Much has changed in the HIV/AIDS treatment landscape since our HIV indication report on October 2005. Two of the most important developments since last October are the successful coformulation of Sustiva (Bristol Myers-Squibb) and Truvada (Gilead); and the serious toxicity issues associated with CCR5 antagonists. In addition, several new drug classes have demonstrated promising data that will hopefully expand the treatment options for drug-resistant patients. We have detailed some of the significant changes and the consequent adjustments to our revenue projections below.

In the front-line setting, the successful coformulation of a fixed dose tablet containing Sustiva and Truvada means that this widely prescribed Highly Active Anti-Retroviral Therapy (HAART) regimen for treatment-naïve patients can now be administered as a single pill once daily. This coformulation will undoubtedly become the preferred front-line treatment option. We also believe that since this fixed-dosed combination is so convenient, it will expand the market and perhaps convince HIV-positive patients who were reluctant to initiate HAART, to begin treatment. The Sustiva/Truvada combination pill will result in a decline in the use of single-agent Sustiva and the fixed-dosed tablet Truvada, but the Sustiva/Truvada combination pill will benefit both Gilead and Bristol Myers-Squibb.

In the treatment-experienced and drug-resistant patient population, there are still many drugs in development that have novel mechanisms of action that may help to address inadequate virologic control. Of these, the CCR5 antagonists have become less likely to attain FDA approval owing to numerous toxicity issues that seem to plague this entire drug class. Development of Aplaviroc (GlaxoSmithKline) has already been suspended due to liver toxicity and Vicriviroc (Schering-Plough) has shown serious issues with virologic breakthroughs seen in treatment-naïve patients and, recently, malignancies seen in treatment-experienced patients. While studies of Vicriviroc in treatment-experienced patients continue, this drug will require long-term monitoring to evaluate its role in the development of malignancies. Given these concerns, should the drug attain FDA approval, we believe that Vicriviroc is unlikely to be used except in that minority of patients requiring a salvage regimen. Pfizer’s Maraviroc remains on track to complete phase II/III studies, but Pfizer recently admitted that one patient receiving Maraviroc developed liver failure. While a causal role for Maraviroc in the development of this liver failure has not been established (the patient was also taking several other drugs that may have led to the liver failure), given the experience with Aplaviroc, there is enough cause for concern that Maraviroc’s uptake may be limited to the third and subsequent line setting for patients with drug resistance.

While the development of CCR5 inhibitors has been disappointing, several new drug classes have shown promise, including HIV integrase inhibitors, maturation inhibitors, and CXCR4 inhibitors. Of these, the integrase inhibitors (Merck’s MK-0518 and Gilead’s GS 9137) are furthest along in development and have shown the most compelling data. Panacos’ PA-457, a maturation inhibitor, has also shown some activity (though the company needs to further optimize the dose of this drug). Lastly, the CXCR4 inhibitor AMD070, in very early clinical development, may be useful in patients with advanced disease.

In the treatment-experienced setting, we believe that Merck’s HIV integrase inhibitor will likely be widely used on top of an optimized background therapy, particularly in patients with drug resistant strains. Given the need for drugs that can inhibit drug resistant HIV strains, we believe that MK-0518 will enjoy a quick uptake into the market. Lagging behind MK-0518 are GS 9137 and PA-457, although we do believe that both of these drugs will become important treatment options, particularly in treatment-experienced patients.

BACKGROUND

TREATMENT-NAÏVE PATIENTS

Sustiva and Truvada combination pill (Gilead and Bristol Myers Squibb)

Treatment-naïve HIV patients are recommended a triple drug combination consisting of two Nucleoside Reverse Transcriptase Inhibitors (NRTIs) with either a single Non-Nucleoside Reverse Transcriptase Inhibitor (NNRTI) or a Protease Inhibitor (PI). An NNRTI is preferred over a PI due to the lower pill burden and better tolerability profile. Until recently, the most widely prescribed regimen for treatment-naïve HIV patients is the NNRTI Sustiva (Efavirenz; Bristol Myers Squibb) and the NRTI drug combination Combivir (a fixed dose combination of Lamivudine and Zidovudine; GlaxoSmithKline). Sustiva remains the dominant NNRTI recommended for treatment-naïve HIV patients, however, since the release of data from Study 934, Gilead’s Truvada (a fixed-dosed formulation of Emtriva and Viread) has been increasingly preferred over Combivir.

