Hedge funds destroyed a company trying to cure cancer – chapter  7

Hedge funds destroyed a company trying to cure cancer – chapter 7

This is Chapter 7 of a 15 chapter series. The entire series is listed here

It is easy for executives of public companies to know that they are “battleground” targets of the Milken
network because the members of this network have distinctive characteristics. Whether they be
journalists tied to Cramer, financial analysts, or hedge fund managers, they are unusual among financial
professionals in that they take overt pride in their thuggish manner.
They let it be known that the executives are in their sights, and sometimes issue outright threats. They let
on that they have inside information, influence, and power – and that unforeseen calamities can happen.
(This may have what economists call a “signaling effect,” dissuading potential investors from purchasing a
stock, even if they believe in the fundamentals of the company.)
Often members of this network will join companies’ quarterly conference calls, and take turns firing off
insinuating and preposterous questions in staccato fashion, giving the targets of their interrogations no
opportunity to formulate reasonable replies.
So it was in March of 2007, when Dendreon held a conference call to discuss the FDA advisory panel’s
recent vote in favor of Provenge. Nearly every analyst on the call was cheered by the news that the
prostate cancer treatment would reach patients. Most of these analysts were advising clients that
Dendreon’s stock would hit at least $20 (compared to the $1.50 target set by the doctor-impersonating
financial analyst, Jonathan Aschoff).
Here is a representative sample of analysts who participated in the conference call, along with quotations
showing how they greeted Dendreon CEO Mitchell Gold, and how they signed off.
Charles Duncan – JMP Securities
Greeting: “A big congratulations!”
Singing off: “Congrats Again.”
David Miller – Biotech Stock Research
Greeting: “Good evening. Warm congratulations.”
Signing off: “Congratulations to everybody on the team.”
Mark Monane – Needham & Company
Greeting: “Good day and congratulations to all.”
Signing off: “Congratulations once again.”
William Ho – Bank of America
Greeting: “Congratulations”
Signing off: “Okay”

Paul Latta – McAdams, Wright & Regan
Greeting: “Good evening & congratulations, Mitch, a great accomplishment for you and your team.”
Singing off: “Congratulations again.”
But then a financial analyst named Elliot Favus appeared on the conference call. Favus worked for
Lazard Capital, and announced that he was sitting in for Joel Sendek, who usually covered Dendreon for
Lazard. Favus launched into a series of aggressive questions, suggesting that the FDA advisory panel
had been a sham, and that the FDA would not approve Dendreon’s prostate cancer treatment.
Then Joel Sendek, Elliot’s colleague at Lazard, got on the call and initiated a similar interrogation. He
kept asking whether the FDA advisory panel had asked the “right question” about the effectiveness of
Provenge. When Dendreon’s CEO tried to answer, Sendek interrupted and asked again – Did the panel
ask the “right question”? The baffled answer was, “Yes.” But Sendek kept asking. Do you think it was the
“right question”? Do you think the FDA will have to “change the question”?
This was very strange. The FDA panel asked two questions. Is Provenge safe? And, is there “substantial
evidence” of efficacy? Those are the two questions that advisory panels always ask. Federal regulations
require them to ask those questions.
It was hard to tell what Sendek was up to. Change the question? Did Sendek believe that the FDA was
somehow going to alter its regulatory standards? Did he have information that the FDA might not approve
Provenge – never mind that the agency had followed its advisory panels’ recommendations in 97% of
cases, and had never in history rejected a panel-approved drug destined for terminally ill patients?
And who was this Joel Sendek?

