committee shall have the power to grant Awards. In the event that more than one Committee is appointed by the Board, then each reference in the Plan to “the Committee” shall be deemed a reference to each such Committee (subject to the last sentence of this paragraph); provided, however, that each such Committee may exercise only the power and authority granted to “the Committee” by the Plan with respect to those Persons to which it has the power to grant Awards as specified in the resolution of the Board appointing such Committee. Each Committee shall be comprised of two or more Directors. Each Committee shall consist of two or more non-employee directors, each of whom is intended to be a “non-employee director” as defined in Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, an “outside director” as defined under Section 162(m) of the Code and, to the extent required by the rules and regulations of the Nasdaq Stock Market, an “independent director” as defined under such rules and regulations; provided, however, that the foregoing shall not apply to any Committee that does not have the power to grant Awards to executive officers or Directors of the Company or otherwise make any decisions with respect to the timing or the pricing of any Awards granted to such executive officers and Directors. If for any reason such Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such noncompliance with the requirements of Rule 16b-3 or Section 162(m) of the Code, as applicable, shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.

(b)   With respect to the application of the Plan to Non-Employee Directors, the “Committee” means the Board.

2.10   “Common Stock” means the Common Stock, $0.001 par value per share, of the Company.

2.11   “Company” means ImClone Systems Incorporated, a Delaware corporation, and its successors by operation of law.

2.12   “Consultant” means any individual who (either directly or through his or her employer) is an advisor or consultant to, or subject to Section 5.3, a prospective advisor or consultant to, the Company or an Affiliate.

2.13   “Director” means a member of the Board of Directors of the Company (or any successor to the Company).

2.14   “Disability” means, with respect to a Participant’s Termination, the following:  (a) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines “disability” (or words or a concept of like import), “disability” as defined under such agreement; provided, however, that with regard to any agreement under which the definition of “disability” applies only on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually takes place and then only with regard to a termination in the period covered thereby; or (b) if such an agreement does not exist or if “disability” is not defined in any such agreement, a permanent and total disability as defined in Section 22(e)(3) of the Code. A Disability shall be deemed to occur only at the time of the determination by the Committee of the Disability.

2.15   “Effective Date” means the effective date of the Plan as defined in Article XV.

A-2

2.16   “Eligible Employee” means each employee of, or subject to Section 5.3, each prospective employee of, the Company or an Affiliate.

2.17   “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any references to any section of the Exchange Act shall also be a reference to any successor provision.

2.18   “Fair Market Value” means, for purposes of the Plan, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date and except as provided below, the closing sales price reported for the Common Stock on the applicable date: (a) as reported on the principal national securities exchange in the United States on which it is then traded; or (b) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, Inc. For purposes of the grant of any Award, the applicable date shall be the date on which the Award is granted, or if the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted. For purposes of the exercise of any Award, the applicable date shall be the date a notice of exercise is received by the Committee or, if not a day on which the applicable market is open, the next day that it is open.

2.19   “Family Member” means “family member” as defined in Section A.1.(a)(5) of the general instructions of Form S-8.

2.20   “Good Reason” means, with respect to a Participant’s Termination of Employment, the following: (a) in the case where there is an employment agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award that defines “good reason” (or words or a concept of like import), a termination due to good reason (or words or a concept of like import), as defined in such agreement at the time of the grant of the Award; provided, however, that with regard to any agreement under which the definition of “good reason” applies only on occurrence of a change in control, such definition of “good reason” shall not apply until a change in control actually takes place and then only with regard to a termination in the period covered thereby; or (b) if such an agreement does not exist or if “good reason” is not defined in any such agreement, as defined in the Award agreement, if at all.

2.21   “Incentive Stock Option” means any Option awarded to an Eligible Employee under this Plan intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

2.22   “Non-Employee Director” means a Director of the Company who is not an active employee of the Company or an Affiliate.

2.23   “Non-Qualified Stock Option” means any Option awarded under this Plan that is not an Incentive Stock Option.

2.24   “Non-Tandem Stock Appreciation Right” shall mean the right to receive an amount in cash and/or stock equal to the difference between (a) the Fair Market Value of a share of Common Stock on the date such right is exercised, and (b) the aggregate exercise price of such right, otherwise than on surrender of an Option.

2.25   “Option” means any option to purchase shares of Common Stock granted to Eligible Employees, Non-Employee Directors or Consultants pursuant to Article VI.

2.26   “Other Stock-Based Award” means an Award under Article X of the Plan that is valued in whole or in part by reference to, or is payable in or otherwise based on, Common Stock.

2.27   “Parent” means any parent corporation of the Company within the meaning of Section 424(e) of the Code.

A-3

2.28   “Participant” means an Eligible Employee, Non-Employee Director or Consultant to whom an Award has been granted pursuant to the Plan.

2.29   “Performance Award” means an Award made pursuant to Article IX of the Plan, which may be stated with reference to shares of Common Stock or to cash.

2.30   “Performance Period” has the meaning set forth in Section 9.1.

2.31   “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, incorporated organization, governmental or regulatory or other entity.

2.32   “Plan” means this ImClone Systems Incorporated 2006 Stock Incentive Plan, as amended from time to time.

2.33   “Prior Plan” means the ImClone Systems Incorporated 2002 Stock Option Plan, as amended from time to time.

2.34   “Reference Stock Option” has the meaning set forth in Section 7.1.

2.35   “Restricted Stock Award” means an Award of shares of Common Stock, or the right to receive shares of Common Stock in the future, subject to the restrictions under Article VIII.

2.36   “RSU” means a restricted stock unit, which is an Award the value of which is calculated by reference to the value of shares of Common Stock, subject to the restrictions under Article VIII.

2.37   “Restriction Period” has the meaning set forth in Subsection 8.3(a) with respect to Restricted Stock Awards.

2.38   “Retirement” means, unless otherwise provided by the Committee at grant, a Termination of Employment without Cause or Termination of Consultancy without Cause (other than, in any such case, after the occurrence of an event that would provide a basis for a Cause termination) at or after age 60 (provided the Participant has at least ten years of service to the Company or its Affiliates) or after age 65 (provided the Participant has at least five years of service to the Company or its Affiliates). With respect to a Termination of Directorship, Retirement means the failure to stand for reelection or the failure to be reelected on or after the Participant has attained age 60 (provided the Participant has at least ten years of service to the Company or its Affiliates) or after age 65 (provided the Participant has at least five years of service to the Company or its Affiliates). Determinations of length of service shall be made by the Committee in its sole discretion.

2.39   “Rule 16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provision.

2.40   “Section 162(m) of the Code” means the exception for performance-based compensation under Section 162(m) of the Code and any Treasury regulations thereunder.

2.41   “Securities Act” means the Securities Act of 1933, as amended and all rules and regulations promulgated thereunder. Any reference to any section of the Securities Act shall also be a reference to any successor provision.

2.42   “Stock Appreciation Right” shall mean the right pursuant to an Award granted under Article VII.

2.43   “Stock Option” or “Option” means any option to purchase shares of Common Stock granted to Eligible Employees, Non-Employee Directors or Consultants granted pursuant to Article VI.

2.44   “Subsidiary” means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.

A-4

2.45   “Substitute Awards” mean Awards granted or shares of Common Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, by a company acquired by the Company or an Affiliate or with which the Company or an Affiliate combines.

2.46   “Tandem Stock Appreciation Right” means the right to surrender to the Company all (or a portion) of an Option in exchange for an amount in cash and/or stock equal to the difference between (a) the Fair Market Value, on the date such Option (or such portion thereof) is surrendered, of the Common Stock covered by such Option (or such portion thereof), and (b) the aggregate exercise price of such Option (or such portion thereof), or, if such Tandem Stock Appreciation Right is granted after the date of the Reference Stock Option, the aggregate exercise price of such appreciation right (or portion thereof).

2.47   “Ten Percent Stockholder” means a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, its Subsidiaries or its Parent.

2.48   “Termination” means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.

2.49   “Termination of Consultancy” means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; or (b) when an entity retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the termination of his or her consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer any of a Consultant, an Eligible Employee or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Consultancy in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Consultancy thereafter.

