April 16 (Bloomberg) -- GlaxoSmithKline Plc, once the world’s biggest maker of AIDS drugs, will form a new company with rival Pfizer Inc. to increase its share of the $12.3 billion HIV market now dominated by Gilead Sciences Inc.

Glaxo’s sales and research experience will be combined with Pfizer’s pipeline to give the new company control of almost 20 percent of the market for treating the deadly virus. The new company will have 11 drugs and 6 experimental compounds, the companies said today in a statement.

London-based Glaxo, which sells Combivir and Epzicom for HIV, made history in 1987 when its predecessor company, Burroughs Wellcome, developed a drug that stopped the virus from replicating in cells. The British drugmaker has since lost ground to Gilead after the Foster City, California-based company invented therapies that combine medicines in a single pill, making treatment more convenient for patients who take multiple drugs each day to fight the AIDS virus.

“We continue expect Gilead to remain a step ahead of the competition and view the new company as another example of a pharma merger driven by weakness,” M. Ian Somaiya, an analyst at Thomas Weisel Partners, wrote in a note to clients.

Gilead products made up the bulk of the $7.2 billion in U.S. sales of AIDS drugs last year. The world’s top-selling AIDS treatment, Gilead’s two-drug combination pill Truvada, had a 33 percent revenue increase last year to $2.11 billion. The company’s Atripla, a pill mixing three medicines, rose 74 percent to $1.57 billion. Combivir had global sales of 433 million pounds ($645 million) last year, while Epzicom revenue was 442 million pounds.

Gilead’s Truvada

Combivir and Epzicom “are suboptimal compared to Gilead’s combination pill Truvada and in our opinion will be relegated to alternate status irrespective of which drugs they are combined with,” Somaiya said.

Glaxo’s shares rose 11 pence, or 1.1 percent, to 1,035 pence in London trading. The stock has dropped 19 percent this year. Pfizer fell 12 cents, or 0.9 percent, to $13.74 at 11:37 a.m. in New York Stock Exchange composite trading. Gilead fell 3 cents to $44.51 on the Nasdaq Stock Market.

An estimated 33 million people were living with HIV last year, according to UNAIDS, which coordinates the United Nations’ response to the disease. About 4 million were taking AIDS drugs. Lifetime treatment for a single HIV patient in the U.S. costs about $600,000, studies have found.

The $12.3 billion global market for HIV medicines is growing as patients live longer, said Holger Rovini, head of respiratory and infectious diseases at London-based research firm Datamonitor Plc, in an interview. Sales in the seven biggest markets, including the U.S. and Japan, will rise to $15.2 billion in 2012 from $10.7 billion last year, he said.

Combivir’s Patent

Glaxo, which will control 85 percent of the new company, is trying to catch up on AIDS treatments, which make up about 6 percent of yearly revenue. The U.K. company needs to replace sales lost when Combivir loses patent protection in 2012. Glaxo’s HIV vaccines in development won’t fall under the new company.

Pfizer sells the HIV treatment Selzentry, which hasn’t caught on with doctors because they say it only works in patients with a specific form of the virus, requires a $1,000 pre-test, and is complicated to use. Pfizer’s three AIDS drugs on the market had a combined $187 million in sales last year, less than 1 percent of Pfizer’s $48 billion in total revenue, according to data from research firm MDRx Financial.

Selzentry is only approved for use in patients who have failed all other AIDS treatments. Pfizer has been working with the FDA to expand that indication to newly diagnosed patients.

Pfizer Medicines

Pfizer has two AIDS medicines in the second of three stages of testing required to get U.S. regulatory approval. Both treatments are designed to be improved variations of medicines already on the market.

Pfizer said it will continue early stage research in HIV and all its charitable AIDS programs. Once an experimental drug gone through the early stages of human testing, the new company will have the option to take over development, said Pfizer spokeswoman Joan Campion in a telephone interview. The move by Pfizer fits into Chief Executive Officer Jeffrey Kindler’s strategy of breaking the company into smaller, more flexible units.

Glaxo Chief Executive Officer Andrew Witty said the deal is unique in that it avoids the costs and integration problems typical of other mergers, he said today on a conference call. Pfizer agreed to buy U.S. rival Wyeth for $68 billion this year.

“Before we did the deal we had a big maturing portfolio,” Witty said on a conference call. “This much bigger pipeline creates new optionality, combinations which haven’t been tried.”

The transaction is expected to be neutral to Pfizer’s earnings in 2009 and “slightly accretive” in 2010 and 2011.

“This is highly indicative in the type of alliance that we are interested in,” Witty said. “This is an example of the things we want to do. It’s not exactly a template of things we want to do.”

To contact the reporter on this story: Trista Kelley in London at tkelley2@bloomberg.net

Last Updated: April 16, 2009 12:12 EDT