Big Stakes in Tamiflu Debate



December 15, 2005

By John Stanton,

Roll Call Staff



http://www.rollcall.com/

(subscription only)



----------

The plan by Senate Majority Leader Bill Frist (R-Tenn.) to push through

billions of dollars in new spending to prevent a possible avian influenza

pandemic could result in a multibillion-dollar windfall for a handful of

the nation's largest and most politically well-connected drug companies.



While there is wide agreement that the threat of avian flu is a serious

medical concern that also has implications on the domestic and

international economy, Congressional interest in the subject has been a

boon for Washington, D.C., lobbyists and even for the financial portfolio

of Secretary of Defense Donald Rumsfeld.



Rumsfeld - as a stock holder and former CEO of Gilead Sciences Inc., the

sole patent owner of Tamiflu, the antiviral drug now being stockpiled by

the Defense Department and other agencies - stands to make millions of

dollars if legislation is passed that allocates additional federal money to

stockpile the anti-viral medications.



Indeed, according to calculations by Roll Call, the secretary of Defense

has already seen his personal portfolio in Gilead shares rise in value by

54 percent since the date that his holdings were last calculated for a

financial disclosure form.



Since that date, Dec. 31, 2004, appreciation in the stock's price has meant

that the value of Rumsfeld's personal holdings in Gilead has risen by

between $2.8 million and $13.77 million. His total personal holdings in the

company - assuming he has made no transactions in calendar 2005, as he has

indicated - now range between $8.1 million and $39.3 million, according to

Roll Call's calculations.



These calculations do not include shares in Gilead which Rumsfeld has

previously transferred into a foundation and a trust that he controls. They

also do not include investments that may have been made in Gilead by a

handful of investment companies specializing in biotechnology and

pharmaceuticals that he co-founded and maintains a financial stake in.



Although federal efforts to prepare for a potential bird flu pandemic will

likely ripple through a wide swath of the business community, the bulk of

the more than $8 billion in spending either already approved by Congress or

now speeding through the Capitol will favor only a small handful of

companies, including Hoffman-La Roche Inc., which owns Tamiflu along with

Gilead.



Congress already has signed off on a $1.8 billion plan to stockpile

Tamiflu, most of which will go toward the purchase of the drug. On

Saturday, the White House called on Congress to approve an additional $8

billion in immediate emergency spending to stockpile Tamiflu, as well as

develop new drugs and put in place a federal response system should an

outbreak occur.



In response, Frist, a medical doctor who has taken the lead on the avian

flu response in Congress, said he will push the request through Congress

before lawmakers leave for the year.



"It had better pass," Frist said during an interview on "Fox News Sunday"

this weekend. He said the virus currently circulating has a 50 percent

mortality rate. By contrast, the most deadly pandemic of the 20th century,

the one in 1918, had only a 2.5 percent mortality. If the virus comes to

the United States, "we are not prepared today. So we have to invest that

money in stockpiling antiviral agents, building vaccine stockpiling and

rebuilding our manufacturing base."



As for Tamiflu, the drug was developed by San Francisco-based Gilead and

later licensed to the multinational drug company Hoffman-La Roche for

production and distribution. Though some medical professionals have

expressed skepticism that Tamiflu would be an effective method for stopping

the spread of avian flu, it is currently the only off-the-shelf medicine

that could conceivably ameliorate individual cases, and for this reason, it

has attracted special attention from policymakers in Congress and the

administration.



Under the Gilead-Roche agreement, which was reworked to Gilead's advantage

in late November, Gilead has a variable 14 percent to 22 percent take of

all profits from the sale of the drug.



A review of campaign-finance records and the Congressional Record shows

that as the House and Senate ramped up efforts to address a potential

outbreak, Gilead, its employees and a newly formed political action

committee began pouring tens of thousands of dollars into Washington.



The company dropped at least $140,000 on K Street during the first half of

the year, hiring such firms as Angus & Nickerson, The Washington Group and

DCI. At the same time, the company activated the Gilead Sciences Inc.

Healthcare Policy PAC, which had been created last year but remained

essentially dormant, making only a $1,000 contribution to Sen. Barbara

Boxer (D-Calif.) before this year, according to disclosure forms on

PoliticalMoneyLine.com.



But Gilead's PAC became much more active this year. By the end of October,

it had made $22,500 in contributions to lawmakers and their PACs, including

$10,000 to Sen. Mike Enzi (R-Wyo.), who is chairman of the Senate Health,

Education, Labor and Pensions Committee, and another $5,000 to his Making

Business Excel PAC.



A spokeswoman for Gilead said the company has done no lobbying on Tamiflu

or the broader issue of a possible avian pandemic and insisted that there

is no connection between the issue and the company's sudden increase in

lobbying spending. The spokeswoman said Roche is responsible for lobbying

and all other "customer relations" activities as part of its relationship

with the government.



To be sure, Gilead's spending in Washington is modest when compared with

that of Roche. For instance, according to House and Senate lobbying

records, Roche spent more than $2.4 million on lobbying in the first six

months of the year, hiring a veritable who's who of lobbying outfits,

including Patton Boggs, Hyman, Phelps & McNamara, MWW Group, Ruder-Finn

Global Public Affairs and Sidley, Austin, Brown & Wood.



Roche also has outspent Gilead on campaign donations, with its employees

and the Roche Inc. Good Government Fund PAC combining to make more than

$101,000 in campaign contributions to politicians and PACs this year, with

members of the Senate Health, Education, Labor and Pensions Committee and

the House Energy and Commerce Committee each receiving $11,000 of that.



