THE ,.RICHEST By Joel Brinkley D R. DONALD S. FREDRICKSON settled into a heavy leather chair in Yale University's Corporation ' Room, the school's decorous inner sanctum where the trustees meet and visitors are seldom allowed. Around the polished walnut con- ference table, two dozen Yale fat- Created as a tax dodge, today the Howard Hughes Medical Institute, with a recent windfall of $5.2 billion, is ulty members, trustees and administrators sat watching him, waiting, bitterness lingering in a few. . potentially the most powerful During the last several years, Dr. Fredrickson's organization, the Howard Hughes Medical Insti- force in biomedical research. tute, created by the secre- tive billionaire in 1953, : had not exactly endeared itself to Yale. Founded as a philanthropy for bio- medical research, the in- stitute's z first. ,three de+. ades had been uninsplred at best, its image inextri-`. cably;. linked :to;,..its founder's reputation for secrecy,. insanity and' ln- trigue. .-, -_.. H.H.M.1, . bad bun ; a small immunologylabora~ tory in the Yale medical' school for:the lastnine years; and the faculty had growntoresentit.Some' loathed it The lab was "a private preserve," as Leon E. RoserWzg,thedeanof~ tha medical school, put it; `anI%land of hrxuryamid th&~plOWIl:~;WlWSi~ .tt8%ese gz$gqgzrn=ti- ,ptOI-S;:,phQS&.~satarieS werepaid by H.H.M.I., not i by,.Yale,; were aloof.. Offl- f,cially ; members of : the :Yale faculty, some of the , investi~tors Wldn't~ even I have faculty identification `cards: accordlng to Dr. RosenbergTo make mat' ters worse; some at /Yale : believed that several of the elusive Hughes,,em- `Ployees were less talented : thap the medlcalschool's regular maearchers, who worked in cramped, lll- equipped and under-en- dowed laboratories near- by, Despite the sniping, Yale and Hughes were con- sidering a new joint venture, a $30 million Center for Molecular Medicine. Dr. Fredrickson was cer- tain that, given H.H.M.I.`s negative reputation,, money alone would not smooth the institute's rela- tionship with Yale. And so he recgiested the Sep tember 1985 meeting, to convince everyone that under hls leadership the Howard Hughes Medical Institute had changed. After the president of Yale, A. Bartlett Giamatti, introduced him, Dr. Fredrickson spoke of the re- sponsibilities great charities have to society, of how the institute had been reborn and of how ln its new lncamation the "ambivalence and anxiety" that had characterized H.H.M.I.`s relationship with Yale would evapo- rate. Together, Hughes and Yale could make as- tounding' breakthroughs for medicine. After the first minutes, his audience was rapt. And when Donald Fred- rickson finished his talk, the Yale officers realized 1 they were no longer deal-. ing with the inconsequen- tial and insolent little or- ganization that Howard Hughes had founded more than 30 years ago. Soon, as Dr. Fredrlclcson had so eloquentlyexplaine8, theyi would : ba partner& .Hth. the wealthiest ,:$hi&: thropic organizatkm~-i.on llshed the HowardmHughes`: i Jvbdical. i- blstlmte, ;: with ; `public proclamations thati: iit would pour, milllonqof-, ,dollars-`into medical %eJ$ /&&&ut ~.$&$&&g :,stitute,wcis:a..tax"dodge.; During its first, full year; : .H.H.M.L spent less than: Dr.`&,rd F&Tgson, .`d president of&he Howard Hughes Medical Institute, in front ofa painting of Howard Hughes at the Scientific Conference Center in &con@ Grove. Fla. $45,000 on research. By the end of 1963,10 years of rain. What's more? N.I.H. charitable donations had totaled less than $5 mil- fellows "have to justify lion, and expenditures rose only incrementally in their work at very short the following decades. . . I, intervals." concedes Dr. But in- 1995, nine years after Howard Hughes's James Wyngaarden, `. the death, under pressure from the Internal Revenue director `of N-1-H. "The Service, the institute found itself with little choice tendency is to take fewer but to sell its wholly owned asset, Hughes Aircraft risks." ; Company. General Motors was the highest bidder. H.H.M.I., on the other When all the checks were signed and the securities hand, can "identify the - transferred last Dec. 20, the medical institute, most talented