PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

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

March 31,

December 31,

2007

2006

ASSETS

Current assets:

Cash and cash equivalents

$
22,921

$
20,568

Securities available for sale

1,047,096

1,023,609

Prepaid expenses

2,571

3,972

Amounts due from corporate partners

76,619

78,030

Inventories

112,534

102,215

Deferred income taxes, net

33,200

29,715

Other current assets

15,180

12,123

Total current assets

1,310,121

1,270,232

Property, plant and equipment, net

415,097

423,000

Deferred financing costs, net

7,890

8,818

Deferred income taxes, net

100,809

124,033

Other assets

13,171

13,753

Total assets

$
1,847,088

$
1,839,836

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable (including $2,836 and $4,765 due Bristol-Myers Squibb Company (“BMS”) at March 31, 2007 and December 31, 2006, respectively)

$
21,951

$
26,421

Accrued expenses (including $20,523 and $21,705 due BMS at March 31, 2007 and December 31, 2006, respectively)

62,644

69,080

Current portion of deferred revenue

134,674

142,013

Other current liabilities

4,265

1,418

Total current liabilities

223,534

238,932

Deferred revenue, less current portion

215,909

237,864

Long-term debt

600,000

600,000

Share-based compensation, less current portion

622

261

Other liabilities

3,259

3,130

Total liabilities

1,043,324

1,080,187

Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred stock, $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000 series B participating cumulative preferred stock, none issued or outstanding

—

—

Common stock, $0.001 par value; authorized 200,000,000 shares; issued 86,514,434 and 86,143,604 at March 31, 2007 and December 31, 2006, respectively; outstanding 85,509,760 and 85,138,930 at March 31, 2007 and December 31, 2006, respectively

87

86

Additional paid-in capital

877,907

865,560

Accumulated deficit

(41,523
)

(71,785
)

Treasury stock, at cost 1,004,674 at March 31, 2007 and December 31, 2006, respectively

(29,149
)

(29,149
)

Accumulated other comprehensive loss:

Net unrealized loss on securities available for sale

(3,558
)

(5,063
)

Total stockholders’ equity

803,764

759,649

Total liabilities and stockholders’ equity

$
1,847,088

$
1,839,836

			September 30, 2007			December 31, 2006
ASSETS
Current assets:
	Cash and cash equivalents		$	414,323		$	20,568
	Securities available for sale			642,441			1,023,609
	Prepaid expenses			3,159			3,972
	Amounts due from corporate partners			92,640			78,030
	Inventories			117,394			102,215
	Deferred income taxes, net			14,708			29,715
	Other current assets			13,244			12,123

		Total current assets		1,297,909			1,270,232

Property, plant and equipment, net				404,464			423,000
Deferred financing costs, net				6,034			8,818
Deferred income taxes, net				107,767			124,033
Other assets				27,496			13,753

		Total assets	$	1,843,670		$	1,839,836

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable (including $1,387 and $4,765 due Bristol-Myers Squibb Company ("BMS") at September 30, 2007 and December 31, 2006, respectively)		$	24,424		$	26,421
	Accrued expenses (including $3,079 and $21,705 due BMS at September 30, 2007 and December 31, 2006, respectively)			58,355			69,080
	Current portion of deferred revenue			66,203			142,013
	Other current liabilities			4,719			1,418

		Total current liabilities		153,701			238,932

Deferred revenue, less current portion				238,529			237,864
Long-term debt				600,000			600,000
Share-based compensation, less current portion				734			261
Deferred rent, less current portion				3,505			3,130

		Total liabilities		996,469			1,080,187

Commitments and contingencies (Note 8)
Stockholders' equity:
	Preferred stock, $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000 series B participating cumulative preferred stock, none issued or outstanding			—			—
	Common stock, $0.001 par value; authorized 200,000,000 shares; issued 87,169,631 and 86,143,604 at September 30, 2007 and December 31, 2006, respectively; outstanding 86,178,566 and 85,138,930 at September 30, 2007 and December 31, 2006, respectively			87			86
	Additional paid-in capital			905,291			865,560
	Accumulated deficit			(10,534	)		(71,785	)
	Treasury stock, at cost; 991,065 and 1,004,674 at September 30, 2007 and December 31, 2006, respectively			(28,754	)		(29,149	)
	Accumulated other comprehensive loss:
		Net unrealized loss on securities available for sale		(18,889	)		(5,063	)

		Total stockholders' equity		847,201			759,649

Total liabilities and stockholders' equity			$	1,843,670		$	1,839,836

See accompanying notes to consolidated financial statements.

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

~~IMCLONE SYSTEMS INCORPORATED~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(UNAUDITED)~~ On August 27, 2007, the Company awarded 31,347 RSU to its new CEO under the 06 Plan. The grant date fair value of the such RSU awards was calculated using the closing market price of the Company's common stock as listed on the Nasdaq Global Select Market on August 27, 2007. The RSU granted to the CEO vest 25% annually over the four-year vesting period.

RSU activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2007 is summarized as follows:

The weighted average grant date fair value of the RSU was ~~$29.60.~~$29.84. The aggregate intrinsic value of RSU outstanding as of ~~March 31,~~September 30, 2007 is calculated as the number of shares multiplied by the closing market price of our common stock ~~at March 31, 2007,~~on that date, which was ~~$40.77.~~$41.34.

The Company recognized for the three and nine months ended ~~March 31,~~September 30, 2007 approximately ~~$197,000~~$426,000 and $1.0 million, respectively, in share-based compensation expense, net of amounts capitalized, for RSU granted under the 06 Plan. As of ~~March 31,~~September 30, 2007, there was ~~$6.3~~$5.0 million of total unrecognized compensation cost related to the RSU. This amount ~~assumes~~considers the ~~Company’s~~Company's expected forfeiture rate. That cost is expected to be recognized over a weighted average period of ~~2.9~~2.6 years. The Company will utilize newly issued shares to satisfy the vesting of RSU.

In addition to the RSU discussed above, the Company also granted stock options for promotions and new hire grants. The activity related to stock options for the ~~three~~nine months ended ~~March 31,~~September 30, 2007 is summarized as follows:

The weighted average fair value of options granted during the three months ended ~~March 31,~~September 30, 2007 and 2006 was ~~$13.13~~$14.34 and ~~$15.20,~~$14.27, respectively. The weighted average fair value of options granted during the nine months ended September 30, 2007 and 2006 was $14.77 and $14.74, respectively. The aggregate intrinsic value of options outstanding at ~~March 31,~~September 30, 2007 is calculated as the difference between the exercise price of the underlying options and the market price of the ~~Company’s~~Company's common stock for the ~~5,400,635~~5,384,197 options that had exercise prices that were lower than the market price of ~~our~~the Company's common stock at ~~March 31,~~September 30, 2007. The total intrinsic value of options exercised during the three months ended ~~March 31,~~September 30, 2007 and 2006 was ~~$5.8~~$4.2 million and ~~$10.1~~$7.8 million, respectively, determined as of the date of exercise.

~~IMCLONE SYSTEMS INCORPORATED~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(UNAUDITED)~~ The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $15.6 million and $21.0 million, respectively, determined as of the date of exercise.

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

additional paid-in capital, if any, are assumed to be used to repurchase shares in the current period. For the three months ended ~~March 31,~~September 30, 2007 and 2006, there were an aggregate of ~~8,396,931~~16,231,000 and ~~8,510,704,~~9,132,000, respectively, potential common shares excluded from the diluted ~~income~~earnings per share computation because their inclusion would have had an anti-dilutive effect. For the nine months ended September 30, 2007 and 2006, there were an aggregate of 10,107,000 and 8,574,000, respectively, potential common shares excluded from the diluted earnings per share computation because their inclusion would have had an anti-dilutive effect. The potential common shares excluded from the computation consist of anti-dilutive stock options for all periods and anti-dilutive shares related to the RSU and 1³/8% convertible notes for the three months ended September 30, 2007, and anti-dilutive shares related to the 1³/8% convertible notes for the nine months ended September 30, 2007.

