Can Merck knock Glaxo off its HIV perch? Maybe so, one analyst says

GSK building
Glaxo faces forthcoming competition from Merck, which is developing an HIV candidate that could reach the market as a twice yearly injection.

High-profile investor Neil Woodford isn’t the only one worried about GlaxoSmithKline’s HIV prospects.

Wednesday, the British drugmaker’s shares sank as Citigroup downgraded the stock from buy to neutral and cut Glaxo earnings forecasts by up to 9%, Reuters reports. And ViiV, the company’s HIV unit, was a big reason why.

As Citi analyst Andrew Baum wrote in a note seen by the news service, Merck is working on a candidate that could give both GSK and chief nemesis Gilead a run for their money in the HIV space. The prospectknown as EFdAhas development potential as both a daily pill and a twice-yearly injection, two forms that could prove convenient for HIV patients on therapy for life.

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Of course, the threat from Merck isn’t imminent; EFdA could reach the market in 2021 at the earliest, Baum said. Glaxo, meanwhile, is working on a two-drug combofeaturing dolutegravir, already marketed solo as Tivicay, and Johnson & Johnson compound rilpivirineand after scoring a pair of phase 3 wins in December, the company said it would apply for regulatory approval this year.

But there are other factors that could hurt Glaxo’s business in the meantime, Baum noted; a repeal of the Affordable Care Act, for one, could contract the HIV market by upping the number of uninsured patients.

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His concerns echo those that Woodford, a prominent and outspoken U.K. investor, penned in a May blog post detailing why he was exiting the stock. He cited competition, particularly from Gilead, that could “undermine Glaxo’s hitherto robust market position, jeopardizing the “one Glaxo engine that has been firing on all cylinders.”

Glaxo, for its part, isn’t denying the fact that HIV is a competitive landscape. On April’s Q1 conference call, ViiV Chairman David Redfern acknowledged to investors that with HIV now bringing in the bulk of Gilead’s growth, there’s “no doubtthe competitive intensity is not going down.”

But the company isn’t fazed. “The market share trends all look very robust,” he said at the time, citing new prescription share of 30% for both patients new to therapy and switch patients.