A Dynamic Duo of AIDS Drugs

Merck and Pfizer have developed promising treatments for drug-resistant patients, but investors seemed to have missed the news

On Feb. 27, as the Dow Jones industrial average was plunging to its biggest loss in six years, two Dow components announced surprisingly good news. At a medical conference in Los Angeles, Merck (MRK) and Pfizer (PFE) each presented data showing that their experimental drugs to treat HIV and AIDS were successful in pivotal clinical trials. Both drugs could win Food & Drug Administration this year, offering two new treatment options for the more than 1 million Americans who suffer from the disease. "This is a very special moment," says Dr. Jacob Lalezari, assistant clinical professor of medicine at the University of California, San Francisco and the lead trial investigator for the Pfizer program.

Yet Wall Street has been curiously mum on how the two drugs might contribute to the turnaround efforts under way at Merck and Pfizer. No analysts have adjusted their earnings models to account for the potential drug introductions. Shares of both companies dropped slightly the day the data was announced.

Investors may be taking a wait-and-see stance, because the market potential of the two drugs is still uncertain. They work differently: Pfizer's drug, Maraviroc, blocks a protein on the surface of cells in the immune system, thereby closing one of the doors HIV uses to infect those cells. Merck's drug, Isentress, inhibits a specific enzyme, which, in turn, prevents the virus' DNA from infiltrating cells and replicating.

Cautious Approach

Both were initially tested in patients who had become resistant to one or more available treatments—and that would likely be the audience for the drugs when they are first released. The companies are loath to estimate just how many patients make up the drug-resistant group, but analysts have put the number somewhere between 40,000 and 65,000. Once physicians gain experience with the new drugs and further studies are done, they may prove useful in larger patient groups, or even in combination. But, says Stephen Felstead, Pfizer's vice-president of research and development: "It's hard to estimate how it will play out."

That may be why the numbers being thrown around are somewhat cautious. An FDA advisory panel is scheduled to discuss the drug on Apr. 24, and if it's approved, it could be launched as early as this summer. Tim Anderson, an analyst for Prudential Financial (PRU), estimates sales for Maraviroc will be $120 million in 2008 and rise to $591 million in 2010. A good drug to be sure, but clearly not enough of a blockbuster to offset the expected loss of revenues when the patent for Pfizer's $12-billion-a-year cholesterol drug Lipitor expires in 2011.

Investors may need to see a few more Maravirocs—completely novel drugs that address unmet medical needs and have strong data to back them up—before they pile back into Pfizer's stock. The New York company's shares dropped 10% in early December, after the company had to stop developing a new cholesterol remedy because of unexpected deaths in its clinical trials, and the stock has not quite recovered.

The Gilead Example

For Merck, the need for a huge HIV success is not quite as urgent as it is for Pfizer (see BusinessWeek.com, 3/6/06, "Pfizer's Latest Growing Pains"). True, Merck is still fighting lawsuits stemming from its arthritis drug Vioxx, which it pulled from the market after reports of cardiovascular side effects. But it has launched several promising new drugs over the past year, including its diabetes treatment Januvia, as well as Gardasil, its vaccine to prevent human papillomavirus, one of the leading causes of cervical cancer. Strong pickup on those and other products led the company to estimate it will earn between 63¢ and 67¢ a share this quarter—outpacing analysts' average estimate of 60¢. And on Feb. 28, the FDA delayed approving Novartis' (NVS) competitor to Januvia, which may brighten the outlook for Merck's drug this year. An HIV success would be icing on the cake. The company plans to file for approval for Isentress in the second quarter of this year.

Still, the potential for both companies to be richly rewarded for their work in HIV can't be underestimated. Consider the recent performance of Foster City (Calif.)-based Gilead Sciences (GILD), which last year introduced a new HIV drug, Atripla, that combines three existing treatments into one. On Feb. 2, Gilead announced that demand for the drug helped fuel record annual revenues of $3 billion, up 49% from 2005, and profits that jumped 51%, to $1.2 billion, before acquisition charges and other expenses. Gilead's stock rose 11%, to $71 a share, on the announcement (see BusinessWeek.com, 2/19/07, "How Gilead Primed the Pipeline").

While the outlook for Merck and Pfizer investors may be uncertain, one thing is clear: It couldn't be a better time for HIV patients. In addition to these potential new products, the coming years could see new drug launches from other companies working in HIV, including Gilead and Johnson & Johnson (JNJ). "We're seeing definite steps forward for our treatment of HIV," says Dr. Roy Steigbigel, professor of medicine and microbiology at Stony Brook University and one of the lead trial investigators for Merck.

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