people in which had actually come into existence with a mul- the world, give them the timillion dollar debt to Howard Hughes, acquired a resources and let them do $5.2 billion endowment, more than $1 billion larger great things," according -than the endowment of the Ford Foundation, until to Irving Shapiro, a trus- then the world's largest charity. tee. The National Insti- At almost the same moment, the institute was tutes will always subsi- taken from Hughes's minions and, because of a dixe more people. But if it court judgment on the Hughes estate, turned over succeeds, Hughes. will to a new board of directors and, through them, to have the best mmds. the world of medicine. "All these odd things hap pened wholly uncoordinated, unplanned," says Dr. T WASN'T `A :' George W. Thorn, the former president of sense of altruism ,.; ..H.H.M.I., now the chairman of its board of trustees ' or social respon- and a professor emeritus at the Harvard Univer- sibility that sity Medical School. "And now it's just unbeliev- able. It's all turned around.** prompted How- ard Hughes to Today, those who know the institute's inglorious form a medical past shake their heads in disbelief when they real- .` I institute 32 years lxe it has suddenly become potentially the most ago. It was to get out of powerful private force in medical research on trouble with the Defense earth. Says Dr. Samuel 0. Thier, president of the Department. National Academy of Science's Institute of Medl- In 1953, the Air Force, tine and formerly chairman of the Yale medical the Internal Revenue school's department of internal medicine: "If you Service and Howard want to make a difference in biomedical research, Hughes's own employees that's certainly the place to be." Adds Dr. James all threatened him, at B. Wyngaarden, director of the National Institutes once, jeopardizing the of Health: "There are a number of things Hughes survival of the Hughes can do that we just can't do. With their new assets, Tool Company, then his they are in a posltion to be a very powerful force." . . . PrfnclPal Industrial enter- The recent transformation of H.H.M.I.`s reputa- prise and an important tion at Yale is just one example of the new view of maker of aircraft parts the institute among leaders in medical research, for the Pentagon. who also credit Dr. Fredrickson with changing the, Hughes loathed paying taxes, and for 17 consecu charity's image. Dr. Fredrickson, former head of tive years he had allegedly found ways to pay no the National Institutes of Health,. is H.H.M.I.`s personal income taxes at all. At the same time, he master. Almost single-handledly, he has set \ refused to let his executives and scientists make Hughes's new course. Dr. Leon Rosenberg of Yale ' any important corporate de&ions, `then failed to- echoes the words of medical scientists nationwide I, make the decisions himself. That left Hughes Tool when he says: "Dr. Fredrickson has done a rather paralyzed; with Its senior staff threatening to re- startling thing since he took that organization over. signenmasse. He's turned it around." Alarmed by the internal crisis at one of the mili- . . This year, Hughes will spend more than $180 mil- tary's major contractors, Air Force Secretary Har- `~ lion on medical research, 10 times its expenditures old E. Talbott flew to California in September 1953 of just five years ago, 109 times more than the insti- tute spent in 1973. At a minimum, the institute says .to meet with Hughes. "You've made a hell of a mess of a great property," he told Hughes, and it will disburse $1 billion between now and 1990, and, threatened to cancel the company's defense con- the budget may exceed $300 millioneach year after tracts. Hughes pleaded for a second chance. He that. Hughes is spending $21 million to build new was given 99 days to straighten out the problem. genetics and molecular biology laboratories at Rockefeller University. At Harvard, Hughes is . . On Dec. 17, 1953, the 99th day, Howard Hughes spending $23 million`on new genetics labs. Similar ' filed papers in Delaware to form two new enter- new facilities also will go up at the University of prises: Hughes Aircraft Company and the Howard Hughes Medical Institute. He extracted the air- California at Los Angeles and at Yale. Already Hughes has 22 research institutes at the craft division from Hughes Tool and gave it to nation's premier medical, schools and hospitals, Hughes Aircraft. Next, he gave all of Hughes Air- employlng 300 scientists in the fields of genetics, craft's stock to the Howard Hughes Medical Insti- immunology, metabolic regulation and the neuros- tute. Flnally, he made himself the institute's sole trustee. 