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3 Key Things to Watch in Gilead Sciences' Q2 Earnings Report

Keith Speights, The Motley Fool

When Gilead Sciences (NASDAQ: GILD) reported its Q1 results in May, investors received a double dose of bad news. Hepatitis C virus (HCV) franchise sales sank yet again, to no one's surprise. However, growth for Gilead's HIV drugs was unexpectedly weak.

The big biotech announces its second-quarter results on Wednesday, July 25. How will Gilead fare this time around? Here are the three key things to watch in the company's Q2 earnings report.

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Image source: Getty Images.

1. Has the HCV stabilization begun?

Gilead Sciences CFO Robin Washington stated in the company's Q1 conference call that HCV prices had "largely stabilized" and that the company expects "market share to stabilize by mid-year." It's now mid-year, so anyone who follows Gilead will be anxious to find out if overall HCV sales have indeed stabilized.

Investors shouldn't expect year-over-year comparisons of HCV sales to look much better than they've looked in recent quarters. Instead, the important thing to look at in the Q2 results is the sales decline from the first quarter. In May, Gilead reported a 30% quarter-over-quarter drop in HCV sales. If there is a marked improvement in this number, that could mean that there's finally a light at the end of the tunnel for Gilead's HCV franchise.

But what about the recent announcement by Merck that it's cutting the price of its drugs, including HCV drug Zepatier, in response to President Trump's criticism of drugmakers? Even though Merck plans to slash Zepatier's price by 60%, it isn't likely to affect Gilead very much. The battle in HCV now is primarily between Gilead and AbbVie.

2. Is Biktarvy's growth on track?

When a drug has been called "Mount Everest," there's a lot of pressure to perform. That's the term Gilead's executives have used in past references to Biktarvy, which won FDA approval in February. It's not just Gilead that is optimistic about the HIV drug, though. Several analysts have projected peak annual sales of around $6 billion for Biktarvy. Market research firm EvaluatePharma thinks it will be the biggest new drug launch of 2018.

Biktarvy generated sales of $35 million in the first quarter. However, that reflected only six weeks on the market for the drug. Robin Washington said that "the launch trajectory is looking very close to Genvoya." That's certainly encouraging, since Genvoya enjoyed the most successful launch ever for an HIV drug.

So what sales level should be expected for Biktarvy in Q2? Genvoya won FDA approval in November 2015 and made $45 million in its first eight weeks on the market. Sales for the drug jumped to $158 million in its first full quarter of commercialization. Based on this performance, I suspect that Biktarvy's Q2 sales could be in the ballpark of $150 million.

3. How is the rest of the HIV franchise performing?

Gilead can ill afford another anemic performance from its HIV franchise. Momentum for Biktarvy is important, but it's also critical that the biotech's other HIV drugs do well. There are two factors that could make the difference in overall HIV franchise sales.

One is the strength of Descovy-based regimens in Europe. Competition from generic HIV drugs has taken a toll on Gilead's biggest winners of the past, including Truvada and Atripla. The good news, though, is that over 50% of the biotech's European HIV sales in the first quarter came from newer drugs Descovy, Genvoya, and Odefsey.

The other key thing to watch is how much Biktarvy cannibalizes sales of Gilead's other HIV therapies. Roughly 80% of prescriptions for Biktarvy in Q1 came from switches. While 20% of those switches were from GlaxoSmithKline's Tivicay and Triumeq, around one-third came from patients who were taking Genvoya. 

The bottom of the trough

I could be pleasantly surprised, but I don't expect Gilead Sciences to post numbers in Q2 that excite investors. However, Robin Washington mentioned in the Q1 conference call that 2018 is "a trough year" for Gilead. I think that Q2 will be the bottom of the trough. If so, the future for Gilead should start to look brighter.

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Keith Speights owns shares of AbbVie and Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has a disclosure policy.