Truvada is a once-a-day tablet that was shown to be superior to Combivir in a head-to-head study (Study 934) comparing Truvada to Combivir (both given with Sustiva) in treatment-naïve patients. Results from this study also showed that Truvada was better tolerated than Combivir and had a higher threshold for resistance development (suggesting that patients taking Truvada are less likely to develop a drug-resistant HIV mutation than those taking Combivir). Given these impressive results and Truvada’s once-a-day dosing, we projected Truvada to erode Combivir’s market share in the front-line setting. Indeed, Truvada has recently seen a sizeable increase in usage at the expense of Combivir, particularly in treatment-naïve patients -- Gilead has estimated that just over 60% patients initiating HAART in the first quarter of 2006 were prescribed Truvada.

In an effort to simplify the treatment regimen of HIV even further, Gilead and BMS have forged a partnership to develop a fixed-dose formulation of Truvada with Sustiva. This fixed-dosed combination (FDC) will become the first complete drug regimen for HIV given as a single tablet. The companies are utilizing a bi-layer technology that combines two single layers of each drug into a single tablet. The first two attempts to combine Truvada and Sustiva did not demonstrate bioequivalence, but in January 2006 the companies announced that they had developed a formulation that demonstrated bioequivalence (meaning that taking the single tablet containing Sustiva and Truvada resulted in equivalent blood concentrations of each drug when the drugs are taken separately).

For FDA approval, this new combination pill needs to show that there is a lack of interaction between the two drugs, that the drugs are stable in this FDC formulation, that the drugs are released from the FDC in a reproducible manner, and that the FDC is bioequivalent to the individual drugs. It appears that Gilead and BMS have developed an FDC that have met these criteria and the companies have just recently announced that they have filed an NDA with the FDA.

While the NDA may take up to 6 months for review, this FDC may receive FDA approval in as little as 6 weeks if the NDA falls under the PEPFAR. In 2003, President Bush announced a commitment to substantially increase U.S. support and funding for the global HIV/AIDS epidemic. This plan is known as the President’s Emergency Plan for AIDS Relief or PEPFAR. PEPFAR is a 5-year, $15 billion initiative that aims to provide FDA-approved drugs to third world countries to combat the HIV/AIDS epidemic. As part of this plan, the FDA formulated a plan to accelerate the review process for FDCs and generic drugs to enable their purchase by PEPFAR for distribution to third world countries. This review process could be accomplished in as little as 6 weeks. Although Gilead and BMS will not speculate as to whether the Truvada/Sustiva FDC is likely to fall under this PEPFAR plan, we believe that it is highly probable and that the Truvada/Sustiva combination could receive FDA approval by the end of June 2006.

We believe that the Truvada/Sustiva FDC will dominate the front-line HIV market and will likely expand usage of these drugs in the front-line setting. Patients are likely to try this once-daily tablet over more complicated regimens (unless they are contraindicated for these drugs – pregnant women cannot take Sustiva and some patients may be infected with drug resistant HIV strains). The ease of this FDC may convince some patients who were previously reluctant to begin HIV therapy to start treatment. Moreover, given that the primary reason for drug resistance development is due to poor drug adherence (due to the complicated dosing regimen of most of these HIV drugs), the simple once-daily dosing of the Sustiva/Truvada will be heavily preferred by clinicians to encourage treatment adherence.

TREATMENT-EXPERIENCED PATIENTS

The emergence of drug resistance dictates that novel HIV drugs are still needed, particularly those that target a novel pathway in the HIV infection cycle because patients who develop resistance to one drug can often develop cross-resistance to the entire drug class. There are several novel drug classes in clinical development including CCR5 antagonists, HIV integrase inhibitors, maturation inhibitors and CXCR4 antagonists.

