Gilead Sciences Has Quietly Become One of the Most Underrated Turnaround Stories in Healthcare. Here's Why Wall Street Is Excited.

Gilead Sciences (NASDAQ: GILD) has shifted from a period of stagnant growth, driven by slowing hepatitis C revenues and declining sales of its COVID-19 therapy Veklury, to a turnaround led by new HIV and oncology drugs.

The pharmaceutical stock is up more than 12% so far this year and more than 5% over the past month. The driver for the bounce is the company's best second-quarter growth in three years. That growth was led by its HIV therapies; breast cancer drug Trodelvy; and Livdelz, used to treat primary biliary cholangitis (PBC), an autoimmune disease of the liver.

Here are three reasons that Gilead's turnaround has Wall Street excited.

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Gilead has updated its core portfolio of HIV therapies

HIV treatment and HIV preexposure prophylaxis (PrEP) therapies remain Gilead's highest-margin cash drivers. Its treatment Biktarvy continues to deliver strong baseline revenue with $3.8 billion in second-quarter sales, up 7% year over year, and it maintains more than 52% of U.S. market share. The rollout of twice-yearly injectables such as Yeztugo expands the PrEP market; long-acting formulations increase adherence and secure durable, high-margin, sticky revenue for years to come.

On top of that, Gilead and partner Merck (NYSE: MRK) are close to an approval for the first weekly pill to treat HIV. This drug is a combination of Gilead's lenacapavir and Merck's islatravir. The Prescription Drug User Fee Act (PDUFA) action date for the combination therapy is Aug. 27.

In the second quarter, Gilead reported overall sales of $7.8 billion, up 10% year over year. That included HIV-related sales of $5.7 billion, up 12% year over year and 13% from the prior quarter. The key, though, was that the company's PrEP sales exceeded $1 billion for the first time, led by $801 million in Descovy sales, up 60% from the same quarter a year ago.

Its portfolio and pipeline of oncology treatments are growing

Oncology now provides Gilead a second pillar of organic top-line growth.

Trodelvy has established solid positioning in breast and bladder cancers and had $457 million in second-quarter sales, up 26% year over year. Gilead's cell therapy assets, including Yescarta -- and pipeline therapies such as anitocabtagene autoleucel (anito-cel) for multiple myeloma (see more below) -- position the company in high-value hematology and oncology markets.

Hepcludex (bulevirtide) was given accelerated approval on May 22 by the Food and Drug Administration (FDA) as a first treatment for adults with chronic hepatitis delta virus (HDV) infection who do not have cirrhosis or who have compensated cirrhosis.

Anito-cel, a treatment for multiple myeloma, is expected to launch shortly after its PDUFA target date of Dec. 23. This is a BCMA-directed CAR T-cell therapy that showed a 96% overall response rate and 74% complete response rate in heavily pretreated patients.

The company reported an earnings-per-share (EPS) loss of $8.45 in the second quarter, compared to positive EPS of $1.56 in the same period a year ago. The markets shrugged off the loss because most of it was attributable to research and development (R&D) expenses related to Gilead's acquisitions of Arcellx, Tubulis, and Ouro Medicines.

It spent $7.8 billion on Arcellx in April, gaining anito-cel. The $1.675 billion deal for Ouro, completed in June, brought in gamgertamig and other promising autoimmune therapies.

Gilead's $5 billion deal for Tubulis, completed in May, expanded its oncology pipeline. The move added a next-generation antibody-drug-conjugate platform, including TUB-040 for ovarian cancer and TUB-030 for various solid tumors.

On Aug. 11, Gilead exercised its option to exclusively license a preclinical solid-tumor bispecific program from MacroGenics (NASDAQ: MGNX). The move triggered a $10 million milestone payment to MacroGenics, boosting the two companies' 2022 collaboration. The three-program agreement includes the clinical-stage bispecific MGD024 and two preclinical bispecific programs.

Solid cash flow helps both its dividend and R&D

Gilead is on track to exceed $12 billion in free cash flow this year, including $3.6 billion in the second quarter. That number should grow as short-term integration charges roll off. This cash conversion supports a reliable dividend, steady share repurchases, and continuous internal research and development (R&D) funding without straining the balance sheet.

The company raised its quarterly dividend by 3.8% this year to $0.82, the 11th consecutive year it has increased its dividend. The current dividend yield is above-average at 2.3%. And Gilead has increased its dividend by nearly 75% over the past decade. That commitment to the dividend allows investors to be patient while they wait to see which of its acquisitions pay off.

Another big plus for long-term investors is that Biktarvy is unlikely to face any loss of patent protection until 2033. Descovy's patent landscape features a combination of long underlying patent exclusivity, successful litigation defense, and strategic generic settlements. Gilead Sciences boasts a relatively long runway before facing major generic exposure.

James Halley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Gilead Sciences and Merck. The Motley Fool has a disclosure policy.