The Oliver

About a decade ago, a hedge fund manager (who asked to remain nameless) got a call from a young short seller about a pharma company whose stock price they were both betting would fall. The company, Questcor, had been a 50-cent stock just a few years earlier, but a new CEO had raised the price of its flagship product by 1,300 percent, and now the stock was approaching 50 dollars.

The flagship drug, HP Acthar, positively reeked. The Food and Drug Administration had initially approved it in 1952, before trials were required to prove a drug’s efficacy, for numerous inflammatory diseases. It was most commonly used for treating epilepsy in infants. Yet Medicare, not known as a major insurer of infants, was spending billions of dollars on Acthar. It was being marketed to neurologists as a remedy for multiple scle - rosis patients; 80 percent of the physicians who filed Medicare claims received “speaker fees” or “other perks.” Questcor’s new owners, the brothers Claudio and Paolo Cavazza, the former of whom was arrested and placed on probation for bribing the Italian health minister to put drugs he and his associates controlled on the national formulary, failed repeatedly to prove Acthar worked any better than far cheaper alternatives. For that reason, a major insurance company had dropped the drug from its formulary. And yet prescriptions for the $28,000 vials kept rolling in, the stock kept going up, and all the bearish bets were now bleeding red ink.

But the kid had a plan. He’d recently founded a biotech company of his own, which was in the final stage of negotiations to acquire the domestic distribution rights to a European drug that was almost a precise synthetic equivalent to Acthar, minus a few amino acids—so it wouldn’t be covered by any exclusivity deal. EU data suggested the drug, Synacthen, would work exactly the same as Acthar, but its owner had never applied for FDA approval. The neurological disorder was rare enough that clinical trials would be fast and cheap, thanks to federal policies that strongly privilege so-called “orphan drugs” and make them exponentially cheaper to bring to market than drugs affecting a wider population.

To ease the process of raising cash to finance the trials, the kid had also recently merged his biotech startup into a shell company incorporated by an Atlantic City casino manager, and now it was worth close to a half-billion dollars on paper. He just