CCR5 inhibitors

Since early October 2005, several new developments have negatively impacted this entire drug class and made their role in HIV therapy doubtful. CCR5 inhibitors are novel entry inhibitors that block the binding of HIV to the CCR5 co-receptor, thus blocking the docking of HIV to host T cells and preventing viral entry.

GlaxoSmithKline was the first to suspend the development of their CCR5 antagonist program. Phase II studies of Aplaviroc (formerly called GW873140) in treatment-naïve patients were halted in September 2005 due to hepatotoxicity. Four patients in this study exhibited markedly elevated liver enzyme (alanine aminotransferase or ALT) levels and bilirubin levels. These levels can lead to liver failure in 10-50% of patients, according to liver experts. One patient had ALT levels at 70 times above the upper limit of normal (ULN) and bilirubin at 5 times ULN. All patients had their liver enzymes return to normal upon treatment cessation but had a return of symptoms when exposed to Aplaviroc again, indicating that Aplaviroc indeed was the cause of liver toxicity. The company immediately halted studies in treatment-naïve patients but continued with the phase III study of the drug in treatment experienced patients. However, in October 2005 the company announced that one treatment-experienced patient enrolled in the phase III study had elevated liver enzymes due to Aplaviroc and all studies of Aplaviroc were immediately halted.

Schering-Plough’s CCR5 inhibitor, Vicriviroc, also suffered serious setbacks in late 2005. In October 2005, the company halted phase II studies of Vicriviroc in treatment-naïve patients. This study compared Vicriviroc, given in combination with Combivir, to Sustiva plus Combivir. In this study, some patients given the combination of Vicriviroc and Combivir had their previously undetectable viral load return to detectable levels after prolonged treatment (termed virologic breakthrough). There was a strong trend showing that patients given lower doses of Vicriviroc were more likely to experience virologic breakthrough compared to patients on higher Vicriviroc doses, suggesting that the doses of Vicriviroc used in these patients were suboptimal. Based on these results, the company halted studies of Vicriviroc in treatment-naïve patients but continued with the phase II study in treatment experienced patients.

Unlike the study in treatment-naïve patients, the treatment-experienced patients were given a triple drug combination in which Vicriviroc (at a much lower dose) was added on top of Sustiva and Combivir. In an interim analysis this study, the independent data monitoring committee (IDMC) found five cases of malignancy in patients treated with Vicriviroc. Four patients were found to have lymphoma while the fifth patient had gastric adenocarcinoma. The committee had indicated that the trial could continue since a causal relationship between Vicriviroc and malignancy could not yet be established at that time and that the addition of Vicriviroc to Sustiva and Combivir appeared to have virologic activity in these patients. We are disturbed by the five cases of malignancies (we assume that malignancies were not seen in the placebo arm) and while a causal relationship has yet to be established, given the more risk-adverse nature of the FDA, we believe that this program has little chance of succeeding. At the very minimum, patients in this study will have to be monitored for 3-5 years, and if a causal relationship were not found, a new phase III study would likely require an extended follow-up. We therefore see this program either being suspended in the near future or suffering long delays before attaining FDA approval.

Pfizer’s Maraviroc was the first CCR5 antagonist to be tested in humans and is currently the only remaining CCR5 antagonist that remains on track for registration. Maraviroc is currently being evaluated in a phase II/III study in both treatment-naïve and -experienced patients. Interim reviews by the data monitoring board conducted in July and September 2005 did not find any safety issues; however, in November 2005, a single case of liver toxicity was observed which resulted in the patient requiring a liver transplant. Upon learning this, Pfizer requested an ad-hoc review by the data safety monitoring board (DSMB). The board found that this patient was in the treatment-naïve study, was co-infected with hepatitis C (HCV) and that the patient was taking a combination of up to four drugs which were known to cause liver toxicity including isoniazid (INH) and cotrimoxazole. The DSMB concluded that the other medications administered were likely to be the cause of hepatoxicity but could not rule out a contributing role for Maraviroc. Studies of Maraviroc are ongoing but careful monitoring for hepatoxicity will be required going forward.

