UPDATE: Pharmacies Turn Tamiflu Pills To Liquid Amid Shortage

The nation's top retail pharmacies are starting to convert Tamiflu capsules into liquid form as demand for that version of the antiviral medication has outpaced supply.

The Food and Drug Administration first noted short supply of Tamiflu oral suspension, used by children and patients who have difficulty swallowing capsules, or when lower doses than available in Tamiflu capsules are required, in mid-January. The agency said at the time that the liquid was on backorder, but said that supplies still remained at distributors, wholesalers and pharmacies, and all three dosages of Tamiflu capsules remained available.

Walgreen Co. (WAG) in a press release on Tuesday said flu activity is on the rise and widespread in 44 states, citing statistics provided by the Centers for Disease Control and Prevention. According to Google's Flu trends Web site, flu activity in February, typically the peak flu month, was the highest since 2008, although the fall of 2009 saw a massive surge with the global H1N1 flu scare.

Pharmacists are trained in compounding, or the mixing or changing of drugs to meet a patient's needs. Walgreen said Tuesday pharmacies in all 50 states are prepared to compound capsules into the liquid form and "many" already have, as the pills remain in adequate supply.

Compounding of drugs, including Tamiflu, "happens from time to time," according to Walgreen spokesman Jim Cohn. Cohn said studies show about 1% of annual prescriptions need to be compounded, for one reason or another, and this year's Tamiflu compounding is unlikely to change that.

CVS Caremark Corp. (CVS) spokesman Mike DeAngelis said some of its pharmacies have also begun to compound Tamiflu when necessary. Although it is not tracking the compounding, he said it is fair to characterize the incidence of compounding as still small at this point.

Walgreen's Cohn couldn't immediately speak to how many Tamiflu prescriptions have been compounded, or if the drug store expects to see any change to its revenue or earnings as a result of the conversion process.

Ashley Flower, a spokeswoman for smaller rival Rite Aid Corp. (RAD), said its pharmacists have been "doing a lot of compounding."

CVS's DeAngelis said the cost of the compounded medication is determined by how many Tamiflu capsules are necessary in the preparation. Rite Aid's Flower said this means the compounded liquid may or may not be more expensive, though she noted that many insurance providers will cover any excess cost a patient incurs from the compounding.

Tamiflu is developed by Gilead Sciences Inc. (GILD), which licensed it to Roche Holding AG (RHHBY, ROG.VX) for royalty payments. The drug, produced by Roche's Genentech unit, is taken when symptoms first emerge to reduce the spread of the flu virus in the body, and can therefore shorten the duration of the illness.

Genentech officials weren't immediately available to comment. Roche reported Tamiflu sales of CHF3.2 billion in 2009, as governments stockpiled the drug in preparation for a possible pandemic flu, but that fell to CHF873 million last year. Roche Chief Executive Severin Schwan said last month that he expected the current flu season to be "normal" with seasonal sales of CHF200 million to CHF300 million, and total sales of about CHF600 million for 2011.

Rite Aid, which is trying to put major struggles behind it, separately on Tuesday announced it has regained compliance with the New York Stock Exchange's continued listing standards by continuing to sport a stock price above $1 a share.

Walgreen, meanwhile, has seen sales strengthen, with same-store sales climbing 6.1% in January, helped by a 6.9% gain at the pharmacy. The company has outperformed its sector of late after rolling out a series of store renovations.

CVS, meanwhile, has struggled to achieve the hoped for success of its $27 billion acquisition of pharmacy-benefits service Caremark, and some analysts and observers have speculated a divorce could lie ahead absent a quick turnaround under new Chief Executive Larry Merlo, who assumed that role on Tuesday.

Walgreen shares were recently up 41 cents at $43.75, and is up 23.6% in the past year; CVS was up 46 cents, at $33.52, but its shares are down 2.6% over the past 52-weeks amid its Caremark woes. Rite Aid was off a penny at $1.30 a share, and is off 13.9% in the past year but has rallied nearly 40% in the past three months as concerns over its heavy debt burden have eased.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

-Thomas Gryta and Matt Jarzemsky contributed to this article.

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