Wellcome's Azt Faces Attacks On Two FrontsJulia Flynn
The high-profile AIDS drug AZT has long been a mixed blessing for Wellcome PLC. Soaring sales have pumped up Wellcome's profits since 1987 and bolstered a $3.24 billion sale of the company's stock a year ago. But Wellcome has also weathered intense scrutiny for what critics call unfair pricing of AZT. "Being identified with AIDS has not made life easy for them," says one big investor.
It's not getting any easier. AZT patents held by Burroughs Wellcome Co., the British company's U.S. subsidiary, are under attack from generic drugmakers, most recently in a North Carolina jury trial that began on June 30. And new clinical studies, which are known as the Concorde trials, suggest that AZT may not help HIV-positive patients who take the drug before they develop symptoms. The likely upshot: Even if Wellcome maintains its patents, the role of AZT as the dominant treatment for HIV-infected people is diminishing, according to Dr. Anthony S. Fauci, director of the National Institute of Allergy & Infectious Diseases.
That's bad news for Wellcome. AZT, its second-best-selling product, accounted for 13% of sales last year (chart). Wellcome, though, says the AZT problems are being overplayed. "I do feel that people don't look at the rest of our portfolio," complains Dr. Trevor Jones, the company's director of British R&D. That might be a good thing, since Wellcome's portfolio has some other big problems: Patents on Zovirax, a herpes medication that contributed 34% of 1992 sales, will begin to expire in Europe this year, leaving it vulnerable to low-cost generics.
All that hasn't helped Wellcome's share price, which has dropped 14% since Apr. 1, to $9.81, below last year's offering price of $12. The shares likely will stay soggy until the North Carolina trial ends, which won't be until mid-August, at the earliest.
The trial will resolve a suit brought by Wellcome itself, seeking to prevent generic drugmakers Barr Laboratories Inc. and Novopharm from producing knock-off versions of AZT. Barr and Novopharm, supported by the National Institutes of Health, allege the patents are invalid because Wellcome failed to credit NIH researchers as co-inventors. Wellcome's Jones denies the NIH scientists' involvement in AZT's invention and says "we feel we have a very good position."
Analysts figure Wellcome likely will win its suit. If not, the lost profits would be substantial: Novopharm and a Barr subsidiary already sell generic versions of AZT in Canada, at about half Burroughs Wellcome's treatment price of $2,100 per year, and say that U.S. discounts would be similar. Lehman Brothers analyst Jo Walton figures that if Wellcome were to pull out of the U.S. following a negative trial verdict--a worst-case scenario--its earnings growth would drop to 13% through 1996, from her current estimate of 16%.
A CHOICE. Less certain is the impact of the Concorde trials' findings. AZT has been widely prescribed for patients who show no AIDS symptoms but whose immune systems are weakening in the belief that early treatment could slow deterioration. Data from the Concorde trials "has punctured exaggerated expectations for AZT," says Richard Peto, an Oxford University professor and an adviser to the trials. In late June, an NIH panel concluded that while AZT should remain the first-line treatment for HIV-infected people, doctors may consider not using the drug for patients not yet showing symptoms.
Only an estimated 1% of infected people in the U.S. currently receive AZT, leaving a massive potential market untapped. Before the latest trials, patients without symptoms were expected to account for 20% of U.S. sales by 1996, according to Lehman's Walton; now, their share probably will stay at 8%. That would cut into profit growth. Estimated aftertax profits from the drug totaled $590 million from 1987 through 1992--59% of total company profits in that period--according to Thomas McLaughlin at the Harvard medical school. Wellcome won't reveal actual profits.
Profits from Zovirax are expected to suffer as well. The drug's patent expires in Germany in late 1993, in Britain and France in 1995, and in the U.S. in 1997. Also, it is facing competition from a new SmithKline Beecham PLC drug. Wellcome is now working on new formulations and plans to aggressively push its over-the-counter version.
There's some good news. In its pipeline, Wellcome has a breast-cancer drug, Navelbine, whose sales could reach $100 million by 1998, analysts figure. The company rolled out a potentially bigger drug, hepatitis antiviral Wellferon, in 1990. That could bring in up to $180 million in sales by 1996. In other words, there's more where AZT came from.