GlaxoSmithKline's ($GSK) ViiV Healthcare stole the show in Q1, surpassing analyst expectations and prompting the pharma to hang on to the HIV drug business, canceling all plans for a potential spinoff. There's just one problem: ViiV may one day become a victim of its own success.
|GSK's David Redfern|
HIV drugs are doing such a good job of containing the virus that 10 years down the road, the profitable business may no longer be so profitable, David Redfern, Glaxo's chief strategy officer and ViiV chairman, told Bloomberg. Meds from ViiV and market leader Gilead Sciences ($GILD) may run out of room for improvement short of an actual cure, and current therapies will likely lose patent protection beginning in 2026.
"There are diminishing returns in HIV," he told the news service. "The industry has done a fantastic job of taking the fear of the late '80s, and the death sentence, and taking that to one tablet a day."
That's not to say there's no work to be done in the meantime. Glaxo is currently working to snatch market share from its Big Biotech rival with drugs that simplify treatment regimens--à la the recently launched three-in-one cocktail Triumeq. That trio, as well as Tivicay--one of its components--will help ViiV's sales hit $6.1 billion by 2020, Bloomberg notes, narrowing the gap between itself and $10.3 billion AIDS-drug-seller Gilead.
And GSK isn't stopping there. "We are developing a new generation of products that will be even more competitive with Gilead's portfolio," ViiV CEO Dominique Limet told Bloomberg. "The future of the HIV market is mainly driven by two companies, ViiV and Gilead."
The thing for Glaxo, though, is that the future of its pharma business is in large part driven by ViiV. With payer tug-of-wars sending sales of lead drug Advair crashing--and respiratory newcomers failing so far to gain serious traction--ViiV is keeping the unit afloat, posting 42% sales growth in Q1 to keep the overall pharma unit's losses to 7%.
And for industry watchers who don't buy into CEO Andrew Witty's theory that scaling up volume in Glaxo's other main businesses--vaccines and consumer health--will help them overcome traditionally low margins, that pharma outlook may look even bleaker.
The good news, though, is that Redfern figures there's about a decade before ViiV hits a wall--and even then, the business may just shift its focus rather than exiting altogether. "There is a very strong culture and capability in ViiV that could gainfully be used for other specialty assets," he told Bloomberg. "It's a debate we should have and will have."
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