Glaxo, Pfizer in HIV drug deal

GlaxoSmithKline P.L.C. and Pfizer Inc. today announced an unusual deal that will combine their HIV operations into a new company that will account for almost 20 percent of sales of drugs to fight the virus.

The news arrives amid lackluster growth for the two companies' HIV drugs and increased pressure on pharmaceutical companies to boost returns on research and development costs for new products. In recent years competitors, most notably Gilead Sciences Inc. and Bristol-Myers Squibb Co., have seized the lead in sales of HIV drugs.

That pressure is especially intense in the competition for new drugs to treat HIV, the virus that causes AIDS. Demand for new HIV drugs is constant because the disease changes quickly.

"There is always a need to stay one step ahead because of the issue of HIV resistance to currently available drugs," said Tim Horn, editor in chief of aidsmeds.com, which provides information for people with HIV.

While demand for HIV drugs - especially new ones - is strong, companies often cannot charge high prices for them.

Most people who have HIV live in extremely poor countries, with little or no ability to pay for drugs. Even in wealthier countries, such as the United States, HIV drugs are so crucial to patients' survival that high prices create political furor that keeps a lid on what companies can charge. More broadly, the Obama administration is seeking ways to lower prescription costs for all drugs.

Horn says HIV drugs for one patient can run $12,000 a year.

Relatively poorer earnings prospects make it appealing to create a new company that won't drag down overall profit margins at either Glaxo or Pfizer, said Daniel Hoffman, a pharmaceutical company consultant based in Chester County.

"Because HIV drugs are very research-intensive and the pace of development is pretty rapid, they're not going to have enough time to recoup sunk research costs and make margins before a product has essentially obsolesced," Hoffman said, who is not working for either company. "What they're doing is moving some of these less lucrative components off their own balance sheet."

London-based Glaxo, which employs about 4,500 people in the Philadelphia area, will own about 85 percent of the new company. New York-based Pfizer will own the remaining 15 percent.

Pfizer expects to complete the acquisition of Wyeth, which has its U.S. pharmaceutical headquarters in Collegeville, by the end of this year.

Glaxo's HIV operations are based at its U.S. headquarters in Research Triangle Park, N.C. Today's announcement will have no impact on the company's Philadelphia operations, a spokesman said.

The two companies had combined HIV sales of $2.4 billion last year, including GlaxoSmithKline's top-sellers Combivir and Epzicom. Combivir, which generated $409 million in sales last year, loses its patent in 2012. The new company's franchise also will include Pfizer's HIV products, Selzentry and Celsentri and a total of six drugs in development at the two companies.

Creating a new company is unusual in the pharmaceutical world, where firms more often merge, buy smaller companies, or strike licensing deals.

"At the core of this specialist business is a broad portfolio of products and pipeline assets, which can be more effectively leveraged through the new company's strong revenue base and dedicated research capability," GlaxoSmithKline chief executive Andrew Witty said in a statement.