Roche Holdings' third-world discount: benevolence or bottom-line?

Leave it to a skeptic like me to find something wrong with something that seems ao benevolent. Today, Swiss drug maker Roche Holdings AG (RHHVF) said it will cut the price of its viral drug Tamilflu for developing economies to what would amount to less than half the price it normally charges, and let those countries spread their payments over several years. Sounds perfect, no? So what's my beef?

Well, Tamiflu -- and GlaxoSmithKline (GSK)'s competing drug Relenza -- have been already stockpiled by developed countries during the recent bird flu outbreak, so Roche now must sell the drug to those countries that haven't yet stockpiled it. "Tamiflu sells for as much as $100 per five-day treatment course in countries such as the U.S.," the AP reports, "but since 2005 the company has offered a discounted price of $16 per treatment to poor nations. Roche has also given approval for two companies - one in China and one in India - to produce Tamiflu generically."
Tamiflu is used to treat swine flu, or the A/H1N1 virus. While Western countries have enough of the drug, only 0.02 percent of all low-income economies have a stockpile of Tamiflu, Roche said. The company will finance the program, which "will significantly cut into our profits in those countries," a Roche representative told the Wall Street Journal.

Roche says it's in discussions with agencies to establish how to coordinate orders by a United Nations partner agency, such as the WHO or UNICEF; potential sources of funding would be the World Bank, donor agencies, foundations, and individual governments. Roche said it has the capacity to provide the needed medicine.

No doubt that after the WHO declared the H1N1 virus pandemic -- the first in 41 years -- Roche and rival pharmas looked for ways to make the most of the opportunity, helping themselves while helping others. But there are several problems with this.

The first is that on Monday, Danish health officials reported the first case of resistance to A(H1N1) in a patient treated with Tamiflu. Despite the WHO's assertion that this is an "isolated case with no implications on public health," other cases will surely follow. Already, there have been indications of some level of resistance to Tamiflu -- but not to Relenza, the drug that was used to help the patient recover.

The other issue is that Western countries intend to use a vaccine to treat H1N1, not Tamiflu (or Relenza, for that matter). Yesterday, biopharmaceutical company Vical Inc. (VICL) said that animal tests of a potential swine flu vaccine were successful. And it's not alone. So while Western countries will buy the new vaccines to innoculate the population -- some countries had preemptively ordered the new vaccine candidate -- they will likely not add to their purchases of Tamiflu. So to keep the same level of sales growth, Roche felt it was worth selling to other markets, even at a steep discount.

Don't get me wrong. People in developing countries will benefit greatly from having access to flu treatment. But it's no surprise that the pharmaceutical industry would deem the second-best treatment sufficient for the Third World.

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