Sendek is an analyst for Lazard research. He is famous on Wall
Street for spending his evenings calling Wall Street investors and
shareholders, and literally singing songs into their voicemail. Usually,
these songs celebrate the demise of some medicine or biotech
company. For example, when Sendek decided that an anemia drug
called Erythropoietin wasn’t going to make it to market (or to patients
suffering from anemia), he gleefully called everyone he knew on Wall
Street and began singing (to the tune of American Pie):
Bye-bye, Erythropoietin pie.
Drove my growth rate with the pipeline,
But the pipeline went dry.
I don’t know what song Sendek sings about Dendreon’s prostate
cancer medicine, but his reports on Dendreon have been marked by
a similarly cheerful pessimism. Same goes for the reports on
Dendreon published by Elliot Favus, who, until recently, worked with
Sendek at Lazard. In the long two years that followed that
conference call in March 2007, Lazard’s reports have consistently
predicted (in tones that seemed almost hopeful) that Dendreon’s
treatment would fail to reach patients who were dying of prostate
Actual Joel Sendek publicity

In April 2009, a few days before a Yahoo! message board poster predicted, almost to the minute,
the“BEAR RAID” that shattered Dendreon’s stock price by 65% in 75 seconds, Lazard put out a
statement that said that an “investigator in the current Provenge study” had concluded that Dendreon’s
treatment did not work. This was terrible news – assuming that the “investigator” was somebody actually
participating in the “current Provenge study” or any other scientific study of Dendreon’s treatment.
But it turned out that Lazard had made “a mistake.”
When Dendreon supporters started hollering that there was no such “investigator,” Lazard changed the
statement to read that an “expert” had concluded that Provenge does not work. When Lazard was
challenged to produce such an expert, it changed the message again. Now the expert wasn’t exactly
saying that Dendreon’s prostate cancer treatment does not work. Instead, it was that Provenge was
“mentioned cautiously” by this particular “expert,” who remained anonymous.
If you can spot the similarity between this “mistake” and the “mistakes” of CNBC’s Jim Cramer, it will not
surprise you to learn that Lazard’s research operation was then run by a guy named Paul Noglows. Prior
to joining Lazard, Noglows was the director of research at IRG Research, an outfit owned by Jim
Cramer’s financial news and research company, TheStreet.com.
Elliot Favus, the Lazard analyst who teamed up with the singing Sendek to trash Dendreon, later resigned
from that job. Then he went to work for Och-Ziff Investment Management, a hedge fund managed by Dirk
As you will recall, Ziff was the guy who helped Jim Chanos (host to Ashlee Dupre, hooker of Jim Cramer’s
best friend Eliot Spitzer) start his hedge fund empire – an empire that now employs Evan Sturza, the
fellow who used to be in the business of publishing research that predicted, with similar glee, the demise
of medicines developed by companies that were under attack by Michael Steinhardt (Cramer’s former
business partner; mentor to Chanos) and other cronies of Michael Milken and Ivan Boesky.
Ziff’, remember, was also the fellow who improperly received–along with Chanos, Steve Cohen and
others in their network, advanced copies of biased financial research published by Morgan Keegan. And,
of course, Chanos met Ziff through Michael Steinhardt and Marty Peretz, who was Ziff’s Harvard
professor; a close friend of Boesky; an ardent defender of Milken; a key limited partner, along with
Boesky, in Michael Steinhardt’s hedge fund; and the co-founder, along with Cramer, of TheStreet.com.
Study the world of abusive short selling for three years, as I have, and you will see that these
relationships matter. You will see how these people work together. And you will see that the most
egregious cases of market skullduggery – the serious damage to public companies done by journalists
and analysts through these repeated and precisely-crafted “mistakes”; the hired thugs; the threats; the
over-the-top gloom (sung gleefully); the sudden bankruptcies, the orchestrated calamities, the endless
litany of strange occurrences – an alarming amount of it can be traced to the same cast of beady-eyed,
Milken-loving mischief-makers.

As you may have gathered by now, Provenge has yet to be approved by the FDA. Despite new evidence
that it decreases prostate cancer mortality by 38%, the treatment has yet to be administered to patients,
60,000 of whom have died in the two years since the FDA’s advisory panel voted in Dendreon’s favor.

