In an exclusive excerpt from For Blood And Money, the untold story of Wayne Rothbaum and the worst trade of his life. But what cost him some $700 million turned out to be the boon for countless cancer patients.
Robert Duggan had been warned by his investors relations consultants before his next meeting. “Get ready for this one.” Duggan and his team were on a fundraising trip in New York to pitch Pharmacyclics, their tiny and struggling biotechnology company, to hedge funds and investment firms. They were told their next appointment would be different from the usual PowerPoint and Q&A session.
The meeting was with Wayne Rothbaum, an under-the-radar trader who specialized in biotechnology stocks. “He can be really brutal sometimes,” Duggan was told. “He may accuse you of lying.” Another person, Thomas Turalski, would also be there. “He likes to tag team people with his friend Tommy,” they were told. “Tommy works for Joe Edelman.”
Duggan could be excused for not knowing anything about Rothbaum. He was like a ghost. Even today, a search for Rothbaum online turns up very little. There is no photograph of him. He doesn’t have a LinkedIn page. The big New York trading operation, Quogue Capital, that he ran for years never had a website. There are some news references of him a few years back trying to buy baseball’s New York Mets and Miami Marlins. Not much else.
But in the world of biotechnology, Rothbaum, 54, has become a billionaire legend. He is one of the most successful biotech stock traders of his generation and the founder of innovative companies developing cancer therapies. Rothbaum’s backing of one startup, Acerta Pharma, is considered one of the greatest biotech investments of all time. The company developed Calquence, a blood cancer drug that generated $2 billion of revenues last year, and was sold to AstraZeneca in a $7 billion deal a few years ago.
Christian Rommel, a top executive at Bayer Pharmaceuticals, had a unique way of describing Rothbaum. “He’s a truffle pig,” Rommel once said in his thick German accent when introducing him at a meeting. “If anyone is a truffle pig, it’s Wayne Rothbaum.” Taken aback, Rothbaum initially grew visibly upset and thought Rommel was insulting him and calling him a pig, before realizing that Rommel was referring to the European tradition of using a hog to sniff out valuable fungi.
What’s most remarkable about Rothbaum’s trading and what distinguished him for years from other big money biotech investors, is that Rothbaum has always invested his own money. He never raised capital from clients, forgoing the big fees that made so many hedge fund managers rich. In the late 1990s, Rothbaum did discuss starting a biotech hedge fund, Perceptive Advisors, with Joseph Edelman. The two were close, but they knew enough about each other’s temperaments to understand that a venture together probably would not work out.
Edelman was Rothbaum’s mentor. When they first cut their teeth together on Wall Street, Rothbaum grew amazed with how the human body worked. He marveled at the connections and mechanisms, the chain reactions, and the interconnectedness of everything. He looked at the body as an elegant biomechanical machine made up of parts, molecular gears, cogs, and switches that could be turned on or off. This machine followed rules defined by a genetic code and electrical pathways.
But to beat the market, Rothbaum was ready to put everything on the line in one single investment. Edelman would go on to become the billionaire hedge fund manager with the best annualized return for the next 20 years (at least compared to other human beings, a handful of computer-driven funds did better). But Edelman’s stomach for risk, as strong as it was, did not match Rothbaum’s aggressiveness. He wanted to make huge and concentrated bets on drugs he thought were going to be successful. Given all the work required to properly understand and make a biotechnology investments and the fact that most drugs put into clinical trials failed, he just couldn’t understand why any life sciences investor would take the safe, boring approach of owning a diversified stock portfolio.
“The only way we are going to get really wealthy is if we bet really big on our best ideas,” Rothbaum would tell Edelman as they set up each of their investment operations around the same time.
A decade into his run as a stock trader, however, Rothbaum would make a trade that would change everything.
When Pharmacyclics released its first data in December 2009 for a drug candidate code named PCI-32765, it did not generate much excitement. When the poster containing the data was first put up at a major medical conference in New Orleans, most doctors and scientists ignored it.
But one Wall Street investor found his way to the red-and-white poster, attracted almost by some invisible animal scent. Richard Klemm worked at OrbiMed Advisors, a relatively large biotech hedge fund in New York. Reading the data presented, Klemm saw that this experimental drug owned by Pharmacyclics had generated two partial responses in chronic lymphocytic leukemia, or CLL. Partial responses in CLL, the most common form of adult leukemia, were a rare event, and there was little to help patients when they got sick.
Klemm called up his boss, Sven Borho, in New York. They saw that shares of Pharmacyclics had last changed hands for $2.35. OrbiMed started buying the stock the next morning. Borho bought his first Pharmacyclics share for $2.31.
Back in New York, another stock trader took note of the Pharmacyclics data in CLL. Before the market opened, Pharmacyclics put out a press release, including some data that was not on the poster. There were another three CLL patients taking the drug who had experienced partial responses in recent days. In total, Pharmacyclics said, five out of six CLL patients on the drug had recorded partial responses.
“Holy shit,” Wayne Rothbaum said to himself. “Five out of six, that’s pretty amazing.” Rothbaum knew a lot about CLL and had initially invested in Pharamcyclics after Duggan had come to visit him. He found Pharmacyclics’ results, as minuscule as they were, remarkable.