2.50   “Termination of Directorship” means that the Non-Employee Director has ceased to be a Director of the Company; except that if a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of his or her directorship, his or her ceasing to be a Director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination of Employment or Termination of Consultancy, as the case may be. Notwithstanding the foregoing, the Committee may otherwise define Termination of Directorship in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Directorship thereafter.

2.51   “Termination of Employment” means: (a) a termination of employment (for reasons other than a military or personal leave of absence granted by the Company) of a Participant from the Company and its Affiliates; or (b) when an entity employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate. In the event that an Eligible Employee becomes a Consultant or a Non-Employee Director upon the termination of his or her employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer any of an Eligible Employee, a Consultant or a Non-Employee Director. Notwithstanding the foregoing, the Committee may otherwise define Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Employment thereafter.

2.52   “Transfer” means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of equity in a Person), whether for value or no value and whether voluntary or involuntary (including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, charge, hypothecate or otherwise dispose of (including by the issuance of equity in a Person) whether for value or

A-5

for no value and whether voluntarily or involuntarily (including by operation of law). “Transferred” and “Transferable” shall have a correlative meaning.

ARTICLE III
ADMINISTRATION

3.1   The Committee.   The Plan shall be administered and interpreted by the Committee. Notwithstanding anything herein to the contrary, the Board shall have authority for administration and interpretation of the Plan with respect to Non-Employee Directors and all references herein to the authority of the Committee as applied to Non-Employee Directors shall be deemed to refer to the Board.

3.2   Grants of Awards.   The Committee shall have full authority to grant, pursuant to the terms of the Plan, to Eligible Employees, Consultants and Non-Employee Directors: (i) Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock Awards, (iv) RSU Awards, (v) Performance Awards, and (vi) Other Stock-Based Awards. Without limiting the generality of the foregoing, the Committee shall have the authority:

(a)    to select the Eligible Employees, Consultants and Non-Employee Directors to whom Awards may from time to time be granted hereunder;

(b)   to determine whether and to what extent Awards, or any combination thereof, are to be granted hereunder to one or more Eligible Employees, Consultants or Non-Employee Directors;

(c)    to determine the number of shares of Common Stock (if any) to be covered by an Award granted hereunder;

(d)   to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);

(e)    to determine whether, to what extent and under what circumstances grants of Options and other Awards under the Plan are to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company outside of the Plan;

(f)    to determine whether and under what circumstances an Option may be settled in cash, Common Stock and/or restricted stock;

(g)    to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the Participant;

(h)   to determine whether an Option is an Incentive Stock Option or Non-Qualified Stock Option;

(i)    to determine whether to require a Participant, as a condition of the granting of any Award, to not sell or otherwise dispose of shares acquired pursuant to the exercise of an Award for a period of time as determined by the Committee, in its sole discretion, following the date of the acquisition of such Award;

(j)     to modify, extend or renew an Award, subject to Article XII herein, provided, however, that if an Award is modified, extended or renewed and thereby deemed to be the issuance of a new Award under the Code or the applicable accounting rules, the exercise price of an Option may continue to be the original exercise price even if less than the Fair Market Value of the Common Stock at the time of such modification, extension or renewal;

A-6

(k)         to determine at grant that an Option shall cease to be exercisable or an Award shall be forfeited, or that proceeds or profits applicable to an Award shall be returned to the Company, in the event the Participant engages in detrimental activity with respect to the Company or its Affiliates (as such term is defined by the Committee in the Award agreement) and, to interpret such definition and to approve waivers with regard thereto; and

(l)          to determine whether or not an Award is intended to comply with Section 162(m) of the Code.

3.3   Guidelines.

(a)   Subject to Article XII hereof, the Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, including the delegation of its responsibilities (to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the Plan. Notwithstanding the foregoing, no action of the Committee under this Section 3.3 shall reduce the rights of any Participant without the Participant’s consent. To the extent applicable, the Plan is intended to comply with the applicable requirements of Rule 16b-3 and Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.

(b)   Without limiting the generality of the foregoing, the Committee may adopt special guidelines and provisions for persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdictions, to comply with applicable laws, regulations, or accounting, listing or other rules with respect to such domestic or foreign jurisdictions.

3.4   Decisions Final.   Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.

3.5   Procedures.   The Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable, including, without limitation, by telephone conference or by written consent to the extent permitted by applicable law. A majority of the Committee members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by all the Committee members in accordance with the By-Laws of the Company, shall be fully effective as if it had been made by a vote at a meeting duly called and held. The Committee shall make such rules and regulations for the conduct of its business as it shall deem advisable.

3.6   Designation of Consultants/Liability.

(a)   The Committee may designate employees of the Company and professional advisors to assist the Committee in the administration of the Plan and (to the extent permitted by applicable law and applicable exchange rules) may grant authority to officers or other employees to execute agreements or other documents on behalf of the Committee.

(b)   The Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the

A-7

Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Committee, its members and any person designated pursuant to sub-section (a) above shall not be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under it.

3.7   Indemnification.   To the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of the Company and to the extent not covered by insurance directly insuring such person, each officer and member or former member of the Committee or the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Committee) or liability (including any sum paid in settlement of a claim with the approval of the Committee), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the administration of the Plan, except to the extent arising out of such officer’s, member’s or former member’s own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the employees, officers, Directors or members or former officers, Directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or any Affiliate or any agreement of indemnification. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her under the Plan.

3.8   Delegation.   The Committee may delegate, to the extent permitted by law, to one or more Directors or one or more officers or a committee of Directors or officers the right to grant Awards to Eligible Employees who are not Directors or officers of the Company and to cancel or suspend Awards to Eligible Employees who are not Directors or officers of the Company.

ARTICLE IV
SHARE LIMITATION

4.1   Shares.

(a)   Aggregate Limitation.   The following provisions apply in determining the aggregate number of shares of Common Stock available under the Plan.

(i)    The aggregate number of shares of Common Stock that may be granted or used for reference purposes under the Plan shall not exceed 5,500,000 shares plus (x) any Common Stock available for grant under the Prior Plan as of the date stockholder approval of the Plan is obtained, and (y) any other shares under the Prior Plan that again become available under Section 4.1(a)(ii) (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both. With respect to Stock Appreciation Rights settled in Common Stock, the number of shares of Common Stock underlying the Award at the time of grant (and not the net number of shares of Common Stock issued to the Participant upon exercise and settlement) shall count against the aggregate and individual share limitations set forth under Sections 4.1(a) and (b). Any shares of Common Stock that are subject to Awards of Options or Stock Appreciation Rights shall be counted against this limit as one share for every share granted. Any shares of Common Stock that are subject to Awards other than Options or Stock Appreciation Rights shall be counted against this limit as 2.0 shares for every share granted. In no event shall the aggregate number of shares of Common Stock granted pursuant to Incentive Stock Options exceed 5,500,000 shares.

(ii)   If any shares of Common Stock subject to an Award (or an award under the Prior Plan) are forfeited, expire or otherwise terminate without issuance of such shares, or any Award or

A-8

Prior Plan award is settled for cash, the shares shall, to the extent of such forfeiture, expiration, termination or cash settlement, again be available for Awards under the Plan. If a Stock Appreciation Right is granted in tandem with an Option, such grant shall apply only once against the maximum number of shares of Common Stock that may be issued under the Plan. Shares of Common Stock underlying Awards (or Prior Plan stock options) settled in cash shall again be available for issuance under the Plan.

(iii)  Any shares of Common Stock that again become available for grant pursuant to this Section 4.1(a) shall be added back as one share if such share were subject to an award under the Prior Plan or is subject to an Option or Stock Appreciation Right granted under the Plan, and as 2.0 shares if such shares were subject to an Award other than an Option or a Stock Appreciation Right granted under the Plan.

(b)   Individual Participant Limitations.   The following provisions apply in determining the Awards that may be granted to an individual during a fiscal year of the Company.

(i)    The maximum number of shares of Common Stock subject to any Option or Stock Appreciation Right which may be granted under the Plan during any 36-month period to each Eligible Employee shall be 1,000,000 shares for each type of Award (subject to any increase or decrease pursuant to Section 4.2). The maximum number of shares of Common Stock subject to any Restricted Stock Award, RSU Award, Performance Award or Other Stock-Based Award that is subject to the attainment of specified performance goals which may be granted under the Plan during any 36-month period to each Eligible Employee shall be 250,000 shares for each type of Award (subject to any increase or decrease pursuant to Section 4.2). If a Stock Appreciation Right is granted in tandem with an Option it shall apply against the Eligible Employee’s individual share limitations for both Stock Appreciation Rights and Options.

