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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 11 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 11 of 15)



What follows is PART 11 of a 15-PART series. The remaining installments will appear on Deep Capture in the coming days, after which point the story will be published in its entirety.

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

Click here to read PART 6

Click here to read PART 7

Click here to read PART 8

Click here to read Part 9

Click here to read PART 10

Where we left off, we had learned that on March 29, 2007, an FDA advisory panel voted overwhelmingly that Dendreon’s promising treatment for prostate cancer should be approved. As a result, most financial analysts and investors were expecting that Dendreon had a promising future.  However, ten hedge funds (out of a universe of 11,500 hedge funds) held large numbers of Dendreon put options (bets against the company), suggesting they had reason to believe that Dendreon would be derailed. At least seven of those hedge funds can be tied to Michael Milken or his close associates.

We had also learned that Milken himself stood to profit if Dendreon were to experience unexpected problems receiving FDA approval. This is because Milken was the early financier and principal deal maker for ProQuest Investments, a fund that controlled, along with an affiliate, a company called Novacea, which was one of Dendreon’s competitors in the race to produce a new treatment for prostate cancer. Meanwhile, Lindsay Rosenwald (a Milken crony who once helped run a Mafia-linked brokerage called D.H. Blair, which specialized in pumping and dumping fake biotech companies) controlled Cougar Biotechnology, which was Dendreon’s second competitor in the race to develop a treatment for prostate cancer. We had learned further that Milken’s “philanthropic” outfit, the Prostate Cancer Foundation, had supported Novacea and Cougar, while turning its back on Dendreon.

In addition, we had learned that in April 2007, Howard Scher, an FDA-contracted doctor who had sat on the FDA advisory panel that reviewed Dendreon’s application, and who also happened to be the chairman of the Prostate Cancer Foundation’s “Therapeutic Consortium,” initiated an unprecedented lobbying campaign to have the FDA reject Dendreon’s application for approval. This was highly improper, not only because advisory panel doctors are not supposed to lobby the FDA after a panel has already voted, but also because Dr. Scher was hardly an objective observer. Aside from his affiliation with Milken’s “philanthropy,” Dr. Scher was also an executive and board member of Milken’s ProQuest Investments, the firm that controlled Dendreon’s competitor, Novacea. Dr. Scher was, moreover, leading clinical trials for Novacea and serving as a board member of Lindsay Rosenwald’s Cougar Biotechnology.

Also involved in the lobbying effort against Dendreon was Dr. Maha Hussain, who was also one of the 17 doctors who had sat on the FDA advisory panel that voted on Dendreon’s treatment (all 17 doctors voted that Dendreon was safe; only Dr. Scher, Dr. Hussain, and two others voted that it was not effective).  Dr. Hussain, like Dr. Scher, should not have been on that panel because she, too, had ties to the Milken-invested Novacea.

Perhaps owing to those ties, both Dr. Scher and Dr. Hussain trashed Dendreon in “confidential” letters to FDA commissioners, letters which immediately were reprinted in a dubious publication called The Cancer Letter, causing Dendreon’s stock price to tank, to the profit of those ten hedge fund managers who had had the “foresight” to place big long-shot bets against Dendreon.

Soon after, the FDA told Dendreon that it would not approve its prostate cancer treatment, sending the stock into the single digits, much to the delight of criminal naked short sellers who apparently knew the FDA decision was in the works and sold millions of phantom Dendreon shares in the days just prior to the decision becoming public knowledge.

While the hedge funds were not surprised by the decision, many were. This was the first time in history that the FDA had ignored an expert advisory panel recommendation to approve a treatment destined for dying patients.

Which raises the question…

* * * * * * * *

Who in the government helped sabotage Dendreon? Despite the lobbying by the captured doctors, despite the Wall Street whispering, despite the singing Sendek and the media mimics — despite all of this, it still seemed likely that the FDA would heed the advice of its advisory panel.

Instead, the FDA told Dendreon that it would not yet approve its treatment — that the company had to get more data, which would take years, by which time the company could easily run out of money. The FDA handed Dendreon (and prostate cancer patients) what seemed like a death sentence. This was a strange occurrence. It must have followed some serious work by government officials in high places.

One official who might have advocated against Dendreon was then FDA Commissioner Andrew von Eschenbach, who was a close ally of Michael Milken. Dr. von Eschenbach was a founding director of Milken’s Prostate Cancer Foundation, and later he was at the forefront of an ultimately unsuccessful effort to convince George Bush to grant a presidential pardon forgiving Milken for his crimes. But it is clear that von Eschenbach was not the only official courted by Milken and his associates.

