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
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
“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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