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

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
~~(UNAUDITED)~~

(Unaudited)

(6) Taxes

The ~~Company’s~~Company's estimated annual effective ~~operating~~ income tax rate for 2007 is expected to be approximately ~~41%. Additionally, during~~41.5%, excluding the ~~first quarter~~effect of any discrete charges. For the nine months ended September 30, 2007, the Company has recognized a net discrete charge of approximately ~~$4.5 million~~$4.3 millon primarily related to certain tax return method changes filed as well as certain deferred charges. The difference between the statutory rate and the Company's expected annual effective income tax ~~charges.~~rate primarily relates to state taxes. Actual cash tax payments in 2007 are estimated to be approximately $4.0 million.

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

The Company recognizes both interest and penalties accrued related to unrecognized tax benefits as elements of income tax expense in the Consolidated Statements of Operations. As of the adoption date, the total amount of accrued interest and penalties iswas approximately $787,000. Additionally, during the three and nine months ended ~~March 31,~~September 30, 2007, the Company recorded approximately ~~$365,000~~$229,000 and $857,000, respectively, of net interest and penalties.

The Company is subject to ~~United States~~U.S. federal income tax as well as income tax of multiple state jurisdictions. The statute of limitations on the ~~Company’s~~Company's federal income tax returns through 2002 has expired. ~~The Company is currently under~~A New Jersey State audit ~~in the State of New Jersey~~was recently concluded for income tax years 2001 through 2004. The outcome of this audit isdid not ~~expected to~~ have a material impact on the ~~Company’s~~Company's results of operations or financial position. The statute of limitations on the ~~Company’s~~Company's New Jersey income tax returns through ~~2000~~2002 has expired.

(7) Collaborative Agreements

~~(a)~~ ~~Merck KGaA~~

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

(a) Merck KGaA

In July 2006, the Company and Merck KGaA entered into agreements amending and supplementing the 1998 development and license agreement. As part of the agreements, the Company consented to Merck ~~KGaA’s~~KGaA's sublicense of certain intellectual property rights relating to the development and commercialization of an anti-EGFR antibody to Takeda Pharmaceutical Company ~~(“Takeda”~~("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~~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~~ Company's

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

written consent to the sublicense. The Company received the ~~first payment~~payments of €2.5 million and € 5.0 million in August 2006 and August 2007, respectively and has deferred the revenue associated with ~~this payment~~these payments and is recognizing itthem over the estimated service period. ~~The Company expects to give written consent to sublicense in the second quarter of 2007. In addition, Merck KGaA~~

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

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 BMS 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 as of ~~March 31,~~September 30, 2007 and December 31, 2006.

(b) Bristol-Myers Squibb Company

~~The following represents an update~~ In July 2007, the Company and BMS amended the terms of their commercial agreement for the ~~Company’s contractual relationship with~~co-development and co-promotion of ERBITUX in North America (the "BMS Amendment"). Under the BMS ~~during~~Amendment, the ~~quarter ended March 31, 2007. For a more detailed description of~~companies have jointly agreed to expand the ~~Company’s contractual relationship, reference Note 10(b) of the Notes to the Consolidated Financial Statements included~~investment in the ~~Company’s Annual Report on Form 10-K~~ongoing clinical development plan for ERBITUX by up to several hundred million dollars. Development costs, up to a threshold amount, will be the sole responsibility of BMS; costs in excess of this threshold will be shared by both companies according to a pre-determined ratio. With this additional funding, the companies will further explore the use of ERBITUX in additional tumor types including brain, breast, bladder, esophageal, gastric, lung, pancreas and prostate.

Under the BMS Amendment, ERBITUX clinical development costs, up to a threshold amount, are the sole responsibility of BMS, with costs in excess of this threshold shared by both companies according to a predetermined ratio effective January 1, 2007. As a result, reimbursable ERBITUX clinical development costs from BMS increased by $2.8 million for the ~~fiscal year~~nine months ended ~~December 31, 2006.~~September 30, 2007, including $2.3 million for costs previously recorded by the Company in the first half of 2007 that are now reimbursable. Also, an adjustment of $7.6 million was recorded in clinical and regulatory expenses to reduce the Company's share of ERBITUX clinical development costs incurred by BMS that were previously recorded, which the Company is no longer required to reimburse.

Development of the ~~Product—~~Product—TheCompany incurred approximately ~~$3.0 million~~$943,000 and ~~$6.9~~$4.1 million pursuant to cost sharing agreements with BMS for the three months ended ~~March 31,~~September 30, 2007 and 2006, respectively and $2.6 million and $17.7 million for the nine months ended September 30, 2007 and 2006, respectively. The decreases versus the comparable periods are due to more development costs being the responsibility of BMS as a result of the BMS Amendment. The Company has also incurred ~~$829,000~~$601,000 and ~~$531,000~~$1.0 million for the three months ended ~~March 31,~~September 30, 2007 and 2006, respectively, and $1.9 million and $2.2 million for the nine months ended September 30, 2007 and 2006, respectively, related to the agreement with respect to development in Japan.

~~Stockholder Agreement~~

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

~~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.

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

Collaborative Agreement Tables

Royalty revenue consists of the following: (in thousands)

Three Months
Ended March 31,

2007

2006

BMS

$
62,455

$
53,832

Merck KGaA

13,862

6,276

Other

46

162

Total royalty revenue

$
76,363

$
60,270

		Three Months Ended September 30,				Nine Months Ended September 30,
		2007		2006		2007		2006
BMS—ERBITUX		$	71,957	$	68,100	$	197,627	$	189,158
Merck KGaA—ERBITUX			15,860		10,442		44,651		24,055
Other			36		57		82		270

	Total royalty revenue	$	87,853	$	78,599	$	242,360	$	213,483

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

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

Three Months
Ended March 31,

2007

2006

BMS:

ERBITUX license fee revenue

$
29,176

$
144,347

Merck KGaA:

ERBITUX license fee revenue

118

56

Total license fees and milestone revenue

$
29,294

$
144,403

		Three Months Ended September 30,				Nine Months Ended September 30,
		2007		2006		2007		2006
BMS—ERBITUX		$	18,958	$	34,830	$	81,460	$	212,578
Merck KGaA—ERBITUX			268		118		505		229

	Total license fees and milestone revenue	$	19,226	$	34,948	$	81,965	$	212,807

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

Three Months
Ended March 31,

2007

2006

BMS

$
16,458

$
16,631

Merck KGaA

—

2,718

Total manufacturing revenue

$
16,458

$
19,349

		Three Months Ended September 30,				Nine Months Ended September 30,
		2007		2006		2007		2006
BMS—ERBITUX		$	20,923	$	20,305	$	57,781	$	64,541
Merck KGaA—ERBITUX			1,050		579		3,675		4,048

	Total manufacturing revenue	$	21,973	$	20,884	$	61,456	$	68,589

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

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

Three Months
Ended March 31,

2007

2006

BMS:

ERBITUX supplied for clinical trials

$
2,474

$
3,382

ERBITUX clinical and regulatory expenses

3,761

3,369

ERBITUX marketing, general and administrative

258

251

ERBITUX royalty expenses

4,004

6,211

Total BMS

10,497

13,213

Merck KGaA:

ERBITUX supplied for clinical trials

7,713

5,437

ERBITUX marketing, general and administrative

62

63

ERBITUX royalty expenses

1,113

2,387

Total Merck KGaA

8,888

7,887

Other

—

9

Total collaborative agreement revenue

$
19,385

$
21,109

			Three Months Ended September 30,					Nine Months Ended September 30,
			2007		2006			2007		2006
BMS:
	ERBITUX supplied for clinical trials		$	2,736	$	1,936		$	7,875	$	6,329
	ERBITUX clinical and regulatory expenses			7,040		3,277			14,430		9,419
	ERBITUX selling, general and administrative			387		297			878		848
	ERBITUX royalty expenses			4,612		7,858			12,668		21,826

		Total BMS		14,775		13,368			35,851		38,422
Merck KGaA:
	ERBITUX supplied for clinical trials			1,815		1,651			11,477		7,215
	ERBITUX selling, general and administrative			1		10			89		109
	ERBITUX royalty expenses			1,904		1,238			5,681		5,044

		Total Merck KGaA		3,720		2,899			17,247		12,368
Other				—		(1	)		600		15

		Total collaborative agreement reimbursement revenue	$	18,495	$	16,266		$	53,698	$	50,805

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(7) Collaborative Agreements (Continued)

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

March 31,
2007

December 31,
2006

BMS:

ERBITUX

$
61,483

$
64,991

Merck KGaA:

