The ongoing struggle over New York-based biotechnology firm ImClone is about to take a new and perhaps decisive turn. Pharmaceutical company Bristol-Myers Squibb has been wooing the company ever more forcibly since July, but a mystery buyer has made a much better offer — and its identity may be revealed tomorrow.

More than ever, smaller companies with something worth buying can expect to be fought over.

Bristol-Myers Squibb already owns 17% of ImClone's stock, and has an agreement to market its anticancer drug Erbitux (cetuximab), a monoclonal antibody used to treat both colorectal cancer and head and neck cancer. The companies were already at loggerheads about who gets to market a promising follow-up antibody. ImClone says that it will collect all revenues from the drug, whereas Bristol-Myers Squibb insists that its existing agreement affords it a share.

Bristol-Myers Squibb wants to own the company outright and initially offered US$60 per share for ImClone, a figure greeted with the traditional expressions of embarrassed dismay. The ritual gestures in this case were performed by a master of the form: Carl Icahn, the financier who himself took control of ImClone in a boardroom coup d'état. Icahn has long stated that ImClone should be making more money from its drugs, and that the firm should be priced much higher than it is. His response to Bristol-Myers Squibb was to announce that an unnamed drug company had already approached him proposing to pay $70 per share.

But Erbitux's existing marketing ties, the unclear status of its follow-up, and the fact that Bristol-Myers Squibb owns almost one-fifth of ImClone's stock would seem to complicate things for any outside company looking to make a serious offer.

Nevertheless, all this talk of competition has pushed up ImClone's value on the stock market, and last week Bristol-Myers Squibb raised its offer, all the way to a slightly less insulting $62 per share. This is hardly the sort of figure Icahn has in mind — he ridiculed the offer as "absurd" — but it would seem to be Bristol-Myers Squibb's way of asking him if he actually has any face-down cards to show. ImClone promises that its mysterious $70 suitor is still keen, and that either its intentions or its identity will be announced on Wednesday.

Trouble and strife

What makes ImClone worth all this trouble? Erbitux and its potential progeny lie at the intersection of two areas of great interest to the drug industry: oncology and biological products. Both are potentially very profitable. Oncology is an area of huge unmet medical need (as the phrase has it, accurately), and the few therapies that actually show a benefit command a high price.

Biological drugs — antibodies, bioactive proteins and the like — can be expensive to produce, but they're also very difficult to copy. And the world's regulatory agencies are still working out how to tell if another firm's generic biological is truly equivalent to the original branded drug. These factors mean that biological products have a lifetime that can extend well beyond their natural patent term, unlike traditional small-molecule drugs, which are under siege from generic manufacturers.

Comparatively few small companies make biologicals for oncology. The drugs are expensive to develop, and the failure rate for oncology compounds is very high, even by the standards of the drug industry. So it's no surprise that ImClone is seen as a desirable acquisition, and any other companies that find themselves in this space will also be seen as natural targets. This does, of course, say something about the state of drug pipelines in the rest of the industry. They are not what they should be, and every year, the situation seems to grow a bit more acute.

More than ever, smaller companies with something worth buying can expect to be fought over. ImClone's confounding circumstances have actually made this less likely. Without these complications - particularly the question over who will profit from the follow-up to Erbitux - a bidding war is just what the company could have counted on.

Perhaps they'll still get one. If so, it will probably be a messy business. If Bristol-Myers Squibb is unsuccessful, it will be sure to make any acquisition as expensive as possible for whatever company beats them.

Meanwhile, Carl Icahn can sit back and enjoy the show, as the only participant in the whole affair who will be getting just what he desired, and at the price he would have chosen.