What strange occurrences have contributed to this outcome? What calamity was awaiting Dendreon as
these seven “colorful” hedge fund managers stocked up on put options while naked short sellers flooded
the market with at least ten million phantom shares?
Before I answer those questions, we ought to get to know some things about the “philanthropy” of Michael
Milken and a firm called ProQuest Investments.
In 1993, Milken founded the Prostate Cancer Foundation, with a stated mission to promote
advancements in the treatment of prostate cancer.
In 1998, ProQuest Investments opened for business with the specifically stated mission to invest in
companies developing treatments for prostate cancer.
Ostensibly, ProQuest was founded by two men – Jay Moorin and Jeremy Goldberg. But the man really
behind ProQuest Investments is Michael Milken. Industry reports suggest that Milken is the firm’s
rainmaker. It was Milken who delivered most of ProQuest’s early capital. And it is Milken who brings
ProQuest’s deals to the table.
One of those deals was a company called Novacea, now known as Transcept Pharmaceuticals. For a
long while, the controlling shareholders in Novacea were ProQuest Investments and a fund called
Domain Associates. I believe it is safe to assume that ProQuest and Domain are affiliated, given that the
two funds not only invest in the same companies, but actually share the same address.
Industry reports state that Domain was the “mentor” to Proquest, and an investor in the fund. One report
states that the two funds “plot strategy” together. Thus, it would be more accurate to say that the
controlling shareholders in Novacea were first, ProQuest Investments, and second, ProQuest
Investments (acting through Domain Associates).
But ProQuest and Domain are not like most biotech investment firms, which scout out companies with
promising treatments and invest capital in them. Rather, ProQuest and Domain sometimes invest capital
in themselves. For example, Novacea was founded by Eckard Weber, who works as an executive and
partner of Domain Associates. One day, there was no such thing as Novacea. The next day ProQuest
and Domain had invested in a company called Novacea, which ostensibly had a promising treatment for
prostate cancer.
This alone should have set off alarm bells. But for a long while, the media and others believed that
Novacea was a serious – indeed, the most serious – competitor to Dendreon. An achievement for
Dendreon was considered to be a set-back for Novacea. By the same token, a calamity for Dendreon had
the potential to be a major boon to Novacea’s shareholders.
In fact, Dendreon suffered just such a calamity. And this calamity did indeed reap a large fortune for
Michael Milken’s ProQuest Investments and Domain Associates.
But ProQuest and Domain are no longer shareholders in Novacea.
That is on account of some strange occurrences that I must describe in more detail.

First, though, it is necessary for us to continue learning about Michael Milken’s prostate cancer business,
ProQuest Investments, and Michael Milken’s “philanthropic” outfit, the Prostate Cancer Foundation.