ERBITUX

15,136

13,039

Total amounts due from corporate partners

$
76,619

$
78,030

		September 30, 2007		December 31, 2006
BMS—ERBITUX		$	75,008	$	64,991
Merck KGaA—ERBITUX			17,632		13,039

	Total amounts due from corporate partners	$	92,640	$	78,030

Deferred revenue consists of the following: (in thousands)

March 31,
2007

December 31,
2006

BMS:

ERBITUX commercial agreement

$
345,040

$
374,215

Merck KGaA:

ERBITUX development and license agreement

5,543

5,662

Total deferred revenue

350,583

379,877

Less: current portion

(134,674
)

(142,013
)

Total long-term deferred revenue

$
215,909

$
237,864

		September 30, 2007			December 31, 2006
BMS—ERBITUX commercial agreement		$	292,755		$	374,215
Merck KGaA—ERBITUX development and license agreement			11,977			5,662

	Total deferred revenue		304,732			379,877
Less current portion			(66,203	)		(142,013	)

	Total long term deferred revenue	$	238,529		$	237,864

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

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

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

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

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
~~(UNAUDITED)~~

(Unaudited)

(8) Commitments and Contingencies

On October 28, 2003, a complaint was filed by Yeda Research and Development Company Ltd. ~~(“Yeda”~~("Yeda") against ImClone Systems and Aventis Pharmaceuticals, Inc. ~~(“Aventis”~~("Aventis") in the U.S. District Court for the Southern District of New York (03 CV 8484). This action did not seek damages, but rather alleged that three individuals associated with Yeda should also be named as co-inventors on U.S. Patent No. 6,217,866, which relates to the therapeutic use of EGFR antibodies (such as ERBITUX, the ~~Company’s~~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 4,2, 2005, the Court denied the ~~Company’s~~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~~the Company's affirmative defenses. A bench trial on the merits of ~~Yeda’s~~Yeda's complaint was held between June 5, 2006 and July 19, 2006. On September 18, 2006, the Court ruled in favor of Yeda by awarding it sole inventorship rights to the patent. The Company then appealed the ~~Court’s~~Court's decision to the Court of Appeals for the Federal Circuit. The appeal was docketed on October 5, 2006 (as No. 2007-1012). ~~On March 16,~~Briefing is now complete. A hearing is scheduled for December 7, 2007 and a decision from the ~~Company submitted its opening brief~~Federal Circuit is expected in ~~the appeal.~~due course. 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~~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~~U.S. Patent No. 6,217,866 is ~~invalid due to the removal of the originally named inventors.~~invalid. On October 31, 2006, Yeda filed an answer and counterclaim to the ~~Company’s~~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~~Company filed an answer denying all counterclaims. In addition, on November 7, 2007, the Company filed a first amended answer to defendant's counterclaims asserting that the Company's activities are protected by the safe harbor provisions of 35 U.S.C 271(e)(1), that Yeda's claims for damages for any infringement more than six years prior to filing of its ~~early stages.~~counterclaims are barred by the statute of limitations, and that federal law preempts Yeda's claims for unjust enrichment and conversion. The Company, having had the advice of its patent counsel, ~~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~~Company's appeal is unsuccessful and ~~Yeda’s~~Yeda's sole inventorship rights to the patent are upheld and the Company is unsuccessful with respect to its declaratory judgment action, the Company may become obligated to pay Yeda a royalty and may be liable to Yeda for other damages.

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

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(8) Commitments and Contingencies (Continued)

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

On March 25, 2004, a German action ~~entitled Legal Action~~ was filed in the Munich District Court I, Patent Litigation Division, in which Yeda ~~sought~~claims a 75% ownership interest in patent EP (DE) 0 667 165 based on its allegation that the inventorship on that patent was incorrect. The Company was not named as a party in ~~these actions~~this action which ~~relate~~relates 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.~~intervened. On October 7, 2005, Yeda sought to amend its ~~pleadings in the United Kingdom and Germany~~claim to seek sole ~~inventorship~~ownership. That amendment was refused by the Munich District Court and ~~sole ownership. Following hearings, both~~on appeal by 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 theMunich Higher Regional Court in a Decision dated September 20, 2007. That decision will likely be appealed by Yeda to the German Supreme Court. Presently, Yeda's claim in respect of ~~Munich. Additionally, on or about~~the EP (DE) remains restricted to joint entitlement.

On March 25, 2005, ~~and March 29,~~

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

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

On March 29, 2005, Yeda filed an action in the Tribunal de Grande Instance, Paris jointly against Aventis and the Company seeking sole entitlement of EP (FR) 0 667 165, as well as payment of damages, legal costs and fees. This is the European equivalent of US Pat. No. 6,217,866. Aventis and the Company filed their Defences on September 22, 2006. Yeda submitted a Reply to Defence on September 17, 2007. Additionally, Yeda requested the French Court to take jurisdiction over the 9 non-French counterparts of the '165 EP in: Belgium, The Netherlands, Luxembourg, Liechtenstein, Sweden, Switzerland, Spain, Italy and Greece. A preliminary challenge to the jurisdiction of the French Court to hear Yeda's claim to those non-French parts of the European Patent will be made and that preliminary challenge is likely to be heard in early 2008. The Company, ~~is unable~~having had the advice of its patent counsel, believes there are sound defenses to ~~predict the outcome of~~ these actions, ~~at this time. In addition, in December 2002, Opposition Proceedings seeking~~and it plans to ~~revoke~~vigorously defend against 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 Opposition Proceedings are suspended pending a final determination of the Yeda matter discussed above.claims asserted.

On May 4, 2004, ~~a complaint~~an action was filed against the Company by Massachusetts Institute of Technology ~~(“MIT”~~("MIT") and Repligen Corporation ~~(“Repligen”~~("Repligen") ~~in the U.S. District Court for the District of Massachusetts (04-10884 RGS)~~. This action ~~alleges~~alleged that ERBITUX infringes U.S. Patent No. 4,663,281, which is owned by MIT and exclusively licensed to Repligen and that the Company should therefore pay damages. ~~On July 28, 2006,~~In September 2007, the ~~Court denied the Company’s motion~~parties signed a settlement and certain sublicensing agreements, 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~~paid $65.0 million in cash for full and ~~after~~final settlement of 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 ofclaims against the Company in the ~~case.~~matter, as well as for a royalty-free, irrevocable worldwide sublicense to technology patented under U.S. Patents No. 4,663,281. The ~~Company~~total settlement was $65.0 million, of which $50.0 million was attributable to an expired Repligen patent 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~~was expensed in the ~~case. Upon a ruling by~~period and $15.0 million was attributed to the ~~Court, the case will proceed to trial on the merits~~sublicensed Abbott patents. Repligen is responsible for providing MIT with its portion of the ~~Company’s~~settlement payment. Repligen also granted to the Company a royalty-free, irrevocable worldwide sublicense for the future use of other ~~defenses. The~~patented technology, including U.S. Patent No. 5,665,578, which is owned by Abbott Laboratories ("Abbott"), but

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(8) Commitments and Contingencies (Continued)

to which Repligen has the power to sublicense under an agreement between Abbott and Repligen. U.S. Patent No. 5,665,578 is the patent upon which Abbott sued the Company ~~having had the advice of its~~for patent ~~counsel, believes that its defenses are sound, and it presently plans to vigorously defend against the claims asserted~~infringement earlier this year.

On February 5, 2007, a complaint was filed against the Company by Abbott ~~Laboratories (“Abbott”)~~ in the U.S. District Court for the District of Massachusetts (07-cv-10216). This action alleges that the manufacture and sale of ERBITUX infringes U.S. Patent No. 5,665,578, which is owned by Abbott and that the Company should therefore pay damages. On April 24, 2007, the Company filed an answer, which it amended on May 17, 2007, to this complaint denying all claims. The court has ordered a mediation hearing to occur on December 20, 2007. The Company, having had the advice of its patent counsel, ~~believes that its defenses are sound, and it presently~~ plans to vigorously defend against the claims asserted.