Long before I came along, an assortment of Dendreon shareholders, prostate cancer patients, honest folks on Wall Street (there are some), and concerned citizens spotted the connections among Milken, ProQuest and the captured doctors who led the lobbying effort against Dendreon. When the FDA failed to approve Provenge, these folks saw that an injustice had been done, and they hollered loudly. Soon after, a grass roots organization called Care-to-Live was founded to advocate on Dendreon’s behalf.

Care-to-Live (to whom I owe a debt of gratitude for uncovering some of the information that appears in this story) has not only chronicled Dendreon’s travails, but has also labored tirelessly to right the wrongs.  It has organized street protests and letter-writing campaigns. It has lodged Freedom of Information Act requests and it has filed a lawsuit against the FDA. In the course of these efforts, it managed to get a hold of various documents and email communications between Dr. Scher (the physician with financial ties to Milken’s companies and “philanthropy”) and officials in the government bureaucracy.

What these documents and emails show is that Dr. Scher and his allies depended largely on support from a mid-level FDA employee and the National Cancer Institute, which oversees government funding of cancer initiatives, and has considerable, though unofficial, influence over FDA decisions. Over the years, Milken and his Prostate Cancer Foundation have made great efforts to ingratiate themselves with the NCI, which may be one reason why Dendreon was never able to receive government funding, despite the revolutionary potential of its treatment.

On March 31, 2007, Alison Martin, who was in charge of the prostate cancer division of the National Cancer Institute, emailed Dr. Scher, who was busy crafting the missive that would be published with mysterious immediacy by The Cancer Letter. “Glad to hear letter is being drafted,” Martin wrote. “If that [FDA] division’s vote suggests [that Dendreon’s treatment] be considered for approval, I was wondering if it then could go to ODAC, which is more clinically savvy, i.e. this is just a step in a process.”

The “division” whose possible approval of Dendreon’s treatment so discomfited Dr. Martin was the FDA’s Center for Biologic Evaluation & Research (CBER), which was assigned the task of evaluating Dendreon’s application. Martin was suggesting that if CBER was going to approve Provenge, perhaps the matter could be taken to ODAC – the FDA’s Oncologic Drugs Advisory Committee, which was led by an FDA official named Dr. Richard Pazdur.

Pazdur has a close relationship with a Washington lobbyist named Samuel D. Turner. Some years ago, Turner, who helps run an organization called the Cancer Leadership Council, led a campaign to have Pazdur appointed as the commissioner of the FDA. Michael Milken supported that campaign. And Milken’s advisors, such as Dr. Donald Coffey of the Prostate Cancer Foundation, have collaborated closely with Turner in another cancer lobbying group called C-Change, of which the Cancer Leadership Council is an affiliate.

As a result of this support, Milken and Pazdur have become very close friends.

Some years ago, a U.S. Congressional investigation determined that Pazdur, through his lobbyist friend Turner, had leaked inside information that the FDA was going to reject Erbitux, a cancer drug that was developed by ImClone. As you will recall, that inside information made its way to Martha Stewart, setting in motion the chain of events that landed her in jail.  The ImClone inside information also was first published in The Cancer Letter, the same rag that published Dr. Scher’s “confidential” letter to the FDA.  And, remember, the records of phone calls made to ImClone at that time raise the distinct possibility that funds managed by Milken cronies Carl Icahn, Steve Cohen, and Dirk Ziff also were privy to that information before it was made public.

As an aside, after ImClone’s stock crashed on the news, the company was seized by Milken crony Carl Icahn. And soon after Martha Stewart received the inside information, but before she was caught, hedge funds in the Milken network began short selling Martha Stewart’s company, Martha Stewart Living Omnivision. One hypothesis that explains the exquisite timing of those hedge funds is that the funds knew Martha was going to be arrested and therefore shorted her company on the assumption that news of her arrest would crash the stock. They may even have been the ones who turned her in.  But that is a story for another time.

For now, it merely needs to be emphasized that Pazdur, the FDA official, has unusually close relationships with Milken and some of his cronies. He was a key player in the ImClone scandal, which displays remarkable similarities (such as insider information mysteriously appearing in The Cancer Letter and the involvement of hedge funds in the Milken network) to the Dendreon scandal. And Pazdur appears to have been the FDA official most responsible for derailing Dendreon’s prostate cancer treatment.

Pazdur was not supposed to be the one who decided whether Dendreon’s drug was approved. Instead, because the drug is a biologic, the decision rested with the FDA’s Center for Biologics Evaluation and Research (CBER). Nonetheless, Pazdur inserted himself into the decision process. It was at Pazdur’s behest that Dr. Scher and Dr. Hussain were, despite their ties to competing companies controlled by Milken’s funds and friends, appointed to the advisory panel that voted on Dendreon’s application.

