News

Scientist tycoon

By SYDNEY FREEDBERG
Published June 17, 2007

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ADVERTISEMENT [AP photo] Richard Lerner, who holds 67 patents, heads one of the world's largest nonprofit biomedical labs. Lerner's affiliations Lerner's early ties to tobacco proved lucrative

Captains of business and politics alike seek the counsel of research scientist Richard Lerner. His 29-page resume lists 403 scientific papers, 52 special lectures and 29 honors and prizes. Thirty researchers work in his personal laboratory in La Jolla, Calif. And the state of Florida so admires his company, Scripps Research Institute, that in 2003 it gave Scripps the biggest incentive package in state history to open a branch in Palm Beach County.

The 68-year-old Lerner is also Florida's biggest scientist-tycoon. Over the years, dozens of corporations have put him on their boards, awarded him stock and royalties and plied him with fees -- a sum that far exceeds his $1.2-million pay package from Scripps in 2005.

Here's the rub: Most of Scripps' money comes from the taxpayers. In 2005, for example, 74 percent of its $382-million in revenue was from government grants.

Yet Lerner has so many commitments beyond his job at Scripps -- and stands to collect so much additional income from them -- that critics question whether taxpayers get a full share of his attention, and a fair share of the profits from his scientific achievements.

The question takes on particular importance in Florida because state and local governments are sinking more than half a billion dollars into Scripps' new campus in Jupiter.

It sounds like "an unusually rich array of external commitments," said Donald Kennedy, a biologist and former president of Stanford University who is editor of Science magazine. "But if he can manage them fairly, then I can't make a particular criticism of it."

Sidney Wolfe, director of the health research group of Public Citizen, a consumer watchdog organization, is less charitable. "There's nothing illegal" about Lerner's various roles, "but I think it's a conflict of interest, " Wolfe said. "It's not as though he's not making enough money."

Lerner, a witty, personable man, will be in England on Wednesday to pick up an honorary degree (his sixth), this one from Oxford. He defends the balance he strikes between his work at Scripps and the other enterprises he serves - at last count, at least a dozen.

He says he spent a third of his time in Florida last year and "far less" than 10 percent on commercial activities. That's the maximum permitted by Scripps' rules.

His outside business interests have absolutely no bearing on his duties at Scripps, he says, adding that many academic scientists have earned far more from their commercial ventures than he does.

"From the point of view of the nonprofit world, I'm just a peanut ... a lightbulb in a large chandelier," Lerner said.

Wearing two hats

In about 12 hours of telephone interviews from California, Lerner declined to provide details of his outside earnings or investments but confirmed that he made about $8.5-million for his role in the discovery of a top-selling arthritis drug. He said he may donate some or all of that to Scripps or other research institutions.

Lerner's ties to for-profit companies increasingly typify the relationship between the corporate world and many elite researchers at publicly funded universities and nonprofit laboratories. He calls it "the greening of American science, " a trend that he says the government has encouraged for more than 25 years.

The researchers get consulting fees, stock awards, payments for lectures and other forms of compensation from companies eager to mine potentially valuable inventions. Some scientists win spots on corporate boards. Others start their own firms based on their government research.

The scientists' employers often profit, too, reaping stock, fees, royalties and research funds in return for licensing inventions to private companies.

Sheldon Krimsky, a Tufts University professor, says money is fueling an explosion of conflicts in scientific and medical research - from the questions researchers ask to the way they interpret data to the findings they disclose.

"The greatest danger in scientists' wearing two hats is that the public will lose confidence in them as independent, disinterested experts guiding public policy toward good medical practices and safe products," said Krimsky, author of Science in the Private Interest.

Lerner, who holds 67 patents, says Florida is getting exactly what it bargained for.

"Florida did the deal with us because they want entrepreneurial scientists and new biotech companies," Lerner said, adding that without entrepreneurial researchers, ideas would never find their way to consumers.

He also points to a 1980 federal law that allows taxpayer-funded institutions to market inventions, earn royalties and give a cut to scientists who made the discoveries.

Back in 1993, these types of commercial deals came under scrutiny as the cost of drugs rose. Congress began investigating the connections between the pharmaceutical industry and government-funded scientists.

