Morgan Stanley: Gilead’s prevention drugs drive higher revenue guidance, but advance inventory stocking and R&D deals depress profit guidance

Why did full-year guidance move in opposite directions after a third-quarter beat?

Gilead reported third-quarter 2026 revenue of 8.3 billion dollars, up 7% year over year and above the market consensus of 7.805 billion dollars. Adjusted earnings per share were 2.55 dollars, also above the consensus of 2.19 dollars.
The company raised its 2026 product sales guidance from 30.1 billion–30.4 billion dollars to 31 billion–31.3 billion dollars, increasing the midpoint by 900 million dollars. However, it lowered its non-GAAP earnings-per-share guidance from a loss of 0.65–0.30 dollars to a loss of 1.20–0.85 dollars, primarily reflecting approximately 1.4 billion dollars in fourth-quarter acquired in-process R&D charges related to the PepStar and Vir collaborations.
Excluding the combined impact of approximately 9.95 dollars per share from acquired in-process R&D, acquisition financing costs and nonrecurring other income, both ends of the adjusted earnings-per-share guidance range increased by 0.25 dollars.

The US HIV pre-exposure prophylaxis (PrEP) market grew approximately 14% year over year in the third quarter, matching the rate in the previous two quarters. Gilead’s Yeztugo and Descovy together accounted for approximately 50% of the market.
Quarterly Yeztugo sales were 305 million dollars, above the market consensus of 286 million dollars. The company maintained its 2026 sales guidance of approximately 1 billion dollars and expects a more modest sequential increase in the fourth quarter because of holiday seasonality. More than 70% of users returned for a second injection, consistent with the previous quarter.
Descovy sales were 1.046 billion dollars, up 49% year over year, driven by pricing from channel mix and favorable inventory changes. Management said some third-quarter stocking would normally have occurred in the fourth quarter, so it expects a smaller-than-usual increase in channel inventory of HIV medicines in the fourth quarter.

Third-quarter sales of the HIV treatment Biktarvy were approximately 4.1 billion dollars, above the market consensus of 3.9 billion dollars, supported by demand, pricing from channel mix and inventory changes. Its share of the US treatment market reached 53%, but the overall treatment market has yet to return to its historical growth rate of 2%–3%.
Management expects pricing related to the US Inflation Reduction Act and its spillover effects into Medicaid, 340B and other channels to reduce Biktarvy sales by approximately 1.5 billion dollars in 2028, more than Morgan Stanley’s previous assumption of 1.2 billion dollars. Even so, the company expects combined HIV treatment and prevention sales, total product sales and earnings per share in 2028 to remain above their 2027 levels.

The bank raised its long-term PrEP market growth assumptions and expects once-weekly oral lenacapavir to drive growth in 2027. The drug’s regulatory decision date is 2 February 2027; the bank expects it to have approximately 70% pharmacy benefit coverage for the oral version on its first day on the market, corresponding to existing Yeztugo coverage.
Morgan Stanley also added the investigational oral drug emvistegrast to its model, forecasting risk-adjusted sales of 1.4 billion dollars in 2035 under a 60% probability-of-success assumption. The bank raised its price target from 163 dollars to 183 dollars and maintained its overweight rating, while lowering its 2027 earnings-per-share forecast from 9.97 dollars to 9.85 dollars.