Strategy

Flu Inc.

Inside the new business of fear.

As the head of Trevor Owen Ltd, Pierre Barclle is used to fielding unexpected phone calls. After all, in addition to professional hockey bags and bank delivery sacks, his Toronto-based company manufactures a line of body bags. He sells a fishnet-like product that allows marine authorities to pick up floaters without hauling a ton of water aboard their boats. He has a “chlorine free” model for the environmental crowd. Sadly, his company has even found a market in body bags for kids. “I once got a call,” Barcik says, “from some weird guy in the States. He was throwing a goth party. He wanted a body bag, and he wanted it in black. I told him to go to a Halloween store.”

These days, thanks to growing fears of widespread death from the H1N1 flu, Barcik says his phone is ringing off the hook with calls from serious potential customers. They are especially interested in the company’s extra-durable pandemic body bag, which is made from a polyethylene woven fabric that can take a beating and still contain fluids. Recent callers include an emergency planner with the Qatar government who was looking for 500 pandemic body bags to be shipped overseas, and a sourcing professional with the Turkish army, which apparently wants to stock up on both pandemic and regular body bags. According to Barcik, company body-bag sales have soared by at least 50% this year. And he expects them to jump a lot higher now that flu season has arrived. “What I’m sensing,” he says, “is that we are at the tail end of the planning process. There are budget constraints when dealing with unusual items like pandemic planning. Customers first acquire more urgent things like hand sanitizer and masks.”

Over at the Stevens Co., Canada’s second-largest distributor of medical supplies, president Jeff Stevens is also experiencing a pandemic-induced boom. While trying to catch his breath, he says his company seems to have a new customer for its flu-related products — H1N1 masks, hand sanitizer, surface disinfectants, medical gloves, isolation gowns and safety glasses — pretty much every time he turns around.

When the influenza hit Mexico, Stevens says the company “started to get a lot of phone calls from our health-care customers, primarily hospitals.” That was followed by orders from various levels of government. “The buying was so dramatic that we were placed in a back-order situation within a week and a half.” Business was especially brisk after the World Health Organization announced that H1N1 had reached pandemic Level 5, indicating widespread human infection, which automatically triggered many corporate pandemic plans, forcing companies to stock up.

“We can hardly keep our pandemic kits in stock the demand is so strong,” says Stevens, noting that influenza buying has already contributed about 15% growth to his company’s total sales this year. “I wouldn’t call it hysteria,” he adds. “I’d call it cautionary buying.”

But perhaps the largest benefactors of the current flu scare are the pharmaceutical companies. After all, the main driver of the world’s rising GPP (global pandemic product) is demand for antiviral medications, which are the world’s primary defence against any influenza outbreak until a proven vaccine arrives on the scene. (Antivirals kill or prevent the growth of viruses, while vaccines stimulate the buildup of the immune system response against a specific disease.) In the second quarter, U.K.-based GlaxoSmithKline reported a 1,900% increase in sales of its flu drug, Relenza. And thanks to its Tamiflu product, Switzerland’s F. Hoffmann-La Roche saw pharmaceutical sales during the first half of this year increase by 11% to $20 billion — more than twice the growth rate of the global market.

Interestingly, a significant portion of the demand that generated these stellar results stems from a controversial new trend — the hoarding of antiviral medications by private-sector organizations. As citizens get more scared, big pharma is changing the way antivirals are distributed for state-of-emergency planning, approaching businesses with a unique and previously unseen proposition: an antiviral futures option that allows companies to ensure they’ll have access to the medication when a pandemic hits, without having to physically keep it in stock. It’s a fascinating and potentially lucrative concept, but it’s also loaded with moral baggage. Questions are already being raised about the growing practice of having doctors writing mass prescriptions for medications long before anyone gets sick, not to mention the issue of whether corporate executives deserve access to potentially life-saving medications before the rest of us. Welcome to Flu Inc., where the profits are based on fear, and the ethical questions are thorny.

In many respects, the increase in pandemic economic activity is simply history repeating itself. This isn’t the first frantic round of emergency shopping to hit the world, and every new perceived threat seems to come with its own unique profit-making opportunities.

