Big Stakes in Tamiflu Debate

December 15, 2005
By John Stanton,
 Roll Call Staff
(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

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

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

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

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

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.