(ii)   The maximum payment under any Performance Award denominated in dollars under the Plan to each Eligible Employee for any fiscal year shall be $5,000,000.

(c)   Substitute Awards.   Substitute Awards shall not reduce the shares of Common Stock authorized for grant under the Plan pursuant to Section 4.1(a) or authorized for grant to an Eligible Employee during any period pursuant to Section 4.1(b).

4.2   Changes.

(a)   The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger or consolidation of the Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of the Company or any Affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any Affiliate or (vi) any other corporate act or proceeding.

(b)   Subject to the provisions of Section 4.2(d), in the event of any such change in the capital structure or business of the Company by reason of any stock split, reverse stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, consolidation, spin-off, reorganization, partial or complete liquidation, issuance of rights or warrants to purchase any Common Stock or securities convertible into Common Stock, any sale or transfer of all or part of the Company’s assets or business, any special cash dividend or any other corporate transaction or event having an effect similar to any of the foregoing and effected without receipt of consideration by the Company, then the aggregate number and kind of shares that thereafter may be issued under the Plan, the number and kind of shares or other property (including cash) to be issued upon exercise of an outstanding Award or under other Awards granted under the Plan and the purchase price thereof shall be appropriately adjusted consistent with such

A-9

change in such manner as the Committee shall deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan, and any such adjustment determined by the Committee in good faith shall be final, binding and conclusive on the Company and all Participants and employees and their respective heirs, executors, administrators, successors and assigns. In connection with any event described in this paragraph, the Committee may provide, in its sole discretion, for the cancellation of any outstanding Awards and payment in cash or other property in exchange therefor. Except as provided in this Section 4.2 or in the applicable Award agreement, a Participant shall have no rights by reason of any issuance by the Company of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend, any other increase or decrease in the number of shares of stock of any class, any sale or transfer of all or part of the Company’s assets or business or any other change affecting the Company’s capital structure or business.

(c)   Except as otherwise determined by the Committee, fractional shares of Common Stock resulting from any adjustment in Awards pursuant to Section 4.2(a) or (b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down and any remaining fractional shares of Common Stock shall be settled in cash. Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan.

(d)   In the event of (x) a merger or consolidation in which the Company is not the surviving entity, (y) any transaction that results in the acquisition of substantially all of the Company’s outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or (z) the sale or transfer of all or substantially all of the Company’s assets (all of the foregoing being referred to as an “Acquisition Event”), then the Committee, in its sole discretion, may terminate all vested and unvested Awards that are outstanding as of the date of Acquisition Event by delivering notice of termination to each Participant at least 20 days prior to the date of the Acquisition Event, in which case, during the period from the date on which such notice of termination is delivered to the date of the Acquisition Event, each such Participant shall have the right to exercise in full all of his or her vested and unvested Awards that are then outstanding (without regard to any limitations on vesting or exercisability otherwise contained in the Award agreements), but any such exercise shall be contingent on the consummation of the Acquisition Event, and, provided that, if the Acquisition Event does not occur within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void. If an Acquisition Event occurs but the Committee does not terminate the outstanding Awards pursuant to this Section 4.2(d), then the provisions of Section 4.2(b) and Article XI shall apply.

4.3   Minimum Purchase Price.   Notwithstanding any provision of the Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under the Plan, such shares shall not be issued for a consideration that is less than as permitted under applicable law.

ARTICLE V
ELIGIBILITY

5.1   General Eligibility.   All Eligible Employees, Consultants and Non-Employee Directors are eligible to be granted Awards. Eligibility for the grant of Awards and actual participation in the Plan shall be determined by the Committee in its sole discretion.

5.2   Incentive Stock Options.   Notwithstanding the foregoing, only Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock Options under this Plan. Eligibility for the grant of an Incentive Stock Option and actual participation in this Plan shall be determined by the Committee in its sole discretion.

A-10

5.3   General Requirement.   The vesting and exercise of Awards granted to a prospective employee or consultant shall be conditioned upon such individual actually becoming an employee of or consultant to the Company or an Affiliate within a reasonable time thereafter, as determined by the Committee.

5.4   Awards to Non-Employee Directors.   Awards made to Non-Employee Directors shall in all cases be granted only in accordance with the compensation policy established by the Company for members of the Board from time to time, which policy may provide for formulaic Awards to Non-Employee Directors with additional Awards to the chairman and vice-chairman of the Board and committee chairs for services they provide in such roles, as well as additional grants to Non-Employee Directors upon joining the Board.

ARTICLE VI
STOCK OPTIONS

6.1   Options.   Options may be granted alone or in addition to other Awards granted under the Plan. The Committee shall have the authority to grant any Eligible Employee, Consultant or Non-Employee Director one or more Options. Each Option granted under the Plan shall be either: (a) an Incentive Stock Option or (b) a Non-Qualified Stock Option.

6.2   Grants.   The Committee shall have the authority to grant to any Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options. The Committee shall have the authority to grant any Consultant or Non-Employee Director one or more Non-Qualified Stock Options. To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or otherwise), such Stock Option or the portion thereof that does not so qualify shall constitute a separate Non-Qualified Stock Option.

6.3   Terms of Options.   Options granted under the Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

(a)   Exercise Price.   Other than in connection with Substitute Awards, the exercise price per share of Common Stock subject to an Option shall be determined by the Committee at the time of grant, provided that the per-share exercise price of any Option shall not be less than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110%) of the Fair Market Value of the Common Stock at the time of grant (unless adjusted in accordance with Section 4.2(b) pursuant to a merger, acquisition, or similar corporate transaction). Other than pursuant to Section 4.2(b), in the absence of shareholder approval, the Committee shall not be permitted to (a) lower the option price per share of an Option after it is granted, (b) cancel an Option in exchange for another Award or cash, and (c) take any other action with respect to an Option that may be treated as a repricing under the rules and regulations of the Nasdaq Stock Market.

(b)   Option Term.   The term of each Option shall be fixed by the Committee, provided that no Option shall be exercisable more than ten (10) years after the date the Option is granted, and provided, further, that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed five years.

(c)   Exercisability.   Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant, provided, however, that in no event (except as provided in the next sentence) shall Options be fully exercisable earlier than one year after grant (except with respect to Options granted to Non-Employee Directors). Notwithstanding the foregoing, in connection with an employment termination or Change in Control, the Committee may waive any limitations on exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Option may be exercised).

A-11

(d)   Method of Exercise.   Subject to whatever installment exercise and waiting period provisions apply under subsection (c) above, to the extent vested, Options may be exercised in whole or in part at any time during the Option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased. Such notice shall be accompanied by payment in full of the purchase price (or arrangements satisfactory to the Committee made for such payment) as follows: (i) in cash or by check, bank draft or money order payable to the order of the Company; or (ii) on such other terms and conditions as may be acceptable to the Committee, including tendering (either actually or through attestation) or withholding shares of Common Stock. No shares of Common Stock shall be issued until payment therefor, as provided herein, has been made or provided for.

(e)   Non-Transferability of Options.   No Option shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Options shall be exercisable, during the Participant’s lifetime, only by the Participant. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, at the time of grant or thereafter that a Non-Qualified Stock Option that is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as specified by the Committee. A Non-Qualified Stock Option that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently Transferred otherwise than by will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award agreement. Any shares of Common Stock acquired upon the exercise of a Non-Qualified Stock Option by a permissible transferee of a Non-Qualified Stock Option or a permissible transferee pursuant to a Transfer after the exercise of the Non-Qualified Stock Option shall be subject to the terms of the Plan and the applicable Award agreement.

(f)    Termination by Death, Disability or Retirement.   Except as otherwise (x) provided in a written agreement between the Company and the Participant or (y) determined by the Committee at grant or (if no rights of the Participant are reduced) thereafter, if a Participant’s Termination is by reason of death, Disability or Retirement, all Options that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a period of one year from the date of such Termination, but in no event beyond the expiration of the stated term of such Options if the Options are Incentive Stock Options or if such Termination is by reason of Retirement; provided, however, that in the case of Retirement or Disability, if the Participant dies within such exercise period, all unexercised Options held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a minimum period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Options if the Options are Incentive Stock Options.

