Gilead Sciences May Still Be Lowballing Q4 Guidance (NASDAQ:GILD)

Gilead Sciences (NASDAQ:GILD) is a large ($110 billion market cap) biopharmaceutical company. It is the long-time virology leader in areas such as HIV and viral hepatitis, and in 2022 was still heavily reliant on its HIV franchise (73% of the $13.5 billion in U.S. product sales) and in particular, Biktarvy (45% of sales), which was approved in 2018. By 2020, Gilead had added four more products to the U.S. market: Yescarta and Tecartus (by acquiring Kite Pharma), Trodelvy (by acquiring Immunomedics), and Veklury. Their most recent agent approved was Sunlenca on December 22. Shares soared 13% to $79.27 after Third Quarter EPS and revenue beats and continued to rally for more than a month but couldn’t quite breach $90. Investors might be pleasantly surprised that this was done without broad coverage on Trodelvy and Veklury.

Coverage was explored at the 15 largest health insurance companies in the U.S. overall. Combined, these payors control 59% market share, with 38 million covered lives as of 2021. Veklury is available to hospital and qualified nonhospital outpatient facilities. The CAR T cell therapies Tecartus and Yescarta are only available at authorized treatment centers and were excluded from the search; there is good demand momentum but it will be difficult to track the uptake in their utilization. Sunlenca hasn’t launched, and one month is not enough time for most payors to discuss its inclusion in their prescription drug lists (PDLs or formularies). The most common plan was examined when possible and is specified in Table 1. If the insurer offered non-Medicare plans in a state Marketplace (Obamacare), the most populous state was chosen (California > Texas > Florida). Humana (HUM) doesn’t do Exchanges, so their Medicaid plan is the only one in the survey.

How to read Table 1:

Tier # Higher Tiers have higher cost share. Drugs in Tier 4 or higher (in 5+-Tier plans) are non-preferred brands and may also include drugs recently approved by the FDA or specialty drugs and may need special handling.

Sp Specialty drugs are used to treat difficult, long-term conditions and may need to get filled through a specialty pharmacy.

PA Prior authorization is the process of obtaining approval of benefits before certain prescriptions may be filled.

NF A non-formulary drug is not included on a plan’s Drug List. Exception processes such as PA or Step Therapy could be available to request coverage for an NF drug.

X Not Covered drugs are specifically excluded from coverage by the terms of the plan. Patients likely won’t get any reimbursement will have to pay out-of-pocket for these drugs.

Table 1. 2023 Coverage of Gilead’s New Products at 15 Largest Health Insurance Companies in the U.S.

