News - Avian flu scare has Tamiflu maker navigating minefield

BASEL, Switzerland ? With its sales stoked by fears of an avian flu pandemic, a drug once considered a dud has turned into one of the world's hottest medicines. The anti-viral Tamiflu has emerged as the best available medicine against the H5N1 avian flu virus, which has killed 69 people in Asia since late 2003.

More than 50 governments are beating a frantic scramble to the door of Tamiflu's maker, Roche Holdings, ordering hundreds of millions of the yellow-and-white capsules for national stockpiles.

Multinational companies are buying all the Tamiflu they can to protect globe-hopping employees. And so many U.S. consumers were stashing away Tamiflu that Roche in October temporarily halted shipments, fearing there might not be enough later in the season for people with the regular flu.

The avian flu scare has raised Roche's profile and profits. Tamiflu's revenue is up 263% for the year through September to 859 million Swiss francs (about $650 million). But Tamiflu's serendipitous success has also brought the Basel, Switzerland-based Roche a host of delicate management challenges.

The company says it is doing all it can to increase its Tamiflu production and has said it will let other companies make it, too. But critics accuse Roche of being overprotective of its interests and moving too slowly to sanction other manufacturers. They want Roche to allow large-scale production ? even if it hurts profits.

"At the end of the day, Roche is just a company protecting shareholders," says James Love, head of the non-profit Consumer Project on Technology in Washington, D.C. "It wants to restrict access and restrict manufacturing so that prices stay strong for the drug."

Roche also is navigating a tricky minefield in which expectations for Tamiflu as a pandemic stopper may be unrealistic. There's no certainty that Tamiflu will be effective against H5N1, Health and Human Services Secretary Michael Leavitt told Congress recently.

"They're in a difficult situation," says Joseph D'Cruz, professor of strategic management at the Rotman School of Management at the University of Toronto. "They could be painted into a corner of being cold-blooded profiteers or if ... they sweep aside all commercial concerns, they have the possibility of a win," in terms of reputation if not in profits, he says.

Tamiflu stops the spread of the regular flu virus when taken soon after symptoms appear, which helps people recover faster. It's also been approved to prevent the flu. Should a cluster of avian flu cases break out in humans, the World Health Organization's plan is to flood that region with Tamiflu in hopes of containing the outbreak.

Tamiflu has proved effective against H5N1 in mice in laboratory tests. So far, the virus has not shown that it can readily pass between humans. But the fear is that it will mutate so that it can, setting off a pandemic that could kill millions because humans have no H5NI immunity.

Drugmakers and controversy

Major drugmakers are no stranger to controversy when public health emergencies arise.

A few years ago, the industry was criticized for charging prices for anti-HIV drugs that African and Brazilian governments couldn't afford. Drugmakers eventually cut prices for those countries, some to cost.

In 2001, Bayer cut the price of antibiotic Cipro under pressure from the U.S. government after letters containing anthrax spores were sent to politicians and others.

Roche says it isn't on a collision course with any country regarding Tamiflu. The company recently announced plans to bump Tamiflu production to 300 million treatments by 2007 vs. 27 million last year. It's donated 3 million Tamiflu treatments ? typically 10 pills over five days ? to the WHO. It's also cut Tamiflu government stockpile prices more than 40%.

Roche first doubled Tamiflu production in 2004 after a major avian flu outbreak in poultry in Asia, even though Roche had seven years of unsold Tamiflu inventory.

Roche is taking a similar risk now, says William Burns, CEO of its pharmaceutical division. While Tamiflu's demand currently exceeds supplies, Burns says, Roche doesn't yet have enough orders to eat up all the capacity it's putting on line.

Roche says it doesn't want to let just any company make Tamiflu because it wants to assure that the drug is properly made. It has held talks with 15 entities, among them large makers of generic drugs and a few governments.

While Tamiflu grabs headlines, Burns says, governments need to pay more attention to other pandemic preparations, such as increasing hospital beds and doctors.

"Tamiflu will be a key part of the response to a pandemic, should it break out, but it cannot be the only response," Burns says. "I'm not afraid of us taking our responsibility. But I wouldn't then want society to dump on Roche and say we're the problem child."