(g)   Termination for Cause.   Except as otherwise (x) provided in a written agreement between the Company and the Participant or (y) determined by the Committee at grant or (if no rights of the Participant are reduced) thereafter, if a Participant’s Termination (i) is for Cause or (ii) is a voluntary Termination after the occurrence of an event that would be grounds for a Termination for Cause, all Options held by such Participant, whether or not vested,  shall thereupon terminate and expire as of the date of such Termination or, if earlier, the date of the Cause event.

(h)   Termination for Any Other Reason.   Except as otherwise (x) provided in a written agreement between the Company and the Participant or (y) determined by the Committee at grant, or (if no rights of the Participant are reduced) thereafter, if a Participant’s Termination is for any reason not set forth in Section 6.3(f) or (g), all Options that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Options.

(i)    Unvested Options.   Except as otherwise (x) provided in a written agreement between the Company and the Participant or (y) determined by the Committee at grant or (if no rights of the

A-12

Participant are reduced) thereafter, Options that are not vested as of the date of a Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.

(j)    Incentive Stock Option Limitations.   To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under this Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options. Should any provision of this Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may amend this Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.

(k)   Form, Modification, Extension and Renewal of Options.   Subject to the terms and conditions and within the limitations of the Plan, Options shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may modify, extend or renew outstanding Options granted under the Plan (provided that the rights of a Participant are not reduced without his or her consent).

(l)    Early Exercise.   The Committee may provide that an Option include a provision whereby the Participant may elect at any time before the Participant’s Termination to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option and such shares shall be subject to the provisions of Article VIII and treated as restricted stock. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.

(m)  Other Terms and Conditions.   Options may contain such other provisions, which shall not be inconsistent with any of the terms of the Plan, as the Committee shall deem appropriate.

ARTICLE VII
STOCK APPRECIATION RIGHTS

7.1    Tandem Stock Appreciation Rights.   Tandem Stock Appreciation Rights, by their nature, may be granted only in conjunction with all or part of any Option (a “Reference Stock Option”) granted under the Plan. In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option.

7.2    Terms and Conditions of Tandem Stock Appreciation Rights.   Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:

(a)   Term.   A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be reduced until and then only to the extent the exercise or termination of the Reference Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.

(b)   Exercisability.   Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI, and shall be subject to the provisions of Section 6.3(c).

(c)   Method of Exercise.   A Tandem Stock Appreciation Right may be exercised by the Participant by surrendering the applicable portion of the Reference Stock Option. Upon such exercise and surrender, the

A-13

Participant shall be entitled to receive an amount determined in the manner prescribed in this Section 7.2. Options that have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Tandem Stock Appreciation Rights have been exercised.

(d)   Payment.   Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in cash and/or Common Stock (as determined by the Committee in its sole discretion at the time of grant or, if permitted by the grant, at the time of exercise) equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option exercise price per share specified in the Reference Stock Option agreement (or, in the case of a Tandem Stock Appreciation Right granted after the time of the grant of such Reference Stock Option, the exercise price determined as set forth below) multiplied by the number of shares in respect of which the Tandem Stock Appreciation Right shall have been exercised. The exercise price of a Tandem Stock Appreciation Right shall be required to be in accordance with Section 6.3(a) on the date of grant except (i) if such Tandem Stock Appreciation Right is added to an Option after the date of grant of the Option, in which case the exercise price of may not be less than 100% of the Fair Market Value of one share of Common Stock on the date the right was granted to the Participant (except in the case of Substitute Awards as provided in Clause (ii), or (ii) in the case of Substitute Awards, in connection with an adjustment pursuant to Section 4.2(b)..

(e)   Deemed Exercise of Reference Stock Option.   Upon the exercise of a Tandem Stock Appreciation Right for Common Stock, the Reference Stock Option (or part thereof, based on the value of the Common Stock issued on exercise) to which such Stock Appreciation Right is related shall be deemed to have been exercised for purposes of the limitation set forth in Article IV of the Plan on the number of shares of Common Stock to be issued under the Plan.

7.3    Non-Tandem Stock Appreciation Rights.   Non-Tandem Stock Appreciation Rights may also be granted without reference to any Options granted under the Plan.

7.4    Terms and Conditions of Non-Tandem Stock Appreciation Rights.   Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee, and the following:

(a)   Term.   The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not exceed ten (10) years after the date the right is granted.

(b)   Exercisability.   Non-Tandem Stock Appreciation Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant, provided, however, that in no event (except as provided in the next sentence) shall Non-Tandem Stock Appreciation Rights be fully exercisable earlier than one year after grant (except with respect to Non-Tandem Stock Appreciation Rights granted to Non-Employee Directors). Notwithstanding the foregoing, in connection with an employment termination or Change in Control, the Committee may waive any limitations on exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such right may be exercised).

(c)   Method of Exercise.   Subject to the installment, exercise and waiting period provisions that apply under subsection (b) above, Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time in accordance with the applicable Award agreement, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.

(d)   Payment.   Upon the exercise of a Non-Tandem Stock Appreciation Right, a Participant shall be entitled to receive, for each right exercised, an amount in cash and/or Common Stock (as determined by the Committee in its sole discretion at the time of grant or, if permitted by the grant, at the time of exercise) no greater than the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised over the Fair Market Value of one share of Common Stock on the date the right was awarded to the Participant. The exercise price of a Non-Tandem Stock Appreciation Right may not be less

A-14

than 100% of Fair Market Value of a share of Common Stock on the date of grant except in the case of Substitute Awards, in connection with an adjustment pursuant to Section 4.2(b). Other than pursuant to Section 4.2(b), in the absence of shareholder approval, the Committee shall not be permitted to (a) lower the Fair Market Value per share of a Non-Tandem Stock Appreciation Right after it is granted, (b) cancel a Non-Tandem Stock Appreciation Right in exchange for another Award or cash, and (c) take any other action with respect to a Non-Tandem Stock Appreciation Right that may be treated as a repricing under the rules and regulations of the Nasdaq Stock Market.

7.5    Non-Transferability of Stock Appreciation Rights.   No Stock Appreciation Right (whether a Tandem Stock Appreciation Right or a Non-Tandem Stock Appreciation Right) shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Stock Appreciation Rights shall be exercisable, during the Participant’s lifetime, only by the Participant.  Notwithstanding the foregoing, the Committee may determine, in its sole discretion, at the time of grant or thereafter that a Stock Appreciation Right that is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as specified by the Committee.  A Stock Appreciation Right that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently Transferred otherwise than by will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award agreement.  Any shares of Common Stock acquired upon the exercise of a Stock Appreciation Right by a permissible transferee of a Stock Appreciation Right or a permissible transferee pursuant to a Transfer after the exercise of the Stock Appreciation Right shall be subject to the terms of the Plan and the applicable Award agreement.

ARTICLE VIII
RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS

8.1    Restricted Stock Awards and RSU Awards.   Restricted Stock Awards and RSU Awards may be issued either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, grants of Restricted Stock Awards and RSU Awards shall be made, the number of shares to be awarded, the price (if any) to be paid by the Participant (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, the vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards. RSU Awards may be settled in shares of Common Stock and/or in cash or any combination as determined by the Committee in its sole discretion at or after the time of grant.

8.2   Awards and Certificates.   Eligible Employees, Consultants and Non-Employee Directors selected to receive a Restricted Stock Award or RSU Award shall not have any rights with respect to such Award, unless and until such Participant has delivered a fully executed copy of the agreement evidencing the Award to the Company and has otherwise complied with the applicable terms and conditions of such Award. Further, such Award shall be subject to the following conditions:

(a)    Purchase Price. Unless (x) otherwise provided by the Committee or (y) prohibited by applicable law, the purchase price of a Restricted Stock Award or RSU Award shall be zero. If required by law or the Committee otherwise determines that a Restricted Stock Award or RSU Award shall have a purchase price, such purchase price shall not be less than par value.

(b)   Acceptance. Restricted Stock Awards must be accepted within a period of 60 days (or such shorter period as the Committee may specify at grant) after the grant date, by executing an Award agreement and by paying the price (if any) the Committee has designated thereunder (such acceptance may be in any manner that the Committee may establish, including deemed acceptance).

