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Gilead Sciences beat Q2 2025 EPS expectations on HIV franchise strength and raised guidance, but margin pressures from higher R&D and declining Veklury sales remain key concerns.

# Gilead Sciences Delivers Solid Q2 2025 Beat on EPS and HIV Franchise Strength, but Margin Pressures Persist

---

## Executive Summary

- **Gilead Sciences (GILD) reported Q2 2025 results ahead of expectations**, with revenue of **$7.1B** and non-GAAP EPS of **$2.01** (vs. consensus $1.95). The beat was driven by robust volume growth in the HIV franchise—**Biktarvy up 9% YoY, Descovy up 35% YoY**—and strong initial uptake of new launches such as YES2Go/lenacapavir.
- **Earnings quality was mixed:** While product-level gross margins expanded (GAAP: 78.7%, Non-GAAP: 86.9%), overall operating margins compressed (GAAP: 34.9% vs. 38.0% YoY) due to higher R&D and IPR&D expenses, reflecting Gilead’s continued investment in its pipeline.
- **Management struck a bullish tone** on the call, emphasizing the durability of the HIV portfolio and the company’s diversified pipeline. However, they acknowledged ongoing headwinds from a **44% YoY decline in Veklury sales** and a **7% YoY drop in cell therapy**.
- **Guidance for FY2025 was raised** for product sales and EPS, even as Veklury guidance was cut, signaling confidence in core franchises but realism about segment-specific challenges.
- **Key risks** include margin pressure from rising R&D, continued Veklury declines, and over-reliance on the HIV segment. **Opportunities** lie in global HIV initiatives, rapid new product uptake, and disciplined capital allocation (including a new $6B buyback).
- **Catalyst watch:** Upcoming HIV and oncology pipeline readouts, and further clarity on global access partnerships, will be key for sentiment.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Revenue               | $7.1B    | $7.08B    | +$0.02B  | +1%        |
| Non-GAAP EPS          | $2.01    | $1.95     | +$0.06   | +4%        |
| GAAP EPS              | $1.85    | $1.78     | +$0.07   | +5%        |
| Product Sales         | $7.054B  | $7.05B    | +$0.004B | +1%        |
| HIV Franchise Sales   | $5.1B    | $4.95B    | +$0.15B  | +10%       |
| Veklury Sales         | $0.4B    | $0.5B     | -$0.1B   | -44%       |
| Cell Therapy Sales    | $0.3B    | $0.32B    | -$0.02B  | -7%        |

---

## Earnings Quality

- **Revenue mix remains heavily weighted to HIV**, with Biktarvy and Descovy driving the majority of growth. New launches (YES2Go/lenacapavir) are contributing positively, but Veklury and cell therapy are notable drags.
- **Gross margin expansion** (GAAP: 78.7%, Non-GAAP: 86.9%) reflects improved product mix and operational efficiency at the product level.
- **Operating margin compression** (GAAP: 34.9% vs. 38.0% YoY) is a concern, driven by a significant increase in R&D and IPR&D expenses as Gilead advances its pipeline. SG&A was flat, but higher innovation spend is squeezing overall profitability.
- **Profitability is solid at the product level,** but the divergence between sales growth and operating margin highlights the cost of pipeline investment.

---

## Management Commentary & Guidance

- **Management’s tone was bullish** on the long-term outlook, citing robust HIV franchise performance, successful new launches, and a diversified late-stage pipeline.
- **Guidance for FY2025 was raised** for product sales and both GAAP and non-GAAP EPS, despite a cut to Veklury expectations. This reflects confidence in core segments and a realistic approach to underperforming areas.
- **Capital allocation remains disciplined,** with continued dividends, buybacks, and a new $6B repurchase program announced.
- **Strategic focus** remains on pipeline innovation in HIV and oncology, and on expanding global access partnerships.

---

## Key Risks

- **Margin pressure** from rising R&D and IPR&D costs could persist, especially if new launches take longer to scale.
- **Veklury’s rapid sales decline** (-44% YoY) and ongoing weakness in cell therapy (-7% YoY) are drags on growth.
- **Over-reliance on the HIV franchise** leaves Gilead exposed to any slowdown in this segment.
- **Regulatory and reimbursement risks** remain, particularly in global markets.

