(FORTUNE Magazine) – BIG PHARMA IS SUFFERING ITS worst-ever PR crisis, and the planet is worrying about a potentially catastrophic flu pandemic. Now one company--Switzerland's Roche Holding--has a chance to make a dramatic move. Roche is being asked to allow production of a generic version of its flu-fighting drug Tamiflu for the developing world. As UN Secretary-General Kofi Annan recently commented, "We wouldn't want to hear the kind of debate" over Tamiflu that erupted a few years ago when pharma was accused of putting patent rights ahead of the Third World's desperate need for cheap HIV drugs.

So it's a no-brainer, right? Good for Big Pharma's image, good for poor and vulnerable people, and Roche still gets to make its money in the U.S. and Europe. (One Indian company, Cipla, has said it will make a generic Tamiflu--with or without Roche's blessing.) Roche has even hinted that it might go along with some version of the idea.

But not so fast. In the case of Tamiflu, the course suggested by Annan could make a bad bug even worse. Giving away Tamiflu would be a "prescription for disaster," says Fang Fang, chief scientific and medical officer at NexBio, a San Diego biotech developing new drugs to stymie H5N1, the deadly avian flu variant threatening to erupt into a pandemic. Her reasoning has as much to do with the fact that she grew up in China--and knows its hardscrabble necessities well--as it does with patents and politics.

Tamiflu is the only quickly deployable drug available to slow the spread of H5N1 if it evolves the ability to readily jump between humans--the virus spreads fast among birds but as yet rarely infects people (60 have died so far). If a cheap generic version of Tamiflu were widely available in Asian countries, says Fang, farmers would almost certainly give it to chickens, ducks, and other farm animals in a desperate attempt to preserve their livelihood--H5N1 has already devastated countless poultry growers' flocks. That would quickly cause H5N1 to evolve resistance to the drug, and "very soon it would be useless."

That's just what has happened with an older, generic flu drug called amantadine. Used by Asian chicken farmers since the 1990s, the drug is now "totally worthless" against H5N1, says Fang, an MD and Ph.D. who co-founded NexBio with her husband, Mang Yu, who is CEO. A recent World Health Organization report lends support to that view --it noted that H5N1 isolated from patients in 1997 was far more susceptible to amantadine than are recent isolates of the virus.

Mutations that make flu viruses resistant to Tamiflu occur less readily than those that let the bugs laugh off amantadine. But last year a Japanese team discovered that Tamiflu may be more threatened by the resistance problem than most experts had thought. The researchers monitored the evolution of ordinary flu viruses that had infected 50 kids, who were treated with Tamiflu. (The drug can speed recovery if given within 48 hours of the onset of symptoms.) Beginning as early as day four after the drug was given, flu strains resistant to it emerged in about one-fifth of the children. Other recent studies indicate that Tamiflu already has lost much of its efficacy against H5N1--eight of ten H5N1 victims in Vietnam's Ho Chi Minh City, for instance, died in 2005 despite getting the drug. The upshot: We can't afford to jeopardize even an iota of Tamiflu's remaining ability to check H5N1.

Abrogating Roche's Tamiflu patents (which it licensed from Gilead Sciences, a California biotech) would also put a chill on the quest for sorely needed alternatives, says Yu. NexBio hopes to begin testing one in humans next year--an inhalable medicine called Fludase. "One reason I love this country is because there is law and order here for protecting intellectual property," says Yu, a Shanghai-born naturalized U.S. citizen. "That helps foster innovation and competition, and competition is the best way to put pressure on Roche to increase supplies of Tamiflu." Let's just hope the competitive situation envisioned by Yu evolves faster than the virus.

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