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

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

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

In October 2001, the Company entered into a sublease (the ~~“Sublease”~~"Sublease") for a four-story building at 325 Spring Street, New York, New York, which includes approximately 100,000 square feet of usable

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

space. The Sublease has a term of 22 years, followed by two five-year renewal option periods. In order to induce the sublandlord to enter into the Sublease, the Company made a loan to the sublandlord in the principal amount of a $10.0 million note receivable, of which ~~$8.2~~$8.0 million is outstanding as of ~~March 31,~~September 30, 2007. The loan is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The loan is payable by the sublandlord over 20 years and bears interest at 5¹¤/2% in years one through five, 6¹¤/2% in years six through ten, 7¹¤/2% in years eleven through fifteen and 8¹¤/2% in years sixteen through twenty. In addition, the Company paid the owner a consent fee in the amount of $500,000. Effective March 1, 2005, the Company amended the Sublease to add an additional 6,500 square feet of space upon all the same terms and conditions set forth in the Sublease. In connection with this amendment, the Company paid an up-front fee of $1.7 million which is being amortized to lease expense over the respective term of the Sublease. The future minimum lease payments remaining ~~at March 31,~~as of September 30, 2007, are approximately ~~$45.9~~$44.7 million.

IMCLONE SYSTEMS INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(9) Employee Benefit Plans

Defined Contribution Plan

All employees of the Company who meet certain minimum age and period of service requirements are eligible to participate in a 401(k) defined contribution plan. The 401(k) plan allows eligible employees to defer up to ~~25 percent~~25% of their annual compensation, subject to certain limitations imposed by federal law. The amounts contributed by employees are immediately vested and non-forfeitable. Under the 401(k) plan, the Company, at ~~management’s~~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~~Company's securities. Total expense incurred by the Company was ~~$646,000~~$502,000 and ~~$681,000~~$607,000 for the three months ended ~~March 31,~~September 30, 2007 and 2006, respectively, and approximately $1.6 million and $1.8 million for the nine months ended September 30, 2007 and 2006, respectively.

(10) Long-term Debt

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

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

Under the Registration Rights Agreement for these convertible notes, the Company could be subject to liquidated damages if the effectiveness of the registration statement covering the convertible debt is not maintained at any time prior to the redemption of the convertible notes, the repayment of the convertible notes, or certain corporate events as defined in the convertible note agreement. The Company believes the likelihood of such an event occurring is remote and, as such ~~we have~~has not recorded a liability as of ~~March 31,~~September 30, 2007. In the unlikely event that it becomes probable that wethe Company would have to pay liquidated damages under the Registration Rights Agreement, until a shelf registration statement covering the convertible debt is again effective, the potential liquidated damages would be 0.25% of the outstanding amount of notes for the first 90 days and 0.50% of the outstanding amount of notes thereafter. Such damages (i) would accrue only with respect to the shares of the ~~Company’s~~Company's common stock that were not already sold by the holder (using the registration statement or pursuant to SEC Rule 144) and that were not eligible for sale without a registration statement; (ii) would accrue only over the period during which the registration statement was not effective; and (iii) would be settled in cash in accordance with the terms of the Registration Rights Agreement.

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

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

OVERVIEW

ImClone Systems is a biopharmaceutical company whose mission is to advance oncology care by developing and commercializing a portfolio of targeted treatments designed to address the medical needs of patients with cancer. Our commercially available product, ERBITUX® (cetuximab) binds specifically to epidermal growth factor receptor (EGFR, HER1, c-ErbB-1) on both normal and tumor cells, and competitively inhibits the binding of epidermal growth factor (EGF) and other ligands, such as transforming growth factor-alpha. We are conducting, and in some cases have completed, clinical studies evaluating ERBITUX for broader use in colorectal cancer, squamous cell carcinoma of the head and neck ("SCCHN"), for the potential treatment of lung and pancreatic cancers, as well as other potential indications.

On February 12, 2004, the United States Food and Drug Administration (“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. In Japan, Merck KGaA has marketing rights to ERBITUX, which are co-exclusive to the co-development rights ofJuly 2007, the Company and ~~Bristol-Myers Squibb (“BMS”). On June 30, 2004, Merck KGaA received marketing approval by~~BMS amended the ~~European Commission to sell ERBITUX for use in combination with irinotecan~~terms of their agreement for the ~~treatment~~co-development and co-promotion 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~~North America ("the BMS Amendment"). Under this amendment, the companies have jointly agreed to expand the investment in the ~~treatment~~ongoing clinical development plan for ERBITUX by up to several hundred million dollars. Development costs, up to a threshold amount, will be the sole responsibility of ~~patients with previously untreated, advanced SCCHN. On April 3, 2006, Merck KGaA was granted marketing authorization~~BMS; costs in excess of this threshold amount will be shared by both companies according to a pre-determined ratio. With this additional funding, the ~~European Commission to extend~~companies will further explore the use of ERBITUX in ~~combination with radiotherapy,~~additional tumor types including brain, breast, bladder, esophageal, gastric, lung, pancreas and prostate. In 2007 and beyond, the BMS Agreement will allow us to significantly reduce our clinical and regulatory expenses for ERBITUX while at the ~~treatment of patients with locally advanced SCCHN. In February 2007, an application was submitted with~~same time expanding 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.antibody's development.

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

•

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 prior to fiscal 2004 and have an accumulated deficit of ~~approximately $41.5~~$10.5 million as of ~~March 31,~~September 30, 2007. We anticipate that our accumulated deficit ~~may~~will 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~~third party manufacturers without an adverse effect on our business.

HIGHLIGHTS AND OUTLOOK

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

Our strategic focus consists of three key elements: (i) to maximize ERBITUX through insuring excellent commercialization and full clinical development, (ii) to develop our pipeline as aggressively as possible while considering some select partnering opportunities, and (iii) to invest in other key growth areas such as research and manufacturing. In addition, we are dedicated to addressing a number of specific issues at the Company including our BMS relationship, the search for a chief executive officer, ongoing litigation, and cutting costs and improving operational efficiency. In the last quarter, significant progress has been made in each of these areas.

~~The first quarter of~~August 2007, has been marked by several decisions and milestones. We believe that the entirety of clinical data on EGFR antibodies that was released by the Company over the past few months establishes ERBITUX’s position as a drug with major clinical importance. Also, we were excited that two of the three trials that the American Association of Cancer Research chose to highlight at their annual meeting were ImClone ~~trials. Importantly, we recently~~Systems received FDA approval in August 2007 for a second facility to manufacture ERBITUX. The approval of this new 250,000-square-foot multi-product state-of-the-art manufacturing facility, referred to as "BB50", more than doubles the Company's total available production volume capacity for ERBITUX. This approval, in conjunction with ImClone Systems' existing "BB36"manufacturing facility, enhances the Company's ability to meet increasing demand for ERBITUX in the worldwide market while advancing its clinical development pipeline.

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

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

ERBITUX Clinical Development Update

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

In October 2007, the FDA approved an ~~additional dose configuration—~~update to the 100 mg vial - giving customers greater flexibility and convenience in drug preparation. In addition, in April 2007 we submitted a supplemental Biologics License Application (“sBLA”) seeking the approval of our manufacturing facility, BB50,ERBITUX product labeling to include overall survival data as a ~~second manufacturing source~~single agent in EGFR-expressing mCRC patients after failure of both irinotecan- and oxaliplatin-based regimens. With this approval, ERBITUX is the only approved biologic therapy to demonstrate improved overall survival as a single agent in patients with mCRC.

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

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

~~With respect to our operating expenses, our goal is to continue to manage expenditures aggressively in areas where we can generate economies~~Pipeline Clinical Development

A number of ~~scale and redirect our investment to areas that we believe will derive long-term benefit to our shareholders. Our primary emphases are to continue to invest in~~ the

~~development of ERBITUX, to actively develop our~~ Company's clinical pipeline candidates have progressed into Phase II during the second half of 2007. Patient enrollment commenced for Phase II studies of IMC-A12 for mCRC and prostate cancer, for a Phase II study of IMC-1121B for renal cell cancer, and for a Phase II study of IMC-11F8 for mCRC. The Company plans to ~~strategically invest in our ability to reach our customer base.~~

~~With respect to our infrastructure, in~~initiate additional Phase II and Phase III studies of these clinical pipeline candidates over the ~~first quarter of this year we concluded~~next several quarters. Also, the Company announced that ~~it would not be cost effective for us to develop~~ the Spring Street facility in Manhattan as the headquarters for our research organization. As a result, we have expensed approximately $3.2 million of fixed assets related to this facility, in the first quarter of this year. This write-off is included in Research and Development expenses.