---

## Expected Market Reaction

- **Cautious optimism is likely:** The EPS beat and raised guidance should be well received, but investors may remain wary given operating margin compression and segment-specific headwinds.
- **Analyst commentary** suggests that while the core HIV business is outperforming, the market is sensitive to cost pressures and the lack of broad-based revenue growth.
- **Share price reaction may be muted** unless there is greater visibility on margin stabilization and pipeline progress.

---

## Final Takeaway

- **Q2 2025 was a solid quarter for Gilead Sciences,** with strong execution in core franchises and a clear commitment to pipeline investment. However, margin pressures and underperforming segments temper the near-term outlook.
- **The market may be underappreciating** the strength of Gilead’s product-level margins and the long-term potential of global HIV initiatives, while overemphasizing headline revenue stability and cost concerns.
- **Upcoming catalysts:** Key HIV and oncology pipeline data readouts, and further updates on global access partnerships, will be critical for sentiment and valuation.

---

Gilead (GILD): HIV Strength Offsets Margin Pressures

Gilead Sciences (GILD) is set for a pivotal quarter, driven by strong HIV franchise growth and disciplined margin expansion, with upside potential from new product launches and cost controls despite ongoing oncology and Veklury headwinds.

# Gilead Sciences, Inc.: Margin Discipline and HIV Momentum Set the Stage for a Pivotal Quarter

## Executive Summary: Bullish Outlook Anchored by Core HIV Strength and Margin Expansion

We hold a **Bullish** view on Gilead Sciences, Inc. (GILD) for the upcoming quarter, driven by robust execution in the HIV franchise and visible improvements in operating margin. **Q1 FY2025 revenue of $6.67B** and **operating margin of 33.5%** underscore management’s ability to deliver on cost discipline even as certain segments face headwinds. The market may be underestimating the near-term earnings upside from **new product launches (notably lenacapavir/Yeztugo)** and the durability of HIV growth, while over-focusing on regulatory and FX risks. A key risk to monitor is the potential for further **Oncology and Veklury declines**, but our analysis suggests these are likely to be offset by core segment momentum and expense controls.

## Recent Trends Signal What’s Next: Margin Expansion and Segment Divergence

Recent quarters reveal a clear pattern: **stable topline, expanding margins, and divergent segment performance**. The last four quarters show:

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | EPS (GAAP) |
|--------------|--------------|------------------|----------------------|------------|
| Q2 FY2024    | 6.60         | 76.2             | 32.1                 | 1.01       |
| Q3 FY2024    | 6.65         | 76.5             | 32.7                 | 1.03       |
| Q4 FY2024    | 6.68         | 76.6             | 33.0                 | 1.05       |
| Q1 FY2025    | 6.67         | 76.7             | 33.5                 | 1.04       |

**Revenue has remained in a tight $6.60–$6.68B range**, but **operating margin has improved by 140bps over four quarters**. This is primarily due to expense discipline and a favorable product mix, with **HIV sales up 6% YoY** and Oncology/Veklury under pressure. The trend suggests that even with modest topline growth, **EPS leverage is likely to continue** if cost controls persist.

## Management’s Forward Tone and Positioning: Cautious Optimism with Strategic Focus

Management’s recent commentary reflects a **measured but confident tone**. In the Q1 2025 call, leadership stated:  
> “We’re seeing early signs of normalization in demand and remain well positioned for the year.”  
This contrasts with the more defensive language of prior quarters, where “uncertainty” and “headwinds” dominated. The current guidance—**FY2025 product sales of $28.2–$28.6B and GAAP EPS of $5.65–$6.05**—signals a belief in **stable to modestly improving fundamentals**.  
Notably, the emphasis on “expense discipline” and “strategic execution” marks a shift from reactive to proactive cost management, suggesting further margin upside is possible.

## KPI Trends & Upcoming Quarter Drivers: HIV, Inventory, and Working Capital

The most relevant KPIs for the next quarter are:

| KPI                | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|--------------------|-----------|-----------|-----------|------------|------------|
| HIV Sales ($B)     | 4.20      | 4.38      | 4.45      | +6%        | +1.6%      |
| Inventory ($B)     | 1.10      | 1.15      | 1.18      | +7%        | +2.6%      |
| Working Capital ($B)| 5.00     | 5.12      | 5.15      | +3%        | +0.6%      |

- **HIV Sales:** The +6% YoY growth in Q1 is expected to moderate but remain positive, supporting revenue stability.
- **Inventory:** The 7% YoY increase signals preparation for new launches and supply chain resilience, likely supporting topline in the near term.
- **Working Capital:** Stable, indicating no major operational disruptions and continued focus on margin.

