Are HIV Drugmakers Doomed?

The most successful drug isn't one that cures the disease. There's plenty of glory, but far less revenue in that. No, the most successful drugs are those that keep the patient coming back for more.

Compare the average sales for an antibiotic, which cures the patient of the infection in a week or so, to drugs that treat chronic conditions: Pfizer's (NYS: PFE) cholesterol drug Lipitor, Merck's (NYS: MRK) diabetes drug Januvia, or Johnson & Johnson's Remicade for rheumatoid arthritis. These are mega-blockbusters because they don't actually cure anything. If patients want to feel better or lower their chances of other complications, they have to continue taking the medication.

In that vein, through technical advancements and a little bit of luck, drugmakers have developed drug cocktails capable of keeping HIV at bay. The treatments sold by Pfizer, Bristol-Myers Squibb (NYS: BMY) , Merck, J&J, Abbott Labs (NYS: ABT) , Gilead Sciences (NAS: GILD) , and others are by no means a cure, but they do keep the disease from progressing for the most part, which keeps patients alive and coming back for more. As long as no game-changing technology comes along and cures HIV, the drugmakers can continue to sell treatments to patients month after month.

This could be it
Sangamo BioSciences
(NAS: SGMO) recently presented data from a phase 1 trial using the company's zinc finger nuclease. Rather than a drug, SB-728-T is better described as a treatment, where cells are removed from the patient's body and manipulated before being returned to the patient. The treatment deletes a gene called CCR5 from T-cells, which inhibits the ability of the virus to infect the T-cell.

After treatment with SB-728-T, three of the six patients in the phase 1 trial that stopped their antiretroviral therapy saw their viral loads decrease, one of those decreased to undetectable levels.

The share price tells the rest of the story
By all accounts, Sangamo has a Rule Breakers kind of disruptive technology, but it's missing one of the signs: strong past price appreciation. Investors just don't seem all that thrilled. Shares are down considerably compared to where they were before the announcement, and they've been cut in half from this year's February high-water mark.

Some of that is probably just "sell the news" action, but it also has to do with the technical limitations of the technology. The patient who has been essentially cured of HIV already had one non-functional copy of CCR5. By knocking out the functional copy, the cells were left with no CCR5 genes.

To make this work beyond the 5% to 10% of HIV patients with a genetic mutation in one copy of CCR5, Sangamo needs to figure out a way to delete both copies of the gene in the T-cells.

Can the limitations be worked out? Probably. Scientists are a resourceful bunch. But these things always seem to take longer than expected. RNAi was supposed to be the next big therapeutic technology, but years later it's still in its relative infancy.

Sangamo is relatively cheap and might be a good buy here. Just keep in mind you might have to wait a while before getting a spiffy-pop out of it. I don't see the technology being an immediate threat to sales of HIV drugs in the near to mid-term.

The real threat for HIV drugmakers
Rather than worrying about disruptive technology, investors would be better served worrying about an oldie-but-goodie: generic competition. Patents for Gilead's big sellers, Atripla and Truvada, expire in about 10 years, but Teva Pharmaceuticals (NAS: TEVA) has been pushing to get them thrown out so it can sell cheap knockoffs of the drugs.

Whenever generic Atripla and Truvada hit the market, they'll hurt more than just Gilead and Bristol-Myers, which gets revenue from sales of Atripla. The entire industry will see sales decline as patients flee to generics with cheaper copayments.

Unfortunately, patent lawsuits are often more of a black box than disruptive technologies, so predicting when and how likely it is for an early generic launch is difficult at best.

You can keep up with HIV drugmakers by adding them to your My Watchlist, the Fool's free watchlist service. Just hit the links below or add the entire bunch.

At the time thisarticle was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Teva Pharmaceutical Industries, Abbott Laboratories, and Johnson & Johnson.Motley Fool newsletter serviceshave recommended buying shares of Teva Pharmaceutical Industries, Gilead Sciences, Abbott Laboratories, Pfizer, and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.