Shortly after the Soviet Union exploded its first nuclear device in 1949, Americans were introduced to Bert the Turtle, who kicked off a whole new market in home nuclear fallout planning. Starring in an American civil defence documentary, the cartoon reptile taught U.S. citizens how to duck and cover during an atomic attack. Bert’s ability to quickly shelter himself inside his shell, whenever an unfriendly monkey hiding in a tree decided to drop dynamite in his path, turned him into a cultural icon. Soon backyard fallout shelters became a must-have to keep up with the Joneses during the Cold War.

Then there was the Y2K computer glitch, which was supposed to shut down the entire wired world before anyone had coffee on New Year’s morning in 2000. Consumers flooded into their local hardware stores and supermarkets to stock up on flashlights, canned food, bottled water, generators and batteries. “It is now almost a decade later,” says an embarrassed Toronto-based IT project manager. “And I now have two kids with plenty of toys that use plenty of batteries. But I still have a huge stockpile of batteries that I don’t need. I was afraid, and I prepared for nothing.”

And let’s not forget the massive run on duct tape and plastic sheeting that emptied U.S. store shelves after America’s terrorist threat level was raised to orange in 2003, indicating a “high” level of immediate risk. Tom Ridge — Washington’s first head of Homeland Security — single-handedly boosted U.S. economic activity by encouraging citizens to stock up on products that could be used to seal off their homes in case of a chemical or biological attack.

This time the hysteria is for antivirals, in anticipation of the second wave of the first influenza pandemic to hit since 1968. Simply put, these flu drugs are today’s duct tape.

As with the threats of the past, many feel that the fear of H1N1 could prove to be overblown. After all, the current pandemic appears to be less deadly than the average seasonal flu, which annually kills between 4,000 and 8,000 Canadians, and between 250,000 and 500,000 people worldwide. Plus a vaccine is in the final stages of development, and should be rolled out in a matter of weeks. Still, the 2009 influenza pandemic has already killed more than 3,900 people in 191 countries — and it is spreading with unprecedented speed. According to the WHO projections, one-third of the world’s nearly seven billion people could eventually be infected. Given the rising levels of concern, it is only natural that there is a rise in demand for private stockpiles, which can quickly and easily be accessed without relying on government.

In some ways, the current situation is similar to the stockpiling that took place in 2005, when the world was scared silly by the threat of avian flu. Back then, fear led many Americans to either fake symptoms or pressure doctors into issuing just-in-case prescriptions so they could build up personal hoards of Tamiflu. According to a collaborative study by the U.S. Centers for Disease Control and Prevention and Medco Health Solutions, the number of prescriptions filled for Roche’s drug jumped more than 300% in 2005, even though there was little or no influenza activity. “The correlation between the heightened U.S. media coverage around Tamiflu and the prescription activity for the drug between September and November in 2005 is uncanny,” noted Robert Epstein, Medco’s chief medical officer, when presenting the study at the 2006 annual meeting of the Infectious Diseases Society of America. He pointed out there was “nearly a fivefold increase in prescribing rates among physicians?over this typically low influenza time period.”

In a bid to stop the 2005 wave of private hoarding, Roche temporarily halted distribution of Tamiflu in North America to make sure the drug would be available to people who actually needed it. Blaming the media, the company noted it was experiencing a supply crunch, even though there was no influenza circulating, and the threat of a pandemic had not materialized. The priority, Roche added, “is to ensure that Tamiflu is available for seasonal use and to fulfil government orders.”

Back then, it was almost universally considered unethical to allow antivirals to be held in private-sector hands. Influenza symptoms do not appear immediately, and Tamiflu and Relenza are a limited resource that must be taken within 48 hours of infection. If taken too late, they will not help anyone. But every dose taken by an infected individual increases the risk of viral mutations that could render emergency public stockpiles useless. But U.S. policy has since changed. Claiming it improves efficiencies, the U.S. Department of Health and Human Services now considers a diversified stockpiling strategy that includes building up corporate-based supplies to be a sound practice. And with Uncle Sam now on side, GlaxoSmithKline and Roche have been quick to introduce radical new options to serve growing corporate demand for their pandemic products.

