Gilead's Strong Earnings Mask Underlying Growth Concerns: Why Investors Are Selling

Gilead Sciences (NASDAQ: GILD) reported a mixed set of results for Q1 2025, with revenue holding steady at $6.7 billion despite significant headwinds from declining pandemic-era sales. While earnings per share (EPS) rebounded on a normalized basis, the stock price fell sharply following the report. This disconnect between financial performance and investor sentiment highlights the challenges Gilead faces in navigating a crowded market, managing pipeline risks, and overcoming regulatory headwinds. Let’s dissect the numbers to uncover why the sell-off is happening—and whether it’s justified.

The Earnings Snapshot: Strength in HIV, Weakness Elsewhere

Gilead’s Q1 results were uneven, with growth in key areas offsetting declines in legacy products. The HIV franchise—driven by Biktarvy and Descovy—remained a bright spot, delivering $4.6 billion in sales (+6% year-over-year). Descovy’s 38% sales surge to $586 million underscored its role as a growth engine. However, two critical misses overshadowed this success:

1. Biktarvy fell short of estimates, hitting $3.1 billion instead of the expected $3.24 billion.
2. Trodelvy, Gilead’s breast cancer drug, dropped 5% to $293 million, missing the $353 million consensus.

The misses, coupled with a 45% plunge in Veklury (remdesivir) sales to $302 million, sent investors scrambling. While these products are not new—Biktarvy has been on the market since 2018—their inability to hit expectations suggests slowing demand and pricing pressures.

The Pipeline: Promising, But Not Yet Profitable

Gilead’s future hinges on its pipeline, which delivered mixed signals in Q1:
- Trodelvy + Keytruda: Phase 3 data showed improved outcomes in breast cancer, paving the way for regulatory submissions.
- Lenacapavir: The FDA’s June 19 approval decision for its twice-yearly HIV prevention formulation (PrEP) is a critical catalyst.

However, two risks loom large:
1. Competition: Cell therapies like Yescarta and Tecartus face rising rivals, with Tecartus sales down 22% to $78 million.
2. Regulatory Uncertainty: The ASCENT-03 trial for Trodelvy monotherapy in bladder cancer failed in late 2023, casting a shadow over its broader potential.

The Elephant in the Room: Medicare and Tax Headwinds

Gilead’s HIV business, which accounts for 70% of sales, is under pressure from Medicare Part D reforms. While these changes won’t take full effect until 2026, they’ve already distorted 2025 results. Management warned that reported HIV growth will remain flat this year, despite “underlying demand” remaining strong.

Meanwhile, the company’s tax rate spiked to 20.2% in Q1 2025, up from 7% in 2024, due to reduced prior-year tax benefits. This squeeze on margins adds to concerns about profitability.

The Bottom Line: Why the Sell-Off?

Investors are pricing in three key risks:
1. Pipeline Execution: While Trodelvy and lenacapavir have potential, their paths to approval and market share are far from certain.
2. Near-Term Growth Stagnation: With HIV sales muted by Part D reforms and oncology facing pricing/competition headwinds, 2025’s $7.90 EPS midpoint guidance falls short of the $7.89 consensus—barely.
3. Structural Challenges: Gilead’s revenue growth has averaged just 5.1% annually over five years, and its R&D efficiency remains under scrutiny as expenses dip but innovation lags.

Conclusion: Buy the Dip or Wait for Clarity?

Gilead’s stock drop is overdone in the short term, but investors are right to demand proof of execution. The company’s HIV dominance and oncology pipeline remain formidable, but the path to growth is fraught with execution risks.

Key Data Points to Watch:
- Lenacapavir’s June 19 FDA decision: A “yes” could unlock $500+ million in annual sales for its PrEP indication.
- Trodelvy’s ASCENT-04 regulatory submissions: A label expansion in breast cancer would solidify its position in oncology.
- Cash Position: With $7.9 billion in cash (down from $10 billion in late 2024 due to buybacks and dividends), Gilead retains flexibility but must allocate wisely.

For now, the stock’s drop reflects skepticism about whether Gilead can sustain its HIV franchise while overcoming oncology’s growing pains. The next six months—marked by lenacapavir’s FDA ruling and Q3 guidance—will determine if this dip is a buying opportunity or a warning sign.

Final Take: Gilead is not in crisis, but its transition to a next-gen biotech is still unproven. Investors should wait for clarity on its pipeline wins before diving in.