Scientology's Largest Donor Becomes a Billionaire

Bloomberg Businessweek/January 29, 2013

Robert W. Duggan, the Church of Scientology's biggest donor and the chief executive officer of Pharmacyclics Inc. (PCYC), which makes an experimental treatment for chronic lymphocytic leukemia, has become a billionaire after the company's shares have tripled in a year.

Pharmacyclics' medicine, called ibrutinib, inhibits an enzyme that promotes cancer growth. It helped control the malignancy in 68 percent of 116 patients who hadn't been previously treated for the blood cancer, the Sunnyvale, California-based company said in a December statement.

"It's not just promising, it has those unique profiles of looking very efficacious but also really safe," said John McCamant, editor of Medical Technology Stock Letter, in a phone interview. "That is very rare in cancer drugs."

The stock surge comes after Duggan, 68, made hundreds of millions of dollars investing in and selling companies such as a bakery chain, a European billboard operation and robotic surgery innovator. He has a net worth of at least $1.2 billion, according to the Bloomberg Billionaires Index, and has never appeared on an international wealth ranking.

Naomi Cretcher, a spokeswoman for Pharmacyclics, did not respond to e-mail and phone queries for comment, after entertaining an interview request with Bloomberg News in November.

Johnson & Johnson

Ibrutinib, which is delivered by pill and is in Phase III drug trials -- the last hurdle before market introduction -- is part of a new class of medicines for chronic lymphocytic leukemia, or CLL, a cancer that strikes about 16,000 Americans a year at a median age of about 72.

The goal is to use the drug without chemotherapy, a standard treatment that can be too toxic for some elderly patients. Ibrutinib may generate as much as $5 billion a year if approved for CLL and other blood cancers, said Michael Yee, an RBC Capital Markets analyst in December.

In December 2011, New Brunswick, New Jersey-based Johnson & Johnson (JNJ) said it would pay Pharmacyclics, which Duggan took control of in a 2008 boardroom coup, as much as $975 million to fund getting the drug to market in exchange for half the profits generated globally.

There are 27 human trials of ibrutinib completed, under way or planned. McCamant said he believes the company will begin selling the drug in 2014, about one year faster than Wall Street consensus, according to data compiled by Bloomberg Industries. He said it also has a good chance of developing additional usages for the drug, such as treating autoimmune disorders.

Largest Shareholder

Pharmacyclics generated $103 million in revenue in the quarter that ended Sept. 30, 2012, up from $37,000 the prior year. Of the 13 analysts that cover the company, 62 percent have a buy rating on the stock, with an average target price of $80.38 per share, according to data compiled by Bloomberg. The stock was down 2.3 percent to $69.89 yesterday in trading in New York.

Duggan owns almost 20 percent of Pharmacyclics shares, and controls another 500,000 shares he manages on behalf of undisclosed high net worth individuals, according to filings with the U.S. Securities and Exchange Commission.

The billionaire bought most of his shares between 2004 and 2011, at a cost of $42 million, including shares he received as repayment of $6 million he loaned the company, according to data compiled by Bloomberg. They are valued at about $975 million.

He also has at least $250 million in cash and other investable assets, based upon an analysis of past investments, stock sales and purchases, taxes and charitable giving, according to the Bloomberg ranking.

'Scientology Inc.'

One notable recipient of Duggan's giving is the Church of Scientology. The billionaire is the church's largest financial supporter, according to Mark "Marty" Rathbun, former Inspector General of Scientology, the second-highest leadership post in the organization. He left the organization in 2004 because he said the church had strayed from its founder's intent.

"Duggan is the undisputed champion of donations to Scientology Inc.," Rathbun said in an e-mail. "He is in a category of this own, having donated more than $20 million. Nobody else even comes close to having donated that much."

Those donations have funded a cruise ship for the religion's retreats, backed missions in Italy and provided thousands of copies of Dianetics, a book by Scientology's founder, L. Ron Hubbard, to libraries across the U.S.

A phone call to a Scientology spokesperson wasn't immediately returned.

Cookie Muncher

Born in Berkeley, California, Duggan started investing before he enrolled at the University of California in Santa Barbara, where he graduated with a degree in finance in 1966. By the time he earned a business management degree in 1968 from the University of California in Los Angeles, Duggan had already made money investing in computer companies, according to Dan Patterson, a former Olympic volleyball player who was married to the sister of Duggan's wife, Patricia, in the 1970s.