As you will recall, Dr. Scher and Dr. Hussain were among the four panelists who quickly voted “No” to the incorrectly phrased question about Dendreon’s effectiveness. When the phrasing was changed to the correct, legally mandated question ( Is there “substantial evidence” that the drug reduces mortality?) the remaining 13 experts on the panel voted “Yes.”

According to eyewitnesses, just as panelists began voting “Yes,” Pazdur began passing notes to Dr. Maha Hussain, who then attempted to instill further confusion, apparently hoping to have the remaining panelists continue to vote on the incorrect question. Pazdur, who had come to the meeting uninvited and unannounced, also spent a good deal of time conversing with Dr. Hussain, giving the impression that they were working together to devise arguments that might turn the panel against Dendreon.

Curious to know whether it was Pazdur who ultimately derailed Dendreon’s application, perhaps even delivering the captured doctors’ “confidential” letters to The Cancer Letter – and wondering whether this had anything to do with Pazdur’s relationship with Michael Milken — Care-to-Live, as part of its lawsuit against the FDA, subpoenaed Pazdur’s relevant emails and documents.

Pazdur responded under oath as follows: “I searched both my paper and computer files and was unable to locate any documents that were responsive to Plaintiff’s requests. I recall receiving…these letters…However, as these letters related to a specific regulatory application conducted by a different FDA Center (CBER), did not fall under my direct regulatory supervision…I shredded my hard copies of these letters and deleted any electronic copies. The documents were shredded and deleted within a month of receipt.”

This response was strange. For one, Pazdur seemed to be stating that he had no involvement in the Dendreon decision. If that were the case, what was he doing at the advisory panel meeting?  Pazdur’s statement also contradicted an earlier statement from the FDA. In response to complaints that Pazdur had participated in a decision that was supposed to be left to the CBER division, the FDA said that he had done so “at CBER’s request.” Clearly, Pazdur had been involved in the decision, so it was disingenuous for him to state otherwise in his efforts to explain why he had (frantically?) shredded and deleted all the relevant documents.

Moreover, if Pazdur is telling the truth (and not, that is, simply obstructing justice), then Pazdur violated the spirit of various initiatives, including a bill passed in the U.S. House of Representatives and directives from the Archivist of the United States, aimed at ensuring that government employees maintain records of their official business. The reason that government officials are asked to keep good records is that they are sometimes involved in controversies – controversies such as the one that was swirling around Dendreon’s FDA application when Pazdur began shredding and deleting documents so promptly and thoroughly.

In any case, most of the documents that Care-to-Live requested had been transmitted electronically, meaning that a simple computer excavation could have retrieved them, even if they were deleted. Clearly, Dr. Pazdur had reason not to hand over those documents. Perhaps he was advised not to by his lawyer, who happens also to be the same lawyer who represents The Cancer Letter, the rag that published the “confidential” letters that Dr. Scher and Dr. Hussain wrote to Dr. Pazdur and FDA commissioners.

Fortunately, Alison Martin of the National Cancer Institute did not shred everything – she handed over at least some of her documents. And the email quoted above strongly suggests that her plan was to get Dendreon’s application out of the hands of the designated authority, CBER, and into the hands of Richard Pazdur. In response to that email, Dr. Scher wrote to Martin that he, too, would try to have Dendreon’s application “reviewed by ODAC” (which was controlled by Pazdur). In a follow-up email, Dr. Scher wrote: “Got a minute for quick question related to FDA processes?”

A minute later, Martin responded: “Consider this confidential, please…but I wanted you to know.” As to what confidential information she delivered to Scher, that is unclear from the documents received by Care-to-Live. Apparently, the telling documents were also promptly shredded.

But other documents and emails show that by early April, Martin was fully engaged in helping Scher draft his letter trashing Dendreon — the “confidential” letter to the FDA that would be quickly published by The Cancer Letter. Indeed, a copy of a half-edited draft of Dr. Scher’s letter was found on Martin’s computer. And in one email, Martin appears to complain about all the work she has done on this letter. “Maybe you should write a letter, too,” she jokes.

So an employee of the federal government was helping a conflicted doctor lobby the federal government. That is, Martin, the head of the prostate cancer unit at the National Cancer Institute, was helping a doctor – a doctor with financial ties to Michael Milken and to a competing, Milken-invested company — sabotage Dendreon’s treatment for prostate cancer.

As news of this started to reach Dendreon’s supporters, Martin left her job at the National Cancer Institute. Soon after, she was appointed president and chief executive officer of the Melanoma Research Alliance (where one  can safely suppose her compensation exceeds her previous government salary).

The Melanoma Research Alliance was a brand new “philanthropic” outfit. It had just been set up by a “prominent philanthropist.”