We are also making significant investments in our commercial and clinical capabilities. From a commercial perspective, in the first quarter of 2007 we made the strategic decision to expand our field force. Specifically, we added 27 oncology sales professionals to our existing 37 to make a total salesforce size of 64. With this increase in our sales force, it will now be possible for us to reach almost all prescribing medical oncologists, as well as those who influence the decision to use ERBITUX for approved indications. This expansion is currently underway and we expect to have the new organization fully trained and mobilized before the end of June 2007. We believe this expansion will generate a significant return for ERBITUX. From a clinical perspective, we have been spending considerable resources to expand and strengthen our Clinical Development, Medical Affairs, and Regulatory departments to accomplish several goals. First, we are developing coherent regulatory strategies to expand on ERBITUX’s current indications and to enable compendia listings. Secondly, we are developing a series of randomized, multicenter trials to quantify relevant activity with ERBITUX in other tumor types such as cancersCancer Therapy Evaluation Program (CTEP) of the ~~rectum, bladder, prostate, esophagus, stomach,~~Division of Cancer Treatment and ~~others, as well as evaluating ERBITUX on less frequent dosing schedules.~~Diagnosis (DCTD), National Cancer Institute (NCI), has selected 10 proposals for Phase I/II clinical trials of IMC-A12.

~~We are enthusiastic about ImClone and are encouraged by the positive changes and the progress that has been made thus far in the areas noted above.~~

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—~~Recognition—Ourrevenues are derived from four primary sources: royalty revenue, license fees and milestone payments, manufacturing revenue, ~~royalty revenue,~~ and collaborative agreement reimbursement revenue.

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

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~~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 and milestones received from BMS under the Commercial ~~Agreement which are being deferred~~Agreement. We recognize license fees and ~~recognized as revenue~~milestones received from BMS based upon ~~the~~ actual ~~product~~ERBITUX clinical ~~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~~projected term of the ~~Commercial Agreement. The~~ERBITUX clinical development plan. Any future changes in the estimated total ~~of such~~ costs ~~is based on~~of the clinical development ~~budget which establishes joint responsibilities that~~plan will be ~~carried out by~~

~~both the Company and BMS for certain clinical and other studies.~~addressed on a prospective basis. Of the $900.0 million in payments received to date, ~~$29.2~~$19.0 million and $81.5 million was recognized as revenue infor the ~~first quarter of~~three and nine months ended September 30, 2007, respectively, and ~~$555.0~~$607.3 million from the commencement of the Commercial Agreement in 2001 through ~~March 31,~~September 30, 2007. The methodology used to recognize deferred revenue involves a number of estimates and judgments, such as the estimate of total ~~product~~ERBITUX clinical ~~and~~ development costs to be incurred under the ~~Commercial Agreement.~~BMS Amendment. Changes in these estimates and judgments can have a significant effect on the size and timing of revenue recognition. In addition, if management had chosen a different methodology to recognize the license ~~fee~~fees and milestone payments received under the Commercial Agreement, the ~~Company’s~~Company's financial position and results of operations could have differed materially. For example, if the Company were to recognize the revenues earned from the Commercial Agreement on a straight-line basis over the life of the agreement, the Company would have recognized approximately $16.0 million and ~~$205.2~~$48.0 million ~~as revenue in~~for the ~~first quarter of~~three and nine months ended September 30, 2007, respectively, and $237.1 million from the commencement of the Commercial Agreement ~~respectively,~~ through ~~March 31,~~September 30, 2007. Management believes that the ~~current~~ methodology used to recognize revenues under the Commercial Agreement, which reflects the level of effort consistent with ~~the~~our product development activities, is the most appropriate methodology because it reflects the level of expenditure and activity in the period in which it is being spent as compared to the total expected expenditure over the life of the ~~Commercial Agreement.~~ERBITUX clinical development plan. This ~~cost to cost~~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~~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~~BMS's required level of safety stock inventory for ERBITUX and whether Merck KGaA continues to order ERBITUX for commercial use.

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

Collaborative agreement revenue is recorded as earned based on the performance requirements under the respective contracts.

~~Inventories—~~ Inventories—Our policy is to capitalize inventory costs associated with our products when, based on ~~management’s~~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. We filed a sBLA with~~facility and on August 20, 2007, we received approval from the FDA for ~~approval~~the manufacture of ~~our~~ERBITUX in BB50, ~~facility in April 2007. Until such time as we receive approval of BB50 from the FDA, we will not be~~and are now 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 March 31, 2007, we have capitalized approximately $40.0 million of inventory produced in BB50.

~~Litigation—~~ Litigation—The Company is currently involved in certain legal proceedings more fully described under Part II—Item 1—“"Legal ~~Proceedings”~~Proceedings" and as disclosed in the notes to the consolidated financial statements. As of ~~March 31,~~September 30, 2007, we have not established a legal reserve in our financial statements ~~because~~as we do not believe that such a reserve is required to be established at this time, in accordance with Statement of Financial Standards ("SFAS") No. 5.5, "Accounting for Contingencies." However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred, and if such loss is reasonably estimable at that time, we will establish such a reserve. Thus, it is possible that legal proceedings and settlements arising ~~therefrom,~~there from, if any, may have a material adverse impact on the operating results for that period, on our balance sheet or both.

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

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

monitor our current performance and

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

Impact of Recent Accounting Pronouncements

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

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

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

RESULTS OF OPERATIONS

Selected financial and operating data for the three and nine months ended ~~March 31,~~September 30, 2007 and 2006 are as follows: (in thousands)

			Three Months Ended September 30,								Nine Months Ended September 30,
			2007			2006		Variance			2007		2006		Variance
Results of Operations:
Royalties			$	87,853		$	78,599	$	9,254		$	242,360	$	213,483	$	28,877
License fees and milestones				19,226			34,948		(15,722	)		81,965		212,807		(130,842	)
Manufacturing				21,973			20,884		1,089			61,456		68,589		(7,133	)
Collaborative agreement reimbursements				18,495			16,266		2,229			53,698		50,805		2,893

	Total revenues			147,547			150,697		(3,150	)		439,479		545,684		(106,205	)

Research and development				43,626			26,437		17,189			112,224		87,013		25,211
Clinical and regulatory				4,761			13,527		(8,766	)		33,389		43,537		(10,148	)
Selling, general and administrative				20,748			15,977		4,771			54,674		56,941		(2,267	)
Royalties				19,324			18,051		1,273			55,098		56,531		(1,433	)
Cost of manufacturing revenue				22,256			19,187		3,069			59,110		61,466		(2,356	)
Litigation settlement				50,000			—		50,000			50,000		—		50,000

	Total operating expenses			160,715			93,179		67,536			364,495		305,488		59,007

		Operating income (loss)	$	(13,168	)	$	57,518	$	(70,686	)	$	74,984	$	240,196	$	(165,212	)

Three Months Ended
March 31,

2007

2006

Variance

Results of Operations:

Royalty revenue

$
76,363

$
60,270

$
16,093

License fees and milestone revenue

29,294

144,403

(115,109
)
Manufacturing revenue

16,458

19,349

(2,891
)
Collaborative agreement revenue

19,385

21,109

(1,724
)
Total revenues

141,500

245,131

(103,631
)
Research and development

34,875

32,993

1,882

Clinical and regulatory

13,808

15,081

(1,273
)
Marketing, general and administrative

15,359

18,001

(2,642
)
Royalty expense

16,786

20,066

(3,280
)
Cost of manufacturing revenue

13,855

15,402

(1,547
)
Total operating expenses

94,683

101,543

(6,860
)
Operating income

$
46,817

$
143,588

$
(96,771
)

Three Months Ended ~~March 31,~~September 30, 2007 and 2006

Revenues

~~Royalty Revenue~~Royalties

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

In the ~~first~~third quarter of 2007, our royalty revenue increased by approximately ~~$16.1~~$9.3 million, or ~~27%~~12%, from the comparable period in 2006 due to an increase in domestic and international net sales of ERBITUX. ~~In North America,~~U.S. in-market ~~net~~ sales by BMS in the ~~first~~third quarter of 2007 amounted to ~~$160.1~~$184.5 million compared to the comparable period in 2006 of $174.6 million, an increase of ~~$22.1~~$9.9 million, or ~~16%~~6%. ~~Outside~~Approximately $9.0 million of ~~North America, in-market~~this increase resulted from BMS transitioning from a drop-shipment methodology to a more traditional wholesaler distribution model in the third quarter of 2007 whereby currently three domestic wholesalers are now maintaining an inventory of ERBITUX for distribution in the U.S. International net sales of ERBITUX by our partner Merck KGaA in the ~~first~~third quarter of 2007 amounted to approximately ~~$145.9~~$166.9 million, an increase of ~~$56.1~~$56.8 million or ~~62%,~~52% from the comparable period in 2006.

