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GSK and Pfizer joint venture more than a defensive move

Published on 27/04/09 at 11:35am

GSK and Pfizer have agreed to merge their respective HIV businesses, creating a single specialist entity with total pro-forma sales of approximately $3 billion in 2008. Although a defensive move, the combination of marketing and distribution resources and the potential to create new lifecycle management strategies significantly improves the commercial outlook for each franchise, say analysts Datamonitor.

The product portfolio formed by the combination of GSK and Pfizer's respective HIV businesses will include 11 marketed drugs, as well as six candidates in clinical development, four of which have reached phase II. Altogether, the new company will have 17 molecules at its disposal to develop in fixed-dose combinations (FDC) as possible new HIV treatments. The new company will contract the R&D services to develop these medicines directly from GSK and Pfizer. The ownership of the specialist company will be split, with GSK initially holding an 85% equity interest and Pfizer holding the remaining 15%. Under the terms of the agreement, equity interests will be adjusted if specified sales and regulatory milestones are achieved.

Battle for HIV market share intensifying

The HIV drugs market, sized at $10.7bn across the seven major markets (US, Japan, Germany, France, UK, Spain and Italy) in 2008, according to IMS Health, has experienced strong growth at a CAGR of 12% since 2004, mainly driven by the introduction of new drug classes and fixed-dose combinations.

GSK, Gilead and Bristol-Myers Squibb (BMS) are the leading companies in the HIV field. GSK traditionally dominated the sector with a portfolio of eight marketed products, among them the nucleoside reverse transcriptase inhibitor (NRTI) FDCs Epzicom, Combivir and Trizivir, achieving sales of $674m, $606m and $376m respectively in 2008 across the seven major markets.

However, in 2007, Gilead knocked GSK off the top spot following the launch of Atripla, a once-daily FDC of the nucleoside and non-nucleoside reverse transcription inhibitors tenofovir, emtricitabine and efavirenz. This drug, the first cross-class FDC, was produced through a unique collaboration between Gilead and BMS. It quickly became the new gold-standard for HIV first-line therapy, with sales exceeding $1bn across the seven major markets in 2008. As a consequence of Atripla's commercial success, Gilead had a 32% share of total sales in the HIV field across the seven major markets in 2008, compared to only 21% for GSK.

Over the next decade, at least five of GSK's HIV drugs are set to lose patent protection and recent launches by Johnson & Johnson/Tibotec and Merck & Co are further threatening the company's position in this field. Thus, with no late-stage antiretrovirals in the pipeline, GSK is heavily reliant on Epzicom to compensate for the forthcoming patent expiries of the majority of its products. Given that first-line treatment is commercially the biggest opportunity in the HIV field, GSK's key rationale for signing up to the joint venture with Pfizer can be seen in the company's need to bolster its pipeline with additional drug candidates and options for novel FDCs in order to prevent the loss of further market share to its competitors.

Pfizer, meanwhile, is a minor player in the HIV market, accounting for only 1% of HIV drug sales across the seven major markets in 2008. The company has three marketed drugs, none of which exceeded sales of $100m in these territories. Pfizer's CCR5-inhibitor Selzentry (maraviroc) was launched in 2007, but has failed to achieve significant sales due to the lack of approval for first-line therapy, and the plethora of other drugs available for treatment-experienced patients. Pfizer's motivation for forming the joint venture is therefore to gain access to GSK's global HIV commercial organization and distribution network, allowing it to increase Selzentry's uptake. Partnering with an experienced HIV drug developer will also increase the chances of success for its pipeline products.

Portfolio integration opens the door to new FDCs

GSK pioneered FDCs when it launched Combivir in 1997. The drug remained the market leader for several years, but Gilead's Truvada eventually superseded it. GSK's response was the new FDC Epzicom/Kivexa. While this is currently GSK's best-selling HIV brand, it has nonetheless failed to live up to expectations. This can be attributed to the fact that its abacavir component has been associated with both hypersensitivity reactions and an increased risk of myocardial infarction. Additionally, Gilead's Atripla now dominates the treatment-naive market. GSK has so far been unable to develop a competitive product, but the Pfizer partnership and the in-licensing of an NNRTI from Idenix in February present the possibility to formulate a comparable cross-class combination. Unfortunately, the factors mentioned above reduce the attractiveness of novel cross-class combinations containing Epzicom.

Although GSK/Pfizer's combined HIV businesses will have a broad marketed portfolio, with 11 products spanning several different drug classes, at least three of these brands are commercially irrelevant. However, the remaining eight comprise important marketed products including Epzicom and Combivir, GSK's protease inhibitor (PI) Lexiva and Pfizer's CCR5 inhibitor Selzentry. While Lexiva has comparable safety and efficacy to the leading PIs, it has failed to gain the popularity of Reyataz and Kaletra. Selzentry's use is limited to a subset of patients, whose susceptibility to the drug needs to be determined with an expensive test.

The integrated pipeline consists of four phase II products, including an integrase inhibitor, two NNRTIs and a CCR5 inhibitor. Given the success of Merck's Isentress, the integrase inhibitor class looks the most interesting. Additionally, the breadth of drug classes in both pipeline and marketed compounds offers ample scope for formulating various new cross-class combinations. This is particularly important given that Gilead is developing the so called 'quad pill', consisting of two-in-one HIV drug Truvada, the integrase inhibitor elvitegravir, and Gilead's PK enhancer.

Outlook for GSK/Pfizer HIV franchises boosted by joint venture

Before the joint venture, Datamonitor predicted GSK's antiretroviral sales in the seven major markets to decline from $2.3bn in 2008 to $1bn in 2017. However, Datamonitor believes that the disclosure of the existing clinical development pipeline and opportunities for FDCs will positively impact future sales trends. Nevertheless, although the combination of GSK's and Pfizer's HIV franchises will create a strengthened portfolio, Gilead is set to remain the market leader in the HIV sector. Sales of GSK and Pfizer's combined portfolios across the seven major markets would have accounted for $3bn in 2008, still falling short of Gilead's $3.4bn.

It remains to be seen whether GSK and Pfizer will choose to combine other virology units. Pfizer has an active hepatitis C (HCV) pipeline, and could potentially benefit from the expanded HIV sales force which can be used to market its HCV products.

Furthermore, GSK and Pfizer's joint venture may influence the remaining HIV players to consolidate their portfolios. One such alliance that appears to be forming is between Merck & Co and Johnson & Johnson/Tibotec. The two companies have co-operated successfully to establish the TRIO combination (Isentress, Intelence and Prezista) for treatment-experienced patients, and are currently investigating Isentress and Prezista together without the classic NRTI backbone for treatment-naive patients. If successful, this approach poses a significant threat to both Gilead and GSK, which are heavily reliant on their NRTI-based products.

The innovative structure of the GSK-Pfizer joint venture, which will see the corresponding business units of two competitors combined, has several benefits. Initially, it allows a pooling of marketing and distribution resources, reducing overhead, but it also improves the negotiation position with major purchasers of their products, particularly valuable for Pfizer as the minority partner. It also creates a stronger licensing partner for biotech companies. In the longer term, the partnership will open up new lifecycle management strategies by enabling new FDCs, thus reducing the impact of patent expiration. Finally, Datamonitor expects the new company to potentially act as a consolidator for other, smaller HIV assets, such as Roche's Fuzeon. According to GSK's chief exeuctive, Andrew Witty, this deal may be a sign of things to come for major pharmaceutical companies: "We'll be looking for other ways to do similar things." Datamonitor thinks it is possible that the new company, if successful, will eventually be spun off completely into independence, creating a focused, specialty pharmaceutical business.

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