South-Western College Publishing - Economics  
Those people who need the avian-flu drug the most can't pay for it.
Subject Citizens of poorer nations can't afford the high prices of the avian-flu drug.
Topic Supply and demand
Key Words

supply, demand, vaccine, tamiflu, avian flu

News Story

For those who want to purchase the medications to combat the potentially deadly avian flu, wealth and income have become more important than need. First seen in Asia in 1997, the bird-flu virus, known as H5N1, is especially virulent; it causes death in 80% of its victims, and it is especially contagious. Rich nations, such as the U.S. and the U.K., have taken steps to stockpile tamiflu, a medicine that has shown success at fighting off the virus. These stockpiles leave Asian nations most at risk for the flu with few resources available to purchase the cure.

Roche Holding AG of Switzerland, which produces tamiflu, hasn't been able to keep up with demand for the drug. It takes 12 months to create the drug with a very complex production process, so even though Roche ordered production processes to double more than 12 months ago, a deficit remains. Further, Roche has been taking steps to increase the shelf life of the drug, further increasing its availability, but this research and development also takes time. Rival pharmaceutical company GlaxoSmithKline of the U.K. makes a drug that must be inhaled and is therefore harder to administer than tamiflu, which comes in pill form. Unfortunately, few other firms have undertaken the creation of vaccines for the avian flu, since these drugs tend to be poor revenue producers: The medication (a dose of about 10 capsules) is taken only once by each individual (as opposed to anti-depressants, for example, which must be taken on an ongoing basis).

The United Kingdom has stockpiled about 15 million doses of tamiflu for its citizens; the U.S. has about 2.3 million doses at hand, and France has about 13 million doses. Vietnam, on the other hand--a country hit hard by avian flu--has only 2,000 doses for its population of 84 million people. The World Health Organization has recommended that countries stockpile enough tamiflu for 25% of its population, but those purchases are quite difficult for poor nations when each dose costs about U.S. $39.00 (10 capsules at US$3.90 each). Because of the worldwide shortage of the medicine, some virologists have suggested that richer nations hold about 10% of their own stockpiles for use by Asian nations.


What incentive do richer nations have in giving doses of tamiflu away to those Asian nations that are especially susceptible to avian flu?

2. Use a graph of supply and demand to indicate what is happening in the market for tamiflu.
3. Use a cost/benefit analysis to demonstrate who should receive more of the drug: the U.S. or Vietnam (or choose your own rich nation and Asian nation). If the shelf life of the drug is only about 12 months, who should be receiving the drug, and why?
Source Gautam Naik and James Hookway. "Demand, Cost for Avian-Flu Drug Could Leave Neediest With Least." The Wall Street Journal.. 18 May 2005. A1+.

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