While it appears likely that Maraviroc may not have been the cause of the liver failure, and that this patient’s predicament came as a surprise, elevated liver enzymes have been observed with Maraviroc treatment prior to this study. In phase I/II dose-finding studies of Maraviroc (with a total of 195 patients), no serious adverse events were reported but one patient had elevated transaminases and seven patients had elevated liver enzymes or bilirubin levels when given Maraviroc. While these results did not appear to be a serious concern at the time, in light of the recent liver failure seen in the phase II study, it would appear that Maraviroc may have some hepatoxicity concerns.

It is not known whether the entire CCR5 inhibitor class of drugs has liver toxicity issues. Initially when Aplaviroc was shown to cause hepatoxicity, it was hoped that it was a compound-related toxicity and indeed, the lack of liver toxicity seen with Vircriviroc suggests that it was not a class effect. However, the doses of Vicriviroc tested appeared to be suboptimal, which may have explained the lack of liver toxicity. The development of liver failure in one patient given Maraviroc adds to the growing concerns with this drug class. Based on the results thus far, we believe that Maraviroc is likely to have mild liver toxicities which would not be harmful (unless the patient takes concomitant hepatotoxic drugs).

We were previously cautious of the CCR5 antagonist drug class because of the potential for coreceptor switching (to the CXCR4 coreceptor which is associated with more severe disease). These new developments have further reduced our expectations of Vicriviroc and Maraviroc. Pending approval, we expect these CCR5 inhibitors to only be used by patients as a salvage therapy - a last resort.

HIV integrase inhibitors

Integrase inhibitors are a novel class of HIV drugs that may provide an important treatment option for all HIV patients, particularly those who have exhausted all other HIV drugs. The HIV genome encodes three enzymes necessary for infection and replication: reverse transcriptase, protease and integrase. Reverse transcriptase and protease have been extensively studied and their inhibition has been the mainstay treatment options for HIV. HIV integrase is less well characterized.

HIV integrase is required to incorporate newly formed viral DNA (via the actions of reverse transcriptase) into the host’s own DNA. HIV integrase is required for viral infectivity and replication (HIV virions that lack integrase are incapable of infecting and killing host cells). As with reverse transcriptase, host cells do not possess integrase, thus making HIV integrase an attractive target for inhibition that may minimize drug effect on host cells. The main negative for integrase inhibition is the timing of treatment as once viral DNA has been integrated into host DNA, integrase inhibitors will have no effect on the number of new infectious virions produced. However, daughter viruses go on to infect new host cells (the cause of the loss of CD4 T cells in HIV/AIDS patients) and thus, HIV integrase inhibitors will likely need to be regularly administered to prevent new T cells from becoming infected.

Two integrase inhibitors are currently in clinical development: Merck’s MK-0518 and Gilead’s GS 9137.

MK-0518 (Merck)

MK-0518 is the most advanced HIV integrase inhibitor in clinical development. Phase III studies were initiated earlier this year. Initial studies of the drug as a standard 10-day monotherapy study showed that MK-0518 markedly reduced viral load by 1.7-2.2 log10 copies/mL (a >98% reduction in viral load). Importantly, half of the patients given MK-0518 achieved a viral load of less than 400 copies/mL (this was the old benchmark for undetectable viral load, although the new benchmark with ultrasensitive tests is less than 50 copies/mL) by day 10 of treatment. The drug was well tolerated and did not produce serious toxicity signals.

These encouraging data were further supported by interim results from a dose-ranging phase II study. These results were presented at the 13th Annual Conference on Retroviruses and Opportunistic Infections (CROI). In this study, increasing doses of MK-0518 (200, 400, or 600 mg twice daily) were added to optimized background therapy (OBT) in 167 treatment-experienced patients. At week 16, 64-84% of patients achieved less than 400 copies/mL with MK-0518 compared to 22% of patients given only OBT. When assessing patients based on the new undetectable viral levels (<50 copies/mL), the addition of MK-0518 to OBT increased the percentage of patients with undetectable viral load from 19% (OBT) to 56-72%, depending on the dose of MK-0518 administered. Again, MK00518 was well tolerated with no serious adverse events.