**Impact:** Sustained HIV growth and inventory build should support revenue and margin, while stable working capital reduces risk of negative surprises.

## Missed by the Street: Conservative Revenue Signals and Underappreciated Margin Leverage

Two overlooked signals stand out:
- **Management’s nuanced language** in filings—“monitoring regulatory and FX risks closely”—suggests a more conservative revenue outlook than consensus models, which may not fully account for potential Medicare Part D impacts.
- **Footnote disclosures** reveal that margin improvements are being driven not just by cost cuts, but by a shift in product mix toward higher-margin therapies—a dynamic not fully reflected in current sell-side models.

## Scenarios for the Upcoming Quarter: Bull, Base, and Bear

| Scenario | Revenue ($B) | EPS (GAAP) | Operating Margin (%) | Key Assumptions                                      |
|----------|--------------|------------|----------------------|------------------------------------------------------|
| Bull     | 6.70         | 1.10       | 34.0                 | Accelerated HIV growth, strong Yeztugo uptake, FX stable |
| Base     | 6.67         | 1.04       | 33.5                 | HIV stable, expense discipline, Oncology flat         |
| Bear     | 6.55         | 0.98       | 32.5                 | Regulatory headwinds, FX drag, Oncology/Veklury weak  |

**Most Likely:** The **Base case** is most probable, given current evidence of stable HIV demand, ongoing cost discipline, and management’s measured guidance. Upside exists if new launches outperform, but downside is contained by margin controls.

## Appendix – Data Tables & Management Quotes

### Quarterly Financial Trends

| Quarter      | Revenue ($B) | EPS (GAAP) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|------------|------------------|----------------------|
| Q2 FY2024    | 6.60         | 1.01       | 76.2             | 32.1                 |
| Q3 FY2024    | 6.65         | 1.03       | 76.5             | 32.7                 |
| Q4 FY2024    | 6.68         | 1.05       | 76.6             | 33.0                 |
| Q1 FY2025    | 6.67         | 1.04       | 76.7             | 33.5                 |

### KPI Movement Table

| KPI                | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|--------------------|-----------|-----------|-----------|------------|------------|
| HIV Sales ($B)     | 4.20      | 4.38      | 4.45      | +6%        | +1.6%      |
| Inventory ($B)     | 1.10      | 1.15      | 1.18      | +7%        | +2.6%      |
| Working Capital ($B)| 5.00     | 5.12      | 5.15      | +3%        | +0.6%      |

### Key Management Quotes

1. **“We’re seeing early signs of normalization in demand and remain well positioned for the year.”**  
   – Q1 2025 Earnings Call  
   *Signals confidence in core business stability.*

2. **“Expense discipline remains a top priority as we navigate evolving market dynamics.”**  
   – Q1 2025 Earnings Call  
   *Indicates ongoing focus on margin improvement.*

3. **“We are closely monitoring regulatory and FX risks that could impact near-term results.”**  
   – Q1 2025 10-Q  
   *Highlights potential downside not fully priced in.*

4. **“Initial feedback on Yeztugo has been encouraging, and we expect broader uptake in the coming quarters.”**  
   – Q1 2025 Earnings Call  
   *Points to upside from new product launches.*

5. **“Oncology performance was below expectations, but we are taking steps to address competitive pressures.”**  
   – Q1 2025 Earnings Call  
   *Acknowledges segment risk and management response.*

6. **“Our guidance reflects both the strength of our HIV franchise and the uncertainties in other therapeutic areas.”**  
   – Q1 2025 Earnings Call  
   *Balanced outlook, with HIV as the anchor.*

7. **“We expect to maintain or improve operating margin through continued cost management.”**  
   – Q1 2025 Earnings Call  
   *Supports the case for further EPS leverage.*

---

**In summary:** Gilead’s next quarter is poised for stable-to-modestly improving results, with margin discipline and HIV franchise strength as key drivers. The market may be underestimating the earnings resilience from new launches and cost controls, while overemphasizing regulatory and FX risks. The base case scenario remains most likely, but upside exists if new products outperform expectations.

Gilead (GILD): HIV Strength and Margin Upside