1, ciences. While.the Federal Government's National Institutes Of Health, the world's largest madlU41 pe- Many of the troublesome employees were left be- search organization, spreads its money ovei al- : ,.. hind at Hughes Tool, and the others now worked not most every conceivable area of medical research, for Howard Hughes but for a charity dedicated, its charter said, to research "for the benefit of man-' the revamped Hughes institute intends to concen- trate its resources in these four "hot areas where kind." Hughes's employees calmed down. The Air we can make a difference," says Dr. Fredrickson. Force, apparently satisfied that the new arrange- ment would allow its contract work to proceed _ There lies the power and potential of the new unimpeded, backed off. And the transactions gave Howard Hughes Medical Institute - power that `Howard Hughes millions of dollars in tax deduc- has traditionally resided with' the National In& tions. In addition, Hughes, always concerned about tutes of Health, N.I.H. subsidizes the vast majority his image, scored a public relations coup. The press of medical research in the United States. But 1t.s release announcing the new medical institute grants are comparatively small, of shorter dura-, (which Hughes wrote himself) said "the famed tion. and spread out over an enormous medical ter- flyer and industrialist" had planned the institute 34 ,The institute intends to concentrate on four `hot are&' of medical research: . . genetics, itiniunology , i -ketaboliC &@lation and the ' ., :I... .neuroscienc@. .., I ~. .,"for years," and. through' it. would *`provide mili `lions of dollars for medical research." The reality belied the promise. By Hughes's de- sign, the institute started life with no direct endow- ment; instead, it had an an $18 million debt. With complicated lease and debt-repayment arrange- ments between Hughes Tool, Hughes Aircraft and H.H.M.I., the institute during its first 10 years would haveto pay back to the tool company- in es- sence, to Howard Hughes - most of the money it got from its property, Hughes Aircraft. :, H.H.Iv&I.`s first..: .years were inaus&&s; ;. .' Hughes, according to Dr. George Thorn, who served as H.H.M.I.3 partctime president whilealso working at Harvard, "really had no concept of what hewanted, just a big building with scientists in it, sur%ounded by a golf course, tennis courts and a pool. He had no ideas about immunology or cardi- ology or anything. He never showed an interest in any particular disease." " : The institute was placed in &liami. As medical di- rector, Hughes appointed Dr. Verne R. Mason, a Hollywood, Calif., internist who, according to numerous published accounts, kept him supplied with narcotics. Kenneth E. `Wright, a college stu- dent who had met Dr.. Mason while working nights as a doorman at his hotel, became a&n@str+. tor. ' The institute's records of its flrst executive meet- ings show #at its early days were ignoble at best. Twelve Hughes fellows .were : appointed and granted up to 99,000, `a `year;, and Hughes author- ,ized the institute:-to buy. two t- Chevrolets -I. and " a Buick: ,; It did not take the Gov- ernment long to catch on `to Hughes's scam. In 1955; `the 1.R.S: ruled that the :.m&&' ":.i&jmtd'; <`*as "merely a. device 30~ siJ `phoning off otherwise tax;: `able income SC But in 1957' : less `;tian 1: & *: mofi& after i-Hughes "gave i Vice President Richard "' Nix- on's brother Donald an ln- terest-free $205,000 loan,. the if> .I.R.S,":,c declared H.H.M.1.; a : `tax-exempt charity, reversing `:' its earlier ruling for. no ap `parent reason. The "`Hughes loan scandal" became an issue in the closing days of the 1960 Presidential campaign but no action was taken against Hughes. The records are blank from 1955 to 1966. "We just .didn't write anything down," says Kenneth Wright. For its first two dec- ades,. H.H.M.I. languished, somnolent and secre- tive, its expenditures mlnimal, its impact on medi- .cal research negligible. Dr. Thorn, along with the `other physicians he chose as advisers, decided on their own how to spend H.H.M.I.