Aside from this traditional political and lobbying spending, Gilead also

has the good fortune of being able to claim Rumsfeld as a significant

stockholder. While specific figures of his holdings in the company are not

available, the disclosure forms that are available list ranges of market

value for stocks in his portfolio. These documents, covering 2004, suggest

that his holdings in Gilead run into the millions of dollars.



Though the response plan to a pandemic is still evolving, the Pentagon

could conceivably play a role in handling the fallout, such as guarding

medical stockpiles, ensuring order in hard-hit areas or possibly other roles.



When asked about his Gilead stock holdings during a Nov. 1 press

conference, Rumsfeld said that after consulting with the Senate Ethics

Committee, Department of Justice attorneys and a private securities

attorney, he decided to maintain control of his stock and not participate

in any decisions that may affect Gilead.



"They've proposed a path whereby I recuse myself from any decisions

relating to [Gilead]," Rumsfeld said, adding that, "It's totally

transparent. There's no mystery to it."



A Rumsfeld spokeswoman added that upon his confirmation as Defense

secretary in 2001, Rumsfeld recused himself from any decisions that could

have a predictable economic impact on the company. The spokeswoman also

pointed out that Rumsfeld recently had Defense General Counsel William

Haynes issue a letter to the secretary's staff to remind them of his recusal.



But the unusual Oct. 27 "reminder," which came less than a month before

Gilead and Roche renegotiated their deal to significantly boost Gilead's

financial stake in the drug, was issued only after Defense already had

decided to begin stockpiling Tamiflu and had begun publicizing its efforts.



For instance, Assistant Secretary of Defense for Health Affairs William

Winkenwerder Jr. told DOD's DefenseLINK News Service on Oct. 7 that the

Pentagon was in the process of boosting its stockpiles of Tamiflu over the

next year. "DOD is quickly moving to a good state of preparedness for the

avian flu," he said.



The Oct. 27 recusal also paints a much narrower picture of the types of

decisions Rumsfeld will stay away from than the generic "recusal" he has

cited in public statements. According to the letter, Rumsfeld's recusal

only applies to "matters concerning avian flu dealing with the development

and acquisition by the Government of vaccines and/or treatments," since

those decisions "may directly and predictably affect Gilead."



The letter goes on to state that Rumsfeld may "personally and

substantially" participate in virtually all other aspects of the avian flu

response, including the use of military personnel to quell civil

disturbances or to protect stockpiles - since "even were Department of

Defense resources to be used to safeguard the availability of Tamiflu,

there would be no direct and predictable effect on Gilead because the

product at that stage would already have been purchased from the

distributor."



The letter also does not address Rumsfeld's involvement in decisions that,

while not as explicitly conflictual as the purchase of Tamiflu,

nevertheless have had a beneficial impact on the company's fortunes.



For instance, DOD is one of the chief funders of the Potomac Institute for

Policy Studies, a nonprofit organization that specializes in health care

and technology issues related to homeland security.



According to Senate aides, PIPS has played a major role in developing

administration and Congressional plans for dealing with an avian flu

outbreak and has been used by the White House to brief lawmakers on Bush's

response plan, including a Nov. 3 briefing of the Senate Homeland Security

and Government Affairs Committee.



PowerPoint presentations used during the briefings show that PIPS'

"Strategic Implementation Framework" is being used to assess the threat of

a pandemic outbreak and in steering the response preparation process.



Those plans emphasize the need for additional spending on Tamiflu

stockpiles, research into vaccines, federal investment in vaccine

manufacturing infrastructure and new vaccine research techniques. Those

plans also include provisions for the use of the military to secure

stockpiles of Tamiflu and any future alternatives and vaccines, as well as

the private manufacturing and distribution infrastructure of Roche and

other companies.



A spokeswoman for PIPS confirmed that the organization has done work for

DOD on avian flu through a grant from the National Defense University. But

a DOD spokeswoman said funding for the PIPS research project, as well as

any other Pentagon activity that may affect Gilead, would indeed be covered

by Rumsfeld's recusal.



"Upon taking office in January 2001, Secretary Rumsfeld recused himself

from participating in any particular matter when the matter would directly

and predictably affect his financial interest in Gilead Sciences Inc.

Secretary Rumsfeld has been recused from matters involving Gilead Sciences

Inc. since taking office on Jan. 20, 2001," the spokeswoman said.



Much of the motivation for the rush to stockpile Tamiflu is based on

concerns that a significant shortage of the drug currently exists. However,

at least on the Internet, Tamiflu remains readily available thanks to

online pharmacies based in Canada, the United Kingdom and other foreign

countries.



Additionally, the effectiveness of Tamiflu in combating avian influenza

remains unclear. Although it has been used successfully for several years

against seasonal flu, there has never been a large-scale test of its

abilities to counteract bird flu in humans, and Vietnamese doctor Nguyen

Tuong told United Press International on Dec. 3 that it has been

ineffective thus far in treating recent cases in his country.

The Food and Drug Administration also is monitoring its use by minors after

doctors in Asia reported numerous instances in which children taking the

drug suffered sudden psychotic episodes and ultimately committed suicide.

Although an evaluation of the cases by the FDA found that there was no

causal relationship between Tamiflu and those incidents, the agency said

earlier this year that it will continue to monitor the drug for negative

side effects.

