Accord on Sharing Flu Vaccine Production

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Accord on Sharing Flu Vaccine Production

By ANDREW POLLACK and TOM WRIGHT, New York Times

Under pressure to increase output of its flu drug Tamiflu, the Swiss

pharmaceutical giant Roche agreed yesterday to share control of

production and sales of the medicine with Gilead Sciences, the

California biotechnology company that invented it.

The agreement, which resolves a contract dispute, comes as governments

around the world are trying to stockpile Tamiflu, in case the avian

flu that is ravaging birds in Asia leads to a human epidemic.

" Both Roche and Gilead recognized the urgent need to resolve our

dispute and remove any distraction that might in any way impede

Roche's ability to address an important global health need, " F.

Milligan, Gilead's chief financial officer, said yesterday.

Gilead licensed exclusive rights to manufacture and sell Tamiflu, also

known as oseltamivir, to Roche in 1996. But last June, Gilead demanded

the rights back, accusing Roche of having breached the contract by

failing to make and market the drug adequately.

Roche denied that, saying there had simply been little interest in the

drug from consumers or governments until the recent fears of a pandemic.

" It became a drug which was difficult to commercialize, " Franz Humer,

chief executive of Roche, said in an interview yesterday. " We sat

there with a drug in which we had invested a significant amount of

development and where we had sales that were less than exciting. "

Under the agreement, Gilead said that it expected its royalty rate on

Tamiflu sales for this year to increase to about 18 or 19 percent.

Roche has previously estimated Tamiflu sales this year will triple to

at least $755 million.

Gilead's royalties would be up from an effective rate of about 10

percent until now, because the deal also means that Gilead will no

longer have to contribute to Roche's manufacturing costs. Roche is

paying Gilead $62.5 million to make that change retroactive to the

beginning of 2004.

Shares of Gilead rose nearly 8 percent, up $3.99 to close at $55.63.

Shares of Roche fell 1.3 Swiss francs to 192.1 francs in Zurich.

Tamiflu royalties are still small compared with the nearly $2 billion

the company is expected to receive this year from drugs it sells by

itself, particularly the AIDS drugs Viread and Truvada.

C. , Gilead's chief executive, said in an interview that

the companies had not been pressured to settle by government health

authorities concerned about Tamiflu supplies. " No one has ever called

me up to say we should resolve the dispute, " he said.

Under the new agreement, Roche will continue to produce and market the

drug but committees with representatives from each company will

oversee sales, manufacturing and overall strategy. That will give

Gilead a say in which outside companies, if any, are allowed to

produce Tamiflu.

Roche said recently it would consider allowing other companies to make

the drug and that it had received inquiries from about 150 companies

or governments. Gilead will have the option of helping to promote

Tamiflu to certain medical specialists in the United States.

Roche has been unable to meet current demand for Tamiflu, which has

shown effectiveness in animal studies at preventing death from avian

flu. It has been used to treat some of the people in Southeast Asia

infected with avian flu, with mixed results. So far more than 120

people in Southeast Asia have become infected by the H5N1 strain of

avian flu and more than 60 have died.

Roche said last week that it would vastly increase its production

capacity, to a level of 300 million treatments annually in 2007.

Gilead, which uses contract manufacturers to make its AIDS drugs, had

been recruiting various contractors and raw material suppliers to make

Tamiflu in the event it won back rights to the drug, Mr. , the

chief executive, said. The key raw material, shikimic acid, is

extracted from star anise, a Chinese spice.

Ching Shao, a businessman in Rockville, Md., said he had lined up

10,000 metric tons of star anise for Gilead. Now, he said, he hoped to

deal with the joint Roche-Gilead committee. " Roche paid huge money to

take Gilead away from production, " he said.

http://www.nytimes.com/2005/11/17/business/17drug.html