The name of the “prominent philanthropist” is, of course, Michael Milken.

Milken founded the Melanoma Research Alliance and hired Alison Martin with an initial grant from Leon Black, the “prominent” billionaire and Milken crony who does business with an alleged Russian mobster named Felix Sater.

Sater, remember, is the fellow who allegedly was behind the threat to have Deep Capture reporter Patrick Byrne murdered if Patrick did not end his crusade against abusive short selling and the “deep capture” of the nation’s regulatory bodies.

* * * * * * * *

On May 11, three days after the FDA failed to approve Dendreon’s treatment, The Wall Street Journal published a report that purported to investigate the allegations that the government approval process had been compromised. This “investigation” entailed asking Dr. Scher whether he had any conflicts of interest.

“’I try to keep to the high ground,’” Dr. Scher told The Journal. Apparently content with his reply, and eager to assuage any suspicions that something nefarious had gone down, The Journal added that Dr. Scher “serves as an advisor to Innovive, a small biotech not involved in prostate cancer, and works with Bristol-Myers Squibb in an unpaid capacity on early stage drugs that may hold promise in prostate cancer. He and his wife hold small amounts of stock in Biogen, Idec and Pfizer.”

That was it. According to the Journal, Scher had no conflicts of interest.

The Journal did not mention that Dr. Scher was a board member and executive of  Milken’s ProQuest Investments. It did not mention the fact that ProQuest was heavily invested in Novacea, a Dendreon competitor. It did not mention that Dr. Scher was leading the trials of Novacea’s prostate cancer drug, or that he was a paid director on the advisory board of another Dendreon competitor – Milken crony Lindsay Rosenwald’s Cougar Biotechnology. And it did not mention that Dr. Scher was leading clinical trials for yet another Dendreon competitor, Cell Genesys, which, like Cougar and Novacea, was supported by Milken’s Prostate Cancer Foundation, whose “Therapeutic Consortium,” was chaired by none other than Dr. Scher.

The Wall Street Journal did not mention any of this, despite the fact that concerned citizens had plastered the information all over the Internet.

Four days after the Journal article appeared– May 15, 2007 – the FDA issued new guidelines for evaluating immunotherapy agents, such as Dendreon’s treatment. Now it was official – Pazdur’s division would have some influence.

This seemed like the FDA was papering over a scandal. If Pazdur had violated the guidelines by influencing the Dendreon decision, now the FDA could say that, in fact, there were new guidelines, and Pazdur had followed them (never mind that the new guidelines were written one week after the FDA failed to approve Dendreon’s treatment, possibly because Pazdur had violated the old guidelines).

* * * * * * * *

Just a few weeks after the FDA said it would not yet approve Dendreon’s treatment, it was easier to understand why Dr. Scher, Milken and their allies were so eager to see Dendreon fail. On May 30, 2007, Novacea, the company whose largest investors were Milken’s ProQuest Investments and the affiliated Domain Associates, announced that it had signed a $500 million deal to jointly develop its prostate cancer treatment with pharmaceutical giant Schering Plough. Within 24 hours, Novacea’s stock price jumped 86 percent.

In subsequent days, the business media reported this “news” as if it were not just a business triumph, but also a major breakthrough in the world of medicine. “On Tuesday, Novacea was just another young biotech, with a modest market capitalization of $187 million,” enthused Forbes magazine. “That all changed on Wednesday when the drug maker announced it had signed a deal worth over $500 million with pharma juggernaut Schering-Plough.”

Forbes added that Novacea’s treatment “appears to significantly increase the chance of survival among androgen-independent prostate cancer patients…”

As this $500 million figure and news of Novacea’s medical miracle made its way around the other news organizations, and appeared everywhere on the Internet, Novacea’s stock continued to soar.

Nobody in the media paused to consider whether a “$500 million deal” constitutes a medical breakthrough (like, for example, reducing mortality by 20% in late-stage prostate cancer patients, as Dendreon had done). The assumption was, if there is big money and the stock is soaring, the company’s prostate cancer treatment must be good.

Furthermore, nobody in the media paused to consider that had Dendreon received approval for its competing treatment, this “$500 million deal” would almost certainly not have happened. Nor did anybody in the media report that the people (Milken and friends) who stymied Dendreon were the same people who stood to profit from this purported “$500 million” deal.

At any rate, the deal was not quite what it was made out to be. Novacea did not receive $500 million. It received $60 million up front. Meanwhile, Schering-Plough was given $12 million worth of Novacea stock at a bargain price. By cashing out of the stock after it soared in value, Schering-Plough could significantly reduce that upfront investment. The rest of the much-trumpeted $500 million was dependent on Novacea’s clinical trials showing that its cancer treatment actually improved the health of patients.