A-15

8.3   Restrictions and Conditions.   Restricted Stock Awards and RSU Awards awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

(a)    Restriction Period.

(i)     The Participant shall not be permitted to Transfer a Restricted Stock Award or RSU Award awarded under the Plan during the period or periods set by the Committee (the “Restriction Period”) commencing on the date of such Award, as set forth in the Award agreement and such agreement shall set forth a vesting schedule and any events that would accelerate vesting of the Restricted Stock Award or RSU Award during such Restriction Period. Except as provided herein, and except for Restricted Stock Awards or RSU Awards to Non-Employee Directors, the minimum Restriction Period for a Restricted Stock Award or RSU Award shall be three years (but with pro-rata or other graded vesting permitted over such three-year period, but not prior to one year after grant, and in no event more than one-third of the Award vesting in respect of any year); provided, that if the Award is a performance-based Award the minimum Restriction Period for full vesting and transfer shall be one year rather than three years. The limitations in the preceding sentence shall not apply on up to five percent of the aggregate shares of Common Stock available under the Plan set forth in Section 4.1, as adjusted, when combined with the aggregate grants made under the limits set forth in Section 10.2. Within these limits, based on service, attainment of performance goals pursuant to Section 8.3(a)(ii) below and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may place conditions on the grant. In addition, (x) upon a Change in Control, (y) upon a Participant’s without Cause or Good Reason termination or termination by reason of death, Disability or Retirement, or (z) if required pursuant to an agreement in existence prior to the date of grant to which the Participant is a party, the Committee in its sole discretion may (A) provide for the lapse of restrictions in whole or in part, (B) accelerate the vesting of all or any part of any Restricted Stock Award or RSU Award and/or (C) waive the deferral limitations for all or any part of any such Award.

(ii)    Objective Performance Goals, Formulas or Standards. If the grant of a Restricted Stock Award or RSU Award or the lapse of restrictions is based on the attainment of performance goals, the Committee shall establish the objective performance goals, including, to the extent the Committee so determines, from among those set forth in Exhibit A hereto, and the applicable vesting percentage of the Restricted Stock Award or RSU Award applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee and while the outcome of the performance goals are substantially uncertain.

(b)   Rights as a Stockholder; Dividends. Beginning on the date of grant of a Restricted Stock Award and subject to acceptance of the associated Award agreement, the Participant shall become a shareholder of the Company with respect to all shares of Common Stock subject to the Restricted Stock Award and shall have all of the rights of a shareholder, including the right to vote such shares and the right to receive distributions made with respect to such shares; provided, however, that, in the absence of Committee action to the contrary, any shares of Common Stock or any other property (other than regular cash distributions) distributed as a dividend or otherwise with respect to any Restricted Stock Award as to which the restrictions have not yet lapsed shall be subject to the same restrictions as the shares covered by such Award.

(c)    Termination. Except as otherwise (x) provided in a written agreement between the Company and the Participant or (y) determined by the Committee at grant or (if no rights of the Participant are reduced) thereafter, subject to the applicable provisions of the Award agreement and the Plan, upon a

A-16

Participant’s Termination for any reason during the relevant Restriction Period, all Restricted Stock Awards and RSU Awards still subject to restriction will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant or thereafter. In the absence of such provisions in the Award agreement, in the event of:  (i) death, Disability or Retirement, restrictions shall lapse on the Participant’s Restricted Stock Awards and RSU Awards on a pro rata monthly basis through the date of Termination, with performance awards paid at the end of the performance period based on actual results; and (ii) any other Termination, any unvested Restricted Stock Awards or RSUs shall immediately be cancelled.

(d)   Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock Award or RSU Award, certificates for shares attributable to such Award shall be delivered to the Participant (or, if certificates were previously issued, replacement certificates shall be delivered upon return of the previously issued certificates). All legends shall be removed from said certificates at the time of delivery to the Participant, except as otherwise required by applicable law or other limitations imposed by the Committee. Notwithstanding the foregoing, actual certificates shall not be issued to the extent that book entry recordkeeping is used.

ARTICLE IX
PERFORMANCE AWARDS

9.1   Performance Awards.   Performance Awards may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, Performance Awards shall be awarded, the number of Performance Awards to be awarded to any person, the duration of the period (the “Performance Period”) during which, and the conditions under which, a Participant’s right to Performance Awards will be vested, the ability of Participants to defer receipt of Performance Awards, and the other terms and conditions of the Award in addition to those set forth in Section 9.2. The minimum Performance Period shall be one year.

The Committee shall condition the right to payment or vesting of any Performance Award upon the attainment of objective performance goals established pursuant to Section 9.2(b) below.

9.2   Terms and Conditions.   Performance Awards awarded pursuant to this Article IX shall be subject to the following terms and conditions:

(a)    Earning or Vesting of Performance Award. At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the performance goals established pursuant to Section 9.2(b) are achieved and the percentage of each Performance Award that has been earned or vested.

(b)   Objective Performance Goals, Formulas or Standards. The Committee shall establish the objective performance goals, including, to the extent the Committee so determines, from among those set forth in Exhibit A hereto, for the earning of Performance Awards based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or, to the extent such Award is intended to comply with Section 162(m) of the Code, at such later date as permitted thereunder and while the outcome of the performance goals is substantially uncertain.

(c)    Payment. Following the Committee’s determination, shares of Common Stock and/or cash, as determined by the Committee in its sole discretion at the time of grant or, if permitted by the grant, thereafter, shall be delivered to the Eligible Employee, Consultant or Non-Employee Director, or his legal representative, in an amount equal to such individual’s earned or vested Performance Award. Notwithstanding the foregoing, the Committee may, in its sole discretion and, to the extent

A-17

Section 162(m) of the Code is applicable, in accordance therewith, (i) award a number of shares of Common Stock or an amount of cash less than the earned Performance Award and/or (ii) subject the payment of all or part of any Performance Award to additional vesting, forfeiture and deferral conditions.

(d)   Termination. Subject to the applicable provisions of the Award agreement and the Plan, upon a Participant’s Termination for any reason during the Performance Period for a Performance Award, such Performance Award will vest or be forfeited in accordance with the terms and conditions established by the Committee at grant or, if no rights of the Participant are reduced, thereafter.

(e)    Accelerated Vesting. Upon (x) a Change in Control, (y) a Participant’s without Cause or Good Reason termination or termination by reason of death, Disability or Retirement, or (z) if required pursuant to an agreement in existence prior to the date of grant to which the Participant is a party, the Committee, in its sole discretion, may accelerate the vesting of all or any part of any Performance Award or waive the deferral limitations for all or any part of such Award.

ARTICLE X
OTHER STOCK-BASED AWARDS

10.1   Other Awards.

(a)    Subject to the limitations set forth in Section 4.1(a), the Committee is authorized to grant to Eligible Employees, Consultants and Non-Employee Directors Other Stock-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of Common Stock, including, but not limited to, (a) shares of Common Stock awarded as a bonus, (b) shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, (c) stock equivalent units, and (d) Awards valued by reference to book value of shares of Common Stock. Other Stock-Based Awards may be granted either alone or in addition to or in tandem with other Awards granted under the Plan.

(b)   Subject to the provisions of the Plan, the Committee shall have authority to determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all other conditions of the Awards.

(c)    The Committee may condition the grant or vesting of Other Stock-Based Awards upon the attainment of specified performance goals, including, to the extent the Committee so determines, from among those set forth on Exhibit A hereto, as the Committee may determine, in its sole discretion.

