Skip to main content

FOSTER CITY, Calif. (TheStreeet) -- Gilead Sciences (GILD) - Get Gilead Sciences, Inc. (GILD) Report reports first-quarter earnings later this month, and Baird analyst Brian Skorney says its combined hepatitis C drug sales -- Harvoni and Sovaldi -- could reach $5 billion, the highest sales for a therapeutic product in any quarter in history.

While that sounds impressive, others charge it won't happen. Deutsche Bank analyst Robyn Karnauskas predicts that first-quarter sales of Gilead's hepatitis C drugs could just meet or even fall short of the consensus expectation of $3.6 billion.

How do two analysts looking at the same weekly and monthly prescription data reach quarterly sales estimates that diverge by almost $1.5 billion? The answer can be found in how they are applying different discount rates to the price tags of Gilead's hepatitis C drugs.

In February, Gilead caused a minor investor freak out when management disclosed that the company's 2015 hepatitis C drug gross-to-net adjustment was going to be about 46%, or more than double the 22% in 2014. Gross to net measures the level of discounting ("net") that Gilead offers customers from the list price ("gross") of its hepatitis C drug Sovaldi and Harvoni. The 46% gross-to-net adjustment, higher than a lot of investors and analysts expected, reflected intense pricing competition now that Abbvie (ABBV) - Get AbbVie, Inc. Report entered the hepatitis C drug market.

Image placeholder title

Baird's Skorney assumes the 46% adjustment in the price of Harvoni and Sovaldi isn't like a light switch that just turns on instantly. Instead, the discount is applied gradually as purchasing contracts with private and public payers kick in. For the first quarter, Skorney assumes Gilead's average discount rate for the price of its hepatitis C drugs will be around 34%.

TheStreet Recommends

Actual patient demand for the drugs is extremely high, so with Gilead generating more revenue than expected with each prescription filled, the company can report higher sales.

In the first quarter, Skorney forecasts Gilead will report $3.7 billion in Harvoni sales, including $3.4 billion in sales from the U.S. Worldwide sales of Sovaldi will reach $1.2 billion, he predicts.

"If gross-to-net shift is still in process and ex-U.S. contribution accelerates, we think a $5 billion number is realistic. In our worst case scenario, we still get above consensus so we think the range of likely outcomes is anywhere between the $4 billion and $5 billion, likely towards the high end and are estimating $4.9 billion," Skorney wrote in a research note published Monday.

Deutsche Bank's Karnauskas applies the full 46% gross-to-net adjustment to her sales forecast for Gilead's hepatitis C drug sales. In early April, Karnauskas predicted Gilead hepatitis C drug sales of $2.4 billion in the U.S., well below the consensus estimate of $2.7 billion. More recently, she has amended her bearish view somewhat, now forecasting first-quarter U.S. sales to be in line at $2.7 billion, assuming the actual gross-to-net adjustment is improved at 39%.

For the first quarter overall, Karnauskas has Gilead earning $2.16 per share, adjusted, on total revenue of $6.3 billion. Skorney's March quarter forecast is higher, with Gilead earning $2.83 per share on total revenue of $7.9 billion. Current analyst consensus has Gilead earning $2.28 per share on $6.8 billion in total revenue.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.