March 25, 2023

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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DealBook: Egypt’s Disarray Puts a Regional Investment Bank, EFG-Hermes, in Play

LONDON — Yasser el-Mallawany and Hassan Heikal are accustomed to turmoil. In recent years, they have steered EFG-Hermes through political upheaval, economic pain and market volatility, transforming the Egyptian financial firm into the leading investment bank in the Arab world.

Now, the investment bankers face their own crisis. As deals dry up, Mr. Mallawany and Mr. Heikal are scrambling to sell a large piece of the business to a smaller rival in the gas-rich state of Qatar, which would give the firm capital to survive the current turbulence.

“We needed someone to support the investment banking business,” Mr. Mallawany said in a telephone interview, predicting that the business climate would be difficult “for the next two to three years.”

In a complex transaction, EFG-Hermes will put its investment banking, asset management and brokerage units into a joint venture with Qinvest. The Qatari firm, whose chairman is Sheik Hamad bin Jassim al-Thani, a member of the royal family and the son of the emirate’s powerful prime minister, will initially pay $250 million for a 60 percent share. The firm has the option to buy the remaining 40 percent later.

Like many of the region’s financial players, EFG-Hermes is suffering from the global economic slowdown and the fallout from the Arab Spring. In the bank’s home market, deals and stock trading have dried up. Investors are fretting about what kind of government will succeed Hosni Mubarak, the Egyptian president who was ousted last year.

Such uncertainty plagues the region. Investment banking fees in the Mideast broadly fell to $450 million last year from a peak of about $1.4 billion in 2007, according to Thomson Reuters.

EFG’s managers are betting the new partnership will give them an inside track to lucrative transactions. Qatar is among the most aggressive investors in the region. The state’s sovereign wealth fund has big stakes in global companies like Siemens, Volkswagen, Total and Xstrata.

The Qataris are trying to build a financial center of their own to rival Dubai. With EFG-Hermes, they will gain access to a regional network of 22 offices across the Mideast and 1,000 employees. EFG’s scale and experience combined with Qinvest’s “access to capital and clients,” said Shahzad Shahbaz, the chief executive of Qinvest, “creates a powerful combination.”

Despites it current challenges, EFG-Hermes is the only true regional investment bank.

The firm, which was started by Mr. Heikal’s uncle in the mid-1980s when the Egyptian financial markets were moribund, helped develop stock market indexes and other tools that have helped turn dusty, traffic-choked Cairo into a vibrant financial center.

The bank has worked closely with one of Egypt’s best-known entrepreneurs, Naguib Sawiris. In 2000, the bank helped lead the $370 initial public offering of his company, Orascom Telecom.

In recent years, Mr. Mallawany, 50, an easygoing banker formerly with a local Chase affiliate, and Mr. Heikal, 46, a charming yet hard-driving Goldman Sachs alumnus, have expanded the firm’s reach by making it a full-service investment bank with advisory services, a brokerage unit and fund management.

In 2004, EFG-Hermes helped the Saudi Arabian government sell its second mobile license for $3.5 billion. Two years later, it was the main banker on the $660 million listing of the mobile operator Du in the United Arab Emirates.

“There is no doubt that EFG was a major player in developing the capital markets,” said Sherif Kamel, dean of the business school at the American University in Cairo, and “putting Egypt on the map.”

Then the global financial crisis struck, and the deals in the Mideast slowed to a trickle. While the region perked up in 2010, the Arab Spring last year scared investors and activity plummeted again.

EFG-Hermes was a victim of the slowdown. Last year, the bank’s net income fell by 81 percent to $22 million, as brokerage fees, investment banking deals, and assets all declined sharply.

The bank’s problems go beyond its business. In many Egyptians’ minds, EFG-Hermes is associated with Mr. Mubarak’s sons, particularly, his onetime heir apparent, Gamal Mubarak. On May 30, the co-chairmen were among a group of men including Gamal Mubarak and his brother, Alaa, accused by the Egyptian state prosecutor of making more than $300 million in illegal profits through the sale of Al Watany Bank in 2007. EFG-Hermes advised a group of shareholders on the transaction, and its funds owned shares.

The EFG-Hermes board, which includes representatives of the Abu Dhabi Investment Authority, one of the world’s largest sovereign wealth funds and a nearly 10 percent shareholder, and Dubai, which owns nearly 20 percent, has rejected the accusations and defended the two chiefs. Insiders suggest the charges result from Egypt’s turbulent political climate, rather than misdeeds by the executives.

“The two C.E.O.’s have done a great job for shareholders, and the board has given them a vote of confidence,” said Mona Zulficar, a lawyer and the bank’s nonexecutive chairman, in a telephone interview. “I think you have to take this in the context of what is happening in Egypt — in the context of the legal environment that is so far not stable.” The legal and financial problems have taken their toll on the company’s shares. The bank’s total market value now stands at $743 million. Five years ago, the ruler of Dubai paid more than $1 billion for a 25 percent stake.

The two financiers face challenges for the Qinvest deal. EFG-Hermes shareholders approved the transaction in early June, but the investment bank is still awaiting the nod from regulators. The surprise sale of one of Egypt’s few corporate stars has also prompted a group known as Planet Investment Banking to threaten a hostile takeover offer, arguing that the Qatar deal undervalues the bank.

“To go and sell to Qatar for a song is testimony to your own ineptness,” Planet Investment’s chief executive, Ahmed el-Houssieny, a former private equity executive, said of EFG-Hermes management in a telephone interview. While it is unclear whether Mr. Houssieny has sufficient investor backing, the threat is weighing on the share price of EFG-Hermes.