10.2   Terms and Conditions.   Other Stock-Based Awards made pursuant to this Article X shall be subject to the following terms and conditions:

(a)    Vesting. Any Award under this Article X and any Common Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award agreement, as determined by the Committee, in its sole discretion; provided, that, except for Awards under this Article X to Non-Employee Directors, the minimum vesting period for any such Award and any Common Stock covered by such Award shall be three years (but with pro-rata or other graded vesting permitted over such three-year period, but not prior to one year after grant, and in no event more than one-third of the Award vesting in respect of any year); provided, further, that if the Award is a performance-based Award the minimum vesting period for full vesting shall be one year rather than three years. The minimum vesting period limitations in the preceding sentence shall not apply on up to five percent of the aggregate shares of Common Stock available under the Plan set forth in Section 4.1, as adjusted,

A-18

when combined with the aggregate grants made under the limits set forth in Section 8.3. Within these limits, based on service, attainment of performance goals, and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may place conditions on the grant. In addition, (x) upon a Change in Control, (y) upon a Participant’s without Cause or Good Reason termination or termination by reason of death, Disability or Retirement, or (z) if required pursuant to an agreement in existence prior to the date of grant to which the Participant is a party, the Committee in its sole discretion may (A) accelerate the vesting of all or any part of any Other Stock Based Award, and/or (B) waive the deferral limitations for all or any part of any such Award.

(b)   Price. Common Stock issued on a bonus basis under this Article X may be issued for no cash consideration to the extent permitted by law.

ARTICLE XI
CHANGE IN CONTROL PROVISIONS

11.1   Benefits.   In the event of a Change in Control of the Company (as defined below), and except as otherwise provided by the Committee in an Award agreement or, if no rights of the Participants are reduced, thereafter, a Participant’s Award shall be treated as follows:

(a)    Unless the Committee provides otherwise in an Award agreement or if no rights of the Participant are reduced, thereafter, no acceleration of vesting or lapsing of restrictions shall occur with respect to an Award if the Committee reasonably determines in good faith, prior to the occurrence of the Change in Control, that the Award shall be continued, assumed, have new rights substituted therefor or be treated in accordance with Section 4.2(d) hereof, but, unless the Committee determines otherwise, any such Award shall automatically vest in full upon the Participant’s Termination without Cause or for Good Reason within 18 months after the Change in Control.

(b)   In the event that subsection (a) above does not apply, all outstanding Options and Non-Tandem Stock Appreciation Rights granted to a Participant prior to the Change in Control shall be fully vested and immediately exercisable in their entirety. The Committee, in its sole discretion, may provide at the time of grant for the purchase of any Awards by the Company or an Affiliate for an amount of cash equal to the excess of the Change in Control Price (as defined below) of the shares of Common Stock covered by such Awards, over the aggregate exercise price of such Awards. For purposes of this Section 11.1, “Change in Control Price” shall mean the average Fair Market Value of a share of Common Stock during the 20 trading days immediately prior to a Change in Control of the Company or as otherwise determined by the Committee. Notwithstanding anything to the contrary contained herein, for purposes of Incentive Stock Options, any assumed or substituted Option shall comply with the requirements of Treasury Regulation § 1.425-1 (and any amendments thereto).

(c)    In the event that subsection (a) above does not apply and unless the Committee otherwise determines, all Performance Awards granted to a Participant prior to the Change in Control shall vest on the following schedule:  (i) if at least 50% of a Performance Award’s Performance Period has been completed, the Award shall vest in full and be paid out as if the relevant Performance Period had ended upon such Change in Control and the determination of the extent to which any specified performance goals or targets had been achieved had been made at such time, and (ii) if less than 50% of the Performance Award’s Performance Period has been completed, the Award shall vest in full and shall be paid out at 50% of Award target without consideration of performance to date.

(d)   In the event that subsection (a) above does not apply, the restrictions to which any Restricted Stock Awards or RSU Awards granted to a Participant prior to the Change in Control are subject shall lapse as if the applicable Restriction Period had ended upon such Change in Control.

A-19

11.2   Change in Control.“Change in Control” shall mean the occurrence of one of the following events:

(a)   individuals who, on the Effective Date, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director;

(b)   any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that an event described in this subsection (b) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner:

(i)the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary),

(ii)any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary,

(iii)any underwriter temporarily holding securities pursuant to an offering of such securities, or

(iv)any person pursuant to a Non-Qualifying Transaction (as defined below);

(c)   the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination:

(i)50% or more of the total voting power of:

(x)the corporation resulting from such Business Combination (the “Surviving Corporation”), or

(y)if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”),

is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination;

(ii)no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 40% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation); and

A-20

(iii)at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination

(any Business Combination which satisfies all of the criteria specified in (i), (ii) and (iii) above shall be deemed to be a “Non-Qualifying Transaction”); or

(d)   stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company’s shareholders in substantially the same proportions as such shareholders owned the Company’s outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 40% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.

ARTICLE XII
TERMINATION OR AMENDMENT OF PLAN/NON-TRANSFERABILITY OF AWARDS

12.1   Termination or Amendment.   Notwithstanding any other provision of the Plan, the Board (or a duly authorized Committee thereof) may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XIV), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, except (x) to correct obvious drafting errors or as otherwise required by law or (y) as specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be reduced without the consent of such Participant and, provided further, without the approval of the holders of the Company’s Common Stock entitled to vote in accordance with applicable law, no amendment may be made that would (i) increase the aggregate number of shares of Common Stock that may be issued under the Plan under Section 4.1(a) (except by operation of Section 4.2); (ii) increase the maximum individual limitations under Section 4.1(b) (except by operation of Section 4.2); (iii) change the classification of individuals eligible to receive Awards under the Plan; (iv) extend the maximum option period under Section 6.3; (v) materially alter the performance goals as set forth in Exhibit A; (vi) take any actions prohibited by the last sentence of Section 6.3(a) or Section 7.4(d); or (vii) require stockholder approval in order for the Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code. In no event may the Plan be amended without the approval of the stockholders of the Company in accordance with the applicable laws of the State of Delaware to increase the aggregate number of shares of Common Stock that may be issued under the Plan, decrease the minimum exercise price of any Award, or to make any other amendment that would require stockholder approval under the rules of any exchange or system on which the Company’s securities are listed or traded at the request of the Company. The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV above, except (x) to correct obvious drafting errors or as otherwise required by law or applicable

A-21

accounting rules, or (y) as specifically provided herein, no such amendment or other action by the Committee shall reduce the rights of any holder without the holder’s consent.

12.2   Non-Transferability of Awards.   Subject to Sections 6.3(e) and 7.5, no Award shall be Transferable by the Participant (including, without limitation to, a Family Member) otherwise than by will or by the laws of descent and distribution, and all Awards shall be exercisable, during the Participant’s lifetime, only by the Participant. Any attempt to Transfer any Award or benefit except as expressly permitted herein shall be void, and any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person. An Award that is Transferred pursuant to the first sentence of this Section 12.2 (i) may not be subsequently Transferred otherwise than by will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award agreement. Notwithstanding anything to the contrary contained in this Section 12.2 (or 6.3(e) and 7.5), if and to the extent approved by the Committee in its sole discretion, an employee or Non-Employee Director may transfer an Award (but not Awards constituting in excess of one percent of the Common Stock outstanding in any single Transfer) to a charitable organization. Any shares of Common Stock acquired by a permissible transferee shall continue to be subject to the terms of the Plan and the applicable Award agreement.

ARTICLE XIII
UNFUNDED PLAN

13.1   Unfunded Status of Plan.   The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments as to which a Participant has a fixed and vested interest but that are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Company.

ARTICLE XIV
GENERAL PROVISIONS

14.1   Legend and Custody.

(a)   The Committee may require each person receiving shares of Common Stock pursuant to an Option or other Award under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof. In addition to any legend required by the Plan, the certificates for such shares may include any legend that the Committee deems appropriate to reflect any restrictions on Transfer.

(b)   All certificates for shares of Common Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under (a) the rules, regulations and other requirements of the Securities and Exchange Commission, (b) any stock exchange upon which the Common Stock is then listed or any national securities exchange system upon whose system the Common Stock is then quoted, or (c) applicable law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

(c)   If stock certificates are issued in respect of an Award, the Committee may require that any stock certificates evidencing such Award be held in custody by the Company until the Award has vested or the restrictions thereon have lapsed, and that, as a condition of any grant of such an Award, the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award.

A-22

14.2   Other Plans.   Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

14.3   Deferral; Dividends and Dividend Equivalents.   The Committee may, in its sole discretion, establish terms and conditions pursuant to which the cash payment or delivery of Common Stock pursuant to an Award may be deferred. Subject to the provisions of the Plan, the terms of any Award (including a deferred Award) may provide, if so determined by the Committee in its sole discretion, for the payment of cash, Common Stock or other property dividends, or cash payments in amounts equivalent to cash, Common Stock or other property dividends (“Dividend Equivalents”), on either a current or a deferred basis, with respect to the number of shares of Common Stock subject to such Award. The Committee may also provide that any such dividends or dividend equivalents shall be subject to the same restrictions and risk of forfeiture as the underlying Award or be deemed to have been reinvested in additional Awards or otherwise reinvested.

