Tough Times for Small HIV Fighters

It's been a tough few weeks to be a small drugmaker with a novel anti-HIV compound. Last month, Trimeris (NASDAQ:TRMS) announced that it was being sued for patent infringement. Earlier this week, it also announced yet another restructuring -- or, as Trimeris calls it, a "strategic plan."  

Trimeris' whole future revolves around the success or failure of its HIV treatment FUZEON. Trimeris shares profits from FUZEON sales with Roche in the U.S. and Canada, and receives royalties from Roche on sales outside these countries.

FUZEON has some interesting qualities that make Trimeris worth watching. The drug is the only marketed fusion inhibitor for treating HIV. FUZEON's unique properties are also problematic in some key areas that have limited its uptake.

It is dosed as a twice-a-day injection, so it's not nearly as convenient as the other HIV treatments. Nearly all patients using the drug develop some sort of injection-site side effects as well. Trimeris tried to ease some of this dosing inconvenience earlier in the year by filing a marketing application for a self-injecting pen, similar to what diabetics use, but later withdrew the marketing application.

With the arrival of new HIV therapies from Pfizer (NYSE:PFE) and Merck (NYSE:MRK) this year, sales of FUZEON started to falter in the third quarter. That was to be expected, but as long as the human immunodeficiency virus continues to mutate, and patients begin to display resistance to top therapies from drugmakers such as Bristol-Myers Squibb (NYSE:BMY) and Gilead Sciences (NASDAQ:GILD), there will always be some market for FUZEON.

Trimeris' new strategic plan, announced Monday, basically involves more cost-cutting to remain profitable. I'm already impressed with how deeply it's cut expenses thus far. As recently as 2006, Trimeris was spending $31 million in operating expenses. But 2008 guidance whittles these costs to between $10 million and $14 million, partly thanks to the elimination of the company's R&D operations. We'll have to wait and see what effects the patent-infringement suit has on these expenses, though.

FUZEON sales tallied $200 million in the first nine months of 2007, up 14% year over year, thanks to strong rest-of-world sales that offset stagnation in the U.S and Canada.

If Trimeris and Roche can prevent a sales decline with FUZEON, and the lawsuit doesn't add too much to its operating expenses, Trimeris will be gushing all kinds of cash. There's not enough growth left in FUZEON to consider Trimeris a true Rule Breakers type of drugmaker, but with the possibility of strong cash flow and its depressed share price, it wouldn't be a stretch to call it a value play in 2008.