This was Rothbaum’s specialty, building an investment thesis out of a few pieces of data and being bold enough to do something about it. Sitting in his office in front of his trading screen in New York, Rothbaum called up his broker. “Whatever blocks you can find me, buy me up to one million shares,” Rothbaum said.
While his broker tried to buy large chunks of shares from institutional market participants, Rothbaum also started buying smaller amounts of Pharmacyclics stock though his own trading platform. The broker called him back and said he had found someone willing to sell 200,000 shares. “Take it,” Rothbaum said. “Whatever you can get, take it!”
Watching his six trading screens, Rothbaum could see the price of the stock steadily rising. Somebody else was buying the stock. The broker called Rothbaum and confirmed that another buyer was gobbling up all available Pharmacyclics share blocks. Rothbaum told his broker to increase his bid. “I don’t care what you pay, just buy it,” he barked over the phone.
That other buyer was Sven Borho. Rothbaum and Borho were friends. They didn’t know it at the time, but the two New York investors were furiously bidding up the stock against each other. Normally, a big volume day for Pharmacyclics’ stock would mean 100,000 shares traded during a session. With Rothbaum and OrbiMed spurring demand, over one million shares changed hands, and the stock price rose by 17 percent in a single day. Another 741,000 shares traded the next day, and the stock closed at $2.93. Rothbaum bought one million shares.
Not long afterward, Joe Edelman’s Perceptive Life Sciences hedge fund would also take a big position. At $37 million, Pharmacyclics’ market valuation remained tiny, but if you were watching closely, something about this company had suddenly interested the smart money on Wall Street.
A year later, Rothbaum didn’t like what he was seeing. Having furiously bought shares of Pharmacyclics to became its second biggest shareholder, the company had released new data about its blood cancer drug and it concerned Rothbaum. While the new numbers from a clinical trial of CLL patients showed that the drug was shrinking the lymph nodes of cancer patients, their white blood cell counts remained high, a bad sign.
Rothbaum owned a large stake in a private company that was developing a similar drug that had gotten much further ahead in the process. That drug never really cleared the cancer cells out of the blood. Rothbaum worried that Pharmacyclics’ drug would not work out and that the whole approach was a dead end. Rothbaum had trained himself to not get emotional about any investment thesis and to always take into account new information that challenged it. Now he was starting to lose his conviction in Pharmacyclics. Rothbaum and Edelman sold most of their Pharmacyclics shares and made a tidy profit.
Still, as time went on and more patients participated in clinical trials, Pharmacyclics released additional data that made it look as if its drug was making a clinical difference for CLL patients. The troubling elevated white blood cell count that had spooked Rothbaum had become less of a threat.
But Rothbaum could not bring himself to go back into the stock and buy back the shares he had sold now at a higher valuation. Neither could Joe Edelman. In his mind, Rothbaum tried to poke holes in the strength of the data. The drug had still been tested in a relatively small community of patients. Its longterm safety and durability remained unclear. Most of the CLL patients in the most recent Pharmacyclics trial had only taken the drug for six or seven months.
But something else was going on. When Rothbaum first started buying Pharmacyclics stock, it traded between $1 and $2. Now, it changed hands for $8. He had sold a big chunk of his Pharmacyclics stock for around $6, booking an investment gain of roughly 300 percent. But the amount of money he made on the trade was hardly life-changing. Even if it was the logical choice—and Rothbaum prided himself on being logical—psychologically, buying the stock back now at a higher price was a difficult prospect for him. He never went back into the stock in a big or meaningful way.
Pharmacyclics’ trial drug would go on to become Imbruvica, a game-changing medicine for CLL patients. Pharmacyclics and its one amazing drug would end up being sold for $21 billion, or $261.25 per share. The decision to sell Pharmacyclics early cost Rothbaum a fortune. In total, he missed out on $700 million, considerably more than his entire net worth at the time.
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W.W. Norton
Watching Pharmacyclics’ success, put Rothbaum in a deep funk. He became withdrawn and stopped socializing with friends. His mood became dark. People who knew Rothbaum began to wonder what was wrong with him. His wife grew concerned, and for a time, Rothbaum even stopped trading stocks. It wasn’t just the money. How could it have been? He was already obscenely rich by most people’s standards. No, Rothbaum had lost an intellectual test. He had recognized the value of Imbruvica and its mechanism of action very early, almost before anyone else. He knew the science inside and out. It drove him nuts that did not had the courage of his convictions.
Rothbaum kept replaying the decision to sell early, reverse engineering his mistake. He had betrayed his entire investment philosophy of making big bets that could really count. Instead, he had panicked and been wildly wrong. “We all make mistakes,” Rothbaum tried to tell himself.
But this wasn’t just a mistake. It was the worst trading error of his career. The question was, what would he do about it? The answer would redefine Rothbaum’s career and life. He would channel his energy to found new biotechnology companies, developing innovative and valuable medicines for patients. And he would stay the course. One of those companies went on to earn Rothbaum $2.8 billion, some 35 times his investment.
Nathan Vardi is a managing editor at MarketWatch and former senior editor at Forbes.
Adapted from For Blood And Money: Billionaires, Biotech, And The Quest For A Blockbuster Drug. Copyright © 2023 by Nathan Vardi. Used with permission of the publisher, W. W. Norton & Company, Inc. All rights reserved.
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