November 8, 2005

Roche is on track to increase production of its antiviral Tamiflu to at least 300 million doses annually by 2007, and that number could grow even higher with added production from third-party manufacturers, the company said recently.

Tamiflu (oseltamivir) demand has skyrocketed in recent months, as governments from around the globe look to stockpile the antiviral, which is considered one of the few viable treatments for the H5N1 avian flu virus that has killed millions of birds and could mutate to spread among humans.

Roche has taken several steps to meet the growing demand, including opening an additional capsule manufacturing site in the U.S. last month, and expanding its worldwide production capacity. Assuming the firm meets its annual target of 300 million doses by 2007, production of Tamiflu will have increased by tenfold since 2004, Roche said.

Roche is already reaping benefits from the increased interest in Tamiflu. During the company's recently completed third quarter, sales of Tamiflu nearly tripled, increasing to $215.9 million from $85.1 million in the same period of 2004. For the full year, the company expects Tamiflu sales to roughly triple to between $770 million and $925 million.

Looking further ahead, a production rate of 300 million doses annually would give Roche the ability to fill Tamiflu orders worth between $1.5 billion and $5.4 billion, according to Merrill Lynch analyst Graham Parry, who noted that there is still uncertainty over the price Roche will charge for Tamiflu.

"Roche may decide to trade price for volume as its manufacturing capacity increases," Parry writes in a recent research note. "In particular, we note that contracts for bulk substance are likely to be at a significant discount (and therefore lower margins) to those for capsules and the mix of demand remains uncertain. We also note that price discounts may be necessary in order to avoid compulsory licensing of its intellectual property by governments as the panic surrounding avian flu increases."

In addition to expanding its in-house production capabilities, Roche is continuing discussions with third parties interested in manufacturing Tamiflu on a contract basis. "We have entered into discussions with a number of interested parties to expand worldwide supply, so governments can be as prepared as possible for when the influenza pandemic happens," said William Burns, chief executive of Roche's pharmaceutical division.

Roche has received more than 150 requests from third parties, and the company has already completed initial talks with eight firms about Tamiflu sublicenses. Roche didn't reveal the identities of firms it has spoken with, saying only that they include large generic manufacturers and major pharmaceutical companies.