At a House subcommittee hearing, Rep. Ron Wyden of Oregon (now a senator) questioned a $60,000-a-year consulting agreement between Lerner and drugmaker Johnson & Johnson. Lax government oversight had led to "an atmosphere of troubling entrepreneurship among insiders" at nonprofit labs like Scripps, the lawmaker said.

Wyden later went quiet on that issue - he would not take questions for this story -- and Lerner says the relationships that once were criticized are now common practice.

"We set the stage," Lerner said. "Now everybody is trying to duplicate these transactions."

At home in the lab

A fiercely competitive man, Lerner says he sometimes spends more than five hours at a time sharpening his golf game at the driving range. He tools around San Diego in a 1978 Volkswagen Beetle, reads the Drudge Report every morning and buys his suits on the Internet because "it's cheaper and easier."

Lerner says he's not too computer savvy. He would rather play BrickBreaker on his BlackBerry than look at e-mails, and former Gov. Jeb Bush is one of the few people who e-mail him.

He and his wife, Nicola, a physician and immunologist who once worked in his lab, share their primary home in La Jolla, a cliffside suburb of San Diego overlooking the Pacific, with two Labrador retrievers, Fred and Ginger. In 2004, they bought a second home for $3.8-million on Jupiter Island on Florida's east coast. They recently sold a home in Lyford Cay, the Bahamas, for $1.5-million.

The Lerners seldom attend social or charitable events in San Diego or Palm Beach because they're not the type to "run around to all these balls," he says. But they have donated more than $1-million to Scripps for research and smaller amounts to other research institutions.

Lerner grew up in suburban Chicago, where he excelled in chemistry and starred on the wrestling team in high school. He attended Northwestern University for three years before getting bachelor's and medical degrees from Stanford University.

"They used to call me a 'chart doctor,' " Lerner said. "I liked the charts better than the patients." So he chucked the clinic for the lab, taking a job in 1965 with Dr. Frank Dixon, a pioneering immunologist who went on to become Scripps' top research executive.

Lerner experimented on rats, sheep, lambs, squirrel monkeys and cats. Once, to study a sleep molecule in tired cats, he kept them awake for 18 hours on a slow-moving treadmill.

As a young scientist, he made a name for himself studying the chemistry of antibodies, the molecules that zero in on bad cells and kill them.

He also published a novel, Epidemic 9, about a young scientific investigator who swears off wealth and status in favor of public service work.

A 'unique guy'

At Scripps, Lerner's pay package has climbed from $1,028,549 in 2002 to $1,212,071 in 2005, the most recent figure available. His salary is in the top 10 percent of leading nonprofit executives nationwide, according to a survey by the Chronicle of Philanthropy.

He sets scientific priorities, manages a staff of more than 2,800 and oversees hundreds of millions in public funds. He directs construction of Scripps' new campus in Florida, leads fundraising drives and calls himself a "rainmaker," introducing promising young scientists to potential investors.

When he's not performing administrative tasks, Lerner is contributing to papers, giving lectures or running his lab. He also helps edit nine scientific journals that see themselves as gatekeepers of independent scientific information.

"He's the example we all look to when we think about what it means to be a research entrepreneur," said Joseph Panetta, president of BIOCOM, a San Diego-based biotech trade group. "His entrepreneurship is infectious. He's a serial entrepreneur."

Corporate executives seek Lerner because of his business instincts and contacts in the science world. He has influence with politicians and policymakers, too.

He is a member of the National Academy of Sciences, which advises Congress and the president on science and technology policy. In 1999, he served on a federal energy advisory panel. He has played golf with former California Gov. Gray Davis and once had then-Health and Human Services Secretary Tommy Thompson over for dinner.

No political leader admires Lerner more than former Gov. Bush, who teamed up with him in 2003 to put the Scripps branch in Palm Beach County.

"He's a unique guy," Bush said at a dedication ceremony in March.

Lerner and the former governor persuaded the Legislature to spend more than $350-million for Scripps to open the branch; Palm Beach County promised $200-million for land and labs.

To help equip the lab, Florida taxpayers bought a $9.75-million machine from a small drug company called Kalypsys Inc. At the time, Lerner held about 175, 000 shares of Kalypsys stock, with an option to buy 30, 000 shares. He also sat on the company's scientific advisory board.

