FDA Decision And Product Launches Will Drive Future Opportunities

Key Takeaways

• Anticipated product launches and expansions in HIV, oncology, and cell therapy segments are poised to drive substantial future revenue growth.
  
• Long-term financial stability expected through strategic U.S. manufacturing investments and no major loss of exclusivities for a decade.
  
• Competitive pressures and policy changes in oncology and HIV markets pose challenges to Gilead's growth and profitability, with reliance on other areas for revenue.

Catalysts

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

• Anticipated FDA decision on lenacapavir for PrEP is expected to lead to a significant new product launch, contributing to future revenue growth in the HIV franchise.
  
• Positive Phase III results from the ASCENT-04 study with Trodelvy are set to enhance Gilead's oncology portfolio, supporting revenue and earnings growth.
  
• Upcoming launch of anito-cel in multiple myeloma is projected to drive significant revenue growth within Gilead’s cell therapy segment.
  
• Expansion of Livdelzi into additional markets, such as Europe, is expected to increase revenue within Gilead's liver disease business.
  
• Incremental U.S. manufacturing investments and lack of major LOEs until 2033 are projected to sustain net margins and cash flow stability for the company long-term.

Gilead Sciences Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gilead Sciences's revenue will grow by 3.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.8% today to 29.4% in 3 years time.
• Analysts expect earnings to reach $9.3 billion (and earnings per share of $7.48) by about April 2028, up from $6.0 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $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 18.6x on those 2028 earnings, down from 21.8x today. This future PE is lower than the current PE for the US Biotechs industry at 20.4x.
• Analysts expect the number of shares outstanding to decline by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.73%, as per the Simply Wall St company report.

Gilead Sciences Future Earnings Per Share Growth

Risks

• Lower than expected Trodelvy sales due to inventory dynamics and the competition in cell therapy markets could affect future revenue and profitability.
  
• The Medicare Part D redesign and its initial impact on revenues highlight potential financial headwinds in the HIV business, which could obscure demand-led growth in 2025.
  
• Competitive pressures, particularly in oncology and cell therapy, could challenge Gilead's market share and revenue expansion in those segments.
  
• Decreasing sales of Veklury due to lower COVID-19-related hospitalizations indicate a reliance on other segments to drive revenue growth, which might take time to compensate for the decline.
  
• The potential impact of 340B channel dynamics on HIV pricing and the uncertainty around policy changes in the U.S. may add pressure on net margins and financial forecasts.

Valuation

• The analysts have a consensus price target of $114.174 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 $92.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $31.6 billion, earnings will come to $9.3 billion, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $104.21, the analyst price target of $114.17 is 8.7% 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.