Sunday, September 8, 2013

A Biotech King, Dethroned

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.

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