14.4   No Right to Employment/Directorship/Consultancy.   Neither the Plan nor the grant of any Option or other Award hereunder shall give any Participant or other employee, Consultant or Non-Employee Director any right with respect to continuance of employment, consultancy or directorship by the Company or any Affiliate, nor shall they be a limitation in any way on the right of the Company or any Affiliate by which an employee is employed or a Consultant or Non-Employee Director is retained to terminate his or her employment, consultancy or directorship at any time.

14.5   Withholding of Taxes.   The Company shall have the right to deduct from any payment to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any federal, state or local taxes required by law to be withheld. Upon the vesting of a Restricted Stock Award or RSU Award (or other Award that is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company. If permitted by the Committee, the minimum statutorily required withholding obligation with regard to any Participant may be satisfied by (i) reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned, or (ii) the Participant’s tendering to the Company of shares of Common Stock owned by such Participant. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.

14.6   Listing and Other Conditions.

(a)   Except as otherwise determined by the Committee, as long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issuance of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected.

(b)   If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Option or other Award is or may be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to shares of Common Stock or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.

A-23

(c)   Upon termination of any period of suspension under this Section 14.6, any Award affected by such suspension that shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares that would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award.

(d)   A Participant shall be required to supply the Company with any certificates, representations and information that the Company requests, and otherwise to cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval as the Company deems necessary or appropriate.

14.7   Governing Law.   The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).

14.8   Construction.   Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

14.9   Other Benefits.   No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.

14.10   Costs.   The Company shall bear all expenses associated with administering the Plan, including expenses of issuing Common Stock pursuant to any Awards hereunder.

14.11   No Right to Same Benefits.   The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.

14.12   Death/Disability.   The Committee may, in its sole discretion, require the transferee of a Participant to supply it with written notice of the Participant’s death or Disability and to supply it with a copy of the will (in the case of the Participant’s death) and/or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award. The Committee may also require that the agreement of the transferee to be bound by all of the terms and conditions of the Plan.

14.13   Section 16(b) of the Exchange Act.   All elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3. The Committee may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder.

14.14   Section 409A of the Code.   The Board may amend the Plan as necessary to comply with Section 409A of the Code without shareholder consent.

14.15   Successor and Assigns.   The Plan shall be binding on all successors and permitted assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate.

A-24

14.16   Severability of Provisions.   If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

14.17   Payments to Minors, Etc.   Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Board, the Company, its Affiliates and their employees, agents and representatives with respect thereto.

14.18   Headings and Captions.   The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

ARTICLE XV
EFFECTIVE DATE OF PLAN

The Plan shall become effective upon the date specified by the Board in its resolution adopting the Plan, subject to the approval of the Plan by the stockholders of the Company within 12 months before or after such date of adoption, in accordance with the requirements of the laws of the State of Delaware.

ARTICLE XVI
TERM OF PLAN

No Award shall be granted pursuant to the Plan on or after the tenth anniversary of the earlier of the date the Plan is adopted or the date of stockholder approval, but Awards granted prior to such tenth anniversary may extend beyond that date.

ARTICLE XVII
NAME OF PLAN

The Plan shall be known as “ImClone Systems Incorporated 2006 Stock Incentive Plan.”

A-25

EXHIBIT A
PERFORMANCE GOALS

Performance goals established for purposes of the vesting of performance-based Restricted Stock Awards, RSU Awards, Performance Awards and/or Other Stock-Based Awards shall be based on one or more of the following performance goals (“Performance Goals”), which may be set in terms of the performance of the Company or any subsidiary, division, other operational unit or business segment of the Company:  (i) the attainment of certain target levels of, or a specified increase in, enterprise value or value creation targets; (ii) the attainment of certain target levels of, or a specified increase in, after-tax or pre-tax profits, including without limitation as attributable to continuing and/or other operations of the Company; (iii) the attainment of certain target levels of, or a specified increase in, operational cash flow or economic value added; (iv) the attainment of a certain level of reduction of, or other specified objectives with regard to limiting the level of increase in all or a portion of, the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee; (v) the attainment of certain target levels of, or a specified increase in, earnings per share or earnings per share from continuing operations; (vi) the attainment of certain target levels of, or a specified increase in, net sales, revenues, net income or earnings before income tax or other exclusions; (vii) the attainment of certain target levels of, or a specified increase in, return on capital employed or return on invested capital; (viii) the attainment of certain target levels of, or a specified increase in, after-tax or pre-tax return on stockholder equity; (ix) the attainment of certain target levels of, or a specified increase in, the fair market value of the shares of the Company’s Common Stock; (x) the growth in the value of an investment in the Company’s Common Stock assuming the reinvestment of dividends; (xi) a transaction that results in the sale of stock or assets of the Company; (xii) the attainment of certain target levels of, or a specified reduction in, expenses; or (xiii) implementation, completion or attainment of interim measurable goals with regard to research, development, products or projects. The Committee may also exclude the impact of an event or occurrence which the Committee determines should be appropriately excluded, including (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (iii) a change in tax law or accounting standards required by generally accepted accounting principles.

In addition, such Performance Goals may be based upon the attainment of specified levels of Company (or subsidiary, division or other operational unit or business segment of the Company) performance under one or more of the measures described above relative to the performance of other corporations. The Committee may: (i) designate additional business criteria on which the performance goals may be based or (ii) adjust, modify or amend the aforementioned business criteria.

EX-10.40

Exhibit 10.40

CONFIDENTIAL TREATMENT REQUESTED

[Note: Certain portions of this document have been marked to indicate that Confidential Treatment has been requested for such portions by ImClone Systems Incorporated. These portions have been marked with one asterisk enclosed in brackets (i.e. [*]). The confidential portions have been omitted and filed separately with the Securities and Exchange Commission.]

Letter Agreement

From:ImClone Systems Incorporated
180 Varick Street
New York, NY 10014
USA

To:UCB Pharma S.A..
Allée de la Recherche
60 1070 Brussels
Belgium
Attn: General Counsel

Re:Collaboration and License Agreement dated 15th August 2005
Among UCB, S.A. (“UCB”) and ImClone Systems Incorporated
(“ImClone”), and any and all amendments thereto (the “Agreement”)

Dear Sirs

All capitalised terms not otherwise defined herein shall have the meaning given such terms in the Agreement.  This letter agreement (the “Letter Agreement”) shall memorialise the settlement and compromise reached between UCB and ImClone (each a “Party”, and together the “Parties”) with respect to the Agreement.

WHEREAS, UCB and ImClone are parties to the Agreement;

WHEREAS, on 20th December 2006, the business of UCB S.A. was transferred to UCB Pharma S.A.  As a result of such transfer, the Agreement was assigned to UCB Pharma S.A.;

WHEREAS, ImClone desires to voluntarily terminate the Agreement at this time; and

WHEREAS, the Parties have agreed to settle and fully resolve UCB’s claims against ImClone for reimbursement of certain costs in connection with the Agreement.

NOW THEREFORE, in consideration of the mutual covenants and obligations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be bound hereby, the Parties agree as follows:

1.When used in this Letter Agreement, the following terms shall have the meanings set out in this paragraph 1:

Dispute means the dispute between the Parties concerning the payment of, and their respective responsibility for, any and all costs under the Agreement, including development costs incurred prior to the Effective Date, Development Costs for Agreed Indications, Development Costs for Independent Indications, Manufacturing costs with respect to Antibody Products and the costs of Commercialisation of the Antibody Products.

2.ImClone hereby gives UCB notice that it is terminating the Agreement under Article 12.2 thereof.  UCB acknowledges and agrees that such termination notice is valid, timely and binding upon UCB.  Upon termination, UCB shall be designated as the Remaining Party under Article 12 of the Agreement.

3.Notwithstanding the terms of paragraph 2 above and subject to paragraph 4 below, the Parties agree that the articles of the Agreement listed in Article 12.11(b) of the Agreement shall survive termination of the Agreement.

