Pharmaceutical giants GlaxoSmithKline PLC and Pfizer Inc. will pool resources to create a new company to develop and sell HIV medicines, leveraging a small investment into the No. 2 market position.
The deal, announced Thursday, reflects two trends sweeping the industry. Companies are narrowing their research areas and cutting costs to improve productivity, and once-ardent competitors are working together to share the risks and costs of developing drugs.
The two companies plan to blend London-based Glaxo's portfolio of existing HIV drugs — some with patents near expiration — with New York-based Pfizer's more robust pipeline of drugs in development to create a "more sustainable" organization.
Analysts note Glaxo's HIV drug sales haven't been increasing as much as the rapidly growing market — worldwide HIV drug sales rose 14 percent last year — and new competition is coming.
"We expect these types of deals to continue," as drug makers keep cutting staff and projects to maximize returns, Deutsche Bank analyst Barbara Ryan wrote to investors.
With 11 HIV medicines already on sale, the new venture will have a 19 percent market share, just behind leader Gilead Sciences Inc. Other competitors include Bristol-Myers Squibb Co., Abbott Laboratories, Merck & Co. and DuPont Pharmaceuticals Co.
"The combination of a broad current revenue base and a new diverse pool of pipeline assets provides a significant platform to invest in developing and delivering new HIV medicines," Glaxo Chief Executive Andrew Witty told analysts during a conference call.
He said the new company will maintain "not-for-profit pricing" of AIDS drugs in needy countries and will continue community support and AIDS prevention programs.
Kevin Robert Frost, chief executive of amfAR, The Foundation for AIDS Research, said it is "a little early to know" how the venture will affect patients.
"By focusing singularly on HIV, they should be able to accelerate their research and development efforts to bring new and better treatments to market," he said.
The venture's name will be announced when the deal closes, now set for the fourth quarter.
The new company will be based in London and run by longtime Glaxo executive Dr. Dominique Limet, now head of its personalized medicine strategy. U.S. headquarters will be in Research Triangle Park, N.C., where Glaxo's American headquarters are.
Witty said he expects $90 million, or 60 million pounds, in savings — mostly coming next year — from cutting administration and marketing overlaps. Research and development operations would be basically unchanged.
Analyst and University of Michigan business professor Erik Gordon said that cost-cutting is the driver behind forming a new company rather than doing a typical co-development deal.
Glaxo, the world's No. 2 drug maker by revenue, will hold an 85 percent interest in the new company; No. 1 Pfizer will own 15 percent. Those stakes will grow or dwindle based on which company produces more successful drugs.
The new company will have several market-leading therapies, including Combivir, Epzicom/Kivexa and Pfizer's Selzentry/Celsentri. The combined portfolio had 2008 sales of around $2.4 billion (1.6 billion pounds).
Global sales of HIV drugs totaled $12.3 billion last year, according to data firm IMS Health.
The companies said their revenues will provide the new company with financial stability and fund research and development, which it will contract directly from Glaxo and Pfizer.
The company will have an initial capitalization of about $373 million, or 250 million pounds, 90 percent from Glaxo.
Witty said the new company can later ask its board — seven executives from Glaxo and two from Pfizer — for more funding.
"It's going to have two parents out there with, I think, a very rapid decision-making mechanism to allow it to be funded for what it needs to do," he said. "It will also have the flexibility to do other deals and license in other (drugs)."
The company will have a pipeline of six drugs in human testing, four in mid-stage tests, and a total of 17 experimental compounds.
A key goal will be to develop drugs that overcome resistance to the HIV virus, in combination pills. Those are now the treatment standard, and top sellers including Atripla, Truvada, Kaletra and GSK's Combivir, Epzicom and Trizivir all include two or three drugs.
Charles Stanley Equity Research analyst Jeremy Batstone-Carr noted that Glaxo's HIV drugs "are neither young nor fast-growing," and the venture's products in development likely won't reach the market before 2013. That will be a year or two after Gilead is expected to launch an HIV drug in a new class, integrase inhibitors, and a four-drug combo pill.
The new venture will not include Glaxo's two-decade-old vaccine program, which will continue separately.
Shares of Pfizer rose 4 cents to $13.90 and Glaxo rose 2 cents to $30.85 in New York trading Thursday.
AP Business Writers Jane Wardell in London and Tom Murphy in Indianapolis contributed to this story.