Rank	Commercial health insurance plans	Trodelvy	Veklury
1	Kaiser Permanente [Southern CA Commercial HMO 3-Tier]	x	4
2	Elevance Health (Anthem) National Drug List 5-Tier	NF PA	x
3	Health Care Service Corporation
	BCBS Illinois Basic Drug List	x	x
	BCBS Montana Basic Drug List	x	x
	BCBS New Mexico Basic Drug List	x	x
	BCBS Oklahoma Basic Drug List	x	x
	BCBS Texas Basic Drug List	x	x
4	UnitedHealth [Traditional 4-Tier]	x	x
5	Centene [Health Net Essential Rx Drug List]	x	x
6	CVS Health (Aetna Standard Opt Out)	x	x
7	GuideWell (Florida Blue) ValueScriptRx	x	x
8	Blue Cross Blue Shield of Michigan [BCN HMO]	x	x
9	Highmark Healthcare Reform Comprehensive 3-Tier Incentive	x	x
10	Blue Cross of North Carolina Enhanced 5 Tier	x	x
11	Humana Rx5	medical?	medical?
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	x	x
13	Blue Cross Blue Shield of Massachusetts	x	x
15	Independence Health Group [Value formulary 5-tier]	x	x
Rank	Health Insurance Marketplace plans	Trodelvy	Veklury
1	Kaiser Permanente [CA Marketplace]	x	4
2	Elevance Health (Anthem) CA Select Drug List	NF PA	x
3	Health Care Service Corporation
	BCBSIL Health Insurance Marketplace 6 Tier HIM Drug List	x	x
	BCBSMT Health Insurance Marketplace 6 Tier HIM Drug List	x	x
	BCBSNM Health Insurance Exchange 6 Tier HIE Drug List	x	x
	BCBSOK Health Insurance Marketplace 6 Tier HIM Drug List	x	x
	BCBSTX Health Insurance Marketplace 6 Tier HIM Drug List	x	x
4	UnitedHealth Group [TX QHP Standard]	x	x
5	Centene [Health Net CA Essential Rx Drug List]	x	x
6	CVS Health (Aetna Health Exchange Plan: CA)	x	x
7	GuideWell (Florida Blue) ValueScriptRx	x	x
8	Blue Cross Blue Shield of Michigan [BCN HMO]	x	x
10	BCBS North Carolina Essential Q	x	x
11	Humana [FL Medicaid Preferred Drug List]	x	x
12	Blue Cross and Blue Shield of Alabama Blue Saver Bronze	x	x
Rank	Medicare Prescription Drug Plans	Trodelvy	Veklury
1	Kaiser Permanente	5	5
2	Anthem Blue Cross MedicareRx [B5]	5 PA	x
3	Health Care Service Corporation
	BCBS Illinois Blue Cross MedicareRx Basic	x	x
	BCBS Montana Medicare Advantage Classic	5 PA	x
	BCBS New Mexico MedicareRx Basic	x	x
	BCBS Oklahoma MedicareRx Basic	x	x
	BCBS Texas MedicareRx Basic	x	x
4	UnitedHealth [AARP MedicareRx Walgreens]	5 PA	5
5	Centene [Wellcare Value Script]	x	x
6	CVS (Aetna) [SilverScript Choice]	x	x
7	GuideWell (Florida Blue Medicare Premier Rx)	x	x
8	BCBS of Michigan Prescription Blue PDP Select	5 PA	x
9	Highmark Performance Formulary	x	x
10	BCBS North Carolina Blue Medicare Rx Standard	x	x
11	Humana Basic Rx Plan PDP	x	x
12	BCBS Alabama BlueRx Essential	x	x
13	Blue Cross Blue Shield of Massachusetts	x	x
14	Molina Medicare Choice Care (HMO)	x	x
15	Independence Keystone 65 Basic Rx HMO	x	x

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Despite Veklury’s controversially swift approval, it is still “the second preferred treatment option” for COVID-19, behind Pfizer’s (PFE) Paxlovid, and is accepted at Kaiser Permanente. This was anticipated, given Kaiser’s penchant for integration of care and cost-effectiveness; they weren’t going to waste time getting their members this treatment as soon as it was needed. More concerning is Trodelvy. This antibody-drug conjugate (“ADC”) has nowhere near the coverage of, say, Bristol Myers Squibb’s (BMY) newer oncology agents Inrebic and Onureg that were approved around the same time. Trodelvy keeps ahead of the rival pair mainly because breast cancer is a much larger market, especially for a preferred second line treatment.

All told, the quartet of Yescarta, Trodelvy, Tecartus, and Veklury contributed $2.25 billion, or one-sixth of Gilead’s 2022 nine-month sales. Veklury sales should taper off, given that COVID-19 cases are much lower than the previous two winters (Figure 1), although future spikes and new variants can’t be ruled out. Somehow analysts only expect $26.53 billion in total revenues for 2022, which represents a 2.9% dip from 2021’s $27.31 billion. They predict even less from this year, with a current estimate of $25.54 billion. This is likely ‘pricing in’ further Veklury declines.

Figure 1. Weekly COVID-19 Cases in The U.S. as of January 18, 2023

Source: Centers for Disease Control and Prevention. COVID Data Tracker. Atlanta, GA: US Department of Health and Human Services, CDC; 2023, January 22. COVID Data Tracker

Trodelvy can’t be expected to pick up the slack. Of course, with the sparse coverage, things probably have nowhere to go but up. Indeed, Trodelvy is picking up an upgrade with Elevance Health (ELV) as a Tier 3 (non-preferred) brand starting in April. To be fair, Inrebic and Onureg also be included in that status.

