Wall Street Journal - September 22, 2003
Gautam Naik, Staff Reporter of The Wall Street Journal

A big reason is that the global market for HIV drugs has matured. Competition from rival drugs has gotten fiercer. And patient-advocacy groups are continuing to pressure Glaxo to further cut prices for HIV drugs that are destined for developing countries. HIV is the virus that causes AIDS.

Glaxo has a 45% share of the global market, and its HIV-related revenue last year grew 13% to $2.3 billion (Ç2.03 billion). But now the growth rate could fall to the mid-to-high single-digit level starting next year, according to estimates by analysts at UBS Warburg. And its market share by the end of this year is expected to decline to 40%, according to an estimate by Defined Health, a research firm.

Those might seem like small adjustments in the context of Glaxo's overall annual pharmaceutical revenue of $27 billion. But a potential slowdown in one of Glaxo's historically strong businesses adds to a raft of challenges.

Glaxo already faces expiring patents and generic competition on several key drugs. Its late-stage pipeline is thin. And some analysts fret that when the company discloses clinical-trial results of new drugs -- Dec. 3 -- things may fail to sparkle.

Glaxo says it isn't sitting still. Early next year, the company expects to launch in the U.S. a new protease inhibitor, currently known by its code name, 908. A European launch is expected later. The advantage of the drug is that it can be taken just once a day as opposed to two or more times a day. The company also has five other HIV drugs in early stages of testing, which, if they make it through clinical trials, could be marketed in five to eight years.

"We're committed to the HIV business", said Michelle Berrey, who leads Glaxo's effort to find new medicines for viral diseases.

Nonetheless, the outlook for HIV drug sales is less than sanguine, and that is certain to affect Glaxo. Datamonitor estimates that while the overall market for such medicines is set to increase 13% this year, the year-to-year growth rate for the rest of the decade will be 7%.

There are several reasons for this. The fast-mutating HIV virus is becoming increasingly resistant to older drugs, which reduces their efficacy and use. Doctors are also more inclined to try experimental treatment approaches, such as drug holidays, which give patients temporary respite from medication, but also have the effect of reducing overall demand. And there is the specter of eventual patent expirations.

Glaxo is especially at risk. The first such patent to expire, in 2005, is for AZT. Now a small drug for Glaxo -- it brought in revenue of $66 million last year -- AZT also happens to be a vital ingredient for two of the company's biggest-selling HIV drug cocktails: Combivir, whose sales totaled $882 million last year; and Trizivir, whose sales totaled $473 million.

Some analysts worry that when AZT's patent runs out, that may open the way for patent challenges to Combivir and Trizivir as well. "The outlook for [Glaxo's HIV business] could be worse than we think," says John Savopolous, infectious-diseases analyst at Datamonitor. Glaxo disagrees. A spokesman says that Combivir and Trizivir will continue to be protected by their patents for several more years.

The biggest difficulty, though, may be that nearly all Glaxo's HIV-related revenue is derived from an old class of drugs, known as nucleoside reverse transcriptase inhibitors, or NRTI's. In recent years, the HIV virus has become increasingly resistant to NRTI's. Indeed, after sharp declines, the HIV mortality rate in the U.S. has plateaued since 1998, and could start to rise again. In response, many doctors are prescribing newer drugs, including Abbott Laboratories' Kaletra and Bristol-Myers Squibb Co.'s Sustiva.

Glaxo acknowledges the need for newer, more effective medicines. It notes that only one-third of patients who take HIV drug cocktails are still doing well after a three-year period. The remaining two-thirds who aren't are forced to switch to other combinations.

Newer rivals have also smelled an opportunity. One key battle pits Glaxo against upstart Gilead Sciences Inc. of Foster City, California, whose new HIV drug, Emtriva, was approved in the U.S. in July and is now available as a stand-alone pill. In early 2005, Gilead plans to combine Emtriva with its other HIV drug, Viread, and make a once-a-day combination drug. That could pose a direct threat to Glaxo's Combivir, which must be taken twice a day. Last month, Gilead began to enroll HIV patients for a trial that will compare a cocktail of Emtriva, Viread and a third drug, efavirenz -- also known as Sustiva -- to a cocktail made from Combivir and efavirenz.

Write to Gautam Naik at gautam.naik@wsj.com

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