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Morningstar | Glaxo Posts Solid HIV Drug Data, Reinforcing Its Leadership in the Class; Shares Look Undervalued

GlaxoSmithKline reported positive detailed data from its Gemini 1 and 2 studies, showing that its Tivicay plus generic drug lamivudine was non-inferior to Tivicay plus Gilead's Truvada (a two-drug combo pill), opening the pathway to strong HIV disease control with potentially fewer side effects. However, we don't expect any major changes to our fair value estimate, as we believe the potentially improved side effect profile of Glaxo's HIV doublet will largely focus on replacing Glaxo's HIV triplet drug Triumeq and gain only minor share from Gilead and other HIV drug makers. Nevertheless, as one of the core therapeutic franchises at Glaxo, the strong HIV drug data reinforces Glaxo's market share position and helps reinforce the company's wide moat. We continue to view the company as undervalued, with the investment community underappreciating the company's pipeline and currently marketed drugs.

In the Gemini studies, Glaxo's Tivicay/lamivudine kept 91% of patients under control as measured by plasma HIV levels versus 93% of patients taking Tivicay plus Gilead's Truvada at 48 weeks of treatment, meeting the requirement for non-inferiority. Importantly, Glaxo's regimen showed some minor improvements in some side effects such as diarrhea and nasopharyngitis/cold relative to using Truvada, but only by 2% and 3%, respectively. Also, Glaxo's drug regimen showed more favorable renal and bone biomarker data. As the study continues for another 96 weeks, the side effect profile of Glaxo's two-drug regimen could strengthen. We believe more side effect differentiation is needed for the regimen to gain more significant market share.

The improved side effect potential of Tivicay/lamivudine over Tivicay plus Gilead's Truvada is helpful, but Truvada is a weaker comparator, as Gilead's next-generation HIV drugs already have shown better side effect profiles over Truvada. Gilead's next-generation version of Truvada (Descovy) has renal and bone density improvements over Truvada. Further, Gilead's recently launched Biktarvy (bictegravir plus Descovy) shows some side effect benefits (fewer nausea, gastrointestinal, neuropsychiatric, and sleep issues) with similar efficacy over Glaxo's triplet Triumeq (Tivicay/lamivudine/abacavir). Despite the comparison limitation, we expect the physician community will slightly prefer using two drugs (Tivicay/lamivudine) over three drugs regimens at the margin, but longer-term data beyond 48-week data will probably be needed to convince doctors that a two-drug regimen can suppress the virus over the long term.

Glaxo expects to file the HIV doublet later in 2018, and we expect the drug will be approved in 2019 and priced at a slight discount to Glaxo's triplet Triumeq. For more on the outlook for the HIV market and the pricing environment for these drugs, please see our Healthcare Observer "Despite PBM Scrutiny, Differentiated Drugs Provide Undervalued Stocks With Underappreciated U.S. Pricing Power."