The results thus far for MK-0518 have been very encouraging, showing that the drug can be safely combined with an existing HAART regimen to improve virologic control. If MK-0518 continues to show good safety, we expect this drug to be widely used in treatment-experienced (subsequent line) patients who have inadequate viral load control with existing treatments. Overall, we believe that MK-0518 is an important addition to the anti-HIV armamentarium and will give physicians a different mechanism to control the virus. The drug is likely to be very important in patients with resistance to currently available drugs.

GS 9137 (Gilead)

GS 9137 is the second HIV integrase inhibitor in clinical development and is currently in phase II studies in treatment-experienced patients. Efficacy data for this drug was first presented at CROI in February 2006. This phase I/II dose-finding study was a 10-day monotherapy in which GS 9137 was given alone (200, 400, 800 mg twice-daily or 800 mg once-daily) or was boosted with ritonavir (50 mg GS 9137 boosted with 100 mg ritonavir). The results showed that GS 9137 monotherapy significantly reduced viral load by 1.48 – 2.43 log10 with the 400 mg twice-daily dose providing the biggest reduction. Interestingly, the 50 mg dose of GS 9137 boosted with ritonavir showed equivalent efficacy to the 400 mg dose. Ritonavir (Norvir, Abbott) is a protease inhibitor that inhibits cytochrome P450, a liver enzyme used for drug metabolism, and as such, the drug can be used to slow down the metabolism of active drugs. In the case for GS 9137, ritonavir-boosting increased the half-life to allow for once-daily dosing as well as reducing the dose needed for optimal virologic control. GS 9137 was well tolerated with similar adverse events to MK-0518 (mainly fatigue, headaches, nausea and diarrhea).

Based on these results, Gilead initiated a phase II study that will compare ritonavir-boosted GS 9137 to a ritonavir-boosted comparator protease inhibitor in treatment experienced patients. This study was initiated recently and will evaluate three different doses of GS 9137 (20, 50, 125 mg) with the primary endpoint being non-inferiority at 24-weeks. Data from this study is expected in the second half of 2006.

It is too early to determine which of the two integrase inhibitors is more efficacious. Given that MK-0518 is likely to be first-to-market, we believe that MK-0518 will be more widely adopted than GS 9137. GS 9137 has the advantage of once-daily dosing, however, the addition of ritonavir may also affect the metabolism of other HIV drugs and may make optimizing HAART more difficult. Overall, we are highly encouraged by data from both MK-0518 and GS 9137 and believe that both drugs will become important options for treating resistant patients (third and subsequent line patients).

Other Novel Classes

PA-457 (Panacos)

PA-457 is the first in another novel drug class called maturation inhibitors. These drugs inhibit the late stages of viral replication by inhibiting the maturation of immature virions to become fully infective virus particles. PA-457 inhibits the processing of the HIV gag protein which prevents the release of mature capsid protein, resulting in immature virions that cannot infect host cells.

In a phase I/II 10-day monotherapy study, PA-457 dose-dependently reduced viral load, with the highest dose tested (200 mg) producing a median viral load reduction of 1.03log10. Importantly, resistance development has not yet been seen with PA-457 and the drug has shown in vitro efficacy against all drug resistant strains. PA-457 was well tolerated.

These results are encouraging but do not appear to be as impressive as those seen with the HIV integrase inhibitors. It could well be that the optimal dose of PA-457 has not yet been reached and indeed the company intends to evaluate higher doses of PA-457. The company has recently finalized plans for the phase IIb study with the FDA. This study is in two parts; the first part of the study will evaluate increasing doses of PA-457 (400, 500, and 600mg) given once daily, in addition to optimized background therapy for three months. The aim of this component is to determine the optimal dose of PA-457 and once this dose is determined, the second part of the study will increase patient enrollment to evaluate the efficacy of this dose of PA-457.

