Editor’s Note: The lawsuit by the Bill & Melinda Gates Foundation against PnuVax was voluntarily dismissed in May 2019 with no costs payable by either party.
The Bill and Melinda Gates Foundation is suing the Canadian biotech company, PnuVax, for allegedly misusing a US$30-million grant intended to develop a low-cost pneumonia vaccine for children, according to a lawsuit filed in Washington District Court.
The global philanthropic foundation claims the Montreal-based company misused grant funds in several ways, including diverting $3 million to an account used to pay back rent owed on a facility owned by the National Research Council (NRC).
“The subcontractor used by PnuVax Inc., which is controlled by the same individuals as PnuVax Inc., charged a 40% mark-up on personnel costs and a 15% mark-up on materials — a fact not disclosed to the Foundation,” the lawsuit claims.
“Almost immediately after entering into the grant agreement and receiving US$3 million in grant funds, PnuVax Inc. diverted these funds to a trust account maintained by its attorney and used the funds to pay significant amounts of back rent owed to its landlord.”
The Gates Foundation also claims PnuVax failed to keep adequate financial records and made “unauthorized pre-grant expenditures” for materials and equipment that were invoiced prior to receiving the grant.
PnuVax, which is owned by Dr. Donald Gerson and his son Jonas, did not immediately respond to a request for comment by Global News.
The Gates Foundation is one of the largest charities in the world and shelled out US$4.7 billion in 2017 to its different programs around the world.
It first became involved with the Canadian company in 2014 to develop a dollar-a-dose vaccine to combat pneumonia — the world’s largest killer of children under five years old.
PnuVax was originally awarded over US$9 million between 2014 and 2015, and in August 2017, became the largest Canadian recipient of funding from the Gates Foundation receiving an award of up to $29,423,549, according to the lawsuit.
The lawsuit claims the charity first became suspicious of the company in November 2017 after learning that PnuVax owed the federal government $1 million in back rent.
The National Post reported that Gerson and his son had travelled to Ottawa to meet with NRC officials over the unpaid rent.
At issue was a biotech facility the company had purchased that sits on federally-owned land, which the NRC had previously leased for 10 years to a Dutch company until it closed in 2005.
PnuVax renovated the facility in 2012, investing $10 million to pass federal inspections by Health Canada and agreed to a $300,000-a-year lease along with $600,000 a year in municipal taxes.
Gerson and his son told the Post they stopped making payments to the NRC to ensure sufficient funds to keep developing the vaccine destined for developing countries.
“The NRC ended up being an anchor around our ankles,” Jonas said at the time.
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Nic Defalco, a spokesperson for NRC, said the federal research organization has “no knowledge” of the issues raised in the lawsuit or media coverage. He said PnuVax owed the NRC $1.135 million in rent.
“PnuVax currently has no outstanding debt with the NRC,” Defalco said. “The NRC has no knowledge of the matters raised in recent news coverage.
The foundation hired accounting firm KPMG to conduct an audit on the company and its subcontractor, which confirmed its suspicions the company had breached its contract and was mismanaging funds.
“PnuVax Inc. and PnuVax SL failed to cooperate in the audit and were contentious throughout,” the lawsuit claims. “PnuVax Inc.’s contentious behavior, continual delays, secrecy, evasiveness, and lack of transparency were factors that the Foundation reasonably believed threatened the Project’s success.”
Now, the charity has terminated the grant and is demanding PnuVax pay back all remaining funds not used to develop the vaccine.
“In response, PnuVax Inc. submitted an incomplete report and demanded that the Foundation pay it over US$11 million in additional funds under the grant agreement.
The foundation is demanding PnuVax pay back all funds not used on the vaccine and seeks a declaration that it has no obligation to pay the company.
Pneumonia kills an estimated 1.4-million children under the age of five every year, according to the World Health Organization. The disease accounts for 18 per cent of all deaths of children under five years old worldwide.
READ BELOW: Complete lawsuit filed by Gates Foundation against PnuVax