By John Williams
The Houston Chronicle
October 07, 2000

The former chancellor of the University of Texas System and two system regents stand to profit when a company licensed to market a cancer treatment developed by the system is expected to go public in the next few days.

Introgen Therapeutics of Austin was awarded the license when William Cunningham was chancellor. Regent Tom Loeffler voted to give the company the license in 1994. And regent Charles Miller owned stock in Introgen before joining the board in 1999.

The gene therapy was initially developed at the University of Texas-M.D. Anderson Cancer Center. After completing clinical trials, Introgen hopes to market the process designed to restore or replace genetic abnormalities associated with cancer.

An initial public offering of 5 million shares priced between $ 12 and $ 14 a share "is imminent," company spokeswoman Channing Burke said Friday.

While no laws were violated by the involvement of Cunningham, Loeffler or Miller, government watchdog groups say the case is another reason state ethics laws should be strengthened.

In 1994, the UT Board of Regents voted 9-0 to license Introgen to market the technology developed by Dr. Jack A. Roth, chairman of the Department of Thoracic and Cardiovascular Surgery at M.D. Anderson, who also is Introgen's chief medical and scientific adviser.

The UT system regents oversee 15 Texas institutions of higher learning, including the UT-M.D. Anderson Cancer Center.

As part of the license agreement, the UT system is to get 1.5 percent of net sales, advance payments Introgen receives from sublicenses and about 1.21 million shares of common stock.

UT officials say that none of the stockholders violated university policy or state law, which allows a regent to be a director of a company that does business with the system as long as the regent doesn't get more than 5 percent of its stock.

Neither Cunningham, Loeffler nor Miller owns 5 percent of the stock.

State and federal records indicate that:

Cunningham received options on 1,867 shares of Introgen stock after he stepped down as the chancellor on June 1. He joined the Introgen board on July 10. If the stock is sold for $ 12 a share, those shares would be worth a minimum of $ 22,024.

Loeffler received stock options on 10,000 shares after joining Introgen's board in 1997. At $ 12 a share, his stake is worth a minimum of $ 120,000.

Miller owns at least 10,000 shares of Introgen.

Tom "Smitty" Smith, head of the Austin-based watchdog group Public Citizen, said while there is no evidence of impropriety, the situation shows state ethics laws should be strengthened.

He believes there should be a direct ban on an official benefiting from a company that does business with the university system or there should be a revolving-door policy to prevent an official from joining a company that does business with the system for a certain period.

"One will always question whether they were doing the best for the university or for their own pocketbooks," he said.

Paul Janicke, a professor at South Texas College of Law in Houston, said the ethics of intellectual property is a developing field.

Historically, professors and researchers at colleges and universities were allowed to keep revenue from outside work, which largely amounted to books and other writings, Janicke said.

Today, a patent for software or a drug can reap billions, and schools are starting to get a portion of the windfall, he said.

But the question of university leaders also profiting is problematic, he said.

"It would be the same as if the university sold their football field to a parking lot developer and then, what do you know, the bursar is vice president of the parking lot company," Janicke said.

Loeffler said he has tried to be sensitive to the ethical questions involved in his relationship with Introgen. In June 1999, the Austin American-Statesman reported that he resigned from the Introgen board a day after the newspaper questioned his role as shareholder and company director.

At the time, Loeffler said he would exercise his stock options after leaving the UT system. On Wednesday, Loeffler, a San Antonio lawyer and former U.S. congressman, said he placed the options in a trust, so any profit would go to charity.

"I did it because I felt that it was important that there be absolutely no question about a perceived conflict between my role on the board of regents, M.D. Anderson and Introgen," he said. "There was no conflict of interest, but the question was raised."

Cunningham, now on sabbatical, declined to be interviewed for this story. Instead, he had his Austin assistant fax his answers to the Chronicle's questions.

Cunningham said he has not exercised his option to buy the stock. He said no conflict of interest or ethical problem exists because he was not involved in negotiations between M.D. Anderson and Introgen while he was chancellor, and because he was invited to join the company's board after he left the UT system.

Next fall, Cunningham will return to UT to teach in the business school. While on leave, he is being paid his $ 374,500 base salary.

He said that before he accepted the appointment to the Introgen board, he discussed it with Ray Farabee, general counsel for the university system. "He advised me that there was no conflict of interest associated with my appointment to the Introgen board," Cunningham wrote.

Miller, a Houston investment adviser, said he bought his Introgen stock in 1995, before he became a UT regent. At the time, he was a member of the University Cancer Foundation Board of Visitors, which is mainly a fund-raising arm of M.D. Anderson.

He said he had no inside knowledge about Introgen.

In the past year and a half, university system investment policies have come under question.

In March 1999, the Houston Chronicle reported that a private board which manages the system's investments had placed $ 457 million of the $ 1.7 billion it invests privately in funds run by major Republican donors or associates of former regent Tom Hicks, a one-time chairman of the University of Texas Investment Management Co.

That company is a private, nonprofit firm established by UT regents to control university investments. Its board consists of the UT system chancellor, three UT regents, which last year included Loeffler, and five outside investment professionals.

Since then, UT regents have taken actions to address criticism of the company, including opening its meetings to the public.