The joint venture could also go sour. Star bankers at EFG-Hermes, for instance, may balk at moving to Doha, which despite a recent building boom remains a sleepy place with little in the way of night life or a singles scene. Two younger EFG executives, Karim Awad and Kashif Siddiqui, will run the joint venture day to day, but it will be important for the two seasoned co-chief executives, especially Mr. Heikal, who negotiated the deal with the Qinvest Chairman, to make sure it stays on track.

Still, Mr. Mallawany, 50, and Mr. Heikal, 46, are betting the deal will revitalize the bank’s fortunes. If they collect $1 billion in new capital from their new Qatari connections, the firm’s total assets would rise to $4 billion. That heft, the two say, would lead to more deals.

It is not an unreasonable expectation. Important players in Qatar view the global turmoil as an investment opportunity and are looking to plow more money into deals.

In this region, connections count. On Wednesday, Qatar Petroleum, the national oil company, agreed to put $360 million into a $3.7 billion Egyptian refinery project. EFG advised on the financing, which was led by Citadel Capital, a private equity fund where Mr. Heikal’s brother, Ahmed, is a major shareholder.

“With Qatar’s deal flow and liquidity, we can take EFG to a new level,” Mr. Heikal said.

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DealBook: Nasdaq and ICE Unveil Official Bid for NYSE Euronext

11:51 a.m. | Updated with NYSE Euronext and Deutsche Börse statements

The Nasdaq OMX Group and the IntercontinentalExchange disclosed on Tuesday the full terms of their takeover bid for NYSE Euronext, in a move to allay concerns that they were not serious in pursuing the operator of the Big Board.

Seeking to ease worries that a deal would not win regulatory approval, the two companies said they would pay a $350 million break-up fee to NYSE Euronext if the takeover bid failed to win antitrust approval. The Nasdaq reverse termination fee is roughly comparable to the $357 million break-up fee provided for in NYSE Euronext’s agreement with Deutsche Börse.

The new details are meant to counter NYSE Euronext’s rationale for rejecting the offer in favor of a merger agreement with Deutsche Börse. NYSE Euronext derided the Nasdaq-ICE takeover proposal as “loosely worded” and “highly conditional,” and argued that the bid — especially its plan to merge the two biggest American stock markets — cannot survive antitrust approval.

Under the terms of the Nasdaq-ICE bid, Nasdaq will take over NYSE Euronext’s stock trading business, while ICE will buy its derivatives platform. It is the higher-priced of the two plans, offering $42.67 in cash and stock for every share, compared with Deutsche Börse’s offer of $35.29 in stock.

The two companies also said their lenders have officially committed to providing the $3.8 billion in financing needed to support the bid. Those banks include Bank of America, Nordea Bank, Skandiaviska Enskilda Banken, UBS and Wells Fargo.

“Our actions today demonstrate our commitment to pursuing this transaction and further illustrate exactly how our proposal is superior,” Robert Greifeld, Nasdaq’s chief executive, said in a statement. “It’s time to allow a reasonable and expeditious diligence process to begin.”

NYSE Euronext said in a statement that it is reviewing the Nasdaq-ICE offer.

Deutsche Börse said in a statement: “”We remain committed to our merger agreement with NYSE Euronext to create the world’s premier global exchange group. We believe this merger is the best possible combination in the industry.”

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DealBook: Daimler and Rolls Royce Make Formal Offer for Tognum

Daimler and Rolls Royce made their joint offer for the engine maker Tognum official on Wednesday, leaving their bid unchanged from the initial proposal of 24 euros a share.

The deal values Tognum at 3.2 billion euros ($4.6 billion). Tognum shareholders have until May 18 to tender their shares.

Tognum management has suggested that shareholders who accept the offer will retain the right to a 50 euro cent dividend for 2010 if the deal is approved at the shareholder meeting on May 11. That would effectively make the bid worth 24.50 euros a share.

Daimler already owns 28.4 percent of Tognum, which was trading at about 18.50 euros a share before speculation about a bid began circulating before Daimler’s announcement on March 9, which means the offer represents nearly a 30 percent premium.

At midmorning on Wednesday, the company’s shares were trading at 25.54 euros. With the stock trading higher than the deal price, it could suggest that investors think the buyers will sweeten their offer.

“Twenty-four euros is our offer, and we’re sticking to it,” Florian Martens, a spokesman for Daimler, said in an interview.

Daimler’s existing stake in Tognum gives it a blocking minority, meaning that under German law it can reject any major strategic moves at the company, including the acceptance of a competing bid.

The joint bid becomes effective if 50 percent plus one of all Tognum shares are tendered. Tognum, which makes engines used in ships and power generation, among other things, is about 45 percent-owned by institutional investors. ING holds more than 5 percent, while First Eagle Management and BlackRock each own more than 3 percent.

Top management and members of the supervisory board at Tognum own about 5 percent of the company, according to a recent presentation. While they have welcomed the offer, they have not yet issued a recommendation on it.

Once that 50 percent level is reached, the buyers can begin integrating the marine division of Rolls Royce with Tognum, and undertake other parts of their strategic plan, which includes a billion euros in capital expenditures and research and development over three years.

Daimler and Rolls Royce plan to keep the company’s current dividend policy in place until they gain control of 75 percent of the company, after which they will maintain a “conservative balance sheet,” according to an agreement the companies signed with Tognum.

Daimler has been the owner of Tognum before. In 2005, it sold the company, then known as MTU Friedrichshafen, to the Swedish private equity firm EQT for 1.6 billion euros. EQT then took it public in 2007 at 24 euros a share, the same price being offered now.

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