`s meager income, paying small cash grants to a few dozen investlga- tors selected on the recommendations of colleagues .and Mends. To Howard Hughes, the foundation was a pawn. In the late 1960's. he tried - unsuccessfully - to have his tax-exempt medical charity underwrite his tool company's losses. In 1969, after moving to Las Vegas, he attempted to end nuclear testing under the. Nevada desert by scheming "to move my huge medical foundation here to Las Vegas without a moment's delay," if the testing was stopped. It wasn't. Throughout all this, Hughes increasingly wlth- drew from the world, moving secretively from hotel suite to hotel suite. After the mid-1950's, no one at the institute ever heard from him again. I N 1976, HOWARD HUGHES DIED. THE institute's medical advisory board was meeting at H.H.M.I. headquarters in Miami when an employee interrupted them with the news. "There was no great sentiment expressed," Dr. Lloyd Smith, a board member, recalls. "Nobody knew Hughes. He was just a name." For a while, the lack of a valid Hughes will and the revelations about how poorly Hughes had man- aged his companies made it look as if H.H.M.I. might not get a dime. But the bulk of the Howard Hughes fortune was in the Hughes Aircraft Co., and Hughes Aircraft did not belong to Howard Hughes. It was the property of the Howard Hughes Medical Institute. And Hughes, the institute's sole trustee, had refused to designate a successor. Thus, who- 36 Typical of the institute's transformation is its new presence at Yale. The school and Hughes have agreed to establish a $30 million Center for Molecular Medicine. ever won control of H.H.M.I. would control Howard Hughes's billions. By default. the disposition of the Hughes Aircraft Company wound up ln Wilmington, Del., where it was incorporated, on a desk in Delaware's Chan- cery Court. In 1963. the case of H.H.M.I., Hughes Aircraft and the Hughes fortune fell into the hands of Delaware's chief deputy attorney general, Bar- tholomew J. Dalton, a Xl-year-old graduate of the University of Tulsa Law School who had spent a good part of his career in the attorney general's sex crimes division. DaIton asked the court to allow hls office to ap point new trustees to fill the position left vacant by Hughes's death:The institute argued that it should choose the new board itself. In January 1964, Grover C. Brown, the judge, ruled that the attorney general could choose half the new board, the medi- cal institute the other half, and the new board would then select a ninth man. For days Dalton sat at his metal desk poring over published lists of the nation's wealthiest and most influential people, looking for men and women "not intimidated by large sums of.money," he says. The board of directors finally assembled included a longtime Hughes em- ployee and one of the bil- lionaire's relatives, as well as such luminaries as University of Chicago president Hanna H. Gray; Irving S. Shapiro, the for- mer chairman of Du Pont, and Dr. Donald S. Fred- rickson. DONALD IFREDRICK- son had first become in- ,' volved wlth the institute a . year earlier, when its fu- ture was in the hands of the Delaware judge, at the request of Chester C. Davis, a longtime per- sonal adviser to Howard Hughes and an H.H.M.I. director. Davis, in fact, had asked Dr. Fredrlck- son to become' the cbar- ity'spresident. , It's no wonder Davis wanted Donald Fredrick- son as president., Dr. Fredrickson, then 58, was a, distinguished research- `. er; he had. done pioneer- ing investigations of the lipo proteins, and with as- soclates he discovered :- three of the eight major proteins that make fats soluble in the blood. He bad also spent six years as the director of the Na- tional Institutes of Health, one of the most powerful positions in the medical world, resigning soon after the Reagan Administration took off ice. Given H.H.M.I.