Hepatitis C data key for Gilead earnings

Earnings expectations are high for biotech industry leader Gilead Sciences Inc. Investors want to see that the company’s main source of its revenue — the demand for hepatitis C (HCV) drugs — is still strong.

Analysts are looking for an adjusted earnings per share of $2.88, an increase from the reported $1.67 earnings per share the same quarter last year. For total revenue, the consensus target is $7.85 billion, up from about $6 billion the Q3 of 2014.

Photo by Daniel Epstein

For all of Gilead’s past 8 earnings reports, the company has beat sales expectations. For earnings per share, it’s exceeded seven of the past eight.

This quarter, analysts will be focusing on prescription and patient information surrounding Gilead’s HCV franchise.

Gilead’s HCV drug Sovaldi along with its advanced version Harvoni, generate more than half of the company’s total revenue. The average cost of a full Solvadi treatment $84,000, a expensive price tag that has generated controversy.

Recently, HCV sales have fluctuated — raising red flags on Wall Street.

“That’s where the focus is these days, and also where the debate is loudest on [Gilead’s] future. We are looking for HCV worldwide revenue of 4.5 billion. Street consensus is 4.4 billion,” said Phil Nadeau, analyst at Cowen & Co.

Data that suggests that there’s more than 300,000 people being newly diagnosed for HCV infections each year would fair well for Gilead’s prospects, according to Nadeau.

Photo from Gilead Sciences Inc.

Biotech competitor AbbVie Inc. tried to enter the market of HCV treatment, but was thwarted by a recent FDA warning on life-threatening complications associated with its HCV drug. The takeaway is that Gilead remains unthreatened as the industry leader for now.

“The question will be, will we see continued steady declines [in new patients] at the pace we’ve been seeing? Is the decline going to slow down or flatten? Is it going to reverse? Because those three different trajectories have very very significant implications for where Gilead’s stock goes,” said Brian Skorney, senior research analyst at Robert W. Baird & Co.

While questions over Gilead’s HCV franchise loom, the company’s stock is still a high-value stock, its price trading at 8 times forward EPS estimates.

The stock is still a strong “buy,” according to the majority of 23 analysts surveyed by Bloomberg.

Currently, Gilead is trading at about $109 per share.

While this is a 4 percent decrease year-over-year compared to the NASDAQ Biotech Index’s increase of 9 percent over the same period, Gilead’s outlook is still positive. Analysts are looking at a 12 month target price of $125 for the stock.

Last month, Gilead announced a huge bond sell-off to boost stock value. The offering is to borrow as much as $10 billion and will be available in a six-part offering. The debt offering is one of several recent moves that has investors eyeing potential merger and acquisition action.

Analysts eye further development in oncology, liver disease treatment or antivirals as the top three possibilities for the company’s next move.

In July, Gilead won regulatory approval to launch Harvoni in Japan. The country is the second largest market for medicine after the U.S.

“I do think Japan — maybe not this quarter but over the next couple of quarters — will have an impact in terms of rest of world sales,” said Skorney. Though he added, that any tailwinds provided by Japan won’t be enough to offset any potential headwinds in U.S. sales.

Gilead has new HIV products undergoing U.S. and EU regulatory approval process. While this isn’t expected to impact this quarter’s earnings directly, it does give investors a promising option for future growth. For now, all eyes are on HCV numbers.

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