[Ip-health] WSJ: Gates, Big Pharma & GFATM drug procurement

[Paul Davis]

Gates Charity Buys Stakes In Drug Makers
By David Bank and Rebecca Buckman

05/17/2002 
The Wall Street Journal
Page B1 
(Copyright (c) 2002, Dow Jones & Company, Inc.)

THE BILL AND MELINDA Gates Foundation has purchased shares in nine big
pharmaceutical companies valued at nearly $205 million -- an investment
likely to attract attention more for its symbolism than its size.
The foundation, the nation's largest with an endowment of $24.2 billion from
Microsoft Corp. Chairman Bill Gates and his wife, already is a major force
in international health issues, contributing $555 million in 2000 alone to
global health programs. The organization has emerged as a prominent voice in
the debate over how to supply cheaper drugs for AIDS and other diseases to
poor countries. At times, it has assumed the role of a broker between poor
nations and drug companies.

Now, as an investor in Merck & Co., Pfizer Inc., Johnson & Johnson and
others, the Gates foundation has a financial interest in common with makers
of AIDS drugs, diagnostic tools, vaccines and other drugs. The stock
purchases are a new type of investment for the foundation: In the past it
held primarily bonds and other nonequity investments.

Joe Cerrell, a spokesman for the Seattle-based Gates foundation, says the
stock investments, reported this week in a Securities and Exchange
Commission filing, are independent of the foundation's programs. Indeed,
they might just be good investments, as beaten-down drug stocks are
generally cheap these days. The stocks were chosen by money manager Michael
Larson, who selects investments for the foundation and for Mr. Gates
personally through an entity called Cascade Investment LLC. Mr. Larson,
through a spokesman, declined to comment about the rationale.

The foundation's investments in "Big Pharma" could spur controversy, given
Mr. Gates' staunch support of strict intellectual-property protections for
drugs in poor countries. Mr. Gates' stance on intellectual property is as
important to Microsoft's software business as it is to drugmakers.

"The impression people have, because of the types of projects Gates has
funded and because of his Microsoft background, is that he has an ax to
grind on the intellectual property front," says James Love, director of the
Consumer Project on Technology, who works with African officials to obtain
low-cost drugs. 

Poor countries have sometimes threatened to seize patents in order to
produce affordable generic drugs for sick citizens, making the field of
intellectual-property law a flash point between pharmaceutical companies and
poor countries. At a meeting in Africa last year, Mr. Love says he was
struck by fears of officials from Botswana and elsewhere that pressing for
access to generic drugs could jeopardize their chances for contributions.
"They thought it would alienate the Gates foundation and they thought that
was a problem," Mr. Love says.

A report issued last year by the Commission on Macroeconomics and Health,
chaired by economist Jeffrey Sachs, made a strong defense of
intellectual-property protection as critical to continued investment in drug
research and development. The Gates foundation was a major sponsor of the
commission. 

Other people involved with the issue say medical progress in poor countries
depends on incentives for drug makers, and the Gates foundation is balancing
the tradeoffs responsibly. "For every major killer of the poor, we need
better drugs, better diagnostics and better vaccines," says Richard Feachem,
director of the Institute for Global Health at the University of California,
San Francisco. "That means massive investments in research and development.
Much of that has to come from Big Pharma and biotech companies."

The foundation's Mr. Cerrell dismisses as "speculative" the suggestion of
conflict between financing drugs and investing in stocks. He says adds that
pharmaceutical makers "play an important part in meeting our goals of
providing equity and access and lifesaving vaccines and other advances in
medicine to those who need it most."

Managing the foundation's multiplying ties with the drug industry could get
tricky. For example, through its funding for the Global Alliance for
Vaccines and Immunizations, the foundation pays for purchases of vaccines
from some of the same pharmaceutical makers in which it now owns shares.
A Gates foundation representative sits on the 18-member board of the Global
Fund to Fight AIDS, Tuberculosis and Malaria, which is expected to become a
major buyer of drugs to fight those diseases. The foundation has pledged
$100 million to the fund, which has so far collected $2.2 billion.
UC's Mr. Feachem, recently appointed to head the Geneva-based fund, argues
that its massive buying power could create a strong "pull factor" spurring
drug makers to develop inexpensive products. "For the industry, that would
lead to the development of a high-volume, low-margin market, which could be
a win for them as well," he says.

Mr. Gates has forged other ties with the industry. Microsoft last year named
Merck Chief Executive Raymond Gilmartin to its board of directors. Mr. Gates
worked with Mr. Gilmartin to launch the vaccine fund and also helped Merck
with an AIDS program in Botswana.

The foundation's stock holdings include just two other stocks: Cox
Communications Inc. and Waste Management Inc. The spokesman for Mr. Larson,
the money manager, confirms that the drug investments represent a
significant increase in the foundation's equity holdings, though they
represent less than 1% of its total portfolio.
--- 
                     Building Bridges

  The Gates Foundation's top five stock investments in pharmaceutical
firms, in millions:

  Company        Stake

  Merck          $76.9
  Pfizer         $37.3
  J & J          $29.7
  Wyeth          $12.7
  Abbott Labs    $11.9

  Note: Figures based on Thursday's closing price

  Source: SEC filing