Former biotech king, dethroned and jailed
Blech convicted of securities fraud
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.
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, 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, is about $11 million in debt and is 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 & Co., 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,” 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 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.
Blech (pronounced bleck) is to report 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 New York apartment, 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 Blech was merely an aggressive stock promoter who got lucky. They note that Celgene and Alexion did not become successful until long after Blech was associated with them.
But 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 Blech saved several companies. “It’s painful to hear what happened and how he got into this position,” Collinson said. “It’s a sad story.”
It is also an unlikely story. In 1980, 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,” Blech, then only 24, told his father, a rabbi who was also a stockbroker. 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 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 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.
Blech started D. Blech & Co., 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 Blech started engaging in sham trades to make it look as if he was getting his house in order.
D. Blech & Co. collapsed on Sept. 22, 1994. Emotionally broken, 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, 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. 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. Startups could no longer go public just because they had “genetic” in their names. And companies did not want financing from a felon.
So 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, 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, 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 Blech of a similar plot involving Intellect Neurosciences.
In 2012, 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.