Lowering Our Gilead FVE to $75 After Q3

We have once again lowered our fair value estimate for Gilead GILD and now value the firm at $75 per share following third-quarter earnings. This follows a string of incrementally negative developments including the FDA complete response letter for immunology drug Jyseleca/filgotinib in August, a rich Immunomedics acquisition announcement in September, and the mid-October combination of a failed partnered (Galapagos) osteoarthritis therapy and disappointing further data for COVID-19 antiviral Veklury/remdesivir. While third-quarter results were roughly in line with our expectations, and Veklury demand remains in keeping with our relatively bearish expectations, we're reducing the probability of U.S. approval for Jyseleca to 50%, as Gilead acknowledged on the earnings call that the U.S. delay could turn into nonapprovability. We still think Gilead shares look slightly undervalued at recent prices, and we continue to think that Gilead's HIV portfolio and immunology and oncology pipelines warrant a wide moat rating. However, the firm is clearly in a transitional phase as it digests large oncology deals like Forty Seven and Immunomedics, and if these deals fail to generate blockbuster oncology therapies that allow Gilead to gain a foothold on the market, we could see some erosion of the firm's competitive advantages.

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