`s reputation, Dr. Fredrickson was ambivalent about the offer of the presidency. But he agreed to work for the institute part time, as a consultant. One of his assignments was to design the position of H.H.M.I.`s president. The institute had never had a president who worked full time. After Howard Hughes's death, H.H.M.I. slowly increased its expenditures. When the case of Hughes Aircraft went to the Delaware court, spending accelerated, from $18 million in 1981 to 839.5 million in 1982 to 856 million the following year. The institute's officer's hoped the added spending would help sway the judge who was pon- dering H.H.M.I.`s fate. Dr. Fredrickson helped de- cide how Hughes would spend the money, selecting new investigators only after rigorous searches for talented medical researchers, and ending 30 years of reliance on the prevailing old-boys' network. By the time the new board of trustees met for the first time in May 1994, recalls Dr. Fredrickson, "I was ready to accept" the presidency. His turn- around was not surprising. The office he had de- signed for himself turned out to be an extraordi- narily powerful position, potentially more powerful than his post at the National Institutes of Health had been. Although the N.I.H.`s annual budget is 10 times larger than H.H.M.I.`s is likely ever to be, N.I.H. is a huge Government bureaucracy, and as its director Dr. Fredrickson had been frustrated by "too much earmarking by Congress of how the money was spent." But now, almost by himself, Dr. `Fredrickson could decide how to disburse. tens of millions of dol- lars. Tax laws require not-for-profit medical re- search organizations to spend the equivalent of 3.5 percent of their.endowment annually. In .the case of H.H.M.I., that means at least $180 million a year. But under his leadership, Dr. Fredrickson knew that the figure would grow; soon, the institute would be spending $299 mil- lion, $399 million a year, maybe more. As head of H.H.M.I., he understood that he would be "the chief archi- tect for a system, a fantastic new medical research system unique in the world." Dr. Fredrickson and his col- leagues now had, in the words of the H.H.M.I. medical advi- sory board chairman Dr. Lloyd H. Smith, "an awe some responsibility." Almost as soon as he be- came president, Dr. Fred- rickson and the other trustees decided "there was going to be a complete reformation," he recalls. H.H.M.I. was "not a trustee's plaything. We were going to be very, very public." The changes at Hughes were immediately apparent to the foundation's benefici- aries. Until 1984, according to Dr. William W. Chin,. an in- vestigator at the H.H.M.I. genetics lab at Harvard's Brigham and Women's Hos- pital, "you really got a sense of the Howard Hughes legacy here, because the organizaton was so flighty." But now, he says without equivocation, "They are in a position to at- tract the world's best." T YPICAL OF H.H.M.I.3 transfor- mation ls the insti- tute's new presence at Yale. When Yale first broached its proposed Center for Molecu- lar Medicine to the Hughes Institute in May 1984, some of the faculty saw that a change was under way. After years of dealing with Hughes offi- cers whose secretive behav- ior reflected the old Howard Hughes Medical Institute, they were startled to see Dr. Fredrickson himself show up for a meeting over breakfast. Dr. Fredrickson, charmed the Yale delegation. "Right away it was crystal clear that `Don was in charge," recalls Dr. Samuel Thler, then chair- man of Yale's department of internal medicine. That morning the two sides agreed to keep talking. Through the summer of 1985, Yale and H.H.M.I. ne- gotiated, and it was unclear who was more eager. Yale needed a partner; Hughes, with its pending infusion of capital, had to spend $180 mil- lion by the end of the year to avoid running afoul of the I.R.S. The institute's officers repeatedly promised that the new Hughes was not going to be anything like the old. But Dr. Fredrickson could see that those promises were not enough, and so he requested the unusual meeting in the Yale Corporation Room last September to give the univer- sity his personal pledge that H.H.M.I. had changed. A day after the conclave, the Yale trustees met in the same room and voted to proceed with the project. At about the same time, H.H.M.I.