Gilead Earnings: Maintaining Our $97 FVE Following In-Line HIV and Oncology Performance

Gilead’s GILD third-quarter results were stronger than we had anticipated, almost entirely due to higher than expected COVID-19 hospitalizations and resulting sales of COVID-19 treatment Veklury ($636 million). Veklury helped Gilead maintain flat total product sales at $7 billion in the quarter relative to the third quarter of 2022. We’re not making any changes to our $97 fair value estimate, as we’re maintaining our projections for Gilead’s core businesses in HIV and oncology. We continue to see Gilead’s long-term strategy for HIV growth (centered around new injectable products for treatment and prevention) as well as strong prospects for oncology growth supporting a wide moat. We think investors underappreciate the stability of the firm’s HIV foundation and the growth potential of the firm’s oncology portfolio and pipeline.

We think Gilead should generate low-single-digit growth annually over the next few years, with low-single-digit growth in HIV, double-digit growth in oncology, and continued declines in hepatitis C. While HIV growth was slightly more muted in this quarter than in earlier quarters this year, this was largely due to a mix shift toward more government sales, which are more heavily discounted. In addition, Gilead is working to improve Descovy’s position on pharmacy benefit manager formularies as a prophylaxis regimen ahead of a potential launch of pipeline drug lenacapavir by late 2025, which is putting downward pressure on pricing as well.

We see upside in our valuation model from two main potential sources: lenacapavir-based combination data in HIV treatment and phase 3 data for immuno-oncology combination regimens. We expect some data in 2024 in HIV that could give us more perspective on how quickly Gilead can provide an alternative, injectable HIV treatment regimen, although with a Biktarvy patent expiration in 2033, the firm has time to find the right regimen.