Sure enough, just a few months later, in November 2007, Novacea announced that the clinical trial of its treatment had been terminated “due to an unexplained imbalance of deaths…” In other words, Novacea’s drug was not improving the health of patients. It was killing patients. And as soon as this news was released, the much-heralded $500 million Schering-Plough deal was cancelled.

Either shortly before or soon after the trials were terminated due to an “imbalance of deaths,” Milken’s ProQuest Investments and Domain Associates sold their stock in Novacea. Given the enormous boost the stock price had received after the “$500 million” news, it appears that  ProQuest and Domain (i.e. Michael Milken and friends) sold their stock at a significant profit.

So the questions remain: Did Dr. Scher (who worked for ProQuest and lead Novacea’s clinical trials) really believe that Novacea’s treatment was superior, as he claimed during his successful campaign to get the FDA to reject Dendreon’s drug? Did Michael Milken’s Prostate Cancer Foundation, which was an extension of ProQuest and snubbed its nose at Dendreon’s treatment, really believe that there were better treatments in the pipeline?

Did ProQuest and its affiliate Domain, which founded Novacea, ever care about producing a marketable drug? Or was Novacea a scam? A scam that was built on real science (though Dr. Scher was less than upfront about the results of his clinical trials, his efforts to develop Novacea’s treatment were no doubt sincere).  A scam that was more sophisticated than those perpetrated by the bucket shops of yore, and whose every component may have been technically legal.

But nonetheless a scam – an old-fashioned pump and dump scam.

* * * * * * * *

To be continued….Click here for Chapter 12.

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2) go here for additional suggestions: “So You Say You Want a Revolution?

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 10 of 15)

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Michael Milken, 60,000 Deaths, and the Story of Dendreon (Chapter 10 of 15)



What follows is PART 10 of a 15-PART series. The remaining installments will appear on Deep Capture in the coming days, after which point the story will be published in its entirety.

Click here to read PART 1

Click here to read PART 2

Click here to read PART 3

Click here to read PART 4

Click here to read PART 5

Click here to read PART 6

Click here to read PART 7

Click here to read PART 8

Click here to read Part 9

Where we left off, we had learned that on March 29, 2007, an FDA advisory panel had voted overwhelmingly that Dendreon’s promising treatment for prostate cancer should be approved. As a result, most financial analysts and investors were expecting that Dendreon would become a profitable company. However, ten hedge funds (out of a universe of 11,500 hedge funds) held large numbers of Dendreon put options (bets against the company), suggesting they had reason to believe that Dendreon would be derailed. At least seven of those hedge funds can be tied to Michael Milken or his close associates.

We had also learned that Michael Milken himself stood to profit if Dendreon were to experience any unexpected problems receiving FDA approval. This is because Milken was the early financier and principal deal maker for ProQuest Investments, a fund that (along with an affiliate) controlled a company called Novacea, which was one of Dendreon’s competitors in the race to produce a new treatment for prostate cancer. Meanwhile, a Milken crony, Lindsay Rosenwald (who once helped run D.H. Blair, a Mafia-linked brokerage which specialized in pumping and dumping fake biotech companies) controlled Cougar Biotechnology, which was Dendreon’s second competitor in the race to develop a treatment for prostate cancer. In addition, we had learned that Milken’s “philanthropic” outfit, the Prostate Cancer Foundation, had supported Novacea and Cougar, while turning its back on Dendreon.

Finally, we had learned that on April 13, 2007, The Cancer Letter, a newsletter with a record of publishing information leaked from the FDA in the service of select Wall Street hedge funds, published another FDA leak. This leak was a letter written to the FDA from a doctor named Howard Scher, who was a board member and executive of ProQuest Investments and the chairman of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation. In that letter (an unprecedented attempt to lobby the FDA after an advisory panel had already voted), Dr. Scher argued vehemently that Dendreon’s treatment should not be approved.

One of Dr. Scher’s principal arguments against Dendreon was that the FDA advisory panel had improperly “changed the question” regarding the efficacy of Dendreon’s treatment. As we saw in Chapter 9, that claim was false, and Dr. Scher’s other arguments were specious.

But Dendreon’s enemies continued to whisper in reporters’ ears about this issue of “the question,” and the unprecedented lobbying of the FDA continued.

Now we meet another conflicted doctor and the sixth of those seven hedge funds that bet big against Dendreon right before the lobbying began….

