Success at Glaxo’s HIV Unit May Mean Having to Call It Quits

-1x-1.jpgHIV drugs are proving to be so effective in containing the virus that GlaxoSmithKline Plc foresees a time, a decade away, when its most profitable business unit may no longer have a purpose.

“There are diminishing returns in HIV,” said David Redfern, Glaxo’s chief strategy officer and the chairman of its AIDS treatment unit ViiV Healthcare Ltd. “The industry has done a fantastic job of taking the fear of the late ’80s, and the death sentence, and taking that to one tablet a day.”

As ViiV’s and market leader Gilead Sciences Inc.’s drugs get better at defeating HIV, there may not be much more room for improvement short of delivering an actual cure, Redfern said in an interview. Current medicines are also likely to lose patent protection starting in 2026. In the meantime, Glaxo aims to steal market share from Gilead with drugs that simplify treatment regimens and cause fewer side effects.

ViiV is one of the few bright spots for Glaxo, which ranks last among the world’s 10 largest drugmakers in total shareholder return over the last year. The unit’s earnings were equivalent to more than a quarter of London-based Glaxo’s operating profit last year. Pfizer Inc. and Shionogi & Co. own 22 percent of ViiV.

Glaxo in May abandoned the idea of a partial spinoff, reaffirming its commitment to the unit after investors signaled they preferred to keep the current structure. Between announcing a possible IPO and dropping the plan seven months later, “our view of ViiV’s prospects got even stronger,” Redfern said.

Two Players

ViiV garnered revenue of about $2.5 billion last year. It’s counting on drugs like Tivicay, an integrase inhibitor that blocks an enzyme critical in the spread of the virus, to catch up with Gilead, which sells $10.3 billion worth of AIDS medicines. The gap will likely close as Tivicay and Triumeq, a three-in-one medicine introduced last year, gain acceptance, Redfern said.

Tivicay recorded $467 million in sales last year, a figure analysts estimate will more than double this year. It’s also a component of Triumeq. By 2020, the two products combined with ViiV’s older drugs will reach estimated sales of $6.1 billion, according to analyst estimates compiled by Bloomberg.

“We are developing a new generation of products that will be even more competitive with Gilead’s portfolio,” said Dominique Limet, ViiV’s chief executive officer. “The future of the HIV market is mainly driven by two companies, ViiV and Gilead.”

Fewer Pills

Gilead declined to comment on ViiV’s binary view of a market that also includes drugmakers AbbVie Inc., Johnson & Johnson and Merck & Co. “Gilead welcomes innovation in all forms if it meets unmet patient needs and improves HIV patient outcomes,” Andrew Cheng, executive vice president for HIV, said in an email.

ViiV is trying to trim the number of drugs people take to reduce interactions between medicines. As patients age and develop other health issues, it makes sense to simplify their treatment, according to Limet.

Even if ViiV one day loses its purpose as a maker of AIDS medicines, Redfern favors keeping it in place for other drugs.

“There may come a point where GSK will have to decide whether it lets ViiV run down,” he said. “There is a very strong culture and capability in ViiV that could gainfully be used for other specialty assets. It’s a debate we should have and will have.”


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