Gilead’s Growth Starting to Look More Sustainable on Several Fronts; We're Raising Our FVE to $97

While Gilead’s 2022 bottom-line results were in line with our estimates, several drugs outperformed our sales expectations, and Gilead’s guidance and progress with its pipeline give us more confidence in the firm’s ability to sustain growth going forward (excluding volatility in demand for COVID-19 antivirals). We’re substantially raising our fair value estimate to $97 from $77, as we have boosted our long-term sales forecast for HIV drug Biktarvy after another quarter of outperformance, factored in long-term growth for cell therapy Yescarta as it works its way into earlier lines of treatment in more types of blood cancer, and also added Gilead’s oral COVID-19 antiviral, GS-5245, to our model, as it recently entered phase 3. We think that COVID-19 antiviral sales are likely to dip in 2023 but that the market could be more maintainable than we had anticipated. Despite faster growth in research and development expenses expected in 2023, we also now assume steadier spending as a percentage of sales in the long term. Partly countering these changes, we have slightly lowered our sales estimates for cancer drug Trodelvy. Despite Trodelvy's strong growth in triple negative breast cancer and the approval in HR-positive/HER2-negative breast cancer, as we think the competitive landscape in this indication will be challenging, given strong data in the HER2-low population for AstraZeneca and Daiichi Sankyo’s Enhertu. Overall, we think Gilead’s infectious disease and oncology franchises support a wide moat, and we think shares look slightly undervalued.