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3 Enormously Important Things You Won't See in Gilead Sciences' Q2 Results

By Keith Speights – Jul 21, 2016 at 10:42AM

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These are the critical items investors should care about that won't be obvious in this big biotech's Q2 results.

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Wall Street wasn't ecstatic the last time Gilead Sciences (GILD -0.85%) reported quarterly results. The big biotech posted an anemic revenue increase compared to the first quarter of 2015. Even worse, Gilead announced a year-over-year earnings decrease.

On July 25, though, Gilead has the opportunity to make investors happy again when the company releases its second-quarter results. Those results will be chock-full of information, but here are three enormously important things you won't see with Gilead's announcement.

1. Significant Epclusa sales

The primary focus with Gilead's second-quarter results will be on sales for Harvoni and Sovaldi. Harvoni's U.S. sales plunged in the first quarter compared to the prior-year period, although international sales picked up the slack to an extent. There will be something missing from Gilead's second-quarter results that is even more important to Gilead's future than Harvoni and Sovalid: significant Epclusa sales.

Gilead won FDA approval for Epclusa on June 28. European approval for the drug came just over a week later. While those approvals didn't come in time for any significant sales to be recorded in second quarter, look for Epclusa to be the big story for Gilead going into 2017.

When Merck launched Zepatier, concerns were raised that the rival drug would take away significant market share from Harvoni and Sovaldi. Those concerns deepened when Merck priced Zepatier well below the price for Gilead's hepatitis C treatments. The threat of competition caused Gilead to have to cough up discounts to payers.

Epclusa could enable Gilead to fight back against rivals more effectively. It's the first single-tablet regiment that treats all genotypes of hepatitis C. Also, Gilead has reportedly priced Epclusa at $74,760 for a 12-week regimen, lower than Harvoni or Sovaldi, but still higher than Zepatier. Gilead's third-quarter results will include the first sales numbers for Epclusa -- and will likely be a key signal for how well the biotech will perform in the future. 

2. Negative financial results

All the hubbub over Gilead's disappointing first-quarter results glossed over an important detail. Yes, the biotech's earnings fell compared to the prior-year period. But those earnings still amounted to $3.6 billion. The reality is that Gilead's first-quarter numbers were bad only in a relative sense, not in an absolute sense.

It's a pretty safe bet that we won't see truly negative financial results from Gilead in the second quarter, either. Whatever earnings the company reports, the figure is likely to be one that many biotech executives would give up a right arm to make.

Analyst Geoffrey Porges at Leerink thinks Gilead's second quarter will be strong due to solid HIV franchise sales and better-than-expected hepatitis C sales. I won't be surprised if his optimism proves correct.

Even if Porges is wrong, though, I think it's likely that Gilead's earnings per share will increase versus last year. The biotech has been using its cash to buy back shares, to the tune of $8 billion worth in the first quarter alone. Reducing the number of outstanding shares on the market can do wonders for year-over-year EPS comparisons.

3. Pipeline potential

When a development-stage biotech reports its financial results, usually the most important thing to pay attention to is the pipeline update. Pipeline potential is what drives the market's expectations for small biotechs.

It's been a long time since Gilead Sciences was a development-stage biotech, but its pipeline potential is still very important. I'd argue that it's even more important over the long run than the revenue and earnings numbers for the quarter. You won't see anything on Gilead's income statement or balance sheet about pipeline potential, but listen closely to what the company has to say about its development efforts.

I expect Gilead to sustain its dominance in the HIV and hepatitis C markets with new drugs in the pipeline, but I'm even more intrigued by its expansion into other indications. My ears perk up especially on any discussion of the company's candidates targeting treatment of nonalcoholic steatohepatitis (NASH). BMO analyst Ian Somaiya predicts that Gilead's simtuzumab NASH drug could hit peak annual sales of $12 billion if approved. I suspect that estimate isn't too far off.

And while Zydelig, Gilead's blood cancer drug, hasn't taken the world by storm so far, keep an eye on Gilead's efforts in oncology. The biotech has three late-stage clinical studies in progress for cancer drugs, including one for potential myelofibrosis treatment momelotinib.

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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