IBB - Gilead Sciences: What To Do Ahead Of Q4 2022 Financial Report

Summary

• As a leader in various therapeutic areas, the company's total revenue was $7,042 million in the third quarter of 2022, up 12.5% quarter-on-quarter.
• Gilead will be required to make royalties of 3% on future sales of Biktarvy and bictegravir-containing medicines up to the 4th quarter of 2027.
• Gilead's hope to grab a share of the multibillion-dollar cancer therapeutics market is Trodelvy, whose sales were $180 million in Q3 2022, up 78.2% from Q3 2021.
• Gilead's oncology drug portfolio generated $578 million in Q3 2022, accounting for 8.2% of the company's total revenue, while their combined sales were up 79% year-over-year.
• I believe that the company's share price will fall in the range of $70-$71 per share in the short term.

On February 2, 2023, Gilead Sciences ( GILD ) will announce financial results for the fourth quarter and all of 2021. Reporting results in early February is standard practice for major pharma companies and Gilead Sciences, indicating that investors should not expect unusually positive medicine sales and net income to be announced. Because otherwise, the company would have published them about seven days early to attract the attention of large institutional investors and show Wall Street that he is significantly underestimating Gilead's business.

In recent quarters, the company's drug sales have been mixed but beating Wall Street analysts' expectations and thus pushing Gilead's stock price up more than 35% in just 90 days. But even with such a short-term jump, a reasonably rare event among large companies in 2022, Gilead's P/E ratio is 13.2, which is 30.2% less than the average for the healthcare sector.

Gilead Sciences Approved Medicines Portfolio

Gilead's business is focused on developing and commercializing drugs to treat patients suffering from deadly diseases like HIV, cancer, and hepatitis B/C. As a leader in various therapeutic areas, the company's total revenue was $7,042 million in the third quarter of 2022, up 12.5% quarter-on-quarter. However, there was a 5.1% year-on-year decline in revenue mainly due to a decrease in demand for Veklury, one of the most widely used antiviral medicines to combat COVID-19, and also a negative impact from generics.

Gilead Sciences operates in the US and abroad and has subsidiaries in more than 35 countries through which it sells medicines. Approximately 70% of the company's product sales were in the United States in Q3 2022, and this figure has remained stable in recent quarters. The company distributes medicines through three large wholesalers, McKesson Corporation (NYSE: MCK ), AmerisourceBergen Corporation (NYSE: ABC ), and Cardinal Health (NYSE: CAH ), which reduces the risks associated with product inventory management and improves delivery to patients.

The most significant contribution to the company's revenue and cash flow is made by medicines aimed at combating HIV, HCV, and oncological diseases. Thus, they have priority status for analysis before the publication of the annual report of Gilead Sciences.

Gilead Sciences HIV Division

The HIV portfolio of medicines generated $4,487 million for Gilead in the 3rd quarter of 2022, representing 63.7% of the company's total revenue, while their combined sales showed a 7.1% increase year-on-year.

The company's four medicines posted sales declines, both QoQ and YOY. Still, the two essential drugs on which Gilead management spends the most marketing and R&D efforts, with a combined share of 75.78% of the HIV division's total revenue, continue to increase their market share from year to year actively.

Biktarvy is one antiviral drug approved for treating patients infected with immunodeficiency virus type 1 and brought in $2,766 million in Q3 2022, up 21.5% year-over-year. The main reasons for the rapid growth in sales of Biktarvy are the increase in the average selling price of the drug and the continued high demand for it in many countries. At the same time, Biktarvy, the flagship of Gilead, partially compensates for the decline in demand for Truvada and Genvoya due to competition from such generic manufacturers as Teva Pharmaceutical (NYSE: TEVA ), Viatris (NASDAQ: VTRS ), and Amneal Pharmaceuticals (NYSE: AMRX ).

Moreover, investors should not forget that under an agreement with ViiV Healthcare, created by GSK (NYSE: GSK ) (GLAXF) and Pfizer (NYSE: PFE ) in 2009, Gilead will be required to make royalties of 3% on future sales of Biktarvy and bictegravir-containing medicines up to the 4th quarter 2027. Thus, it will partially slow down the growth rate of the company's operating income.

