JNJ, Gilead Target HIV Pill

On Jul 16, Gilead Sciences Inc. (GILD) entered into a license and collaboration agreement with Tibotec Pharmaceuticals, a unit of Johnson & Johnson (JNJ), for the development of a once-daily antiretroviral HIV pill.

The companies are looking to develop a combination pill that will combine Gilead's Truvada with Tibotec's TMC-278, a non-nucleoside reverse transcriptase inhibitor (NNRTI), for use in treatment-naïve HIV patients. If successfully developed and approved, the combination pill would be the second complete antiretroviral treatment for HIV to be available in a single pill. The use of single pills makes treatment simpler for patients.

Gilead's Atripla is the first once-daily pill to be available in the HIV market. Atripla is a combination of Truvada, itself a fixed-dose combination of two nucleoside reverse transcriptase inhibitors (NRTI): Viread and Emtriva, and Sustiva, an NNRTI manufactured by Bristol-Myers Squibb (BMY).

In addition to the treatment-naïve patient population, we believe the new pill could be used instead of Atripla in patients who are not comfortable with Sustiva. TMC-278 has been studied in comparison with Sustiva and phase IIb results showed that TMC-278 achieved undetectable viral loads in 76% of patients, versus 71% for Sustiva. TMC-278 is currently in two large phase III trials, versus Sustiva with an NDA planned for 2010.

Under the agreement, Gilead will be responsible for the manufacturing, approval, and commercialization of the drug in all territories, excluding the developing world and Japan. Gilead will pay up to €71,450,000 million of Tibotec’s development costs for TMC-278. In return, TMC-278 will be available to Gilead at a discount of up to 30% on its market price. Tibotec will be responsible for the development and approval of TMC-278 as a stand-alone drug.

We view this deal as a major positive for both Gilead and JNJ. TMC-278 is one of the most promising HIV treatments that are currently under development. Although Gilead is a leading player in the HIV market, the launch of the new combination pill should help the company strengthen its presence in the market. Meanwhile, JNJ should benefit from having an established name like Gilead as its partner in the highly-competitive HIV market.

We have a Buy rating on JNJ with a price target of $70 and a Hold rating on Gilead with a price target of $50.

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