Pandemic profits

Parents have panicked, governments have stockpiled and many have altered travel plans. The swine flu pandemic has also arrived at a time when the world is not in a financial position to easily deal with it. However, for the producers of H1N1's treatments, GlaxoSmithKline of Relenza and Roche of Tamiflu and, such times are great for business. Indeed, to really see the financial pay-off from a pandemic, one should look much further back than this year's fright.

Roche and GlaxoSmithKline have been benefiting from government stockpiling for years. Between 2006 and 2007, sales of Relenza, produced by GlaxoSmithKline, leapt from £91 million to £262 million. The company's 2007 financial report said the increase was "driven primarily by one-off government orders for stockpiling against a possible flu pandemic."

At the time there was global alarm at the possibility of avian flu, H5N1, passing from birds to humans and causing the next great flu pandemic.

"Definitely their stock prices spike for a day when the bad news breaks," said Michael Fumento, director of the Independent Journalism Project, where he specialises in science and health issues.

For Roche, government stockpiling was key to a jump in sales in 2006. Sales of Tamiflu that year reached 2.627 billion Swiss francs, an increase of 68 per cent on the year before, making Tamiflu the fourth top-selling pharmaceutical product for Roche.

Their 2006 annual report stated: "Worldwide sales of Tamiflu continued to rise strongly, driven mainly by pandemic stockpiling, as governments increased their orders for pandemic stocks of Tamiflu, with some purchasing enough to cover 25 to 50 per cent of their populations."

It is worth noting the most devastating influenza outbreak the world has seen was the Spanish Influenza from 1918 to 1920, which killed approximately three to six per cent of the entire global population. It is estimated around a third of the world's population was infected.

With sales in Relenza and Tamiflu peaking due to government stockpiling, it is clear who Roche and GlaxoSmithKline's greatest customers for the medicines are. When government stockpiling reaches saturation, sales plummet.

Having already satisfied many government orders by the end of 2006, sales of Tamiflu fell to 2,085 million Swiss francs in 2007, a 19 per cent decline in local currencies.

The company's chairman, Franz B. Humer, that year wrote of government and corporate stockpiling: "Most of these orders have been filled over the last several years, so that we anticipate a considerable decrease in pandemic Tamiflu sales in 2008."

Indeed, as government orders eased off, and also fears of an avian flu pandemic, sales in both Relenza and Tamiflu plummeted in 2008.

In 2008, GlaxoSmithKline sold £57 million worth of Relenza, a fall of around 80 per cent, "reflecting fewer government orders for pre-pandemic stockpiling," they said in their report.

Tamiflu sales fell by 68 per cent in local currencies, to 609 million Swiss francs in 2008. Consequently, it fell from being the company's fifth top-selling pharmaceutical product to its eleventh.

However, whether sales have been booming or falling dramatically, both Roche and GlaxoSmithKline increased their manufacturing capacity and cited a readiness for any future pre-pandemic stockpiling.

David Outhwaithe, a spokesman for GlaxoSmithKline, told Gulf News the company was well-prepared for increased production of Relenza currently.

"We are set to be able to produce 50 to 60 million [units of Relenza] per year," he said.

"Through a collaborative network of its own facilities and those of other companies, Roche now has access to manufacturing capacity for Tamiflu that exceeds all government orders received to date," said Roche in its 2006 report, a boom year.

"Research into the most effective utilisation of Tamiflu against the H5N1 virus [avian flu] is continuing, both at Roche and through collaborations with independent experts, the World Health Organisation [WHO] and other institutions."

That year it announced that manufacturing capacity for Tamiflu had increased by over 500 per cent over the previous two years.

Fumento believes companies such as Roche deliberately pressure governments to act through marketing practices such as posting flu warnings on their websites.

"So that is an appeal to the public but also to public health officials," he said.

In 2007, as sales of Tamiflu decreased by 19 per cent, Roche's annual report underscored the result of investing in the manufacturing potential for the treatment.

"The global manufacturing network put in place by Roche can produce 400 million treatment courses of Tamiflu annually, if required," it reads.

Indeed, last year, even with a 68 per cent decline in demand for Tamiflu, Roche were continuing to prioritise manufacturing capacity and preparations for a pandemic.

"We increased our capacity to manufacture Tamiflu, so governments and others could stockpile the drug in case of a pandemic," Roche said in its 2008 annual report.

"Over 80 governments and 300 corporations have done so. While our manufacturing capacity outstrips current demand, this could quickly change in a pandemic. We therefore continue to stress the importance of stockpiling Tamiflu and work with governments to ensure preparedness."

Outhwaithe pointed out Relenza was first introduced in 2003 and since then 26 governments have been supplied.

"You can see there was a big spike two years ago," he said, adding sales thereafter had fallen because stockpiling was becoming satisfied after the avian flu scare. "Because people as part of their preparedness had ordered stockpiles."

When asked if sales of Relenza are having significant impact on GSK's business, he said that other sales levels meant it paled in comparison to the importance of other drugs to the company. "There's a whole host of ones that are much larger," said Outhwaithe. "Sales levels of Relenza and turnover are small in comparison."

However you define small, GlaxoSmithKline's first quarter report for this year shows that Relenza sales stood at £222 million. Not only does that reach almost four times as much as was sold for the whole of last year, but represents January to March of 2009 - the first case of swine flu was declared on March 18 , notably late into the quarter.

For Roche, sales in Tamiflu for the first quarter of this year rose 38 per cent in local currencies to 401 million Swiss francs (Dh1,343 million.) The quarterly report noted government stockpiling helped during a quiet period.

"Growth was driven by sales to governments and corporations for pandemic stockpiling, including significant new orders in Japan and the UK where the governments have announced plans to double the size of their existing stockpiles of antiviral medicines," said Roche's first quarter report for 2009. "This more than compensated for lower seasonal sales, particularly in the US, where flu outbreaks were less severe than in the 2007/2008 season."

Some believe such pharmaceutical companies exploit their allegiance with the World Health Organisation to encourage a media frenzy regarding possible flu pandemics, and thereby pressuring governments to stockpile their products. Statements and press releases from Roche and postings of updates on their website focus on swine flu as well as the alliance between Tamiflu and the World Health Organisation. In 2007, it was the same with avian flu.

"Guidelines issued by the WHO in 2007 have reinforced the position of Tamiflu as the treatment of choice for avian influenza," said its 2007 annual report.

Fumento believes the WHO is responding too easily to pressure from the pharmaceutical companies which influences media hype over the threat of swine flu and such related pandemics.

When the WHO and pharmaceutical companies, which have many medical experts on the payroll, issue severe warnings over the threat of a possible flu pandemic, and those are picked up by the media, it pressurises governments to stockpile, says Fumento.

"For five years we've been engaging in preparations for a pandemic that never came along, avian flu. They were driven to do that by urging stockpiles."

Indeed, since 2002 only 262 human deaths have occurred as a result of avian flu, according to the WHO.

With an organisation of the importance and gravity of the WHO, when they speak, people listen.

"The media, here [in the US] at least, they worship at the feet of the WHO, because their job is in fact so very important," said Fumento.

"Roche must know what it's doing, they must know the way these officials think. They must know it could influence their profits."

The marketing of swine flu through websites and press releases is cost-effective marketing for their products, he added.

"It's pretty cheap to put a page on their website. There's no need for any conspiracy theory here - what are their interests here? Money."