At J.P. Morgan’s 41st Annual Healthcare Conference on January 9, management stated that Biktarvy has a 45% market share in the U.S. This is expected and should continue to be so. In the most current HIV/AIDS Treatment Guidelines published by the U.S. Department of Health & Human Services, Biktarvy and Symtuza [a collaboration with Janssen (JNJ)] are two of only 4 recommended single tablet regimens for most people with HIV who are starting antiretroviral therapy (“ART”), and the only ones that don’t need HBV testing or HIV genotypic resistance testing for reverse transcriptase. Symtuza is only recommended for people who received ViiV Healthcare’s Apretude, the first and only long-acting, injectable pre-exposure prophylaxis (PrEP). In certain clinical situations, Genvoya, Odefsey, Stribild and Complera may also be recommended. However, prescribers have largely been persuaded to switch from the latter two that are TDF-based to the TAF lower-dose tenofovir formulations, which have fewer bone and kidney toxicities.

Table 2. Gilead HIV Product Sales ($ millions) for the Nine Months Ended September 30

HIV Product	Abbreviation		Total			U.S.			Europe			Other International
		2022	2021	Change	2022	2021	Change	2022	2021	Change	2022	2021	Change
Biktarvy	BIC/TAF/FTC	7,472	6,094	23%	6,088	4,926	24%	807	707	14%	577	461	25%
Genvoya	EVG/c/TAF/FTC	1,764	2,123	-17%	763	773	-1%	220	306	-28%	103	184	-44%
Odefsey	RPV/TAF/FTC	1,077	1,148	-6%	251	261	-4%	278	336	-17%	36	39	-8%
Symtuza (revenue share)	DRV/c/TAF/FTC	388	394	-2%	56	73	-23%	126	125	1%	10	8	25%
Complera/Eviplera	RPV/TDF/FTC	142	189	-25%	1,152	994	16%	76	104	-27%	10	12	-17%
Stribild	EVG/c/TDF/FTC	98	139	-29%	68	94	-28%	23	33	-30%	7	12	-42%
Descovy	TAF/FTC	1,335	1,227	9%	1,441	1,633	-12%	92	128	-28%	91	105	-13%
Truvada	TDF/FTC	102	310	-67%	77	268	-71%	12	18	-33%	13	24	-46%
Other HIV(2)		45	153	-71%	11	110	-90%	20	19	5%	15	24	-38%
Total HIV		12,422	11,777	5%	9,906	9,132	8%	1,653	1,776	-7%	863	869	-1%

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To conclude, Gilead is another one of those decent defensive biotech stocks for the bear market. Everyone loves their 3.5% dividend yield and they are rating an A+ from Seeking Alpha’s Quant system based on the 25 upward revisions the past 90 days. Profit margins remain high, they secured almost $10 billion in cash flows in Q3. Furthermore, revenues have beaten estimates for 6 straight quarters.

The company is pegging Veklury to bring in $500 million in Q4, or 10% over Q2’s $445 million, which is somewhat incomprehensible in relation to the sequential doubling of sales in Q3. Meanwhile, The Street’s Low estimate of $26.26 matches management’s high end, and the average is only asking slightly under $7 billion. In other words, $6.5 billion without Veklury. In Q4 2021, Gilead sold $7.16 billion worth of product, or $5.8 billion not including Veklury. This 12% year-over-year growth may seem large but it is doable because $6.0 billion was achieved in Q3, and 7.4% sequential growth is reasonable given the cyclical nature of more people getting sick during winter. Beyond Q4, prospects may be rosier for Trodelvy, as other payors may follow Elevance’s lead and include the ADC in their formularies.

Table 2. Gilead Segment Product Sales for the Nine Months Ended September 30

Product sales:		Total			U.S.			Europe			Other International
($ millions)	2022	2021	Change	2022	2021	Change	2022	2021	Change	2022	2021	% change
HIV	$12,422	$11,777	5%	$9,906	$9,132	8%	$1,776	$1,653	7%	$863	$869	-1%
Veklury	2,905	4,208	-31%	1,179	2,763	-57%	761	560	36%	1,166	684	70%
HCV	1,371	1,488	-8%	745	809	-8%	322	332	-3%	294	357	-18%
HBV/HDV	733	704	4%	311	275	13%	76	85	-11%	337	353	-5%
Cell therapy	1,040	632	65%	688	394	75%	213	308	-31%	44	25	76%
Trodelvy	485	262	85%	379	261	45%	1	98	-99%	8	–	–
Other	693	777	-11%	275	298	-8%	270	244	11%	174	209	-17%
Total product sales	19,650	19,848	-1%	13,482	13,932	-3%	3,419	3,281	4%	2,887	2,497	16%

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