1 The Mentor and the Protégé It was a quiet day in the office, a holiday weekend in 2001, when the head of Mike Babich's division asked him out to breakfast. Babich had been working at Northern Trust, a prominent and storied Chicago banking institution, for a few years by then, since graduating from college. He had started out in a two-year program, similar to a med-school rotation, cycling through various departments. But he was plucked out of the pool early and promoted. Babich joined an elite team within the bank's wealth management division. Serving so-called high-net-worth individuals, this unit had carved out an excellent reputation, competing with global players such as Merrill Lynch and Morgan Stanley. If you wanted them to manage your money, you had to maintain a balance of at least $10 million. Babich was a Chicago native, but he had already come a considerable distance. He was born in 1976 to a large, close-knit Catholic family on the South Side. His father was an electrician who worked for the city, his mother a receptionist. All his grandparents lived within walking distance. After graduating from Catholic school, Babich became the first in his family to get a four-year degree, earning his bachelor's at the University of Illinois in 1998. Babich was very tall, with brown hair and a broad build and face. He had the look of a former All-American athlete who has put on a few pounds since his playing days. You could picture him as the president of a fraternity, the one who leads the rowdy rituals but also knows how to act when he meets with university administrators. Out of the office, he kept a messy apartment and liked talking about football and pro wrestling (the staged kind). At work, he spoke crisply and could find his way quickly to the heart of the matter in a business discussion. He showed a talent for picking apart investment opportunities. He was regarded as a young man on the rise. So it was a surprise, at their breakfast, when the head of Babich's division told him about a potential job that would mean leaving the bank. Northern Trust was a large bureaucracy, full of lifers. Babich would have a hard time leapfrogging those ahead of him in line for promotions, the boss said. There was another opportunity he might want to consider. An enormously wealthy man, a longtime client of Northern Trust's, was drawing attention in the pharmaceutical business, and he was looking for help managing his finances. He was based in the biotech hotbed of Lake Forest, Illinois, an affluent suburb north of Chicago. The man's name was John Kapoor. Babich decided to venture an hour north for an interview with Kapoor. The job represented an uncertain prospect. Based in the distant suburbs, Kapoor's company, EJ Financial, had just eight or nine employees. It wasn't a pharmaceutical firm per se. It was a "family office," managing Kapoor's substantial investments in an array of ventures, along with his personal wealth. The company was dominated by a single person, from an older generation--Babich was twenty-four years old, while Kapoor was fifty-seven--and Babich didn't know a lot about him. As Babich would come to learn, Kapoor in many respects fit the American archetype of the immigrant striver. He was born to a respected family in the Indian subcontinent. His grandfather was a highly placed judge in Lahore under British colonial rule. But when Kapoor was a young child, his Hindu family lived right along the fault line created when India was separated from Pakistan by partition in 1947, producing an enormous eruption of sectarian violence that he would remember all his life. Kapoor's parents found themselves on the wrong side of the new border, and they lost their home and business amid the rioting. As his family sought to build a new future in India, Kapoor excelled in school. He was identified as a great talent, a boy with the promise to lift the family's fortunes single-handedly. He graduated from high school at thirteen. When his parents resettled in Bombay (now Mumbai), he lived with them in a two-bedroom household of eight or nine people while he attended the University of Bombay, eventually earning a pharmacy degree. He and a brother slept on the small, uncovered balcony. When it rained, they covered themselves with plastic or a spare mattress. Looking to forge a career in pharmaceuticals, Kapoor felt constrained by what his home country could offer him. In India, he said, when you were training to be in the drug business, they taught you how to work in a factory. Onward to America then. Kapoor came to the United States with $5 in his pocket, he later said, to earn his graduate degree, on a fellowship, at the pharmacy school at the State University of New York at Buffalo, the biggest public university in the state. By the time Babich met him, Kapoor was the largest shareholder in at least five companies. He had made a fortune as a biotech entrepreneur. For most of us, the words "pharmaceutical industry" call to mind giants such as Pfizer, AstraZeneca, and Eli Lilly, but the vast majority of drug companies are obscure. It was in the lesser-known pockets of the industry that Kapoor had made his name. Several of Kapoor's companies were in the unglamorous business of generic medications. When a