Duggan was "very sharp and of course I knew him very well back in those days," Patterson said in a phone interview from his home in Colorado. "He had quite a reputation in his early college years getting involved in investments, and had a real knack at being extremely inquisitive and extremely thorough and did his homework."

Patterson and Duggan created Cookie Muncher's Paradise in Long Beach, California, in 1976. Originally a gourmet cookie shop, the pair built it into a 16-store sandwich chain called Paradise Bakery. They sold the chain to Chart House Restaurants in 1987 for about $6 million, said Patterson, who worked at Paradise until it was sold again to Panera Bread Co. (PNRA) in 2006. He is now retired.

$40,000 Courses

"Bob is very energetic, very engaging and so there was a great start for me," he said. "I have nothing but great things to say about him."

Before he sold the bakery, Duggan began taking classes with the Church of Scientology. In 1979, he completed the early-stage courses of Scientology's Key To Life program, probably at a cost of $40,000, according to Kristi Wachter, who has published data on the church on Her information is derived from materials published by the Church of Scientology, she said.

By 1983, Duggan had completed other Scientology courses, including Happiness Rundown, Grade V and Grade VA Power Plus, according to Wachter's data. The latter course is said to "restore previously hidden powers," according to Scientology's website.

Investment Research

By the mid-1980s, Duggan's reputation for investing had spread throughout Scientology, according to Reed Slatkin in a January 2000 deposition to the SEC. Slatkin had administered Scientology counseling to Duggan and his wife, and began assisting Duggan with investment research around 1983.

Slatkin said in his deposition that Duggan's approach to investing was inspired by Benjamin Graham, a Columbia University professor who advocated researching company fundamentals. Duggan would visit companies such as floppy disk makers Tandon Corp. and Dysan Corp. to learn about their businesses from executives before buying stock.

During his time assisting Duggan, Slatkin said he made a couple hundred thousand dollars on his original investment over a year and a half, according to the deposition.

By the time Slatkin sold his stakes, the initial $200,000 he made with Duggan had grown into $13 million.

Boardroom Coup

Slatkin was convicted in 2003 of defrauding investors of about $590 million, funds that were mostly from other Scientologists. He is jailed in a federal facility in Lompoc, California, and did not respond to an interview request made through his attorney, Brian A. Sun of Jones & Day. Slatkin will be released in May and is no longer a Scientologist, said Sun. Duggan was not involved in the fraud.

After parting ways with Slatkin, Duggan became chairman of Government Technology Services Inc., a large vendor to the federal government. He then led Computer Motion Inc., a robotic surgery company that he sold to Intuitive Surgical in 2003. In 2006, he sold MAG International, a billboard company he owned in eastern Europe.

Duggan made his first filing with the SEC as a beneficial owner of Pharmacyclics stock in September 2004, two days after it announced early positive results on Xcytrin, a different experimental cancer drug.

Three months later, when another study showed no benefit from Xcytrin, Duggan kept buying the company's shares, according to SEC filings. A year later, he was the company's largest shareholder. After more disappointing test results, Duggan forced out CEO Richard Miller and three other board members, and told company researchers to focus on three b-cell cancer drugs it had acquired in April 2006.

'God's Gift'

B-cell type cancer treatments had been long dismissed in the pharmaceutical world, according to McCamant. The prior owner of the drugs saw little promise in the treatments: Celera Genomics of Rockville, Maryland, sold them to Pharmacyclics for about $3 million and took a related $30 million loss.

Duggan said the drug was a "gift from God" on a December 2011 call with investors when trials on the drugs, including ibrutinib, worked.

According to researcher Wachter, Scientology publications suggest the Duggans were early funders of the Freewinds, a Scientology Caribbean cruise ship where high-level training occurs. They have also supported Ideal Orgs -- Scientology missions -- in the U.S., Canada, Italy and elsewhere, and acted as fundraising missionaries to bring people and money into Scientology.

Patrons Excalibur

In 2008, the Duggan family was recognized by the church for donating more than $7.5 million to the cause, Wachter said. Duggan and his wife, Trish, were presented two years later with the Patrons Excalibur award, a prize made just for them to recognize a record-level of donations to the organization, according to a Scientology magazine.

"What a privilege to be member of the team of Scientologists who play an active role in preserving the technology of Dianetics and Scientology," Duggan and his wife said in a statement published by Legacy, a Scientology magazine, in 1992. "As this tech will ultimately have a profound impact on the billions of people on this planet alone, one can immediately see the vital need to preserve it in spite of anything else that can happen."

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