Roche already has been accused of worse. "They're getting rich as the world gets sick," says Rep. Dennis Kucinich, D-Ohio. "The company is able to control the supply and the price (of Tamiflu), and it's very dangerous for the health of this country to let them make all the decisions."

Kucinich and nine other lawmakers have urged the Bush administration to invoke the World Trade Organization's TRIPS Agreement. In a public health emergency, TRIPS allows countries to ignore patent protections for needed drugs. Others can make them without patent holders' consent, but the patent holder must be paid. The process is called compulsory licensing.

The idea had been discussed in Taiwan, but Roche said last month that it can make the drug faster and more cheaply than a Taiwanese company. It has also agreed to provide Taiwan with 1.3 million more Tamiflu treatments this year for a total of 2.3 million.

Tamiflu is not patent protected in some countries, including Indonesia. That means the drug can be made there without compensation to Roche. Indonesia has said it would make its own Tamiflu for domestic consumption.

Even if Roche lets some companies make Tamiflu, Kucinich says there still won't be enough. Public health officials recommend countries have enough Tamiflu for 20% of the population. The U.S. has ordered 4.3 million doses, enough for about 1.5%. The Bush administration has proposed stockpiling enough Tamiflu and rival anti-viral, Relenza, for 81 million people.

In addition to trying to make sure Tamiflu is properly made, Roche has legitimate business motives for wanting to retain control over Tamiflu, says John Calfee, an economist at the American Enterprise Institute. If the company were to allow broad Tamiflu manufacturing, it could lose control of the product for years to come ? even if there is no pandemic. "Everyone would keep making it and take their market," Calfee says.

Only by limiting the number of manufacturers does Roche have a chance of retaining the value of Tamiflu, which is patent protected until 2016, Calfee says. Profits on patented drugs fund new drug development.

Roche's Pitfalls

By controlling production, though, Roche could be blamed if there isn't enough Tamiflu if a pandemic hits. "They are damned if they do and damned if they don't" open up manufacturing, D'Cruz says.

Other pitfalls for Roche include:

?Excess product. Tamiflu capsules have a shelf life of five years. If there isn't a pandemic, the world will be flooded with Tamiflu, leaving little opportunity for new sales, Calfee says. "Roche could make lots of doses, and no one will use them," he says.

Part of the reason Tamiflu, launched in the USA in 1999, never took off was because public health officials, especially in the USA, promoted vaccination against the flu and said little about anti-virals.

That attitude is likely to return should drugmakers Chiron, Sanofi-Aventis and GlaxoSmithKline succeed with plans to make viable avian flu vaccines in large amounts.

"Ultimately, Tamiflu is only the bridge to the vaccine," says Karl Heinz Koch, equities analyst at Lombard Odier Darier Hentsch in Zurich, one of those who considered Tamiflu a go-nowhere drug just a few years ago.

Tamiflu's U.S. inventor, Gilead Sciences of Foster City, Calif., even attempted in June to regain control of Tamiflu, saying Roche had failed to promote it. The companies recently settled the dispute.

?Uncertain effectiveness. While Tamiflu has worked against the regular flu, how well it will work in a pandemic situation against the highly deadly H5N1 strain is "still very much unclear," said public health official Anthony Fauci at a recent congressional hearing.

Fauci, head of the National Institute of Allergy and Infectious Diseases, stressed that lawmakers should not rely on Tamiflu as "the showstopper for a pandemic flu."

One reason is viruses develop resistance to anti-virals such as Tamiflu over time. In Japan, where Tamiflu has been the most widely used, just four in 1,000 adult Japanese users have shown resistance, Roche says. That goes up to 40 in 1,000 children ages 1 to 12.

To work, Tamiflu must be taken in proper doses and within 48 hours of infection ? sooner is even better. In largely rural countries such as Vietnam and Indonesia, villagers may be days away from medical facilities. Even in the USA, getting Tamiflu to people from government stockpiles or even pharmacies will take time.

What's more, Tamiflu's benefits don't last once people go off the drug. If there were a pandemic, people might have to take Tamiflu for weeks. That may be impossible given Tamiflu's limited supplies.

While Roche wouldn't be legally responsible for making sure Tamiflu is appropriately used, any perceived Tamiflu failures would likely reflect badly, even if unfairly, on the company, professor D'Cruz says.

"In the public's eyes, there is a solution, and the answer is Tamiflu," he says.

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