Gilead Earnings: FVE held at $97 after HIV and oncology performance meets expectations

Gilead’s GILD third-quarter results were stronger than we expected, driven almost entirely by higher-than-expected COVID-19 hospitalizations and resulting sales of COVID-19 treatment Veklury ($636 million). Veklury helped Gilead keep total product sales at $7 billion in the quarter compared with the third quarter of 2022. We are not making any changes to our $97 fair value estimate as we maintain our forecast for Gilead’s core business in HIV and HIV. Oncology. We continue to see strong prospects for Gilead’s long-term strategy for HIV growth, centered on new injectable products for treatment and prevention, as well as oncology growth supporting a broad moat. We believe investors are underestimating the stability of the company’s HIV fundamentals and the growth potential of the company’s oncology portfolio and pipeline.

We think Gilead should deliver low-single-digit growth annually over the next several years, driven by low-single-digit growth in HIV, double-digit growth in oncology, and continued declines in hepatitis C. This quarter was primarily due to the mix shifting toward more government sales, which were discounted more heavily, compared to previous quarters of the year. In addition, Gilead is working to improve Descovy’s status as a preventive option in PBM formularies ahead of the possible launch of pipeline drug Lenacapavir in late 2025, which is also putting downward pressure on pricing.

We see the benefit of the valuation model from two main potential sources: data from lenacapavir-based combinations in HIV treatments and phase 3 data from combination regimens in immuno-oncology. We expect some HIV data in 2024 to give us a better idea of ​​how quickly Gilead can offer alternative HIV injectable treatments, although the Biktarvy patent expires in 2033, giving the company time to find a suitable treatment plan.