This firm represents one of investing's toughest moral debates

Telegraph

30-06-2025

While many big drug companies do amazing things for humanity, they're also often vilified for profiteering from their work. This month, New York-listed Gilead Sciences has, not for the first time, reminded investors of the conundrum.
On June 18, Gilead announced it had gained approval from the US regulator for a treatment that some view as having the potential to end the global 'HIV epidemic'. At the same time, it has drawn criticism in anticipation of US prices being set at more than $28,000 (£20,400) per patient, per year.
Lenacapavir, to be marketed by Gilead under the name Yeztugo, is a twice-yearly injection that prevents people from contracting HIV. This has the potential to disrupt the market for preventative HIV drugs, which is currently dominated by another Gilead treatment, a daily pill named Descovy.
Financially, Gilead hopes to gain from lenacapavir by expanding the market for preventative HIV treatments. It also could benefit from existing users of Descovy switching to the somewhat more expensive new treatment, and people switching from other long-lasting preventatives such as GSK's bi-monthly Apretude.
The breakthrough is important in strengthening Gilead's HIV franchise more broadly, too. HIV drugs accounted for almost 70pc of product sales last year, and year-on-year growth of HIV-related revenues came in at 8pc in the first quarter.
The group's single biggest-selling drug is Biktarvy, a treatment for people who are already HIV positive. The daily oral pill generates around $13.4bn of sales, or 47pc of the group total. Gilead is currently leveraging its research into lenacapavir by attempting to develop a twice-yearly treatment in this space, too.
Gilead's major drug breakthroughs have not always proved as rewarding for shareholders as they have for patients. Covid-19 sent the shares on a roller-coaster ride after one of Gilead's hepatitis C treatments, called Remdesivir, was originally found to also be very effective against the coronavirus. Sales of the drug, rebranded Veklury, hit $5.6bn in 2021 but rapidly fell as the pandemic eased, and revenues are expected to be just $1.3bn this year.
An earlier breakthrough in the treatment of hepatitis C in the 2010s, meanwhile, caused huge share price excitement, with revenues ballooning to nearly $14bn in 2015 before the drug became a victim of its own success. Because the drug, called Harvoni, found a way to cure the disease as opposed to managing it, it did away with much of its own market. Rising competition also contributed to a rapid decline in sales.
However, many top investors are more bullish on the lenacapavir breakthrough. Financial publisher Citywire, which tracks where the world's best fund managers are investing, has found 12 backing the shares – all among the best-performing 3pc of equity managers globally.
The level of these bets puts Gilead among the 74 stocks that make up Citywire's Global Elite Companies index, which represents the very best ideas from the roughly 6,000 stocks held across the portfolios of top fund managers.
Optimism about Gilead's prospects can be seen in its share price, too. The valuation against forecast earnings is within the top 5pc of the 10-year range. While in some circumstances this would be grounds to worry about the shares being expensive, the fact Gilead is only valued at 13 times forecast earnings makes it is more a reason to take heart than worry.
Indeed, the uninspiring valuations of previous years reflect the ups and downs associated with Veklury and Harvoni.
Today, the future looks much brighter. Sales of Veklury appear to be stabilising and now represent a relatively small proportion of the business. Meanwhile, as well as the strong HIV franchise, the company is experiencing solid growth in cancer and liver disease treatments.
The drug development pipeline also looks strong, and is supported by about a fifth of sales going into research and development (R&D) each year. The group also does not face any major loss of patents until 2033. Meanwhile, attempts to drive down operating costs are benefiting the bottom line.
The good progress has been reflected in analysts raising their earnings forecasts over the last 12 months. Expectations for the current year and next are both up by more than 10pc over the period, and while there is some downward pressure on revenue from US drug pricing policies, Gilead looks relatively well placed due to its focus on novel medicines. Its extensive US operations also reduce the threat from tariffs.
The shares offer an attractive 3pc forecast dividend yield, and the company has a strong track record for returning cash. British buyers of the shares, which are available through all the big broking platforms, need to fill out the current paperwork to minimise withholding tax and should also check for any extra dealing charges.
While walking the tightrope between profit and purpose is never easy, as an investment, Gilead looks better placed than it has for quite some time.
Questor says buy
Ticker: NYSE:GILD