Biktarvy And Lenacapavir Launches Will Drive Cautious Future Progress

Key Takeaways

• Expected headwinds from Medicare Part D redesign may hinder HIV treatment revenue, leading to flat sales projections.
  
• Increased competition in oncology and cell therapy could affect revenue growth across diverse product lines.
  
• Strong performance in HIV and oncology segments, efficient operations, and U.S. investment could drive Gilead's growth, buffering against economic and policy changes.

Catalysts

A biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical need in the United States, Europe, and internationally.

• The company's sales growth appears slowed by expected headwinds associated with the Medicare Part D redesign, impacting HIV treatment revenue and leading to expectations of flat HIV sales for 2025.
  
• Lower-than-anticipated sales of Trodelvy due to inventory dynamics and increased competition in the oncology space could hinder revenue growth.
  
• Competitive headwinds in cell therapy, particularly outside the U.S. for products like Tecartus, suggest potential pressures on overall demand and revenue.
  
• Declining sales of Veklury, attributed to fewer COVID-19-related hospitalizations, may impact revenues as part of the company's total product sales decrease.
  
• Operational pressures are expected to continue through 2025 due to ongoing competitive headwinds, which could affect the company's ability to maintain its net profit margins amidst intense market conditions.

Gilead Sciences Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Gilead Sciences compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Gilead Sciences's revenue will grow by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 20.8% today to 26.8% in 3 years time.
• The bearish analysts expect earnings to reach $8.1 billion (and earnings per share of $6.44) by about July 2028, up from $6.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, down from 23.9x today. This future PE is greater than the current PE for the US Biotechs industry at 15.8x.
• Analysts expect the number of shares outstanding to decline by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.51%, as per the Simply Wall St company report.

Gilead Sciences Future Earnings Per Share Growth

Risks

• The continued growth in Gilead's HIV business, driven by products like Biktarvy and potential new launches such as lenacapavir, could strengthen revenues and support a return to growth in this segment by 2026.
  
• The positive results and potential upcoming launches from Gilead’s oncology pipeline, including Trodelvy and anito-cel for multiple myeloma, may boost revenues and earnings through increased market penetration and addressing unmet medical needs.
  
• Gilead's strength in executing product launches, as seen with Livdelzi and anticipated with lenacapavir, could enhance revenue growth and market share in multiple therapeutic areas, improving top-line results over time.
  
• The company’s efficient operating model and disciplined expense management could maintain strong operating margins and earnings per share, despite external economic pressures and indirect tariff costs.
  
• With Gilead's substantial investments in U.S.-based manufacturing and R&D, alongside a favorable corporate tax structure, the company is well positioned to mitigate risk and optimize net margins amid potential global policy changes.

Valuation

• The assumed bearish price target for Gilead Sciences is $91.83, which represents two standard deviations below the consensus price target of $118.16. This valuation is based on what can be assumed as the expectations of Gilead Sciences's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $140.0, and the most bearish reporting a price target of just $91.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $30.1 billion, earnings will come to $8.1 billion, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 6.5%.
• Given the current share price of $114.76, the bearish analyst price target of $91.83 is 25.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.