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

License Fees and ~~Milestone Revenue~~Milestones

License fees and milestone revenues consist of the recognition of up-front license fees and milestone payments received under the Commercial Agreement with BMS and recognition of payments received under the development and license agreements with Merck KGaA. In the ~~first~~third quarter of 2007, total license ~~fee~~fees and milestone revenue consisted of approximately ~~$29.2~~$19.0 million earned from BMS and ~~$118,000~~$268,000 from Merck KGaA, as compared to the same period onin 2006, in which approximately ~~$144.3~~$34.8 million was earned from BMS and ~~$56,000~~$118,000 was earned from Merck KGaA.

The decrease ~~of $115.1 million, or 80%, from the comparable period~~ in ~~2006~~license fees and milestone revenues is ~~mainly due~~attributable to the fact that in March 2006 we received the last milestone payment from BMS of $250.0 million, as a result of obtaining approval from the FDA for ERBITUX in the head and neck indication. The first quarter milestone revenue in 2006 contained a “catch-up” adjustment of approximately $112.7 million related to the actual product research and development costs incurred from inception through December 31, 2005 as a percentageimpact of the ~~estimated total costs to be incurred over the term of the Commercial Agreement.~~

~~We have updated our guidance on milestone revenues based~~BMS Amendment on the ~~most recent clinical budget for 2007~~ERBITUX clinicial development cost estimates used to calculate BMS license fees and ~~we expect that~~ milestone ~~revenues will range between $115 million and $135 million.~~revenues.

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.~~markup on bulk. We sell bulk inventory to Merck KGaA at our ~~full absorption~~ cost of production.

During the ~~first~~third quarter of 2007, ~~volume purchases from BMS~~manufacturing revenue increased by ~~23% over~~$1.1 million from the comparable period in ~~2006. The decrease~~2006 primarily due to an increase in ~~revenue is due to~~the number of vials sold by both of our corporate partners year over year. This increase was partially offset by efficiencies in the manufacturing process of ERBITUX resulting in a decrease in the price we charge our partners for ERBITUX. ~~In addition, there were no purchases of commercial product from Merck KGaA in the first quarter 2007 while there was $2.7 million of purchases from Merck KGaA in the first quarter of 2006.~~

Collaborative Agreement ~~Revenue~~Reimbursements

$18.5 million in collaborative agreement ~~revenues,~~revenue, which consists of ~~which approximately $10.5~~$14.8 million ~~was~~ earned from BMS and ~~$8.9~~$3.7 million ~~was~~ earned from Merck KGaA, as compared to ~~$21.1~~$16.3 million earned in the comparable period in 2006, of which ~~approximately $13.2~~$13.4 million was earned from BMS and ~~$7.9~~$2.9 million was earned from Merck KGaA.

The ~~decrease~~increase from the comparable period of ~~$1.7~~$2.2 million, or 8%14%, is ~~principally~~primarily due to ~~decreases~~an increase in reimbursements of clinical expenses following the BMS Amendment. As a result of the BMS Amendment, ERBITUX clinical development costs, up to a threshold amount, are the sole responsibility of BMS, with costs in excess of this threshold amount shared by both companies according to a predetermined ratio, effective January 1, 2007. As a result, reimbursable ERBITUX clinical development costs from BMS increased by $2.8 million for the quarter, including $2.3 million for costs previously recorded by us in the first half of 2007 that are now reimbursable. The increase is also due to more reimbursable clinical trial activity year over year of approximately $1.0 million as well as an increase in clinical shipments of ERBITUX to our partners of approximately $1.0 million. These increases were offset by a decrease in reimbursement for royalty expenses of ~~$3.5~~$2.6 million ~~primarily as a result of~~resulting from the ~~fact that starting in the first quarter of 2007 the~~lower reimbursement rate from BMS for ~~third party royalty expense decreased~~third-party royalties, which dropped from 4.5% to 2.5% based on our contractual agreement, partly offset by increases in the reimbursement of clinical drugs of approximately $1.4 million and clinical and regulatory expenses of approximately $392,000 as compared to the same period in 2006., effective January 1, 2007.

Expenses

Research and Development

Research and development expenses include costs associated with our in-house research programs, product and process development expenses, ~~cost~~costs to manufacture our 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.~~infrastructure. Research and development expenses also include our cost of inventory that is supplied to our corporate partners for use in clinical studies that are reimbursable from our corporate partners. ~~As a result, approximately $10.2~~Approximately $4.6 million and ~~$8.8~~$3.6 million of costs representing research and development expenses in the ~~first~~third quarters of 2007 and 2006, respectively, were reimbursable and included under collaborative agreement reimbursement revenue since they represent inventory supplied to our partners for use in clinical studies.

~~The increase~~ Research and development expenses in the third quarter of 2007 of $43.6 million increased from the comparable period ~~of $1.9~~in 2006 by $17.2 million, or ~~6%,~~65%. This increase is primarily due to the transition of our BB50 manufacturing facility from the production of ERBITUX to pipeline products on July 1, 2007. This transition resulted in approximately $14 million of inventory production costs for pipeline products being recorded as research and development expense as compared to the prior year when these costs were incurred and capitalized into the production of ERBITUX. In addition, there was an increase of $5.6 million in ~~shipments of ERBITUX sold to our partners for clinical studies of approximately $4.0 million, the write-off of previously capitalized~~material costs associated with the ~~development~~production of ~~our Spring Street location of approximately $3.2 million, and approximately $1.3 million of additional depreciation expense due to the fact that we began to depreciate BB50 in June of 2006.~~pipeline products which were expensed. These increases were partially offset by ~~decreased costs for third-party clinical manufacturing of $2.2 million, $2.0 million related to reduced headcount and reductions~~decreases in various other ~~categories as a result~~expense categories.

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

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~~in the third quarter of 2007 amounted to $4.8 million, a decrease of $8.8 million or 65% from the comparable period in 2006. Clinical and regulatory expenses includes certain amounts that are reimbursable from our corporate partners. As a result, approximately ~~$3.8~~$7.0 million and ~~$3.4~~$3.3 million of the costs included in this category for the ~~first~~third quarters of 2007 and 2006, respectively, are reflected as revenues under collaborative agreement reimbursement revenue since they represent costs that are reimbursable by our corporate partners.

~~Clinical and regulatory expenses in~~

The BMS Amendment specifies that each year BMS will fund nearly all of the ~~first quarter of 2007 amounted to $13.8 million, a decrease of $1.3 million or 8% from the comparable period in 2006. The decrease is primarily due~~annual ERBITUX development costs up to a ~~$3.9~~specific threshold amount and that we will contribute a portion of the costs in excess of that threshold amount. For 2007, this threshold amount is effective January 1, 2007, therefore, a $7.6 million ~~cost sharing liability due BMS,~~adjustment was recorded inby the ~~first quarter of 2006, for~~Company to reduce previously expensed ERBITUX clinical development costs incurred during the period prior to signing the BMS Amendment, which fell under the newly established threshold amount and therefore are the sole responsibility of BMS.

For the full year of 2007, we expect clinical and regulatory expense to be in ~~excess~~the range of ~~the annual clinical budget. We do not have an obligation~~approximately $50 to reimburse BMS for clinical development costs in excess of the 2007 annual clinical budget. This decrease was partially offset by increased clinical trial expenses associated with ERBITUX and the Company’s pipeline products.$55 million.

~~Marketing,~~Selling, General and Administrative

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

Selling, general and administrative expenses ~~also~~in the third quarter of 2007 amounted to $20.7 million, an increase of $4.8 million or 30% from the comparable period in 2006. Expenses in this category have increased from the comparable period in 2006, mainly due to the expansion of our field sales force during the second quarter of 2007 as well as an increase in legal fees associated with patent litigation matters. Selling, general and administrative expenses include amounts reimbursable from our corporate ~~partners. As a result,~~partners of which approximately ~~$320,000~~$388,000 and ~~$314,000~~$307,000 of costs ~~representing marketing and general~~

~~expenses~~ in the ~~first~~third quarters of 2007 and 2006, respectively, were reimbursable and included in collaborative agreement reimbursement revenue.