The main new offering from GlaxoSmithKline is the Pandemic Readiness for Employers Program, which was launched just over a year ago in the States. The program offers free storage and discounted rates to private-sector customers, as well as an unprecedented “futures” option, which allows companies to purchase rights to buy Relenza at an undetermined later date, rather than actually buying the product outright. “We’re committed to helping employers and other business leaders prepare for an influenza pandemic and its impact on the health of their employees and the operational integrity of their organizations,” announced Chris Viehbacher, president of North American pharmaceuticals at GlaxoSmithKline. “By offering employers these options, we aim to reduce the storage and cost barriers associated with implementing an antiviral stockpiling program.”

Around the same time, Roche started offering the Antiviral Stockpiling Solution to American corporate customers. Like the GlaxoSmithKline program, it allows companies to secure a future supply of antivirals using options. In the Roche program, customers can enrol to purchase a fixed amount of Tamiflu (with a minimum order of 2,500 packs) for an annual fee of US$6 per employee. The program commits to delivery of Tamiflu within 48 hours (under most circumstances) and promises “fresh product,” meaning U.S. corporate customers do not have to worry about the five-year lifespan of antiviral drugs that threatens the public-sector supply in many countries. “Only when your business requests delivery of their stockpile will your company incur a usage fee, which is the wholesale acquisition cost at time of delivery,” states the program’s marketing material. “The only way to ensure that your organization has an adequate supply of antiviral medication during a pandemic is to purchase a quantity in advance.”

Here in Canada, Roche rolled out a similar offering called the Roche Antiviral Purchase Program (RAPP) in December 2008. It allows a business to pay a nominal annual fee to “reserve” its own antiviral stockpile, which the company promises to store and rotate to keep it “in date.” At the time the program was ramped up, Roche issued a Canadian press release that highlighted the U.S. Department of Health and Human Services approval of such programs in the States, and a 2008 report from the Schulich School of Business, which listed antiviral medications as a key measure to keep employees safe during an influenza emergency.

So far the program has had mixed success. An informal survey of Canadian companies turned up only one major player that admitted it was stockpiling “for key employees,” along with a few smaller companies which are doing so, such as Toronto’s Environics Communications. Environics president Bruce MacLellan freely admits his PR firm welcomed the opportunity to acquire antiviral medications for its employees. “We lived through SARS,” he says, “so we know dealing with a broad-based health scare can be challenging.” MacLellan says Environics (along with other corporate stockpilers that he knows about) decided to make its own decision about what was best for “continuity of service” and employees. So staff members have access to free flu shots, and they have been schooled in best workplace health practices. They have also been given antivirals, with instructions not to use them without direction from a doctor. “They are an insurance policy,” MacLellan says.

However, other Canadian companies, such as General Motors of Canada, Bank of Montreal, Toyota Canada, Magna International and Bell, say they are not acquiring antivirals. The reason? Because here in Canada, the Public Health Agency is still firmly against government stockpiling. “We are taking all appropriate steps to protect our people and ensure business continuity,” says Bell spokesman Mark Langton. But he adds that “stockpiling by corporations is not recommended by the Public Health Agency of Canada.”

Now that the Pandora’s box of corporate stockpiling programs for medication is open, it’s unlikely to be closed again. But as the practice slowly becomes widespread, it’s raising some difficult ethical questions. On one side is the Public Health Agency of Canada, which is firmly against private-sector hoarding of Tamiflu or Relenza. On the other side are the many corporations who say they should be free to protect their employees in this manner if they choose.

PHAC says that stockpiling is wrong because it poses a serious threat to Canada’s public stockpile of 55 million doses. “Antivirals,” says PHAC spokeswoman Nadia Mostafa, “should only be used to treat those with severe illness, and shouldn’t be used as a preventative measure in the general population.” Jeff Blackmer, the Canadian Medical Association’s executive director of ethics, agrees, saying that “private-sector stockpiling of medication is not consistent with good medical practice,” while Kathryn Clarke, senior communications co-ordinator with the College of Physicians and Surgeons of Ontario, is troubled by the fact that prescription drugs are being issued to healthy people. She says that doctors are expected to make judgment calls based on an examination of a patient’s health. And “I’d expect them not to [issue a prescription drug] if there is no clinical need.”