* * * * * * * *

On April 20, three weeks after the advisory panel vote, and one week after Dr. Scher’s missive appeared in The Cancer Letter, Forbes journalist Matthew Herper published a story arguing that there was a good chance the FDA would not approve Dendreon’s cancer treatment outright. “If the agency wants to ask Dendreon for more data, it certainly has some outs,” Herper wrote. “The FDA changed the wording of the question…”

Three days later, Dr. Maha Hussain, one of the panel doctors who had quickly voted “No” on the bogus question, wrote a letter to the FDA arguing that Dendreon’s treatment should not be approved. This letter, like Dr. Scher’s, was addressed to FDA commissioners and was presumably confidential. And this letter, like Dr. Sher’s, found its way to The Cancer Letter, which posted it for all to see just three days after it was written.

Dr. Hussain’s arguments were precisely the same as those employed by Dr. Scher and the whispering folks on Wall Street. “The recommendations for approval…are based on data that can only be characterized as best as ‘suggestive’ of possible benefit,” she wrote. “From the scientific and procedural aspects, in general, it would seem that at the end of the day what should determine a positive verdict in any therapeutic trial is the strength of the evidence as critically reviewed by an Advisory Committee…with clear guidance on the question posed to the committee within the framework of the regulatory guidelines and requirements of the FDA for approval.” [Italics mine]

That is, Dr. Hussain—like Dr. Scher, the singing Sendek, and whoever was feeding the journalist Matthew Herper–was suggesting that the FDA panel had voted on the “wrong question.”

Meanwhile, Jonathan Aschoff, the physician-impersonating financial analyst who’d set a target for Dendreon’s stock price to reach a mere $1.50, was telling journalists that the FDA panel would not have voted to approve Dendreon’s treatment if it weren’t for the “substantial” rewording of “the question.” On April 25, Aschoff issued another damaging report, this one asserting, once again, that the FDA would ignore its panel because the panel had voted on the “wrong  question.”

By this time Dendreon supporters were busily circulating transcripts showing that the FDA panelists had, in fact, voted on the legal question. The supporters had also discovered Dr. Scher’s ties to Novacea, Cougar Biotechnology, Proquest, and Michael Milken, and began explaining to all and sundry that ProQuest and Novacea would cash in if Dendreon were not approved. Moreover, the supporters had revealed that Dr. Hussain, the second letter writer, had also done work for the Milken-invested Novacea, and was a member of the “Therapeutic Consortium” of Milken’s Prostate Cancer Foundation.

On April 26, Matthew Herper of Forbes published another article – this one repeating the arguments in Dr. Hussain’s letter. Herper, who had been told about Scher’s conflicts of interest, had apparently decided to investigate. This investigation seemed to have involved nothing more than asking Dr. Scher if he had any conflicts of interest. In his April 26 article, Herper  reported that Scher’s spokesman said “that Scher had nothing to do with his letter leaking [and appearing in The Cancer Letter], and that he knew of no family members who would benefit financially either way if Provenge were approved.”

To reinforce Scher’s credibility, and to make Dendreon’s supporters look silly, Herper added that the supporters had alleged that “Scher’s wife works for a hedge fund that might be short Dendreon…This is not true. She works in human resources for a nursing home company that could not conceivably benefit materially from any news about Dendreon.”

Aside from ignoring Scher’s ties to Milken’s ProQuest Investments, which would profit handsomely if Dendreon were not approved, Herper misconstrued the information about Scher’s wife. The truth was, Dendreon’s supporters had revealed that Scher’s wife had a cousin, Barry Lafer, who was a hedge fund manager. Phone records legally obtained by Deep Capture show that Scher called Lafer, at his office, on April 23, while Herper’s article was in the works.

But the main point of Herper’s article was that “all this debate” (i.e. the Wall Street whispering and the conjectures of two conflicted doctors) made “Dendreon an even riskier stock than other biotechs.” Herper added that according to unnamed “others,” Dendreon’s “studies do not rise to the level usually required for approval.”

Besides being false, this was another way of suggesting that the FDA panelists, all experts in their field, voted in favor of Dendreon because they had misunderstood the standards for approval. They had been asked the “wrong question.”

On April 29, Bloomberg News reported that Dendreon’s shares were being sold at “a record pace” as investors “bet the company’s experimental prostate-cancer drug will fail to win approval from U.S. regulators.”

Then, on May 4, there was yet another letter.  This one was from a University of Washington biostatistician named Dr. Thomas Fleming. It is perhaps noteworthy that Fleming had done work for Gerson Lehrman, an outfit that is owned by former hedge fund managers.

Gerson Lehrman has a remarkable business model which can best be described as “institutionalized bribery.” Clients, mostly hedge funds, hire Gerson to put doctors and other experts on the payroll. In exchange for the payments, the doctors agree to provide hedge funds with “insight” (some say they provide inside information) about clinical trials of drugs that are marketed by public companies. The doctors also agree to talk to reporters (and perhaps also to the FDA) about these drugs. In at least one case it has been clearly established that these hired sources lied (which could well explain, of course, why they were hired).