~~Marketing,~~ For the full year of 2007, we expect total selling, general and administrative expenses to be in the ~~first quarter~~range of ~~2007 amounted~~approximately $75 to $15.4 million, a decrease of $2.6 million, or 15%, from the comparable period in 2006. Expenses in this category have decreased from the comparable period in 2006, mainly due to reduced headcount, which resulted in reduced salaries and benefits of $2.5 million, including $953,000 less stock-based compensation costs.$80 million.

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

~~Royalty Expense~~

Royalty expense consists of obligations related to certain licensing agreements ~~related to~~regarding ERBITUX. ~~We are obligated to~~In July 2007, a patent we licensed expired and therefore the royalty rate we pay ~~royalties of approximately 9.25% of~~on North American net sales ~~and~~decreased from 9.25% to 8.50%. We pay a low single-digit royalty on ~~net~~ sales outside of North America, which will increase if ~~net~~ sales outside of North America consist of ERBITUX produced in the United States. In 2007, we ~~received~~receive reimbursements from our corporate partners of 2.5% on North American net sales and a single-digit percentage on net sales outside of North America, which is reflected in collaborative agreement reimbursement revenue. ~~As a result, approximately $5.1~~Approximately $6.5 million and ~~$8.6~~$9.1 million of royalty expense ~~was~~were reimbursable by our corporate partners and included as collaborative agreement reimbursement revenue in the ~~first~~third quarters of 2007 and 2006, respectively.

In the ~~first~~third quarter of 2007, we incurred royalty expense of ~~$16.8~~$19.3 million ~~as compared to $20.1 million, a decrease~~an increase of ~~$3.3~~$1.3 million, or ~~16%~~7%, from the comparable period in 2006. ~~This decrease~~The increase is ~~primarily~~ due to ~~the fact that~~an increase in global net sales of ERBITUX in the ~~first~~third quarter of ~~2006, we paid royalties of approximately 12.25% of North American net sales and effective~~2007 from the comparable period in ~~the second quarter of 2006, our obligation, as noted above decreased by 3%.~~2006.

Cost of Manufacturing Revenue

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

Cost of manufacturing revenue in the ~~first~~third quarter of 2007 amounted to ~~$13.9~~$22.3 million, ~~representing~~which includes a $2.1 million expense for batches of ERBITUX that were damaged during the period, compared to approximately $19.2 million for the same period of 2006. Excluding the costs of the damaged batches, our gross margin was 8% for the third quarter of ~~approximately 16% compared to costs~~2007.

Litigation Settlement

Litigation settlement expense of ~~manufacturing revenue~~$50.0 million was recorded in the ~~comparable~~third quarter of 2007 resulting from the settlement agreement executed in September 2007 with MIT and Repligen. The total settlement was $65.0 million, of which $50.0 million was attributable to an expired Repligen patent and was expensed in the period ~~of 2006 of approximately $15.4~~and $15.0 million ~~or a gross margin of 20%.~~was attributed to the sublicensed Abbott patents.

~~Interest~~Other Income ~~and Interest Expense~~(Expense)

Interest income in the ~~first~~third quarter of 2007 amounted to ~~$12.5~~$13.4 million, an increase of approximately ~~$5.4~~$2.3 million, or ~~75%~~21% from the comparable period in 2006. This increase is attributable to ~~increases in~~higher average interest rates and balance of our investment portfolio from the comparable period in 2006.

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

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

Provision for Income Taxes

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

Net Income (Loss)

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

Nine Months Ended September 30, 2007 and 2006

Revenues

Royalties

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

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

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

License Fees and Milestones

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

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

Manufacturing

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

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

Collaborative Agreement Reimbursements

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

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

Research and Development

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

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

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

Clinical and Regulatory

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

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

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

Selling, General and Administrative

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

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

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

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

Royalties

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

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

Cost of Manufacturing Revenue

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

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

Litigation Settlement

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

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

Other Income (Expense)

Interest income for the nine months ended September 30, 2007 amounted to $39.2 million, an increase of approximately $10.8 million, or 38% from the comparable period in 2006. This increase is attributable to higher average ~~balance of~~interest rates and balances in our investment portfolio from the comparable period in 2006, due primarily to the receipt of a ~~$250~~$250.0 million milestone payment we received from BMS on March 31, 2006.

Interest expense infor the ~~first quarter of~~nine months ended September 30, 2007 amounted to ~~$3.0~~approximately $9.1 million, an increase of ~~$1.5~~approximately $2.7 million, or ~~103%~~43% from the comparable period in 2006. The increase is primarily due to the fact that we finalized construction of our BB50 manufacturing facility in May 2006, and therefore, ceased capitalizing interest on the construction of ~~this~~the facility at that time.

Provision for Income Taxes

~~The Company’s~~ Our estimated annual effective ~~operating~~ income tax rate for 2007 is approximately ~~41%.~~41.5%, excluding the effect of any discrete charges. Additionally, ~~during~~for the ~~first quarter of~~nine months ended September 30, 2007, the Company has recognized a net discrete charge of approximately ~~$4.5~~$4.3 million primarily related to certain tax return method changes filed as well as certain deferred tax charges. The estimated annual income tax rate is higher than the prior year's rate mainly due to the utilization in 2006 of fully reserved deferred tax assets. For the nine months ended September 30, 2006, the Company had also recorded a discrete benefit related to the partial release of the valuation allowance. We expect to pay cash taxes of approximately $4 million in 2007.

Net Income

We For the nine months ended September 30, 2007, we had net income of ~~$28.8~~$59.7 million, or ~~$0.34 per basic common share and $0.33~~$0.69 per diluted common share ~~for the first quarter of 2007,~~ compared with net income of ~~$229.6~~$324.1 million, or ~~$2.75 per basic common share and $2.51~~$3.58 per diluted common share for the comparable period in 2006. The fluctuation in results was due to the factors noted above.

LIQUIDITY AND CAPITAL RESOURCES

At ~~March 31,~~September 30, 2007, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately $1.1 billion. Historically, we have financed our operations through a variety of sources, most significantly through the issuance of public and private equity and convertible notes, license fees and milestone payments and reimbursements from our corporate partners. Since the approval of ERBITUX on February 12, 2004, we began to generate royalty revenue and manufacturing revenue from the commercial sale of ERBITUX by our corporate partners and we have generated income from operations since 2004. As we continue to generate income, our cash flows from operating activities are expected to increase as a source to fund our operations. Therefore, we anticipate that our future financial condition and our future operating performance will continue to experience significant changes and that past performance will not likely be indicative of our future performance.

SUMMARY OF CASH FLOWS

Three Month ended

March 31,
2007

March 31,
2006

Variance

Cash provided by (used in):

Operating activities

$
13,748

$
209,601

$
(195,853
)
Investing activities

(25,117
)
20,388

(45,505
)
Financing activities

13,722

42,469

(28,747
)
Net increase in cash and cash equivalents

$
2,353

$
272,458

$
(270,105
)

			September 30, 2007			September 30, 2006			Variance
Cash provided by (used in):
	Operating activities		$	(3,531	)	$	186,422		$	(189,953	)
	Investing activities			358,570			(261,485	)		620,055
	Financing activities			38,716			86,968			(48,252	)

		Net increase in cash and cash equivalents	$	393,755		$	11,905		$	381,850

Historically our cash flows from operating activities have fluctuated significantly due to the nature of our operations and the timing of our cash receipts. During the first ~~quarter~~nine months of 2007, we ~~generated~~used approximately ~~$13.7~~$3.5 million in cash from operating activities, as compared to ~~$209.6~~generating $186.4 million in the comparable period of 2006. The decrease in operating cash flows in the first ~~quarter~~nine months of 2007 is primarily due to the receipt of a $250.0 million milestone payment from our corporate partner BMS in March 2006, as a result of obtaining approval from the FDA for ERBITUX in a second ~~indication.~~indication, and the payment of $65.0 million to settle the Repligen/MIT litigation in September 2007, partially offset by an increase in cash flows from royalty revenues in 2007.

