Gilead Earnings: HIV and Oncology Growth Remain Solid, Maintaining Our FVE Despite Higher Opex

We’re maintaining our $97 Gilead fair value estimate following first-quarter results that were in line with our estimates. Overall product sales growth of 15% excluding COVID-19-related sales were driven by solid HIV performance (13% growth) and strong launches in oncology (59% growth). We saw slightly higher international sales for CAR T-cell therapy drug Yescarta in lymphoma than we had modeled, as Yescarta appears to be seeing expanded use and strong reimbursement in many global markets. Strong sales of Descovy (20% growth) essentially reflected U.S. market growth in HIV prevention, and Biktarvy’s 24% growth reflects continued share gains in an HIV treatment market growing at a single-digit rate. Research and development costs were higher than we had anticipated as the firm is now wrapped up in 22 phase 3 clinical trials. Beyond COVID-19-related headwinds as sales of antiviral drug Veklury sink in 2023, we think Gilead can return to low-single-digit top-line growth in 2024 and hold non-GAAP operating margins above 40% in the long run. We expect the firm’s solid foundation in HIV treatment and prevention and expanding sales in oncology to continue to support a wide moat, and we think shares remain slightly undervalued, with the market not fully appreciating long-term potential in oncology. We see significant growth drivers in both HIV and oncology that will continue to combat headwinds from declining hepatitis C sales.