SAN FRANCISCO (AP) – In the first few years after federal regulators approved the influenza-fighting pill Tamiflu in 1999, the drug suffered from lackluster sales and indifference from U.S. health officials more focused on creating new vaccines.

Now, demand for Tamiflu is outstripping supply.

The drug’s sales have skyrocked in recent months as a major U.S. vaccine supplier failed to meet half the nation’s needs and the World Health Organization, worried about the threat of a worldwide bird flu epidemic, urges governments to stockpile anti-viral drugs.

That’s touched off a nasty dispute between two drug companies that are fighting for control of the pill’s growing profits – even as U.S. health experts fret about inadequate Tamiflu stockpiles and Third World countries threaten to ignore U.S. patents and make generic versions of the drug.

Tamiflu prevents the typical flu strains that occur every year from replicating in humans once a person is infected, shortening the illness’ duration by two days while rendering its symptoms less severe.

The drug has never been tested on people infected with the bird flu that has swept through poultry populations in large swaths of Asia since 2003, killing at least 63 people.

But Tamiflu has showed promise in mice infected with that exotic flu strain, which health officials fear could spread globally, with disastrous results. Officials thus want to stockpile Tamiflu while they work to develop a bird flu vaccine.

“It appears that this is the only effective intervention we have once someone has been infected. It’s the one treatment,” said Jeffrey Levi, a policy analyst for Washington D.C.-based nonprofit Trust for America’s Health. “The problem is that we don’t have enough of it.”

Tamiflu was invented in 1996 by scientists at Foster City-based Gilead Sciences Inc., which quickly sold all commercial rights and manufacturing responsibility in exchange for annual royalties to the Swiss giant Roche Holding AG.

Roche makes Tamiflu at its Basel, Switzerland, plant and until last year, this sole source for the drug wasn’t a public health issue.

Sales of the prescription drug limped along at about $76 million in 2001 and $134 million in 2002 and were so lackluster that Gilead complained about Roche’s commitment to the drug.

“It has been a historically tough sell in a traditional flu market,” said Sharon Seiler, an analyst for Punk, Ziegel & Co. “You need a prescription, you need to take it within 48 hours of symptoms and not all pharmacies stocked it.”

But when the WHO in January 2004 urged the world to stockpile Tamiflu, sales skyrocketed. For the first half of this year, sales surged to $456 million.

Roche has doubled its Tamiflu manufacturing capacity in each of the last two years and plans a similar expansion next year, including manufacturing Tamiflu in some of its U.S. factories.

Still, orders are coming in faster than Roche can immediately fill.

U.S. Department of Health and Human Services Secretary Michael Leavitt has called for a Tamiflu stockpile to treat 20 million Americans, yet there are only enough pills on hand to treat 2.3 million people.

The United States ordered another 3 million treatments, which Roche expects to fill by next year.

It will take Roche two years to complete the United Kingdom’s stockpile order to treat 14.6 million of its citizens.

Similar shortages are befalling other countries, too, including Southeast Asian nations thought to be the most likely to serve as ground zero for a major bird flu outbreak. Some 30 countries have placed or plan to place orders to create stockpiles that could treat more than 28 million people.

Several Third World countries are worried they will be overlooked and have suggested that WHO press Roche to relinquish its patent rights to Tamiflu, clearing the way for other companies to produce cheaper, generic versions of the drug.

On Monday, though, WHO Director-General Lee Jong-wook said WHO has for now rejected the call for generics and wouldn’t pressure Roche to relinquish its patent on Tamiflu.

Last week, Roche donated enough pills to WHO to treat 3 million people.

But even as fear and preparation plumps Roche’s profits, Gilead is attempting to wrest control of Tamiflu’s production and commercial rights.

Gilead made $44.6 million on royalty revenues from Tamiflu in 2004 but is on pace to more than double that in 2005, having made $48.1 million in the first six months of the year.

In June, Gilead charged Roche with failing to adequately promote and produce Tamiflu and invoked a contract clause to demand the return of all commercial and manufacturing rights.

Roche denied the charges and the issue appears headed to an arbitrator.

“We are confident we fulfilled our obligations under the licensing agreement,” Roche spokesman Terry Hurley said.

If Gilead were to win, Roche would still manufacture Tamiflu for two years while Gilead ramped up its factory.

“We believe this is an opportunistic move on Gilead’s part given that Tamiflu is entering a period of heightened demand,” analysts at Credit Suisse First Boston wrote in a note to investors last week.

Gilead spokeswoman Amy Flood declined to comment, but executives of both companies have repeatedly said, including in testimony to Congress, that Tamiflu production won’t be affected by the spat.

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Associated Press Writer Ryan Nakashima in Milwaukee contributed to this report.

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