Our primary sources and uses of cash ~~under~~from investing activities consist of purchases and sales activity in our investment portfolio, which we manage based on our liquidity needs, possible business development transactions and amounts used for capital expenditures. During the first ~~quarter~~nine months of 2007, we ~~used net~~generated cash from investing activities of ~~$25.1~~$358.6 million ~~comprised~~which consists of net proceeds of $367.4 million from sales and maturities of securities available for sale due to our decision to increase our money market fund investments until more stability returns to the financial markets. The proceeds were partially offset by approximately ~~$3.1~~$8.8 million in acquisition of fixed

~~assets, offset by net purchases~~ assets. As of ~~additional securities in our investment portfolio~~September 30, 2007, we had approximately $149.2 million of ~~$22.0 million. Since we generated positive cash flows from operating activities~~variable-rate financial instruments that failed at auction during the ~~first quarter~~quarter. These investments are all AAA/Aaa rated and the interest continues to be paid by the holder of ~~2007, we invested~~ the ~~excess cash in our investment portfolio.~~notes. The Company believes that this loss position is temporary and that no asset impairment charge is needed at this time.

Net cash flows generated in financing activities in 2007 were approximately ~~$13.7~~$38.7 million, of which approximately ~~$6.7~~$24.2 million of proceeds were generated from the exercise of stock options and sales under the ~~Company’s~~Company's employee stock purchase plan, ~~and $7.0~~$14.0 million was generated from tax benefits associated with equity net operating losses that will be taken as a reduction on our tax returns. In the first quarter of 2006, net cash flows generated in financing activities were approximately $42.5 million, of which approximately $10.9 million of proceeds were generated from the exercise of stock optionsreturns, and ~~sales under the Company’s employee stock purchase plan and $31.6 million~~$500,000 was generated ~~from tax benefits associate with equity net operating losses that will be taken as a reduction on our tax returns.~~through the sale of treasury stock.

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;

•

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.

OFF-BALANCE SHEET ARRANGEMENTS

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

Item 3.Quantitative and Qualitative Disclosures About Market Risk

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

The table below presents the principal amounts and related weighted average interest rates by year of maturity for our fixed and variable rate securities within our investment portfolio as of ~~March 31,~~September 30, 2007: (in thousands, except interest rates)

	2007			2008			2009			2010			2011			2012 and Thereafter				Total			Fair Value		2007			2008			2009			2010			2011			2012 and Thereafter			Total			Fair Value
Fixed Rate	$	189,900		$	100,000		$	85,170		$	88,320			$	—		$	—		$	463,390		$	459,829	$	60,000		$	115,015		$	55,000		$	193,397		$	20,000		$	10,012		$	453,424		$	452,856
Average Interest Rate	3.52		%	3.86		%	4.75		%	5.22		%		—			—			4.14		%				3.53	%		4.10	%		4.33	%		5.39	%		5.5	%		5.70	%		4.70	%
Variable Rate(1)	—			1,802			—			—				—			585,462			587,264			587,267			—			1,801			—			—			—			175,020			176,821			158,487
Average Interest Rate	—			5.70		%	—			—				—			5.33		%	5.33		%				—			5.70	%		—			—			—			5.69	%		5.69	%
	$	189,900		$	101,802		$	85,170		$	88,320			$	—		$	585,462		$	1,050,654		$	1,047,096
																									$	60,000		$	116,816		$	55,000		$	193,397		$	20,000		$	185,032		$	630,245		$	611,343

Our outstanding 1³¤/8% fixed rate convertible senior notes in the principal amount of $600.0 million due May 15, 2024 are convertible into our common stock at a conversion price of $94.69 per share, subject to certain restrictions as outlined in the indenture agreement. The fair value of fixed interest rate instruments is affected by changes in interest rates and in the case of the convertible notes by changes in the price of our common stock as well. The fair value of the convertible senior notes was approximately ~~$559.9~~$559.5 million at ~~March 31,~~September 30, 2007.

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

There has been no change in our internal control over financial reporting during the three months ended ~~March 31,~~September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

x ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended ~~March 31,~~September 30, 2007
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to

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

	Class				Outstanding as of ~~April 30,~~October 31, 2007
Common Stock, par value $0.001		~~85,632,793~~86,252,110 Shares

PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Unaudited Consolidated Balance Sheets—~~March 31,~~September 30, 2007 and December 31, 2006	1
	Unaudited Consolidated Statements of Operations—Three ~~months ended March 31,~~Months and Nine Months Ended September 30, 2007 and 2006	2
	Unaudited Consolidated Statements of Cash Flows—~~Three months ended March 31,~~Nine Months Ended September 30, 2007 and 2006	3
	Notes to Unaudited Consolidated Financial Statements	4
Item 2.	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	17 18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27 33
Item 4.	Controls and Procedures	28 34
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	29 35
Item 1A.	Risk Factors	31 37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31 37
Item 3.	Defaults Upon Senior Securities	31 37
Item 4.	Submission of Matters to a Vote of Security Holders	31 37
Item 5.	Other Information	31 38
Item 6.	Exhibits	31 38
Signatures		32 39

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

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

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

	March 31, 2007		December 31, 2006				September 30, 2007		December 31, 2006
Raw materials and supplies	$	15,223		$	17,818	Raw materials and supplies	$	16,153	$	17,818
Work in process	89,406			79,048		Work in process		89,763		79,048
Finished goods	7,905			5,349		Finished goods		11,478		5,349
Total	$	112,534		$	102,215

						Total	$	117,394	$	102,215

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

		Number of Shares		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2006		—
	Granted	299,630
	Forfeitures	(41,230	)

Outstanding at September 30, 2007		258,400		1.50	$	10,682

Expected to vest		211,184		1.43	$	8,730

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

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

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

Name	In Favor	Withheld
Andrew R.J. Bonfield	63,823,716	498,289
Alexander J. Denner	45,758,217	18,561,788
Thomas F. Deuel	63,923,195	396,810
Jules Haimovitz	63,916,490	403,515
Carl C. Icahn	63,198,467	1,121,538
Peter S. Liebert	63,905,436	411,569
Richard C. Mulligan	63,784,408	535,597
David Sidransky	63,903,605	416,400
Charles Woler	63,912,894	407,111

			Exhibit No.		Description
10.41		Amendment No. 2 to the Development, Promotion, Distribution and Supply Agreement, dated as of July 27, 2007, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C.
10.42	~~31.1~~	Employment Agreement between the Company and John H. Johnson dated August 8, 2007
31.1		Certification of the ~~Company’s~~Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	~~31.2~~			Certification of the ~~Company’s~~Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	32			Certification of the ~~Company’s~~Company's Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	March 31, 2007			December 31, 2006					September 30, 2007			December 31, 2006
Land	$	4,899			$	4,899		Land	$	4,899		$	4,899
Building	281,559				281,556			Building		282,811			281,556
Leasehold improvements	23,933				14,595			Leasehold improvements		24,266			14,595
Machinery and equipment	169,560				164,869			Machinery and equipment		174,577			164,869
Furniture and fixtures	6,690				6,368			Furniture and fixtures		6,957			6,368
Construction in progress	31,476				45,924			Construction in progress		28,839			45,924
Total cost	518,117				518,211

								Total cost		522,349			518,211
Less accumulated depreciation	(103,020		)		(95,211		)	Less accumulated depreciation		(117,885	)		(95,211	)
Property, plant and equipment, net	$	415,097			$	423,000

								Property, plant and equipment, net	$	404,464		$	423,000

FOR		63,461,501
AGAINST		778,734
ABSTAIN		79,770

		IMCLONE SYSTEMS INCORPORATED (Registrant)
Date: November 9, 2007	~~By:~~	By:	/s/ ~~ALEXANDER J. DENNER~~
		~~Alexander J. Denner~~
	JOHN H. JOHNSON John H. Johnson	Chief Executive ~~Committee of the Board, Chairman~~
		Officer Principal Executive Officer
Date: ~~May 8,~~November 9, 2007
By:	~~By:~~	/s/ ~~ANA I. STANCIC~~
		~~Ana I. Stancic~~
		PETER R. BORZILLERI Peter R. Borzilleri ~~Senior~~Interim Vice President, Finance
		Principal Financial Officer
~~Date: May 8, 2007~~