compatible with directed efforts to turn profits. There are other con­cerns, albeit not brand new with this particular venture, that research supported largely by federally ad­ministered and funded grants ought not to underwrite private gains so directly.

Of more immediate concern at Harvard is the feeling that this added financial theme will further fuel the intense competitiveness already within the biochemistry department. Walter Gilbert of the university, a founder of the gene-splicing company Biogen, and Ptashne have been in­volved in intense rivalry along similar research paths for some time now. Ptashne's plan could help send that rivalry into a much broader arena.

Many biologists are continuing to worry about how these intellectual, and now financial, rivalries might hurt the quality of research being done. These critics are willing to admit that private consulting is a le­gitimate activity of university faculty members. But further steps into the corporate world involve abandoning the free exchange of information and other ideals deemed central to the traditional role of the university, they warn. •

Dow will expand ethical drug business Dow Chemical will acquire Richard-son-Merrell's ethical pharmaceutical business in exchange for $260 million of Dow common stock. The combi­nation of Richardson-Merrell with Dow's U.S. pharmaceutical interests and its Italian subsidiary Gruppo Lepetit will, Dow says, generate an­nual total sales of about $800 million, making Dow a major contender in the health products field.

In an involved set of transactions designed to avoid tax liabilities, Richardson-Merrell will transfer its consumer products, chemicals, and diagnostics businesses into a new subsidiary, shares of which will be distributed on a share-for-share basis to current stockholders. The compa­ny's name then will be changed to Merrell Inc. The renamed company, consisting only of the ethical phar­maceutical business, is what Dow will get.

At first glance, it appears that Richardson-Merrell is getting the better deal. The new subsidiary, as yet to be named, will retain such highly profitable household names as Vicks, Clearasil, and Oil of Olay. In the 1979 fiscal year ended June 30, those and other consumer products accounted for 68% of the company's

$1.2 billion sales and 86% of its nearly I $162 million operating profit.

The ethical pharmaceutical busi­ness also has some successful prod­ucts, including Norpramin (an anti­depressant) and Cepacol cough medicines. But it's facing trouble over Bendectin, an antimorning-sickness drug that's been accused of causing birth defects. In any event, the phar­maceutical business accounted for 23% of Richardson-Merrell's fiscal 1979 sales but only 13% of operating profit.

Richardson-Merrell stock jumped more than $6.00 after the news that the drug business was up for grabs and rose another $3.00 or so when the I

ACS to retain tax-exemp The Internal Revenue Service ap­parently will not pursue efforts to revoke the American Chemical Soci­ety's current tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.

The IRS position is spelled out in an IRS national office technical ad­vice memorandum disclosed last week and addressed to the IRS district di­rector in Baltimore. In January 1978 the Baltimore office recommended revocation of ACS's tax-exempt sta­tus on the basis of the society's prac­tice of having nonmember subscrip­tion rates for society publications higher than member rates. A report from the district director's office contended that the pricing differen­tial constitutes a monetary benefit to the members of the society, and Sec­tion 501(c)(3) requires that "no part of the net earnings" of the society shall "inure to the benefit of any pri­vate shareholder or individual." This difference in subscription price, ac­cording to the report, constitutes in­urement of a benefit.

Later in 1978, ACS protested IRS's stance, but the matter was never brought to court.

In the recent internal memoran­dum, IRS officials reversed the earlier contention, concluding that "an or­ganization that charges nonmembers higher subscription prices for peri­odicals and higher prices for publi­cations and other services than it charges members does not violate the inurement of net earnings proscrip­tion set forth in . . . the regulations." The officials further conclude that "the society is not operated to serve the private interests of its members within the meaning of [the regula­tions] . Accordingly, the society is not disqualified from exemption under Section 501(c)(3) of the code."

In arriving at these conclusions, IRS officials determined that ACS

deal with Dow was revealed. Dow's stock price wasn't noticeably af­fected.

Dow, for its part, sees the acquisi­tion as a logical step in its campaign to develop a big-time health care business. Like Richardson-Merrell, Dow's ethical drug business has been profitable, but less so than other ac­tivities. Dow notes that Merrell's position in North America and northern Europe complements Lepetit activities in the Mediterra­nean and Latin America. And Mer­rell's research strength in enzyme inhibitors and central nervous system drugs complements Dow's strength in antibiotics and respiratory drugs. •

: status members "derive benefits to the ex­tent that they participate in the or­ganization's educational activity, rather than by virtue of their mem­bership alone. By subscribing to scholarly journals and thereby in­creasing their knowledge, the mem­bers serve as the means by which the public will benefit. As such, the par­ticipating members act in the public's behalf and not in any proprietary capacity. The financial benefits which attend the educational process con­stitute permissible, incidental, pri­vate benefit rather than a share of the [society's] net e a r n i n g s . . . . The presence of the price differential does not result in inurement, as the par­ticipating members' financial benefit is not directly tied to the volume of nonmember subscriptions. Rather, the subscribing members benefit ir­respective of nonmember participa­tion."

The IRS position on ACS's tax-exempt status has broad implications not only for the society but for other scientific and educational societies that maintain price differentials in periodical subscription prices for members and nonmembers. IRS's questioning of ACS's tax-exempt status has been widely regarded as a test case potentially involving other similar organizations. For ACS itself, maintaining its tax-exempt status means continuing use of special lower mailing rates for journals, resulting in savings from regular mailing rates estimated at several hundred thou­sand dollars annually. It also allows ACS to continue administering the nearly $7 million Petroleum Research Fund and allows members to claim ACS dues as well as gifts to the soci­ety as an income tax deduction. In addition, it represents a considerable saving on real estate taxes for ACS properties in Washington, D.C., and Columbus, Ohio. •

8 C&ENNov. 10, 1980