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Can IPO Provide Redemption for Drug Developer Sam Waksal?

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Despite his somewhat criminal past, Sam Waksal is attracting serious investors with his new IPO.(NOTE: Crop out entire right portion of photo; only show man speaking and microphones.)

In 2010, business leader Sam Waksal founded Kadmon Holdings LLC, a biopharmaceutical company focused on developing innovative medicines for serious unmet medical needs. While the new venture seemed promising, Wall Street investors had qualms about connecting with a high-profile executive who had served five years in federal prison for insider trading and other crimes.

But, according to the Wall Street Journal, Kadmon’s just-unveiled initial public offering may well make prominent investors who backed the firm — including Steven A. Cohen, Daniel Loeb and GoldenTree Asset Management LP — ultimately come out on top.

Despite Dr. Waksal’s troubled past, some investors seemed prepared to emphasize Kadmon’s potential. “Sam is a proven drug developer who paid his debt to society and led a credible team responsible for the discovery and development of [cancer drug] Erbitux, which has helped hundreds of thousands of patients,” Peter Kolchinsky, a leading investor in biotech shares, declared to the Wall Street Journal.

Kadmon’s assets “should be assessed on their scientific and clinical merits,” Kolchinsky contended.

The 68-year-old Waksal left Kadmon in early 2016 before the launch of the IPO because SEC rules prevent him from serving as an executive or director of a public company. In 2002, the drug developer was imprisoned after pleading guilty to securities, bank and wire fraud, obstruction of justice, perjury and related conspiracy charges. He was released from confinement in 2008.

Waksal continues to be a shareholder of Kadmon LLC, which will control 12.1% of the company’s shares in the aftermath of the IPO. GoldenTree will own 18.1% of the public company, and Loeb’s hedge fund, Third Point LLC, will control 13.6%.

Kadmon is developing drugs to fight a variety of diseases. One has been somewhat effective in warding off autoimmunity or misdirected immune responses, while another tries to stem the growth of different cancers.

Waksal’s ImClone Systems Inc. – launched in 1984 – began seeing greater market success by 2001. But the situation began to sour at the end of that year, when the Food and Drug Administration refused to consider a new-drug application for one of the company’s drugs. In June 2002, Dr. Waksal was arrested on a charge of attempting to sell ImClone shares, and secretly advising family and friends to drop the stock, after the FDA’s decision but prior to its public disclosure.

Despite ImClone’s run-in with the FDA, Erbitux was approved in 2004 and ultimately became a prominent cancer drug. In 2008, Eli Lilly & Co. bought ImClone for $6.5 billion, which greatly bolstered the faith of investors in Waksal and Kadmon.

Investors have had varying relationships with Kadmon. In September 2015, GoldenTree and Kadmon settled “certain claims alleging breaches of a letter agreement” between the parties, according to regulatory filings. On the other hand, Loeb’s fund will add to its shares in Kadmon as part of the IPO, as it has been encouraged by Kadmon’s progress.

Isaac Jemal

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