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HIV 'cure' won't boost drug stocks

March 6, 2013: 11:06 AM ET
Pharmaceutical companies have developed many drugs to treat HIV. But a cure may not be as profitable.

Pharmaceutical companies have developed many drugs to treat HIV. But a cure may not be as profitable.

By Zain Asher

Although it's a great example of the wonders of modern science, the recent miracle cure of a toddler with HIV in Mississippi will have likely have a neutral impact on the sales and share prices of the drug companies responsible.

"There's very little revenue-generating potential from these types of one-off cures," says M. Ian Somaiya, a healthcare analyst at Piper Jaffray. "The stock price will only move if there's a clear way it'll translate into sales and in this case there just isn't."

Three drugs were reportedly used to treat the infant: AZT (Zidovudine) and Lamivudine and Nevirapine. But a key factor in their success was that the baby began treatment almost immediately after birth. As a result, the combination won't necessarily have the same miraculous impact on HIV-infected adults.

So drug companies like Viiv Healthcare -- a joint venture between GlaxoSmithKline (GSK) and Pfizer (PFE) -- and Germany's Boehringer Ingelheim, which makes Nevirapine, will be hard-pressed to capitalize financially on the good news.

Further, even if the cure could be repeated in other HIV-infected babies – this still translates into a very narrow market for drug companies. Babies born with HIV are relatively rare in developed countries. In the United States, roughly only 200 babies are born with the virus each year. That's because pregnant mothers with the disease are often treated with a cocktail of antiretroviral drugs well before delivery.

Related: HIV 'cure' at risk from budget cuts

There's also the fact that HIV drug manufacturers make money from patients being dependent on these drugs for the rest of their lives. The price of HIV drugs is steep -- they can cost between $15,000 and $20,000 a year per patient.

"If a baby is cured after just 18 months of treatment, it might be a medical breakthrough. But it doesn't necessarily help boost profit margins," adds Somaiya.

Somaiya also points out that HIV drug companies have had a tough time capitalizing on other breakthroughs recently.

Last July, the FDA approved a once a day pill, Truvada, that could prevent a healthy person from contracting HIV. Truvada developer Gilead Sciences (GILD) received a lot of buzz at first. Investors felt that people who are at high risk of infection might want to buy the drug. But Truvada's huge price (approximately $13,000 a year) and distressing potential side effects (neck swelling, kidney problems, trouble speaking) led few healthy people to jump on the bandwagon.

So when it comes to terminal illnesses like HIV, drug companies have a greater chance of gaining market share by developing ways to improve care rather than focusing on cures.

"Gilead Sciences seized a sizable chunk of market share after it developed the world's first combination HIV pill [Atripla- made up of three different drugs] that patients could take just once a day," adds Somaiya. "Before that, HIV patients were taking 15 pills a day to manage viral load. When Gilead Sciences introduced their combo pill, sales responded accordingly."

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Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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