A Biotech King, Dethroned

A Biotech King, Dethroned

By ANDREW POLLACK | New York Times – 19 hours ago

• New York Times/Robert Caplin - “There’s no question that if I had been
• in a coma for the last 20 years, I would wake up a billionaire today.”
• DAVID BLECH

He was once hailed as the king of biotechnology. In the industry’s frontier days,

David Blech was the top gunslinger, quick to draw his checkbook to start new

companies or prop up faltering ones.

Mr. Blech was the initial financial force behind the industry giant Celgene, the rare

disease specialist Alexion Pharmaceuticals, and the cancer drug developer Ariad

Pharmaceuticals, not to mention Icos, which developed the impotence pill Cialis.

In the early 1990s, Mr. Blech was worth about $300 million and made the Forbes list

of 400 wealthiest Americans.

Now, however, he is about to begin a four-year prison term, about $11 million

in debt and mainly an afterthought to the industry he helped foster.

He squandered his fortune with reckless borrowing and stock trading in a quest

for even greater riches.

His Wall Street firm, D. Blech & Company, collapsed — dragging biotech share prices down

with it — in 1994, on a day some called “Blech Thursday.” Comeback attempts have only

gotten him deeper into trouble.

“There’s no question that if I had been in a coma for the last 20 years, I would wake up

a billionaire today,” Mr. Blech, 57, said.

Besides what his downfall means for his personal life, it reflects the maturation of the

biotechnology industry from its get-rich-quick days, when someone like Mr. Blech, a

music major with no scientific training, could make a difference with a few million dollars.

Now billions are invested by funds managed by teams of doctors and scientists with

Ph.D.’s.

Mr. Blech (pronounced bleck) is to report on Sept. 18 to federal prison in Fort Dix, N.J.,

having pleaded guilty to manipulating the stock of two biotech companies as part of his

latest comeback attempt. He also pleaded guilty to securities fraud in 1998, but

avoided prison.

In an interview at his Manhattan apartment, Mr. Blech said he hoped to be remembered

for helping to create an industry that has saved lives.

He said his reckless behavior stemmed in part from bipolar disorder, which left him at times

feeling invincible and unable to restrain himself.

“I didn’t know how to say no to a deal,” he said.

Critics over the years have said Mr. Blech was merely an aggressive stock promoter who

got lucky. They note that Celgene and Alexion did not become successful until long after

Mr. Blech was associated with them.

But Mr. Blech still has supporters. Nick Arvanitidis recalled that in 1990, his company,

Liposome Technology, was desperate for cash. Other investors spurned him, he said.

But “David just wrote me a check for $3 million the same day I went to see him.” That

allowed Liposome to survive and develop Doxil, an important cancer drug.

Jeffrey J. Collinson, a venture capitalist, said Mr. Blech saved several companies. “It’s painful

to hear what happened and how he got into this position,” Mr. Collinson said. “It’s a sad story.”

It is also an unlikely story. In 1980, Mr. Blech was working as a stockbroker while trying to

become a songwriter. That fall, biotechnology pioneer Genentech went public and its share

price doubled the first day.

“I can do that,” Mr. Blech, then only 24, told his father, a rabbi who was also a stockbroker.

Mr. Blech then called his brother, Isaac, who was working in advertising, and said, “Quit your

job, we’re starting a genetics company.”

Sitting around the kitchen table, the three came up with a name — Genetic Systems. Then

they had to figure out what the company would actually do.

An article in a science magazine led them to Robert Nowinski at the Fred Hutchinson Cancer

Research Center in Seattle, who was doing research on a new technology involving something

called monoclonal antibodies.

The Blechs promised Dr. Nowinski $200,000 and then raised $1 million from others. Half a year

later, Genetic Systems went public and the Blechs’ stake was worth $10 million. In 1986,

Bristol-Myers Squibb acquired Genetic Systems for nearly $300 million, and the Blechs were

richer still.