However, even among the different levels of Canadian government, there is no agreement on the issue. When federal, provincial and territorial representatives gathered to hammer out Canada’s pandemic preparedness plan a few years ago, they managed the tough task of recommending how to prioritize the public for vaccinations (heath-care workers, then essential service providers, then high-risk individuals, then healthy adults, then children and teens). What they could not resolve “is whether private stockpiling of antivirals is ethically acceptable.” So the mixed messages persist. While the federal PHAC is against stockpiling, in Ontario, the Ministry of Health isn’t concerned. “The ministry understands that stockpiling antivirals may be part of corporate business continuity plans,” says spokesman Andrew Morrison.

Academics and ethicists are split too. In a paper on the dilemma, American risk expert Peter Sandman concludes society as a whole is probably better off if the supply of antivirals remains centralized. But the Rutgers University professor says the notion that most people shouldn’t be trusted with antivirals is insulting and wrong-headed, since stockpilers are highly motivated “not to waste.” Sandman points out that doctors prescribe on a just-in-case basis all the time, noting that’s why people with severe allergies carry an EpiPen. With the small window of opportunity to use these drugs, it is ridiculous not to expect people to want personal supplies of antivirals close at hand, he says. In fact, on a personal level, it is “irrational” to leave your well-being up to government.

But Lisa Schwartz, McMaster University’s Arnold L. Johnson chair in health-care ethics, thinks GlaxoSmithKline and Roche have opened a can of worms for corporate doctors while creating a new social class of haves and have-nots. If someone is travelling to a viral hot zone, she admits, it would not be unusual for them to be given a just-in-case supply of antivirals. But supplying corporations with prescriptions for Tamiflu or Relenza is another matter. The medical profession, Schwartz says, should focus on maintaining good public health, “not healthy balance sheets.”

For their part, Roche and GlaxoSmithKline say they are very careful to ensure that the stockpiling programs that they offer their corporate clients don’t put the public supply of antivirals at risk. Both say they stopped targeting Canadian corporate customers with special programs as soon as the WHO declared an official pandemic situation earlier this year. Government stockpile orders are now the priority, says GlaxoSmithKline spokeswoman Michelle Smolenaars-Hunter.

Roche spokeswoman Laura Pagnotta says that her company was quick to discontinue the corporate program as the H1N1 outbreak grew. “The RAPP website is no longer active,” she says, noting that prior to the outbreak the company “fulfilled global government pandemic orders that amount to approximately 220 million treatment courses.” Corporations that “wish to purchase now are able to do so via the regular channels, and the order is placed into the global queue.” In Canada, Pagnotta adds, governments and hospitals were not offered off-site storage or the futures program due to their unique need to keep antiviral medications on hand. But they were offered a “discounted pandemic price” for Tamiflu.

Further complicating the issue is the fact that every treatment bought by a private-sector company could represent one less drain on the public supply. It’s also true that the antivirals were created by profit-motivated public companies, which need regular revenues to survive, and the corporate futures programs help to provide that. Since 2005, Roche has increased Tamifu production capacity from 55 million to 400 million treatments, and they have done so with no guarantee that would pay off for its shareholders.

That said, government stockpiles currently include an undisclosed amount of antivirals that will expire over the next 18 months. And neither GlaxoSmithKline nor Roche was inclined to explain what would happen if private-sector option holders started placing mass orders in a pandemic situation when governments around the world started screaming for more. Those governments, of course, have the authority to use emergency powers to appropriate pandemic products, so it is not even clear what Relenza and Tamiflu options would be worth if the big one hits.

If the worst-case scenario happens, the brains behind GlaxoSmithKline’s Pandemic Readiness program and Roche’s corporate stockpiling solution might just want to take Bert the Turtle’s advice. Because when the dynamite starts raining down from the sky, sometimes it’s best just to duck and cover.