Gilead's singular achievement has been to co-formulate three relatively tolerable HIV drugs into one pill. This prevents patients from "picking and choosing" which pills to take. The clinical importance of minimizing HIV pill burden cannot be overstated. Until generically equivalent co-formulated versions of Atripla become available, I strongly believe physicians will remain committed to keeping patients on the lowest possible pill burden. That's not great news for ViiV, which will likely co-formulate dolutegravir with GlaxoSmithKline's Epzicom, a Truvada competitor that includes the NRTIs abacavir and lamivudine. Unfortunately, several clinical studies have shown Epzicom to be less effective than Truvada; as a result, Epzicom prescriptions have declined significantly over the last few years and an Epzicom-based co-formulation strategy seems unlikely to succeed. ViiV also can't co-formulate dolutegravir with Viread, Truvada's critical component, until 2018. Even after that point, the company would have to complete at least some studies to demonstrate equivalence. Given that a shift backwards in pill burden seems unlikely, this puts ViiV at a distinct disadvantage and buys Gilead some time to maneuver. Summer's Over, but is Winter Almost Here? Gilead's competition in the HIV market will increase meaningfully in the next few years, but many of the most significant pressures remain relatively distant. (It must be said that pricing pressure -- as well as increased expenditures -- contributed to management's lackluster 2012 financial guidance.) Over the medium-term, I think dolutegravir competition will be offset by the improved economics associated with the Quad and market share losses from PI-containing regimens. At the end of the day, a long-term investment in Gilead -- long or short -- has more to do with faith than fundamentals. The company trades at a very modest 12 times forward price-to-earnings multiple,m which explains my lack of interest in being short at current prices. Gilead's forward P/E multiple is slightly above that of Amgen ( AMGN) -- which I think has more significant pressures -- and meaningfully below the multiples of growth stocks Celgene ( CELG) and Biogen Idec ( BIIB). Bulls believe Gilead management can offset the long-term risks and drive growth with new products, like Complera, the Quad, and the hepatitis C drug GS-7977 (acquired from Pharmasset for $11 billion.) Bears think Gilead's era of innovation is over. I'm not sure. With a patent that expires in 2029, GS-7977 appears to be Gilead's most visible chance for dramatically enhancing investor excitement about the long-term, especially for those that believe millions of hepatitis C patients have just been waiting for the right cocktail to seek treatment. (As I have said before, I don't share this view.) That's why investors are so focused on the hepatitis C platform. HIV generates the vast majority of Gilead's impressive $3.5 billion in annual free cash flow. I don't think that cash flow is at any significant risk and expect the HIV business will continue to grow modestly through 2021. Even if GS-7977 blows up completely, Gilead will still have adequate cash to pursue other big R&D or M&A initiatives, especially since the balance sheet remains relatively under-levered even after buying Pharmasset. It's the cracks in my faith about Gilead's R&D that leaves me on the sidelines. The company's innovation in HIV is one of the most significant medical achievements in the past 25 years, but other areas have proven challenging, to say the least. In some ways, Gilead's situation can be summarized by a quote from a recent New Yorker article about the psychological impact of perceived decline: "If it feels like winter's on the way, it doesn't matter how large the autumn harvest is." At some point, Gilead may face calls from investors -- as did Pfizer -- to spin off non-core assets or break up the company entirely. I don't think we are at that point yet, but investors, myself included, need to see something more from the Pharmasset deal to believe the Gilead multiple will expand over the long-term. Disclosure: Sadeghi has no positions Gilead Sciences or any of the other stocks mentioned in this article. Follow Nathan Sadeghi-Nejad on Twitter.