The Companies Affected By The Cured HIV Patient

Includes: ABT, GILD, GSK, MRK, PFE
by: Chris Katje

An announcement at the Conference on Retroviruses and Opportunistic Infections has taken the world by storm. For the first time in history, a child was cured from human immunodeficiency virus (HIV). The infant was treated shortly after birth, due to the presence of HIV in her previously undetected mother. A combination of three pills given within 48 hours has now helped the child miraculously recover from the deadly disease.

Here are the brief details of the girl's life. The mother of the young child did not know she was infected with HIV until her delivery process. Due to a shortage of the normal pregnancy treatment for mother and child, the daughter was given the drugs at different times than normal. The girl continued receiving treatment until her mother stopped showing up with her for treatments. After eight months of no treatments, the hospital reports that the young 2 ½ year old girl is HIV-free with the virus still present, but not doing any internal damage.

These events, which were released Sunday, are bound to have a long-term effect on the HIV drug market that is shared by many large pharmaceutical companies. Here is a look at some of the companies in play from the recent results.

The biggest players in the "cure" of the young girl were Pfizer (NYSE:PFE) and GlaxoSmithKline (NYSE:GSK). The company's joint venture Viiv Healthcare is responsible for lamivudine and zidovudine, two drugs used in the cocktail to treat the newly-born girl. The two drugs, which were approved in 1995 and 1990, are commonly used for the prevention of HIV from mother to child. The two drugs are used in multiple cocktails and commonly referred to as Zeffix, Heptovir, Epirvir, Combivir, Epzicom, and Trizivir.

From Glaxo's fiscal earnings report, sales of Epzicom/Kivexa were up 12% to 617 million British pounds. Combivir sales shrank 10% to 322 million British pounds. Epivir sales shrank 3% to 110 million British pounds. Sales of Trizivir also declined 11% to 126 million British pounds. All told, Viiv Healthcare saw a 1% increase in sales to 1.6 billion pounds.

The joint venture between the two pharmaceutical giants was formed in 2009. Together, the two companies have 11 marketed HIV drugs and will continue to work towards new drugs. The HIV drugs developed by either company become part of the joint venture. The success of this particular case should bring Viiv into the forefront of the HIV discussion. These 15+ year old drugs still have relevant uses and could be the path to an ultimate cure for HIV.

Abbott Laboratories (NYSE:ABT) was the third company involved in the treatment for the unidentified little girl. The company's Kaletra was used as part of the drug cocktail. In 2011, Abbott saw sales of $38.85 billion. Kaletra made up only $326 million of the annual total and saw sales decline 10%. The drug, which is patented through 2016, could see increased sales or could be used in further trials or cocktails.

One of the key takeaways from this unique story was that the drug cocktail fought off the disease quicker than normal. It is believed that the relatively early dosage of the drugs prevented the HIV from spreading and forming reservoirs in the immune system as it normally did. From the Bloomberg article, "Administering the mix of drugs right after birth may have stopped the virus from hidden reservoirs." This process is why HIV patients have to continue to receive treatment every day for the rest of their life. A break from treatment allows the hidden strains to come out and attack and break down the immune system.

This is where Merck (NYSE:MRK) ends up being the big winner in the news story release. Back in March of 2012, a small cancer fighting drug known as Zolinza flushed out HIV deposits in patients. The results from Merck had a relative small impact on its stock at the time. Obviously, the results were preliminary, but it seems that this is where the direction of HIV medicine is headed. Doctors now see the results of treating early and fighting off the stored HIV cells that wreak havoc after treatments.

In the last fiscal year, Merck was hurt by its loss of patent on Singulair. The drug saw a decline of 30% in revenue for the fiscal year and 67% in the fourth quarter. Total sales of Singulair were $3.9 billion. Januvia, a treatment for diabetes, was Merck's bestselling drug with $4.1 billion in annual sales, including $1.1 billion in the fourth quarter (+18%). Isentress, a HIV inhibitor for combination use was responsible for $1.5 billion in sales for Merck, an increase of 11%.

Shares of Merck won't see a huge run-up anytime soon, as the company still possesses a market capitalization of $132 billion. A new HIV cure drug could become one of the biggest selling drugs of all time, if it is able to treat those who have already become infected. Shares of Merck currently trade at 11x the $3.80 analysts expect in fiscal 2014. Here you have a stock that offers a cheap valuation (price-to-earnings), a generous dividend (4% yield), and short-term and long-term catalysts (HIV in the news, potential of an actual approved drug). Merck is definitely worth buying at today's price.

One company that is not likely to stay on the sideline for long is Gilead (NASDAQ:GILD). The $67 billion biotech company counts on HIV drugs for the majority of its revenue. The company has several cocktail drugs already approved and continues to piece together drugs to better suit patients. Gilead could come in with Merck on its drug or begin to license the Viiv Healthcare drugs.

I also like Pfizer to make a hard push in its joint venture of Viiv Healthcare. Pfizer, a company that made my top ten list for 2013, needs continual blockbuster drugs to keep up with its expiring patents. Pfizer can start buying out drugs or companies that have the potential to help in this field.

In 2011, there were 3.3 million children (under 14) with HIV in the world. That same year saw 230,000 children die from this deadly disease. A total of 34 million people worldwide had HIV in 2011, with 2.5 million new cases around the world. This news is clearly a step in the right direction on the path to cure HIV. A disease once believed to be incurable is clearly worth continued research. Investors are sure to see many opportunities to profit from the potential.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MRK, PFE over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.