Like the letters from Dr. Scher and Dr. Hussain, within days of its creation Dr. Fleming’s missive miraculously ended up in the hands of The Cancer Letter, which eagerly published it.

“Reportedly Scher felt motivated to write the letter after being kept awake the night following the [advisory panel],” wrote Dr. Fleming. “I also was kept awake the night following the panel.”

In addition to knowing about Dr. Scher’s sleeping habits, Dr. Fleming shared Dr. Scher’s concern that approving Dendron’s treatment might derail Asentar, the drug that was being developed by Milken’s Novacea. How “could one defend internal consistency at FDA if [Provenge] were to be approved before the [Asentar] trial?” Fleming asked.

By this time, Dendreon’s supporters (a rambunctious bunch) were screaming and howling about the dishonesty of those who had suggested that the advisory panel had been asked the “wrong question.” So the party line changed a bit. Now it was that the panelists who had voted in Dendreon’s favor must have been somehow confused. Dendreon trials did not “provide ‘substantial evidence of efficacy’, Dr. Fleming wrote. “Rather at best, these trials provide plausibility of efficacy…”

I’ll leave it to the reader to parse the difference between “plausibility” and “substantial evidence.” But clearly, this letter was yet another strange occurrence.

Four days later – May 8, 2007 — the FDA told Dendreon that it was rejecting the company’s application for Provenge, a paradigm-shattering vaccine for those terminally ill with prostate cancer.

* * * * * * * *

The SEC’s partial data shows that more than 12 million Dendreon shares “failed to deliver” on May 10, 2007.  Traders are given three days to produce stock before their trades are registered as “failures to deliver,” so it is clear that hedge funds had sold the 12 million shares of phantom stock on May 7 — the day before the FDA made its decision. This suggests that somebody was aware of this imminent decision. We don’t know who engaged in that naked short selling because, as far as the SEC is concerned, it’s a big secret.

But we do know that a mere 10 hedge funds held large numbers of put options (a bet that the stock price would fall) as of March 31, a few days after the advisory panel’s nearly unanimous vote in Dendreon’s favor. Obviously, these were hedge funds with remarkable foresight concerning a long-shot event (the FDA’s decision to go against the overwhelming recommendation of its advisory panel to approve a drug for terminally ill cancer patients). Seven of those hedge funds belong to a mischievous Wall Street network that is known for its foresight – and for attacking companies that, coincidentally, are victims of illegal naked short selling.

Five of these hedge funds I have already named. All have ties to Michael Milken or his close associates. Some have ties to the Mafia. They are: Bernard L. Madoff Investment Securities, Perceptive Advisors, Millennium Capital, Steve Cohen’s Sigma Capital, and Pequot Capital.

In preparation for naming the sixth, we need to hearken back to September 2001, when two airplanes crashed into the twin towers of the World Trade Center, one crashed into the Pentagon, and a fourth dove into a field in Pennsylvania. On the day before that attack, a short seller named Anthony Elgindy called his broker and ordered him to liquidate one of his accounts, giving the explanation that a big event was about to occur. Mr. Elgindy said that on the following day (that is, on September 11, 2001) the market was going to  lose two-thirds of its value.

After the 9-11 attacks, that broker notified the FBI of Elgindy’s eerie prediction, and the FBI launched an investigation. In the course of this investigation, the government learned  that Elgindy had sold massive amounts of phantom stock, and that he routinely blackmailed and threatened companies that he was selling short. The government also learned that Elgindy had ties to terrorist outfits in the Middle East, and for a time prosecutors argued in court that Elgindy had advance knowledge of the 9-11 disaster.

Ultimately, though, Elgindy was convicted and sentenced to 11 years in prison for the more demonstrable crimes of stock manipulation and paying bribes to two FBI officials who fed him information from the FBI’s National Crime Information System (one of those FBI agents actually kept Elgindy informed of the progress of the investigation into Elgindy’s connection to the 9-11 attacks). In June, 2009, it was learned that the SEC’s inspector general had begun investigating SEC officials who are also alleged to have collaborated with Elgindy, either by providing inside information on commission investigations, or launching destructive, dead-end investigations of companies that Elgindy was selling short.

Elgindy, like Bernard Madoff  (the Dendreon short and Ponzi schemer who helped write the SEC’s rules on naked short selling), is believed to have ties to organized crime. He once worked for a now-defunct Mafia-connected brokerage called Blinder Robinson (known on the Street as Blind’em, Rob-em), and a source close to the Elgindy investigation has told Deep Capture that, shortly before Elgindy appeared for sentencing, Russian mobsters forced Elgindy to saw off the tip of one of his own fingers as a reminder not to squeal on other members of his network.

