ImClone Systems Inc. (IMCL) said Tuesday its second-quarter profit rose 7 percent as continued strong sales of its Erbitux (search) cancer drug helped the company offset lower manufacturing revenue and increased research costs.

ImClone shares fell $1.08, or 3.1 percent, to $34 on the Nasdaq Stock Market. The stock was worth as much as $67 in the fall, but slowly declined over the past year and has been trading below $40 since March.

Quarterly income grew to $26 million, or 30 cents per share, from $24.3 million, or 29 cents per share, a year earlier. Excluding expenses related to discontinued research into small-molecule therapies, the biotech company said it would have earned 37 cents per share in the latest quarter.

Revenue rose 25 percent to $92.4 million from $73.8 million last year.

Adjusted profit results easily beat analysts' expectations for earnings of 33 cents per share, though sales were expected to come in higher at $95.8 million, according to a Thomson Financial survey. Manufacturing revenue declined to $7.9 million from $14.8 million in the second quarter of 2004, as higher volume purchases by partner Bristol-Myers were offset by a lower selling price, ImClone said.

In a statement, ImClone noted that "purchases by Bristol-Myers Squibb are timed at their discretion to accommodate forecasts and safety stock needs, and are not necessarily indicative of historical in-market sales or future sales expectations."

Sales of Erbitux totaled $97.8 million, up 37 percent from a year ago and 12 percent from the first quarter. ImClone — which receives royalty payments on U.S. sales of the drug from Bristol-Myers Squibb Co. (BMY) — saw $38.1 million from these sales, up from about $34 million in the first quarter.

SunTrust Robinson Humphrey analyst Han Li said last week that Wall Street was looking for Erbitux sales of about $93 million. He forecast Erbitux sales of $92 million but noted that data from research firm IMS Health suggested sales were tracking closer to $100 million.

ImClone's revenue from license fees, milestone payments and collaborative agreements also increased during the period.

In addition, the company's profit benefited from a low tax rate of 0.7 percent, reflecting ImClone's forecast that its year-end rate will be about 1 percent instead of the 1.3 percent previously predicted. ImClone said the reduction stems from the use of deferred tax assets.

Erbitux works by blocking tumor cell growth, providing a targeted therapy much like Genentech Inc.'s Avastin and AstraZeneca PLC's Iressa. It is approved to treat colon cancer that has not responded to other treatments and that has spread to other parts of the body.

Erbitux was at the center of court cases that sent Martha Stewart (search) and company founder Sam Waksal (search) to jail. In 2001, both Stewart and Waksal sold thousands of ImClone shares just before the government rejected the company's Erbitux application. ImClone shares tumbled once the rejection became public.

The drug was eventually approved last February.

Stewart, founder of Martha Stewart Living Omnimedia Inc. (MSO), was convicted of lying about why she sold the shares and has nearly completed the five months of house arrest that followed her five-month prison sentence. Waksal pleaded guilty to insider trading and is currently serving seven years in jail.