At the same time, the company's management continues to develop new-generation product candidates for the treatment of HIV, the goal of which is superiority in efficiency and ease of use of competitors' drugs, one of which is Cabenuva. Thus, sales of Cabenuva, a long-acting HIV drug, were £101 million, up 741% from the previous year.

As of early 2023, Gilead's HIV development portfolio consisted of 11 product candidates, two of which are in phase III clinical trials. Five product candidates of which contain lenacapavir as an active ingredient. On December 22, 2022 , the FDA approved Sunlenca (lenacapavir) for treating patients living with multi-drug resistant HIV-1, accounting for about 2% of adults worldwide.

One of the main advantages of Sunlenca is that it must be taken twice a year compared to the more frequent injections of competitors, which improves the quality of life for tens of thousands of patients. However, clinical studies aimed at determining the efficacy and safety of Sunlenca for pre-exposure prophylaxis to reduce the risk of sexually acquired HIV are ongoing. According to clinicaltrials.gov , patients are still being recruited for these clinical trials, and their end date is in the range of 2024-2027. As a result, ViiV's Cabenuva will continue to actively capture the market from Gilead until the expansion of Sunlenca's indications.

Gilead Sciences Cancer Division

Gilead's oncology drug portfolio generated $578 million in Q3 2022, accounting for 8.2% of the company's total revenue, while their combined sales were up 79% year-over-year. All three of Gilead's medicines saw significant quarterly and yearly sales growth. For example, sales of Yescarta, the first CAR T-cell therapy for patients with certain types of non-Hodgkin's lymphoma, were $317 million in Q3 2022, an increase of 81.1% year-over-year. While sales of Tecartus also rose, the pace of growth was more subdued despite increased medicine use in the US and Europe for the treatment of mantle cell lymphoma. Starting in 2024, I estimate that Tecartus and Yescarta, CAR T-cell therapies, will face intense competition from medicines from Merck ( MRK ), Bristol Myers Squibb ( BMY ), and AbbVie ( ABBV ), which have higher efficiency.

Thus, the growth rate of Gilead's oncology drugs will begin to slow down, which may negatively affect the company's ability to surprise Wall Street analysts with quarterly results and also cast doubt on the business plan of Gilead's management, one of the goals of which is to diversify the product portfolio, the main share of which is currently moment falls on HIV drugs.

Gilead's hope to grab a share of the multibillion-dollar cancer therapeutics market is Trodelvy, whose sales were $180 million in Q3 2022, up 78.2% from Q3 2021. The increase in sales was driven primarily by increased demand for the drug as a therapy for metastatic triple-negative breast cancer and metastatic urothelial cancer in the US and Europe. In the medium term, I believe that the annual increase in sales of Viagra will be 30%, mainly due to the rise in indications for use and the introduction of the drug into medical practice. However, the growth rate will gradually decrease due to competition from AstraZeneca (NASDAQ: AZN ) and Daiichi Sankyo's Enhertu (DSNKY), which has shown outstanding results in the treatment of patients with HER2-negative breast cancer. What's more, Enhertu could begin to take over the share of Gilead's drug for triple-negative breast cancer and thereby negatively impact Trodelvy's peak sales.

Conclusion

Since writing my last analytics article on Gilead Sciences in June 2022, the company's share price has risen over 42%, meeting my target price and, more importantly, significantly outperforming the S&P 500 ( SPY ) and iShares Biotechnology ETF ( IBB ).

In the first nine months of 2022, Gilead Sciences under Daniel O'Day has been able to achieve impressive results in improving the company's financial position, continuing its policy of reducing overall debt and improving margins even as sales of an antiviral medicine for the treatment of COVID-19 patients declined. In the second half of 2022, Gilead completed the acquisition of MiroBio , which develops drugs for treating autoimmune diseases. As a result, this transaction improved the diversification of the company's pipeline, which mainly focused on developing drugs for treating HIV, hepatitis B, and hepatitis C in previous years.

However, in terms of technical analysis and due to the uncertainty regarding Veklury sales and the company's ability to compete with ViiV's Cabenuva in the short term, I believe that the company's share price will fall in the range of $70-$71 per share. However, after the completion of the short-term correction, then a new bull cycle may begin, and Gilead will continue the trend of exceeding Wall Street analysts' expectations and retain high investment interest from investors seeking to find high-dividend assets from the healthcare sector.

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