THE EMPIRE OF EDGE by Patrick Radden Keefe The New Yorker, Oct. 13, 2014 BY PATR
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THE EMPIRE OF EDGE by Patrick Radden Keefe The New Yorker, Oct. 13, 2014
BY PATRICK RADDEN KEEFE
How a doctor, a trader, and the billionaire Steven A. Cohen got
entangled in a vast financial scandal.
Prepare 5 SOLID QUESTIONS & ANSWERS based on the article
As Dr. Sid Gilman approached the stage, the hotel ballroom quieted with
anticipation. It was July 29, 2008, and a thousand people had gathered
in Chicago for the International Conference on Alzheimer's disease. For
decades, scientists had tried, and failed, to devise a cure for
Alzheimer's. But in recent years two pharmaceutical companies, Elan and
Wyeth, had worked together on an experimental drug called bapineuzumab,
which had shown promise in halting the cognitive decay caused by the
disease. Tests on mice had proved successful, and in an initial clinical
trial a small number of human patients appeared to improve. A second
phase of trials, involving two hundred and forty patients, was near
completion. Gilman had chaired the safety-monitoring committee for the
trials. Now he was going to announce the results of the second phase.
Alzheimer's affects roughly five million Americans, and it is projected
that as the population ages the number of new cases will increase
dramatically. This looming epidemic has added urgency to the scientific
search for a cure. It has also come to the attention of investors,
because there would be huge demand for a drug that diminishes the
effects of Alzheimer's. As Elan and Wyeth spent hundreds of millions of
dollars concocting and testing bapineuzumab, and issued hints about the
possibility of a medical breakthrough, investors wondered whether bapi,
as it became known, might be “the next Lipitor.” Several months before
the Chicago conference, Barron's published a cover story speculating
that bapi could become “the biggest drug of all time.”
One prominent investor was known to have made a very large bet on bapi.
In the two years leading up to the conference, the billionaire
hedge-fund manager Steven A. Cohen had accumulated hundreds of millions
of dollars' worth of Elan and Wyeth stock. Cohen had started his own
hedge fund, S.A.C. Capital Advisors, with twenty-five million dollars in
1992 and developed it into a fourteen-billion-dollar empire that
employed a thousand people. The fund charged wealthy clients
conspicuously high commissions and fees to manage their money, but even
after the exorbitant surcharge investors saw average annual returns of
more than thirty per cent. S.A.C. made investments in several thousand
stocks, but by the summer of 2008 the firm's single largest position was
in Wyeth, and its fifth-largest was in Elan. All told, Cohen had gambled
about three-quarters of a billion dollars on bapi. He was famous for
making trades based on “catalysts”—events that might help or hurt the
value of a given stock. Sid Gilman's presentation of the clinical data
in Chicago was a classic catalyst: if the results were promising, the
stocks would soar, and Cohen would make a fortune.
Gilman had not wanted to make the presentation. Seventy-six years old
and suffering from lymphoma, he had recently undergone chemotherapy,
which left him completely bald—like the “evil scientist in an Indiana
Jones movie,” he joked. But Elan executives urged Gilman to participate.
He was a revered figure in medical circles, the longtime chair of
neurology at the University of Michigan's medical school. In Ann Arbor,
a lecture series and a wing of the university hospital were named for
him. His C.V. was forty-three pages long. As a steward for the fledgling
drug, he conveyed a reassuring authority.
But soon after Gilman began his thirteen-minute presentation,
accompanied by PowerPoint slides, it became clear that the bapi trials
had not been an unqualified success. Bapi appeared to reduce symptoms in
some patients but not in others. Gilman was optimistic about the
results; the data “seemed so promising,” he told a colleague. But the
investment community was less sanguine about the drug's commercial
prospects. One market analyst, summarizing the general feeling,
pronounced the results “a disaster.” The Chicago conference was indeed a
catalyst, but not the type that investors had expected.
It appeared that Cohen had made an epic misjudgment. When the market
closed the following day, Elan's stock had plummeted forty per cent.
Wyeth's had dropped nearly twelve per cent.
By the time Gilman made his presentation, however, S.A.C. Capital no
longer owned any stock in Elan or Wyeth. In the eight days preceding the
conference, Cohen had liquidated his seven-hundred-million-dollar
position in the two companies, and had then proceeded to “short” the
stocks—to bet against them—making a
two-hundred-and-seventy-five-million-dollar profit. In a week, Cohen had
reversed his position on bapi by nearly a billion dollars.
Gilman and Cohen had never met. The details of the clinical trials had
been a closely guarded secret, yet S.A.C. had brilliantly anticipated
them. Cohen has suggested that his decisions about stocks are governed
largely by “gut.” He is said to have an uncanny ability to watch the
numbers on a stock ticker and intuit where they will go. In the
assessment of Chandler Bocklage, one of his longtime deputies, Cohen is
“the greatest trader of all time.”
But federal authorities had a different explanation for S.A.C.'s
masterstroke. More than three years after the Chicago conference, in
Explanation / Answer
Question:Billionaire Steven a Cohen was trying to cash on which major problem of USA
Answer: Billionaire Steven a Cohen wanted to make profit by investing in pharmaceutical company that made drugs for alzheimer's and with the knowledge of fact that alzheimer's had affected roughly 5 million American and the number of new cases was rising exponentially and there was huge demand for drug that cured Alzheimer's.
Question: Ellen and wyeth had invested huge amount in formulating which drug?
Answer: Ellen and weight had invested in formulating and testing of bapineuzumab drug. Media also reported it as the best drug of all time. the drug was also known as Bapi.
Question: How much investment Cohen had made in the pharmaceutical companies and what was the proportion of investment in elan and wyeth
Answer: Investment of 750 million was made in both elan and wyeth
And his firm had largest position in wyeth and fifth largest position in elan
Question: how did Cohen made profit and what strategy did he follow
Answer: He liquidated his 700 million dollar position in elan and wyeth and immediately proceeded to short the stock and bet against them making a 275 million dollar profit.
Question: What made cohen change his earlier decision of buying the stocks of elan and wyeth.
Answer: The 13 minute presentation of gilman which indicated the failure of drug Bapi. As the drug was not effective in curing the disease Alzheimer's.
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