Overall, although the data has not been as impressive as for HIV integrase inhibitors, PA-457 does have efficacy in these treatment-experienced patients. Importantly, the drug has shown activity against drug resistant strains in vitro. While integrase inhibitors may be the preferred treatment option in resistant patients (due to better efficacy), there is plenty of room for PA-457 to do well.

AMD070 (AMD11070, AnorMed)

AMD070 is the first CXCR4 antagonist to be tested in clinical trials. Similar to the CCR5 antagonists that block HIV binding to the chemokine coreceptor CCR5, AMD070 blocks HIV binding to the CXCR4 coreceptor. HIV strains using CXCR4 are associated with a faster decline of CD4 T cells and increased mortality. Approximately 5% of HIV strains use the CXCR4 coreceptor exclusively while 35% of strains use both the CCR5 and the CXCR4 coreceptors.

AMD070 is currently in early phase II studies. Preliminary data from a 10-day dose-finding monotherapy study showed that in the first cohort, 4 out of 8 patients had markedly reduced viral load in response to AMD070. The average viral load reduction in these patients was 1.3log10. While this data is encouraging, it is far too early to determine AMD070’s efficacy. The drug thus far appears to be well tolerated. AnorMed has another CXCR4 in development called Mozobil (AMD3100) that is being developed for stem cell transplants. Mozobil is further along in clinical development than AMD070, and if we assume that the two drugs’ toxicity profile to be similar given their mechanisms of action, then AMD070 may expect to see a fairly mild toxicity profile with pain, nausea, gastrointestinal complaints and tachycardia being the most common complaints.

If AMD070 does prove to be safe and effective, it is likely to only be used in patients with advanced disease who are expressing CXCR4. Therefore, we see some potential for AMD070 in the 3rd and subsequent line setting.

REVENUE MODEL UPDATES

NNRTIs and NRTIs

Sustiva/Truvada Co-Formulation (Gilead and Bristol Myers Squibb)
A revenue model has been created for the much anticipated co-formulation of Sustiva & Truvada coming to market later this year. We have high sales projections for this new combination as it will be the first single pill HIV treatment to reach the market. Sales are expected to peak at over $2.2 billion worldwide and $1.4 billion in the U.S. within 4-5 years of approval.

We expect Gilead and Bristol Myers Squibb to gain share of the HIV market as a result of the co-formulation drug. Our HIV sales estimates for these companies are now higher compared to our initial projections from the end of last year. Previously, our combined peak sales estimates totaled $2.5 billion worldwide for Sustiva and Truvada. This has now increased to almost $3 billion for the three drugs (Sustiva, Truvada, and co-formulation). The increase is due to new patients who will be able to begin a convenient regimen of just one pill a day.

While Gilead and Bristol Myers can expect to see cannibalization on the individual sales of Truvada and Sustiva, we expect this process to be relatively slow at first. Similar to what happened with Viread and Emtriva after the Truvada launch, individual sales of Sustiva and Truvada are expected to remain flat to slightly down during the first one to two years after the co-formulation launch. Worldwide Truvada sales are expected to peak in 2007 at $1.1 billion and then begin to decline in 2008. Sustiva will follow a similar pattern with peak worldwide sales of $750 million in 2007 followed by a decline the following year.

Combivir (GSK)
Combivir sales have already begun to drop in the U.S. as a result of data favoring Truvada in the head-to-head study comparing Truvada to Combivir (Study 934). We expect this trend to continue after the Sustiva/Truvada co-formulation is launched. We are expecting U.S. sales of just over $400 million in 2006 compared to our previous estimate of $445 million.

Dexelvucitabine (Reverset; Incyte)
In early April Incyte announced it has discontinued the development of Dexelvucitabine due to an increase in side effects. The revenue model remains as part of our HIV indication, but has been marked suspended.