new branded drug comes to market--those products with familiar names such as Humira, Zoloft, and Viagra--the government grants years of patent protection and market exclusivity to the novel product, out of a recognition that no one would undertake the immensely difficult and expensive research-and-development process if competitors could immediately copy the results. It is only after that period of exclusivity lapses that generic versions are permitted to enter the fray, driving down prices. Patients pay no attention to the name of the manufacturer of a generic, printed in tiny letters on the prescription bottle, but there's plenty of money to be made in the niche. Kapoor's first big break, the coup that had earned him the capital to seed everything that followed, provoked lasting controversy. In his mid-thirties, after earning his PhD and working in operations at a small drug company near Buffalo, Kapoor saw potential at Lypho-Med in Chicago, a neglected generic-drug subsidiary of a manufacturer better known for making cardboard boxes. After he approached the parent company, Stone Container, the bosses there agreed to hire him as Lypho-Med general manager, but they warned him they planned to sell the money-losing drug unit. Kapoor asked for right of first refusal, and in 1981 he took Lypho-Med off their hands. Not yet wealthy, Kapoor borrowed from Northern Trust and recruited a group of investors for the leveraged buyout, limiting his own personal investment to around $50,000, a small fraction of the total price. Kapoor took the reins and quickly turned the company (rebranded as Lyphomed) into a powerhouse in the generic drug business, selling hundreds of injectable medications for use in hospitals. The 1980s were a go-go decade in generics, with government incentives favoring cheaper alternatives to branded medications. The name of the game in generics is to be first out of the gate with a competitor once a branded product loses exclusivity. If you don't win that race, or at least come in second, you're just "hoping to get your pennies back," as Babich later said. At Lyphomed, Kapoor was a consistent winner, bursting into the market at the earliest moment. "At midnight," his Lyphomed business partner Brian Tambi later said, "we would start trucking." During the AIDS epidemic, Lyphomed had a de facto monopoly on an antibiotic that became a go-to treatment for a deadly pneumonia common to AIDS patients. The company attracted outrage from activists when it quadrupled the price. Protesters lay down en masse in front of its Chicago headquarters for a "die-in." Still, under Kapoor's ownership, Lyphomed grew in less than a decade from fewer than twenty employees to about eight hundred, as total sales increased more than twenty-five-fold. Beginning in 1987, however, Lyphomed ran into major trouble with government regulators. The Food and Drug Administration flagged a host of "serious violations" related to patient health at Lyphomed facilities. Investigators in 1988 seized drugs from a Lyphomed plant. Shareholders sued the company for failing to promptly disclose the FDA troubles, resulting in a settlement. Later, the FDA found that the company had submitted false or misleading information for years in applications for new-product approvals, during Kapoor's tenure. The precise sequence of events is a matter of dispute, but it was during the time that this wrongdoing was being uncovered--but before the revelations could seriously damage the company--that Kapoor cashed out: in 1989, he agreed to sell Lyphomed to the Japanese firm Fujisawa at a valuation of nearly $1 billion. He personally reaped more than $130 million in the sale, nine years after investing no more than $50,000 of his own money. Fujisawa's big acquisition signaled a confidence that Lyphomed had overcome its regulatory troubles and was on a promising path. Within a couple of years of Kapoor's big deal, however, Lyphomed's value and reputation were in pieces. In 1992, Fujisawa sued Kapoor, alleging that he had concealed devastating FDA problems during the sale. The buyer was accusing Kapoor of, essentially, selling a lemon. Kapoor countersued, and the fight persisted for years. In pretrial litigation, Kapoor scored some victories, but the argument that carried the day in his favor was not that his company was innocent. It was the opposite. Fujisawa had been a major shareholder for years while Kapoor was still in charge. Lyphomed was so rife with misconduct during that time, judges found, that if Fujisawa officials didn't know about it or did not suspect Kapoor of deceit, they should have. Kapoor has consistently described the suit as face-saving nonsense on the part of Fujisawa's owners. He said the questionable data submissions to the FDA were merely a matter of "somebody not keeping good records." When a congressional panel took up corruption in the generic-drug business and lambasted Lyphomed in a hearing, citing its "legendary" manufacturing problems, Kapoor invoked his Fifth Amendment right to remain silent. He settled the Fujisawa matter out of court, for much less than Fujisawa was seeking. Fujisawa was left to recall Lyphomed drugs and withdraw new-product applications to the FDA. Ultimately, Fujisawa retired the name Lyphomed