BioWorld asked three members of the biotech investmentcommunity -- a venture capitalist, a mutual fund portfoliomanager and a stock broker -- for their opinions of DavidBlech's investment strategy:

Brook Byers, general partner, Kleiner Perkins Caulfield & Byersin San Francisco:

On Fallen Angels:

It's a good idea, but not a new idea. It's been done in computerand software companies. When an industry gets to a certainsize, companies that don't skyrocket get ignored by Wall Streetand there's an opportunity to go in and cherry-pick those.David is first and foremost an investor, and I'd expect he'd dowell at that.

On start-ups:

You can count on one hand the number of people who've beensuccessful in investing in private biotech companies. Four outof the five will have done it the traditional venture capital way:That's a model of staged financing with successive rounds. He'sthe fifth person and it's a different model. But he's beensuccessful at it.

(Blech) puts in a lot of capital at the beginning and reduces theneed of the company to do a financing every year to year and ahalf.

You've got to admire the guy. He puts all the chips in themiddle of the table from the beginning. Traditional venturecapitalists do it the way we do, first of all to provide disciplineto the venture. The pricing of each round reflects the progress.Also, the early investors are very sophisticated investors --professional venture capital firms.

In contrast, Blech brings in individual investors right away. Butthe consequence is you have individuals who may notunderstand the risk and who may not be ready to put up moremoney.

If I was an entrepreneur, I personally wouldn't go his routebecause it's a one-shot deal.

John Kaweske, senior vice president and portfolio manager, TheFinancial Health Sciences Portfolio in Denver:

On Fallen Angels:

It makes a lot of sense to buy when the stocks are depressed.(But) it's clearly a higher-risk strategy because he's investingin secondary and tertiary names. ... In some of thesecompanies, he may not have bet on the right technology.

What's interesting about the (Fallen Angels) strategy (is that)companies are usually depressed for one fundamental reasonor another. Either they're low on cash or their lead product isn'tmaking it in the clinic or there's misdirection in the science. Ifyou can go in and redirect the science or maybe changemanagement, or add capital at a critical point, you can turnaround the company. The strategy can work if it's well-directedand well-thought out.

Richard Bock, senior vice president of investments at Sutro &Co. Inc. in Los Angeles:

On Fallen Angels:

He bought into these companies for less than the amount ofresearch dollars already put in. Why go through spending allthat money again by setting up a new company?

As an investment strategy, he's got one side of the equationworking: He's bought in cheaply. Now he has to figure out howto get out at a rich price. In Ecogen, Liposome Technology andBio-Technology General, he's already up. He bought Ecogen atabout $1.50. The stock is now $9 in less than a year. That's stillon paper. The traditional venture capital return is figured atfive to 10 times your money in about five years.

But he's got a tough exit strategy. As a major investor in thesecompanies, his only exit is to sell the companies to somebodyelse for a higher price. Selling his shares on the market isn't anoption. As an insider, if he sold a lot, he would have to report tothe SEC and people would start getting out of the stock. But I'dsure bet on him. I think he's got the ability to pull it off.

On start-ups:

If there's a major criticism of them it's that none of them hashad a major hit as a product. But the bottom line is that biotechwould be bull if nobody made money. And no one has mademore money than David Blech. David is a genius at that. Hemade more money in the '80s than anybody.

(c) 1997 American Health Consultants. All rights reserved.

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