A member of a Florida oversight board faulted Scripps for not immediately disclosing the potential conflict of interest. Scripps officials said they had reviewed what they described as Lerner's "self-dealing transaction" and determined the machine was still in the lab's best interest.

Ultimately, the state oversight board went along with the transaction.

Beyond Scripps, Lerner sits on the boards of six for-profit and nonprofit companies. He is a consultant or scientific adviser to at least four others. He advises two venture capital funds and invests in biotech firms himself. And he has served "once or twice" as an expert witness.

Most of his investing and entrepreneurial activities take only "one or two phone calls a year," Lerner said. "I'm not going to tell you the dollar amounts. It's private."

A special committee at Scripps reviews scientists' outside activities to watch for conflicts, Lerner says. Although Scripps receives most of its revenue from taxpayers, it is private, so it is not required to release internal financial disclosure forms for him or other employees or trustees.

Lerner says his most time-consuming side job is serving on the board of directors of Kraft Foods, the nation's largest food company.

Since joining the board in 2005, he has received almost half a million dollars in cash and stock.

Lerner participated in more than two dozen Kraft board and committee meetings last year, with one four-day event on the Caribbean island of Nevis. His wife accompanied him.

As a Kraft board member, Lerner says, he must protect the interests of the company and its shareholders. "But that doesn't mean I can't think of what's good for Scripps, too."

In 2005, Lerner got an undisclosed amount of cash when he sold his interest in a California biotech firm to Pfizer, the world's largest drug company.

As of last December, he was entitled to receive up to 39,010 shares of stock (then worth $55,843) to advise Acro Inc., an Israeli firm developing a pocket-sized device to detect homemade bombs.

The German conglomerate Siemens AG recently named him a science adviser for undisclosed compensation.

And a few days later, eXegenics Inc., a Miami eye-medicine company now known as Opko Health, granted Lerner 15,000 stock options after his election to the board of directors. He helped set that pay -- as chairman of the firm's compensation committee, a post that entitles him to another 5,000 options.

Lerner says there's "no real money" in many of his corporate endeavors. He doesn't know the value of some of his shares, he says, and his options often end up worthless when the stock price drops.

Win-win-win

Lerner sees the public-private roles of himself and other scientists as win-win-win -- better medicines, more corporate profits and more and better jobs.

He cites the case of Humira, Abbott Laboratories' blockbuster drug for inflammatory diseases developed partly from Lerner's research.

Thousands of people with rheumatoid arthritis take Humira, which is injected twice a month. Doctors and patients say the drug stops pain and joint deterioration.

Abbott, which hopes for 2007 sales of more than $2.8-billion for Humira, is seeking regulatory approval to market the drug for other chronic ailments.

Scripps and Lerner got $34-million for their role in the discovery; Lerner's take was a quarter of that. It was part of a patent dispute settlement with Abbott.

Lerner says if he worked for another institution, he might have gotten a bigger cut. "I would rather take a smaller percentage and everybody have a happy day," he says, adding that the bottom line is the world has a great new drug.

Humira can cost $17,000 a year per patient. An Abbott spokesman says the company offers financial aid to some patients who can't pay.

Lerner hears criticism almost every day about the high price of drugs and how taxpayers pay twice -- once for research to develop drugs and then again to buy them at steep prices.

So does Lerner think drugmakers are gouging the public?

"I'm just the scientist," he said. "What I know is that if you don't allow them a profit, you won't get new drugs."

Times researcher Carolyn Edds contributed to this report.

Fast Facts:

Richard Alan Lerner

Age: 68, born Aug. 26, 1938, in Chicago

Education: Attended Northwestern University for three years. Bachelor's and medical degrees from Stanford University.

Personal: Married to Nicola Green Lerner, a physician and immunologist, since 1981; father of three.

- Owns seaside homes near San Diego and Jupiter Island on Florida's east coast.

Work highlights: - Joined Scripps in 1970, became its top executive in 1987.

- Considered a foremost expert on antibodies and their use in fighting certain diseases. Helped invent an injected medicine to treat rheumatoid arthritis.

- Author of 403 scientific papers and a novel about a research scientist searching for a cure for a global outbreak that causes people to become covered with fur.

- Negotiated with then-Gov. Jeb Bush in 2003 to bring a branch of Scripps to Florida.

 

[Last modified June 16, 2007, 22:29:05]

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