altogether. Meanwhile, Kapoor moved on. On the strength of his Lyphomed profits, the boy who slept on a balcony had become an American business mogul. With his newfound wealth, Kapoor immediately set about giving extensively to charitable causes, in both India and the United States, and he lent support to a vast network of relatives, not only with money, but with time and attention. He and his wife, Editha, adopted four children. Several of them had significant challenges or special needs. Three came from orphanages in India. Whenever Kapoor visited his native country, family would gather to greet and celebrate him. Meanwhile, drawing on his Lyphomed proceeds, Kapoor continued to be a fierce and relentless businessman. He spread his bets widely, seeding dozens of startups as well as taking major positions in several larger ventures. When companies he played a central role in were dogged by dire financial troubles and litigation, which happened repeatedly, he tended to plunge in only deeper, taking on bigger roles, refusing to concede defeat. "If something happens," he once said, "I just don't run away." Now, in 2001, Kapoor was looking for a low-level employee to join the team of EJ Financial, managing his complex tangle of investments. Mike Babich would be interviewing for the position of portfolio analyst. Arriving in Lake Forest, he found that he towered over his would-be boss; Babich was well over six feet and Kapoor well under that. In his large glasses, Kapoor looked more like a distinguished professor than a business titan. His signature physical trait was a wavy mop of graying hair. Still, Kapoor was intimidating, with an air of intensity. While relatives and friends knew him for his generosity and heart, colleagues spoke of the need to "survive" him. The meeting was not an instant match. Weeks passed afterward with no word, and Babich began to feel he had been quietly passed over for the job. A second interview was followed by another lengthy unexplained silence. When Babich finally got a job offer, it came in the form of a letter in the mail. He accepted. For the first couple of years at EJ Financial, Babich barely got to know Kapoor any better than he had in those interviews. The office in Lake Forest was U-shaped, and the two worked at opposite ends. Babich was the young new guy, rarely in direct contact with the man in charge. Kapoor was busy in this period, his business interests often under siege. As the largest shareholder in the generic drugmaker Akorn, he was steering it through dire regulatory and financial trouble, stepping in for a time as chief executive. Akorn was in lien default and the lender was foreclosing. Kapoor was also a director and the largest stakeholder in First Horizon, another drug company (later called Sciele Pharma); after its stock dropped 81 percent in one day in 2002, shareholders sued the firm and members of the board, including Kapoor, for manipulating and misrepresenting its true financial condition before the bottom fell out. (The suit later settled.) Another company Kapoor co-founded, Neopharm, was faltering, prompting him to later instigate a fierce battle for control. He publicly called for the ouster of the majority of his fellow board members, citing their " 'DO NOTHING' style." Meanwhile, down the hall, in a room with three other cubicles, Babich read balance sheets, created spreadsheets, and prepared buy-and-sell recommendations. When Babich did communicate with his boss, it was from an arm's length, almost comically so for such a small company. Typically Babich would send his investing ideas to Kapoor by email. But email didn't come naturally to Kapoor, being of an older generation; his assistant Nellie Oquendo tried to teach him several times, but he lacked the patience to learn. So Oquendo would print out Babich's memos, Kapoor would scribble his agreement or disagreement in the margin, and Oquendo would interpret his handwriting and leave a note for Babich in his cubicle with Kapoor's reply. That was Kapoor and Babich's version of a dialogue for some time. Even from a remove, Babich could glean certain things about his boss and his manner. Kapoor was serious and sometimes severe. His affable demeanor could vanish in an instant, some colleagues said. A number of people owed their careers to him, and they tended to stick by his side, while he in turn brought them from project to project. But he could turn cold on a partner or employee, especially for the mistake of being overly cautious and missing a business opportunity. When the coldness set in, that was the beginning of the end. Recovering Kapoor's good opinion was almost impossible. Disclaimer - Berryville Graphics, Inc. The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. This email has been scanned for viruses and malware, and may have been automatically archived by Mimecast Ltd , an innovator in Software as a Service (SaaS) for business. Providing a safer and more useful place for your human generated data. Specializing in; Security, archiving and compliance. To find out more Click Here. Excerpted from The Hard Sell: Crime and Punishment at an Opioid Startup by Evan Hughes All rights reserved by the original copyright owners. 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