LONDON GlaxoSmithKline Plc and Pfizer Inc, two leading developers of AIDS drugs, are merging their HIV operations into a new company that will hold nearly a fifth of the market for treatments against the virus.
Glaxo will initially have an 85 percent stake in the joint venture and Pfizer 15 percent, reflecting Glaxo's stronger position in marketed products, although this could change according to future sales and product development.
The tie-up underlines a growing trend by big pharmaceutical companies to collaborate in the costly and risky process of developing new medicines.
Leerink Swann analyst Seamus Fernandez said the partnership showed "creative thinking" by Pfizer, whose laboratories have produced few big-selling medicines over the past decade.
Pfizer said it plans to provide the venture at least the amount of money it now spends on HIV research and development.
The partners said on Thursday the new business would be stronger and broader in scope than either company's individually, and would hold a 19 percent share of the growing market for HIV/AIDS treatments.
"Both companies are facing some pressures in the HIV area," said Morningstar analyst Damien Conover. Pfizer's "Selzentry is not doing as well as it probably could if it had more resources behind it ... (GSK is) getting hit pretty hard from Gilead and Bristol."
The new company will have 11 marketed products -- including Glaxo's top-sellers Combivir and Epzicom -- which together generated sales of 1.6 billion pounds ($2.4 billion) last year, plus a pipeline of six new medicines, of which four are in mid-stage Phase II development.
Pro forma operating profits were 870 million pounds in 2008.
One of the goals will be to develop new fixed-dose combination therapies, using existing and novel medicines.
The new company -- which will be named once it starts operations at the end of the year -- will contract R&D services directly from Glaxo and Pfizer, and the parent companies will also be responsible for manufacturing.
Deutsche Bank analysts said the deal made sense for both sides, with Pfizer's new drug Selzentry filling a gap in Glaxo's portfolio as older compounds come off patent, while Pfizer benefits from Glaxo's greater global HIV distribution.
Glaxo Chief Executive Andrew Witty said the tie-up was "highly indicative" of the kind of risk-sharing partnerships he wanted to foster, in preference to costly mega-mergers.
"We're not interested in a classic big piece of M&A in the pharmaceuticals sector," he told reporters.
"We are very focused on bolt-on acquisitions or innovative deal structures which allow us to build more efficient business models. I don't think you should look at this as a template for how we plan to do other things, but it is certainly an example."
Witty joined Glaxo in 1985 and held a variety of roles before leaving briefly to work for a biotechnology firm. He returned to Glaxo in 1990 to help develop Epivir, an HIV treatment which is a key component of many Glaxo HIV drugs.
"Glaxo delivered the (HIV) breakthroughs in the late '80s and early 90s," Witty said. "This transaction absolutely restates GlaxoSmithKline's commitment to be a leader in this field," Witty told journalists on a conference call.
Asked if Glaxo and Pfizer plan to spin off their new company, Witty said they intend to make it "sustainable."
Glaxo expects earnings per share dilution of approximately 1 to 2 percent in 2010 and 1 percent in 2011, though this will reverse as the new company's pipeline starts to generate sales.
The transaction is expected to be neutral to Pfizer's earnings in 2009 and slightly accretive in 2010 and 2011.
Dominique Limet, currently head of Glaxo's Personalised Medicine Strategy, has been appointed chief executive designate of the new company.
There is no cure for the human immunodeficiency virus (HIV) that causes AIDS, but combinations of drugs can keep the virus from replicating and damaging the immune system.
An estimated 33 million people globally are infected with the AIDS virus, most of them living in Africa and other developing countries.