Ask anyone in biotechnology to name the individual investorwho has had the most impact on the sector, and the name thatwill come up will be David Blech. Blech, who rarely talks to thepress, agreed to discuss his investment strategy in an exclusiveinterview with BioWorld.

The 35-year-old New York investor began his biotech careerwith his brother, Isaac, when they founded Genetic Systems in1981. The company, which developed monoclonal antibody-based diagnostics, was sold to Bristol Myers in 1986, and theBlech brothers haven't looked back since.

David founded D. Blech & Co. in 1990. The brothers willcontinue to do about one deal a year together, just as they didbefore. But David wanted to expand his own investments inwhat he terms "Fallen Angels," publicly held companies withpotential that have fallen on hard times.

Blech, who holds major equity stakes in 11 biotech companies,earned a music degree from Baruch College and a master'sdegree, also in music, from Columbia University TeachersCollege. He once was a songwriter.

"I was a poor musician," said Blech, "which worked in my favorbecause I was smart enough to know that I wasn't good enoughto make it as a musician -- even as a music teacher. So that'swhen I got the message, the call, to go on to Wall Street."

BioWorld: How did you become interested in the biotechsector?

David Blech: I think it's the best business in the world to be inwhere you can work on conditions of human disease andagriculture and environment, and make a lot of money, andrationalize your existence very well in the days when WallStreet is plummeting.

B/W: How did you get into Wall Street to begin with?

Blech: I got my master's degree in music, and heading for WallStreet was the next logical extension. You've got to know howto count if you're in music, and you count in business.

You know, my father was a stock broker. ... Over the years, I'vebenefited by some of his mistakes -- where he invested incompanies that had kernels of truth in their technology, butwere by no means good enough to be good companies.

Yet (these companies) don't just disappear, because ... thehuman emotion -- the gut emotion -- of an investor is tobelieve that someone is going to do something good for arthritisor cancer or Alzheimer's.

So my whole thesis was that if you did something of greatquality, you could give the investor a venture capital type ofopportunity and bypass the venture capital stage -- just gostraight public -- and that way you save the investor. Theover-the-counter market is so used to getting ripped off andbeing the victim of shoddy promotion that if you can putanything of high quality together, it's going to be gladly seized.So you know you could create a franchise on that, which iswhat we basically did.

B/W: Where did you get the money to invest?

Blech: Well, we didn't use very much. We started with $20,000-- my brother and I. We kind of pyramided over a three-yearperiod to $800,000 and then back down to $200,000. We wereinvesting in private placements, and they turned out to be notthe greatest set of companies.

We decided after starting to lose most of that money that wewere going to go for one where we were going to pickmanagement, where we were going to be part of it. We weregoing to contribute something other than just some risk capital.

And that's why we formed Genetic Systems -- found thescientists, recruited them in, found the advisory board, foundthe business board, packaged the whole thing.

B/W: What is your investment strategy?

My investment strategy is compartmentalized into twocategories: "Fallen Angels" and Icos-type deals. The basicpremise of the (Fallen Angels) strategy is that Wall Street tendsto give up right before the dawn. The last $5 or $10 million acompany needs are often the hardest to get.

A company's qualifications for me are: the critical mass ofscientists is intact and the management has to be intact. I don'thave the desire or the skills to be chairman and take a leadingrole. My skills are having the money and being able to raisemoney -- having a connection to Wall Street that was missing.My strong points were the weak points of these companies.

What I saw in these (Fallen Angels) was that they were hardlydifferent than second-tier companies, and something had justgone wrong.

I don't see this opportunity continuing. The market has takenaway this opportunity for now; 1990 was timely for thisstrategy.

I'm going back to the Icos strategy. I will do $30 million start-up deals where the technology is powerful and the people areout of other biotech companies.

The Fallen Angels strategy really interests me. The one or twostart-ups every 18 months that I might do are fascinating, butthey're not running in the face of trends, which you are doingwhen you invest in a Fallen Angel. You've got a hundredpeople's different opinions that this thing is a loser or there'ssomething terminally wrong about it.

We find that if you're right and you can do the fixing, that the(time to) profit is not that long. Certainly time frames areshorter than doing a start-up. Like in the case of Ecogen (one ofBlech's Fallen Angels). Everyone said their technology was fine.You know what's missing? They just never raised the money,never got the deals done.

B/W: Why didn't they get the deals done?

Blech: Well, I think there are probably two reasons. One is thatthey didn't have the skill set in house to get the deals done.They needed just that little bit more help. And then there's justgood plain old timing. We put $10 or $11 million in and gavethem the breathing room that gave them the luxury ofnegotiating from strength.

We don't want to dominate companies. What we wanted to dois be viewed as kind of white knights for a company that wouldhave to be sold or merged or couldn't really get a good deal.

B/W: How long do you see yourself holding on to thesecompanies?

Blech: I would say three to five years; probably more for thestart-ups.

TOMORROW: Blech discusses return on investment.

-- Karen Bernstein BioWorld Staff First of two parts

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