John Sterling Editor in Chief Genetic Engineering & Biotechnology News
GEN talks with David Blech, the prison-bound biotech mogul.
“Whom the gods would destroy, they first make mad.”
—Euripides (484 BC–406 BC)
David Blech is not mad but he is bipolar. While he has not been destroyed, he was scheduled to go to jail yesterday. And the gods had nothing to do with any of this.
Still, when you consider what’s happened to Blech, once known as the king of biotech, the Greek tragedian’s aphorism comes to mind. That’s because Blech, whose name was once synonymous with biotech and who made the Fortune 400 list in 1992 with a net worth of $300 million, is now broke and millions of dollars in debt. He is set to spend the next four years at the Federal Correctional Institution in Fort Dix, NJ, although he is appealing his sentence.
Listening to Blech, 57, it’s clear he understands he brought about his own downfall and when it all began.
“The biotech window closed in the early 1990s and I tried to wrench it open with my own brokerage firm,” he told GEN during an interview at his New York City apartment.
The courts ruled that he also broke the law. In 1998 Blech received five years’ probation, partly due to his bipolar disorder, after being convicted of securities fraud. Last year, the SEC charged him with trying to run up the share prices of two biotech stocks, Pluristem Therapeutics and Intellect Neurosciences, in 2007 and 2008 by buying and selling large amounts of the companies’ stock. The U.S. District Court, Southern District of New York formally charged him with “manipulative and fraudulent trading activity.”
So, after avoiding jail time 15 years ago, why did he again engage in such ill-advised behavior?
“The desire to recreate my past was too overwhelming and made me easy prey to the demons that afflict people with bipolar disorder,” he said. “It was also due to my inability to admit defeat.”
The Blech Effect
For those not familiar with Blech, there was a thing known as the “Blech effect” in the 1980s and the first half of the 1990s. D. Blech and Co. was involved in a number of important biotech company financings. Pre-internet, journalists received dozens of press releases from the company each year.
Blech, who holds a Masters degree in music, grew up under the tutelage of his rabbi father, who was a stockbroker interested in medical technologies. “That’s when I first learned of the gut emotional appeal of investing in companies that were working on potential cures for disease,” he said.
Blech, his brother Isaac, and his father, along with Robert Nowinski, Ph.D., from the Fred Hutchinson Cancer Center, founded Genetic Systems, one of the first monoclonal antibody-based firms. Dr. Nowinski served as chairman and CEO. The company developed the first quick test for chlamydia.
According to Blech, Genetic Systems eventually went public in 1981 with a valuation of $20 million. It was sold five years later to Bristol Myers Squibb for $300 million.
“That deal gave us the credibility we needed. The Blechs became famous on Wall Street, I was known as a whiz kid, and I had $30 million in the bank,” he recounted.
The Blechs also co-founded Celgene, a biopharmaceutical company with a current market cap of $60 billion.
Blech and his brother, however, parted ways in 1990 over differences in investment philosophy. “I did not behave responsibly after that,” he said.
Yet, Blech went on to help to start Ariad Pharmaceuticals, Alexion Pharmaceuticals and, with the late George Rathmann of Amgen fame, Icos, which developed Cialis. What was the secret of his success? He claimed his talents were based on being a good underwriter.
“I understood valuations, how to price deals, and how to raise money,” he said. “I also knew how to get investors the kind of returns that would make them come back for more.”
When considering getting involved with a biotech financing, Blech said science was always the first thing he examined. “The science had to be high quality,” he noted, adding that he relied on the opinions of top-flight researchers and scientific consultants.
“If we knew we were dealing with credible researchers, we did not challenge the science,” emphasized Blech. “We challenged the business proposition and the amount of money needed to get the company in play.”
The Decade of My Demise
Blech said his money troubles began in the 1990s, which he calls the “decade of my demise.” He borrowed $50–60 million dollars to invest in the market, particularly speculative stocks. “I was burning a million dollars a month,” he explained. He lost his fortune and it’s been ground he’s been trying to make up ever since.
As he prepared to begin his prison sentence, Blech pointed out that today’s biotech investment environment is much more sophisticated and more reliant on data analysis than when he first entered the business. There are also more scientific Ph.D.s working at investment houses.
“In the past people would put their faith in people like me for our investment instincts,” he explained. “No such faith will be given to anyone today.”
Despite the industry’s new level of sophistication, he thinks biotech is still driven by a lot of hype and that markets remain ruled “by fear and greed.” As in the past, potentials are still oversold, he maintained.
“The stock market is bipolar,” he said ironically, “run by a trading community that goes too far upside and too far downside.”
Blech, who has a son with autism, called his prison sentence a “big tragedy for my family and for my reputation.” He still has a financial interest in Intellect Neurosciences and hopes that any success that the company might achieve will help alleviate some of his monetary difficulties. He said he has many connections in the scientific community and friends who have been rallying to his side.
“Whether Wall Street will ever take me back remains to be seen,” he said looking to the future. “But lives are being improved and saved by the companies I was involved with.”
John Sterling is editor in chief at GEN.