FOSTER CITY, Calif. (TheStreeet) -- Gilead Sciences (GILD) 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) entered the hepatitis C drug market.
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%.