David and Isaac Blech went on to form several other companies, some of which ultimately failed.

They attracted top scientists, directors and advisers by offering them stock and a chance to get

rich. The companies were often taken public quickly, so the Blechs and other early shareholders

could realize a return.

Things began going wrong around 1990, when Mr. Blech wanted to expand while his more

cautious brother wanted to take a hiatus. The brothers had a rancorous split and have essentially

not talked since.

Mr. Blech started D. Blech & Company, which underwrote stock offerings. When biotechnology

stocks he was involved with weakened, he tried to prop them up by buying more shares, using

$65 million in borrowed money. When creditors started calling in the loans, a desperate Mr. Blech

started engaging in sham trades to make it look as if he was getting his house in order.

D. Blech & Company collapsed on Sept. 22, 1994. Emotionally broken, Mr. Blech checked himself

into a hospital psychiatric ward for a brief stay. His wife filed for divorce. His remaining holdings

— including a stake in Alexion that would be worth more than $1 billion today — were sold off for

about $40 million to pay creditors.

But instead of going to prison, Mr. Blech was sentenced to five years’ probation because

of his bipolar disorder and his cooperation with the government.

“God forbid you should ever come back to this courtroom,” Judge Kevin T. Duffy said at the

sentencing in 1999. Mr. Blech “solemnly pledged” that he would not.

By the time his probation ended, his old formula would not work. The $15 million or so he had

sheltered in trusts for his children no longer went so far. Start-ups could no longer go public just

because they had “genetic” in their names. And companies did not want financing from a

felon.

So Mr. Blech turned to hard-pressed penny stock companies. Government investigators said he

reverted to past behavior, trading through more than 50 nominee accounts in the name of his

new wife, other relatives, even a yeshiva run by a cousin.

In court proceedings and documents, Mr. Blech said he was so convinced that Pluristem Therapeutics,

an Israeli stem cell company, would be successful that he spent $6 million, some of it borrowed, on

its shares. In 2007, he said, he had to sell the shares to repay the loan, but feared that such a huge

sale of a thinly traded stock would cause the price to collapse.

So, according to prosecutors, Mr. Blech sold shares through some nominee accounts and bought

shares through others, gradually reducing his holdings while making it appear there was an active

market for the stock.

Prosecutors said the scheme allowed him to sell the shares for $1.2 million when he might otherwise

have gotten nothing. It accused Mr. Blech of a similar plot involving Intellect Neurosciences.

In 2012, Mr. Blech pleaded guilty to two counts of securities fraud. Once again he asked

for mercy, citing his bipolar disease, his contributions to medicine and the hardship a prison sentence

would impose on his family, including an autistic son.

But the judge, Colleen McMahon, said the time for leniency had passed.

“I bleed for your family, your wife, your kids,” she told him at the sentencing hearing in May.

“It’s a terrible thing you have done to them, not me. I am not doing it to them. You did it to them.

They will have to survive.”

In addition to the four-year sentence, she ordered him to forfeit $1.34 million. Last month, Mr. Blech

agreed to pay an additional $1.03 million to settle with the Securities and Exchange Commission.

Mr. Blech is appealing his sentence, saying it is excessive since he actually lost $5 million on his

investment in Pluristem. But the appeal is not likely to be heard until he is already in prison.

“I made my money legitimately, and I lost it illegitimately,” Mr. Blech said.

He says that he wants to turn over a new leaf and that with the help of Gamblers

Anonymous he has not traded a stock in two years.

But he is still hoping for one more successful investment — from a remaining, sizable stake in

Intellect Neurosciences. The company has a market valuation of only $1.5 million. But Mr. Blech

said that if a drug for Alzheimer’s disease showed some promise in animal testing, Intellect could

be acquired for a much larger sum.

“If it works out, we’re out of trouble and I can pay my fines,” he said. “It’s about hanging on.”

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