Lenacapavir, Livdelzi, And Trodelvy Will Broaden Treatment Options In HIV, Liver Disease, And Oncology

Key Takeaways

• Anticipated growth in HIV, liver disease, and oncology portfolios, driven by new therapies and approvals, will likely enhance Gilead's revenue and earnings.
  
• Disciplined expense management and strategic product launches could expand margins and position Gilead for long-term financial success.
  
• Medicare reforms, competition, regulatory risks, and forex challenges threaten Gilead's growth, with dependency on new drug success heightening potential financial vulnerability.

Catalysts

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

• Gilead anticipates strong demand-led volume growth in its HIV portfolio, with potential new treatment options and lenacapavir as a foundation for a long-acting portfolio, which is expected to contribute significantly to revenue growth from 2025 and beyond.
  
• The launch of Livdelzi for primary biliary cholangitis and its potential European approval are expected to expand Gilead's liver disease portfolio, likely enhancing revenue and improving net margins due to its differentiation in efficacy and safety.
  
• Continued expansion in oncology, particularly with cell therapies and the Trodelvy program in various cancer types, promises future revenue growth and improved earnings by targeting unmet needs in cancer treatment.
  
• The introduction of lenacapavir for HIV prevention and its anticipated approval in both the U.S. and Europe is expected to redefine the PrEP market, positioning Gilead to leverage higher revenue and earnings impact from a broader market reach.
  
• Gilead's disciplined expense management coupled with anticipated revenue growth from new and existing product launches is likely to lead to operating margin expansion and higher earnings over the next several years.

Gilead Sciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gilead Sciences's revenue will grow by 2.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 29.5% in 3 years time.
• Analysts expect earnings to reach $9.2 billion (and earnings per share of $7.23) by about March 2028, up from $480.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $10.2 billion in earnings, and the most bearish expecting $7.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.2x on those 2028 earnings, down from 286.0x today. This future PE is lower than the current PE for the US Biotechs industry at 19.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.55%, as per the Simply Wall St company report.

Gilead Sciences Future Earnings Per Share Growth

Risks

• The anticipated impact of Medicare Part D reform in 2025 is expected to negatively affect Gilead's revenue growth, specifically reducing HIV revenue by approximately $900 million, which could diminish overall revenue and affect earnings.
  
• Competitive pressures in the cell therapy market are noted, with new cell therapy launches and slow adoption affecting the net margins and potential revenue growth in the oncology segment.
  
• Regulatory and execution risks are associated with the launch of several new products and therapies, including the lenacapavir for HIV, which rely on successful regulatory approval and market penetration to drive future earnings and revenue.
  
• Dependency on the success of new pipeline drugs and complex therapies, like the lenacapavir pro drug combinations, underscores the risk of clinical trial failures or commercialization challenges, potentially impacting projected revenue and long-term growth.
  
• Foreign exchange headwinds, primarily due to the strengthening U.S. dollar, may challenge revenue growth predictions, impacting financial outcomes and potentially reducing net earnings.

Valuation

• The analysts have a consensus price target of $111.258 for Gilead Sciences based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $82.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $31.0 billion, earnings will come to $9.2 billion, and it would be trading on a PE ratio of 18.2x, assuming you use a discount rate of 6.5%.
• Given the current share price of $110.23, the analyst price target of $111.26 is 0.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.