As we know, ProQuest Investments was ostensibly founded by two men – Jeremy Goldberg and Jay
Prior to becoming the ostensible co-founder of Milken’s ProQuest, Moorin’s most significant achievement
had been to serve as CEO of Magainin Pharmaceuticals, a company that later changed its name to
Genaera Corporation. In many transactions, the financial advisor to this company was Paramount Capital.
Paramount Capital, as you will recall, is owned by Lindsay Rosenwald, the fellow who used to help his
father-in-law (the “king of stock fraud”) run D.H. Blair, which was the dirtiest Mafia-affiliated brokerage on
Wall Street – the same brokerage whose president had been Michael Milken’s national sales manager,
and whose business model had been to underwrite phony biotech companies, then pump and dump their
As you will recall, Paramount’s vice president was once a top trader at SAC Capital, the hedge fund run
by Milken crony Steve Cohen. You will also recall that Cohen and Paramount employee Joseph Edelman
were among those seven “colorful” hedge fund managers who held large numbers of put options in
Dendreon as of March 2007.
At the risk of being repetitive, I will also remind you that Lindsay Rosenwald controlled Cougar
Biotechnology, a company whose scientific advisory board included four doctors affiliated with Milken’s
Prostate Cancer Foundation.
When Dendreon became a “battleground stock,” Dendreon had no more than three “serious” competitors.
One was Milken crony Rosenwald’s Cougar Biotechnology. The other was Novacea, controlled by
Milken’s ProQuest Investments. The third was a company called Cell Genesys, which I will return to in
due course.
Magainin/Genaera, the company that was run by ProQuest’s ostensible founder, Jay Moorin, had lots of
big ideas. For example, it claimed to have developed a way to treat foot ulcers with a substance extracted
from the African clawed frog. It also claimed to have discovered a treatment for cancer. This treatment
was apparently derived from the livers of tropical dogfish sharks.
Indeed, a great many of Magainin/Genaera’s supposed treatments were derived from exotic wildlife. And
many of these treatments were heralded in press releases that suggested that regulatory approval was
just around the corner.
Sometimes, the company announced that its treatments had already gained approval – albeit in exotic
locales. Genaera’s lung cancer vaccine “was approved Jun 12 by the Cuban regulatory authorities…”
noted one of Genaera’s optimistic press releases. Presumably, Cubans are now free of lung cancer.
For three decades, these press releases appeared. Many of them sent Magainin/Genaera’s stock into
orbit. Then the stock would sink. After that, there would be another press release and the stock would be
back in the stratosphere.
But in three decades, Genaera never brought a treatment to market. In fact, it never had a treatment
approved by the FDA.
Three full decades. Countless potions and serums derived from all manner of critter and jungle beast. A
stupendous salary for the CEO, and fantastic profits for anyone who spent those 30 years riding the
volatility of Magainin/Genaera’s stock. But not a single treatment was brought to market.
In June 2009, Genaera announced that it was going out of business.

Jeremy Goldberg, the other ostensible founder of Milken’s ProQuest Investments, was previously best
known for his service as the founding CEO of a company called Versicor, which purported to make antiviral medicines.
Among Versicor’s biggest early investors was Healthcare Ventures, a fund that was founded by two
former Johnson & Johnson executives. It seems that a preponderance of Heathcare Venture’s principals
previously worked for Luekosite, a biotech firm founded by Marty Peretz, the Boesky and Michael
Steinhardt crony who launched TheStreet.com with Jim Cramer.
Another early investor in Versicor was Schroder Venture Management, a unit of the same company that
runs Schroder Wertheim, which was the principal clearing firm for Euro-Atlantic, a Mafia-run brokerage
that the Feds shut down in the late 1990s.
But Versicor’s most important investor was a biotech company called Sepracor, which markets Lunestra,
the sleeping pill. Sepracor’s chairman, Timothy J. Barberich, was also a major investor in Versicor.
Barberich served as Versicor’s founding chairman, while Goldberg served as Versico’s founding CEO.
So Barberich was chair of Sepracor (a company that markets sleeping pills), and founder, along with
Goldberg (who later “founded” Milken’s ProQuest Investments) of Versicor (which has yet to produce any
drugs fit for human consumption). Curiously, Barberich also bankrolled Atlantic Casino Cruises, a
gambling outfit that was being set up by a businessman named Adam Kidan and an alleged mobster
named Anthony Moscatiello.
Moscatiello, who travels in an armor-plated Mercedes, has been pegged by the government as being the
top bookkeeper to the Gambino Mafia family. As the story goes, Kidan masterminded Atlantic Casino
Cruises. Moscatiello set the company up. And Barberich was the principal financier of the project.
Unfortunately, the project never really got off the ground. Soon after Barberich invested his money, Kidan,
the businessman, entered into a deal to buy another casino, SunCruz, from a fellow named Konstantinos
“Gus” Boulis. In due course, Boulis accused Kidan of financial improprieties in the deal.
Not long after that, Boulis was shot in the head – execution style.
And Moscatiello was arrested.