4.The Parties agree that the words “(with consent not to be unreasonably withheld or delayed)” shall be deleted from Article 12.8(c)(ii) of the Agreement.  UCB shall however provide written notice to ImClone of the identity of any such sublicense within five (5) business days of any such sublicense having been entered into pursuant to Article 12.8(c)(ii), together with confirmation that such sublicense contains all of the restrictions that apply to UCB, including without limitation those under Article 11 of the Agreement (Confidentiality and Non-Use).

5.The Parties each acknowledge and agree that neither Party owes to the other Party any monetary consideration with respect to the Agreement nor any other amount relating to costs under the Agreement, including development costs incurred prior to the Effective Date, Development Costs for Agreed Indications, Development Costs for Independent Indications, Manufacturing costs with respect to Antibody Products or the costs of Commercialisation of the Antibody Products, except as follows:

a.within ten (10) days of the date UCB countersigns this Letter Agreement, ImClone shall pay to UCB the total sum of Four Hundred Fifty Thousand Dollars and Zero Cents (US $450,000.00); and

b.UCB shall pay to ImClone the post-termination royalty required under Article 12.9(b) of the Agreement, but at the amended royalty rate of [*] rather than [*].

For the avoidance of doubt, the provisions of Article 2.3(g) of the Agreement shall apply to payments or portions due under this Letter Agreement that are not paid on the date such payments are due.

6.This Letter Agreement is in full and final settlement of, and each Party hereby releases and forever discharges, all and/or any actions, claims, rights, demands and set-offs, whether in this jurisdiction or any other, whether or not presently known to the Parties or to the law, and whether in law or equity, that it, its parent, subsidiaries, assigns, transferees, representatives, principals, agents, officers and directors or any of them ever had, may have or hereafter can, shall or may have against the other Party or any other of its parent, subsidiaries, assigns, transferees, representatives, principals, agents, officers or directors arising out of or connected with:

(a)           the Dispute; and

(b)           the underlying facts relating to the Dispute,

collectively the Released Claims.  The Parties each acknowledge and agree that the foregoing releases do not extend to the Parties’ rights and obligations under this Letter Agreement.

7.Each Party agrees, on behalf of itself and on behalf of its parent, subsidiaries, assigns, transferees, representatives, principals, agents, officers or directors, not to sue, commence, voluntarily aid in any way, prosecute or cause to be commenced or prosecuted against the other Party or its parent, subsidiaries, assigns, transferees, representatives, principals, agents, officers or directors, any action, suit or other proceeding concerning the Released Claims, in any jurisdiction.

8.The Parties shall each bear their own legal costs in relation to the Dispute and this Letter Agreement.

9.Each Party warrants and represents that it has not sold, transferred, assigned or otherwise disposed of its interest in the Released Claims.

10.Each Party warrants and represents to the other with respect to itself that it has the full right, power and authority to execute, deliver and perform this Letter Agreement.

11.This Letter Agreement is entered into in connection with the compromise of the Released Claims. It is not, and shall not be represented or construed by the Parties as, an admission of liability or wrongdoing on the part of either Party.

12.If any provision of this Letter Agreement is found to be void or unenforceable, that provision shall be deemed to be deleted from this Letter Agreement and the remaining provisions of this Letter Agreement shall continue in full force and effect and the parties shall use their respective reasonable endeavours to procure that any such provision is replaced by a provision which is valid and enforceable, and which gives effect to the spirit and intent of this Letter Agreement.

13.The Parties agree that the terms of this Letter Agreement are not enforceable by any third party, including under the Contracts (Rights of Third Parties) Act 1999.

14.The provisions of Article 11 (Confidentiality and Non-Use) of the Agreement shall apply mutatis mutandis to this Letter Agreement.

* Omitted pursuant to a request for confidential treatment submitted to the Securities and Exchange Commission.

15.The Parties shall deliver or cause to be delivered such instruments and other documents at such times and places as are reasonably necessary or desirable, and shall take any other action reasonably requested by the other Party for the purpose of putting this Letter Agreement into effect.

16.This Letter Agreement may be signed in any number of counterparts, each of which, when signed, shall be an original and all of which together evidence the same agreement.

17.Any variation of this Letter Agreement shall be in writing and signed by or on behalf of each Party.

18.This Letter Agreement contains the entire Agreement among the Parties concerning to its subject matter.  All discussions and agreements previously entered between the Parties concerning the subject matter of this Letter Agreement are merged into this Letter Agreement.  Each Party acknowledges that it has not entered into this Letter Agreement in reliance wholly or partly on any representation or warranty made by or on behalf of the other Party (whether orally or in writing) other than as expressly set out in this Letter Agreement.

19.This Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York, without application of any conflict of laws principles.

Please indicate UCB’s agreement and acceptance of the foregoing terms by countersigning this Letter Agreement below.

Very truly yours,

Daniel J. O’Connor
Senior Vice President, Interim General Counsel

ACKNOWLEDGED AND AGREED:
UCB Pharma S.A.
/s/ William Robinson	/s/ Robert J. Trainor
Signature	Signature
William ROBINSON	Robert J. TRAINOR
Executive Vice President	Executive Vice President
Global Operations	& General Counsel
February 1, 2007	January 31, 2007

EX-12.1

EXHIBIT 12.1

IMCLONE SYSTEMS INCORPORATED
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)

	Year Ended
	2006		2005		2004		2003			2002
Income (loss) before taxes	$	320,320	$	88,074	$	131,014	$	(112,011	)	$	(157,224	)
Add:
Fixed charges	13,715		13,700		15,769		16,325			16,381
Amortization of capitalized interest	1,007		98		98		98			98
Less:
Interest capitalized during the period	2,640		5,394		6,087		6,059			2,077
Income (loss) before income taxes, as adjusted	$	332,402	$	96,478	$	140,794	$	(101,647	)	$	(142,822	)
Fixed Charges:
Interest (gross), including amortization of debt issuance costs	11,963		11,963		14,520		15,184			15,256
Portion of rent representative of the interest factor	1,752		1,737		1,249		1,141			1,125
Fixed charges	$	13,715	$	13,700	$	15,769	$	16,325		$	16,381
Deficiency of earnings available to cover fixed charges	$	—	$	—	$	—	$	(117,972	)	$	(159,203	)
Ratio of earnings to fixed charges	24.2:1		7.0:1		8.9:1		—			—

EX-21.1

EXHIBIT 21.1

Subsidiary	State of Incorporation
EndoClone Incorporated	Delaware

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS

IMCLONE SYSTEMS INCORPORATED:

We consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 333-117968, 333-37746, 333-07339, 333-21417, 333-39067 and 333-67335) and Form S-8 (File Nos. 333-38620, 333-10275, 033-95894, 333-64825, 333-64827, 333-117995, 333-30172, 333-68534 and 333-101492) of ImClone Systems Incorporated of our reports dated March 1, 2007, with respect to the consolidated balance sheets of ImClone Systems Incorporated and subsidiary as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity (deficit) and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006 and the effectiveness of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of ImClone Systems Incorporated. Our report on the consolidated financial statements refers to the Company’s adoption of the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment.”

	/s/ KPMG LLP
Princeton, New Jersey
March 1, 2007

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Alexander J. Denner, Chairman of the Executive Committee of the Board of ImClone Systems Incorporated, certify that:

1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2006 of ImClone Systems Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007	/s/  aLEXANDER J. DENNER
	Alexander J. Denner
	Executive Committee of the Board, Chairman

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Ana I. Stancic, Senior Vice President, Finance of ImClone Systems Incorporated, certify that:

1.I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2006 of ImClone Systems Incorporated;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 1, 2007	/s/ aNA I. STANCIC
	Ana I. Stancic
	Senior Vice President, Finance

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of ImClone Systems Incorporated (the “Company”) for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alexander J. Denner, Chairman of the Executive Committee of the Board of the Company, and Ana I. Stancic, Senior Vice President, Finance of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 1, 2007	/s/ aLEXANDER J. DENNER
	Alexander J. Denner
	Executive Committee of the Board, Chairman
Date: March 1, 2007	/s/ aNA I. STANCIC
	Ana I. Stancic
	Senior Vice President, Finance

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.