CCR5 antagonists

We have significantly lowered revenue expectations for the three CCR5 drugs we covered during the initial HIV report in October of 2005. Much has changed since then and we now have projected worldwide sales well below the $100 million level for both Maraviroc and Vicriviroc. Additionally, Glaxo Smith Kline has suspended trials of its CCR5 drug Aplaviroc. The decreased expectations for the CCR5 drugs leave room for other novel drugs to potentially acquire a piece of the HIV market in the upcoming years.

Integrase, Maturation & Entry Inhibitors

We have modeled four new drugs as a result of the recent struggles the CCR5 drugs have experienced.

MK-0518 (Merck)
We expect Merck’s MK-0518 to be the first with U.S. approval in mid 2008. Worldwide and U.S. sales are expected to reach $350 million and $230 million by 2011.

GS 9137 (Gilead)
Gilead’s GS 9137 Integrase Inhibitor is expected to reach $300 million worldwide and $190 million in the U.S. by 2013.

PA-457 (Panacos)
Panacos Pharmaceuticals’ PA-457 Maturation Inhibitor was added to our list of revenue models and is expected on the market in 2009. Potential sales are expected to peak in 2013 with just over $200 million worldwide and $130 million in the U.S.

AMD070 (AnorMed)
AnorMed’s Entry Inhibitor AMD070 is another novel drug we will be following. It is due on the market in the near future with U.S. approval expected in 2010. We anticipate the drug will be used in the 3rd line setting and have modeled peak U.S. revenue of $50 million and worldwide revenue of $75 million in 2014.

Other Novel Classes

PA-457 (Panacos)

PA-457 is the first in another novel drug class called maturation inhibitors. These drugs inhibit the late stages of viral replication by inhibiting the maturation of immature virions to become fully infective virus particles. PA-457 inhibits the processing of the HIV gag protein which prevents the release of mature capsid protein, resulting in immature virions that cannot infect host cells.

In a phase I/II 10-day monotherapy study, PA-457 dose-dependently reduced viral load, with the highest dose tested (200 mg) producing a median viral load reduction of 1.03log10. Importantly, resistance development has not yet been seen with PA-457 and the drug has shown in vitro efficacy against all drug resistant strains. PA-457 was well tolerated.

These results are encouraging but do not appear to be as impressive as those seen with the HIV integrase inhibitors. It could well be that the optimal dose of PA-457 has not yet been reached and indeed the company intends to evaluate higher doses of PA-457. The company has recently finalized plans for the phase IIb study with the FDA. This study is in two parts; the first part of the study will evaluate increasing doses of PA-457 (400, 500, and 600mg) given once daily, in addition to optimized background therapy for three months. The aim of this component is to determine the optimal dose of PA-457 and once this dose is determined, the second part of the study will increase patient enrollment to evaluate the efficacy of this dose of PA-457.

Overall, although the data has not been as impressive as for HIV integrase inhibitors, PA-457 does have efficacy in these treatment-experienced patients. Importantly, the drug has shown activity against drug resistant strains in vitro. While integrase inhibitors may be the preferred treatment option in resistant patients (due to better efficacy), there is plenty of room for PA-457 to do well.

AMD070 (AMD11070, AnorMed)

AMD070 is the first CXCR4 antagonist to be tested in clinical trials. Similar to the CCR5 antagonists that block HIV binding to the chemokine coreceptor CCR5, AMD070 blocks HIV binding to the CXCR4 coreceptor. HIV strains using CXCR4 are associated with a faster decline of CD4 T cells and increased mortality. Approximately 5% of HIV strains use the CXCR4 coreceptor exclusively while 35% of strains use both the CCR5 and the CXCR4 coreceptors.

AMD070 is currently in early phase II studies. Preliminary data from a 10-day dose-finding monotherapy study showed that in the first cohort, 4 out of 8 patients had markedly reduced viral load in response to AMD070. The average viral load reduction in these patients was 1.3log10. While this data is encouraging, it is far too early to determine AMD070’s efficacy. The drug thus far appears to be well tolerated. AnorMed has another CXCR4 in development called Mozobil (AMD3100) that is being developed for stem cell transplants. Mozobil is further along in clinical development than AMD070, and if we assume that the two drugs’ toxicity profile to be similar given their mechanisms of action, then AMD070 may expect to see a fairly mild toxicity profile with pain, nausea, gastrointestinal complaints and tachycardia being the most common complaints.