`s board of trustees voted its approval. Now, without regret, Yale and the new Hughes Institute are firmly committed to each other. While many of H.H.M.I.`s' new projects involve building labs like the one at Yale, the institute's main thrust is in basic research. There is, for example, Dr. Eric R. Kan-' del's work with sea snails at Columbia University. Medical research officials nationwide agree that the neurosciences are "primed for explosive growth," as the N.I.H. director Dr. James Wyngaarden puts it. Never- theless, the field is greatly underfunded. "I don't think we're likely to put a lot more money into it," adds Dr. Wyn. gaarden. Three years ago, Hughes chose the neurosciences as its fourth major area of re- search. Breakthroughs in the neurosciences could lead to ^ cures for a wide range of ill- nesses , including multiple sclerosis and Alzheimer's dis- ease. In addition, a more so- phisticated understanding of how the brain works could also transform psychiatry, by giving it a clearer physical basis. "What we really know about the brain is abysmal," says Dr. Kandel, a psychia- trist and neurobiologist at the Columbia University Medical School and one of H.H.M.I.3 senior neuroscientists. .:`It's time to completely change the nature of psychiatry, to open the box and figure out exactly how the neurocir- cuitry works." Right now, he says, "This kind of work is being done almost exclu- sively by Hughes." The principle of Dr. Kan- del's research is that all men- tal functions and problems in- volve identifiable chemical changes in the brain cells. Dr. Kandel and his colleagues in- duce sea snails to react to a stimulus, such as a tiny elec- trical shock, then study indl- vidual brain cells, laid out in petri dishes, to see how they have been transformed. He acknowledges that "we have a long way to go" before physicians can allay memory loss, neurotic illnesses or other problems by countering chemical changes in the brain. But he believes he is more likely to achieve break- throughs now that he is as- sociated with Hughes instead of N.I.H. because,`he says, "under N.I.H. I would have worried about how likely I was to get support if didn't get results in one or two years. Hughes takes tbe longer view and lets me take more of a chance, rather than doing predictable things just to get results." A LTHOUGH IT seems clear that H.H.M.I. has re- formed, it still may have to pay for its past. Internal Revenue Service agents are poring over the institute's records wlth vengeful looks. "We get such a hard road from the I.R.S.," says the, board chairman George Thorn. "It's a political thing. They thought nothing good about Hughes, and then there was that business with Nixon." Still today, "there's no question that in the Treas- ury Department, the name Howard Hughes brings a charged reaction," says Dr. Fredrickson. The 1.R.S i$ auditing the in- stitute's books from 1971 through 1994, and "the theo- retical sum we could owe can make your hair turn white," says the trustee Irvlng Shapi- ro. Hughes's officers say they hope the I.R.S. will be lenient because H.H.M.I. has changed its ways. But an 1.R.S official, speak- ing privately, calls that view na'ive. "The `good work' ar- gument just doesn't cut it," he says. Nevertheless, he ac- knowledges that tax regula- tions will probably prevent . the agency from ordering a fine so extreme that it could damage the Hughes endow- ment. Even as I.R.S. agents mot through .H.H.M.I.`s records, Dr. Fredrickson talks to suit-, ors, who troop to the insti- tute's offices in Bethesda, Md., just outside Washington, almost on a daily basis. A year ago, "I was hearing mostly from the medical school deans," says Dr. Fred- rickson. "Then the school presidents started coming. And now they've started bringing along their trus- tees," many of them major corporate officers. In Decem- ber, the Governor of South Carolina, Richard W. Riley, came by, looking for money for the University of South Carolina medical school. Dr. Fredrickson talks to all of them. His reasoning, he says, is simple: "We're a public trust now." I