Recently, Gilead Sciences (GILD) entered into a licensing agreement with GlaxoSmithKline (GSK) to commercialize Viread (tenofovir disoproxil fumarate) for the treatment of chronic hepatitis B virus (HBV) infection in adults in five Asian countries. As per the deal, while Gilead will retain exclusive commercialization rights for the compound in Hong Kong, Singapore, South Korea and Taiwan, Glaxo will market the drug in China.

Both companies have agreed to pay royalties to their counterpart for sales of the drug in their respective market. The companies are trying to tap the Asian market given the high prevalence of HBV in this area. In future, the scope of the agreement may be extended to Japan and other countries as well. Moreover, this deal will strengthen Glaxo’s portfolio further in the emerging markets.

Viread is currently approved in the U.S, Europe, Turkey, Australia, New Zealand and Canada for HBV. The drug is also indicated in combination with other antiretroviral agents for the treatment of HIV infection in adults.

This agreement modifies the terms of the April 2002 licensing agreement between Gilead and Glaxo under which Glaxo had received exclusive rights to Hepsera (adefovir dipivoxil), Gilead’s first hepatitis B treatment, in various Asian territories including China, Japan, South Korea and Taiwan. Additionally, Glaxo received the right to commercialize Viread for the treatment of HBV under certain circumstances.

Hepsera was the market leader along with Bristol Myers Squibb’s (BMY) Baraclude as recently as August 2008. However, once Viread was launched, Hepsera has been quickly losing market share to Viread. At the end of Sep, for total HBV prescriptions, Viread’s estimated market share was approximately 30% and Hepsera 22%.

When added together, Gilead’s HBV franchise is the market leader with 52% market share. We note that Gilead management is no longer actively promoting Hepsera; accordingly, we expect the decline in Hepsera sales to accelerate as Viread gains share.

Viread is gaining market share in Europe as well – as of Jul 2009, Viread’s HBV market share was estimated to be 16% compared to 9% at the beginning of the year. We have a Neutral recommendation on Gilead.

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