There is evidence – including transcripts of Elgindy’s private Internet message board – that shows that Elgindy routinely attacked public companies in collaboration with certain hedge fund managers. A significant number of these hedge fund managers were part of the Milken network.

One of them was Jeffery Thorp, whose father once worked with the Genovese organized crime family to develop a method for cheating Las Vegas casinos. The government’s investigation of Elgindy eventually led to Thorp, who was charged in 2006 with providing fraudulent “death spiral” PIPEs financing to 22 companies. The SEC’s case, one of the rare instances in which the commission has identified a naked short seller by name, makes it clear that Thorp sold massive amounts of phantom stock, ultimately destroying the 22 companies that had received his fraudulent PIPEs.

Recall that similar “death spiral” PIPEs were arranged by Carl Icahn’s Ladenburg Thalmann, ending in the phantom stock ruination of more than 20 companies. Icahn is the “prominent” investor who owes his status as a billionaire to Michael Milken and the Mafia-connected Zev Wolfson. Icahn is also the “prominent” investor who, along with Ziff Brothers and Steve Cohen, called ImClone immediately before The Cancer Letter published the “leaked” news of an FDA decision.  Icahn is also the “prominent” investor whose former employee was the last man to see Alain Chalem (a Mafia-connected naked short seller) before Chalem’s head was riddled with bullets by Russian mobsters.

Do you still not believe that this network has ties to the Mob? Consider that Thorp’s father, in addition to working for the Genovese organized crime family, was the single most important player in the stock manipulation network that Milken operated in the 1980s.

The father, Edward Thorp, ran a hedge fund called Princeton-Newport. The FBI eventually raided that operation, hauling away phone recordings and documents. Thorp was not ultimately charged, but the evidence that the FBI retrieved that day featured prominently in the prosecution’s 98-count indictment of Milken. Indeed, people who worked on the case say that the Princeton Newport evidence was far more important to the prosecution than the testimony of Milken’s more famous co-conspirator, Ivan Boesky.

Do you still not believe that people in this network employ precisely the same ruthless tactics? Consider that when the FBI investigated Elgindy, it also stumbled upon a hedge fund called Gryphon Partners. One of Gryphon’s portfolio managers, Jonathan Daws, was eventually charged with participating in various short selling schemes hatched by Elgindy and his bribed FBI agent. In pleading guilty, Daws said, “others at Gryphon made trades in some of the relevant stocks, independent of me, and not at my direction.” Daws was convicted.  No charges were immediately filed against Gryphon.

However, in 2006, the SEC sued Gryphon for providing fraudulent “death spiral” PIPEs financing to 35 companies. Like Thorp and the hedge funds introduced by Carl Icahn’s Ladenburg Thalmann, Gryphon provided its PIPEs financing knowing that it would cause stock prices to fall. The hedge fund then hammered the companies with naked short selling, sending their stocks into “death spirals.” Most of the 35 companies were destroyed.

So, at this point in the story, we have identified more than 70 companies that have been vaporized by “prominent” investors, all part of the same network.

At any rate, Gryphon Partners, the Elgindy-connected, PIPEs-financing, 35 company-destroying SEC-sued death spiral finance house, was founded by G. Stacy Smith and Reid S. Walker, two “prominent” investors who have since gone on to greater things. They now run a hedge fund called WS Ventures.

And WS Ventures is the sixth of our seven “colorful” hedge funds that had the foresight to own large numbers of put options in Dendreon at the end of March 2007, just after the seemingly fantastic news that the advisory panel had voted overwhelmingly in Dendreon’s favor, and during the period when Dendreon was awash in illegal naked short sales, and just before the disastrous news that the FDA had rejected the advice of its own advisory panel.

A few months later, Dendreon, on the verge of collapse and desperate for money to support its sabotaged prostate cancer treatment, went ahead and signed a deal to receive its first “death spiral” PIPEs finance.

* * * * * * * *

To be continued….Click here for Chapter 11.

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2) go here for additional suggestions: “So You Say You Want a Revolution?

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At the time much of the content on DeepCapture.com was written, the Great Financial Crisis of 2008 was either on the verge of happening or had just occurred. In those days, emotions among this publication’s contributors were raw and, in an effort to get their warnings noticed and appropriate blame placed, occasionally hyperbolic language and shocking imagery were employed.

Were we to write these entries today, a different tone would most certainly prevail.

Yet, being a record of a pivotal time in our global economic history, we’ve decided to leave the rawness unedited, with the proviso that readers take the context of the creation of certain posts into account, and that those easily offended re-consider the decision to read them.