If AMD070 does prove to be safe and effective, it is likely to only be used in patients with advanced disease who are expressing CXCR4. Therefore, we see some potential for AMD070 in the 3rd and subsequent line setting.

REVENUE MODEL UPDATES

NNRTIs and NRTIs

Sustiva/Truvada Co-Formulation (Gilead and Bristol Myers Squibb)
A revenue model has been created for the much anticipated co-formulation of Sustiva & Truvada coming to market later this year. We have high sales projections for this new combination as it will be the first single pill HIV treatment to reach the market. Sales are expected to peak at over $2.2 billion worldwide and $1.4 billion in the U.S. within 4-5 years of approval.

We expect Gilead and Bristol Myers Squibb to gain share of the HIV market as a result of the co-formulation drug. Our HIV sales estimates for these companies are now higher compared to our initial projections from the end of last year. Previously, our combined peak sales estimates totaled $2.5 billion worldwide for Sustiva and Truvada. This has now increased to almost $3 billion for the three drugs (Sustiva, Truvada, and co-formulation). The increase is due to new patients who will be able to begin a convenient regimen of just one pill a day.

While Gilead and Bristol Myers can expect to see cannibalization on the individual sales of Truvada and Sustiva, we expect this process to be relatively slow at first. Similar to what happened with Viread and Emtriva after the Truvada launch, individual sales of Sustiva and Truvada are expected to remain flat to slightly down during the first one to two years after the co-formulation launch. Worldwide Truvada sales are expected to peak in 2007 at $1.1 billion and then begin to decline in 2008. Sustiva will follow a similar pattern with peak worldwide sales of $750 million in 2007 followed by a decline the following year.

Combivir (GSK)
Combivir sales have already begun to drop in the U.S. as a result of data favoring Truvada in the head-to-head study comparing Truvada to Combivir (Study 934). We expect this trend to continue after the Sustiva/Truvada co-formulation is launched. We are expecting U.S. sales of just over $400 million in 2006 compared to our previous estimate of $445 million.

Dexelvucitabine (Reverset; Incyte)
In early April Incyte announced it has discontinued the development of Dexelvucitabine due to an increase in side effects. The revenue model remains as part of our HIV indication, but has been marked suspended.

CCR5 antagonists

We have significantly lowered revenue expectations for the three CCR5 drugs we covered during the initial HIV report in October of 2005. Much has changed since then and we now have projected worldwide sales well below the $100 million level for both Maraviroc and Vicriviroc. Additionally, Glaxo Smith Kline has suspended trials of its CCR5 drug Aplaviroc. The decreased expectations for the CCR5 drugs leave room for other novel drugs to potentially acquire a piece of the HIV market in the upcoming years.

Integrase, Maturation & Entry Inhibitors

We have modeled four new drugs as a result of the recent struggles the CCR5 drugs have experienced.

MK-0518 (Merck)
We expect Merck’s MK-0518 to be the first with U.S. approval in mid 2008. Worldwide and U.S. sales are expected to reach $350 million and $230 million by 2011.

GS 9137 (Gilead)
Gilead’s GS 9137 Integrase Inhibitor is expected to reach $300 million worldwide and $190 million in the U.S. by 2013.

PA-457 (Panacos)
Panacos Pharmaceuticals’ PA-457 Maturation Inhibitor was added to our list of revenue models and is expected on the market in 2009. Potential sales are expected to peak in 2013 with just over $200 million worldwide and $130 million in the U.S.

AMD070 (AnorMed)
AnorMed’s Entry Inhibitor AMD070 is another novel drug we will be following. It is due on the market in the near future with U.S. approval expected in 2010. We anticipate the drug will be used in the 3rd line setting and have modeled peak U.S. revenue of $50 million and worldwide revenue of $75 million in 2014.