Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
ViiV Healthcare -- a joint venture by Pfizer (NYSE: PFE ) and GlaxoSmithKline (NYSE: GSK ) formed in 2009 with both companies transferring their HIV assets to the new company -- got approval from the Food and Drug Administration for its first new HIV product, Tivicay. Its original developer is Japan's Shionogi Pharma, which the group joined last year.
The drug has the potential of raising the groups' fortunes to the tune of $5 billion provided it is able to grab market share from rivals, particularly Gilead Sciences (NASDAQ: GILD ) .
This article focuses on the HIV branded drug market with emphasis on Tivicay.
Tivicay -- tackling pricing and AIDS activists
Tivicay is designed as an add-on drug to two existing drugs, Ziagen and Zeffix, whose generic versions are already in the market.
It is to be priced at $1,175 per month, which is, according to a company spokesperson, "within the range of third agents used to treat HIV and reflects the benefits of Tivicay as part of combination antiretroviral therapy." In comparison, Gilead's three-drug combination, Complera, costs $1,704 per month, and its four-in-one combination drug Stribild sells at almost $2,400.
Pricing of HIV drugs and their availability in poor countries has been a sensitive matter. Medecins Sans Frontieres, an international medical and humanitarian aid organization, has already taken up the issue of Tivicay's pricing criticizing ViiV's access programs in the developed world. The group believes that the company's "business strategy will result in dolutegravir being priced out of reach in countries excluded from ViiV's licensing deal."
The positive side of the criticism
The concerns of MSF should, however, be taken as a positive for financials of Tivicay. The group wouldn't care much had it not seen some promise. This was evident when it made a strong case for Tivicay, saying that it is "well tolerated and extremely effective at stopping the HIV virus with a high barrier to HIV resistance."
Additionally, the drug is backed by two of the most recognized names in the pharmaceutical industry. Both Pfizer (revenue of $58.99 billion and net income of $14.57 billion) and GlaxoSmithKline (revenue of $42.56 billion and net income of $8.18 billion) have deep pockets and the necessary marketing skills to take on competition and grab market share in developed countries.
ViiV Healthcare grants voluntary licenses to generic companies, allowing them to produce low-cost versions for poor countries. According to a GlaxoSmithKline spokesperson, subject to approval by the local regulator, Tivicay may be available in South Africa for as little as R300 ($29.82).
Branded HIV drugs -- the story so far
The human immunodeficiency virus (HIV) was discovered nearly four decades ago, and the first AIDS patient in the U.S. was observed in 1981. Since then, more than three dozen drugs -- including single selling agents and combination drugs -- have been approved by the FDA for treatment of HIV/AIDS.
Despite patent expirations of early HIV drugs in mid 2000s, the industry continued to innovate and was able to come up with new blockbuster drugs. Johnson & Johnson recorded sales worth $1.41 billion in 2012 for Prezista, while Bristol-Myers Squibb's Reyataz contributed $1.52 billion to the company's revenues.
Gilead Sciences gave the early developers a run for their money with its combination drugs -- first with Atripla, a fixed-dose combination drug approved in 2006, which recorded sales of $3.57 billion in 2012, and later with Truvada, a fixed-dose combination of two antiretroviral drugs, reporting sales of $2.11 billion in 2012 after approval in July 2012 for prophylactic use.
The company's latest offering, Stribild for suppressing viral reproduction, approved in August 2012, has yet to make its mark but expected to generate $2.53 billion in revenue in 2016. Complera, another combination drug developed by it in partnership with Johnson & Johnson and approved in 2011, could manage only $342 million in 2012.
Times have changed -- the quickening pace of progress in combating an epidemic
Although AIDS is still a serious health challenge, the world community has succeeded to a great extent in bringing down the number of newly infected, mostly due to awareness programs and discovery of new drugs for prophylactic purposes.
According to a 2012 UN report, there were approximately 34 million people with HIV infection across the globe at the end of 2011 -- sub-Saharan Africa being the worst affected (4.9% of the population), followed by the Caribbean and Eastern Europe and Central Asia (1%).
The road ahead
According to a report published by EvaluatePharma, the approval of Tivicay may have come at a time that marks the beginning of the end of the era of growth of branded HIV market. According to its research, the market for branded HIV drugs will continue to grow till 2016 to touch $20.59 billion and decline to $18 billion by 2018. Gilead Sciences' combination drugs that have made compliance easier are expected to dominate with 50% share.
One need not lose sleep over the pricing issue. On launch, AIDS activists raised their concerns about pricing of Complera and Stribild as well. Stribild even drew fire from some members of the U.S. Congress. Interestingly, Stribild, priced at more than double of Tivicay, has already raked in $190 million so far in 2013.
However, the success of government and U.N.-sponsored campaigns are likely to lead to a further decline in new patients, more in developed countries, which is where the revenue is more likely to come. Moreover, HIV treatments have improved a lot since the first HIV drug. Success of new treatments like Tivicay depends primarily on whether they have anything more to offer than Gilead's once-daily single pill -- something nearer to a cure or lesser side effects.
One of the best parts of owning big pharma stocks is their attractive dividends, but smart investors know the importance of diversifying -- seeking high-yielding stocks from multiple industries. The Motley Fool's special free report "Secure Your Future With 9 Rock-Solid Dividend Stocks" outlines the Fool’s favorite dependable dividend-paying stocks across all sectors. Grab your free copy by clicking here.