Image Source: Gilead Sciences

Gilead Sciences (NASDAQ:GILD) exceeded expectations when it reported financial results three months ago. Some big questions loomed large, though, as the biotech wrapped up its third quarter. Those questions centered on how well Gilead's hepatitis C drugs Harvoni and Sovaldi would perform in Europe and with potential payer headwinds. Gilead announced its third-quarter results after the market closed on Tuesday. Here are the highlights. 

By the numbers
Total revenue for the third quarter came in at $8.3 billion. That's a nice 43% jump from the $6 billion reported in the third quarter of last year. It's a much smaller sequential increase, though, from the $8.2 billion posted in second quarter of 2015. 

Gilead reported GAAP earnings of $4.6 billion, or $3.06 per diluted share. This reflected a whopping 70% year-over-year increase over the $2.7 billion, or $1.67 per diluted share, achieved in the third quarter of last year. On a non-GAAP basis, the biotech announced third-quarter earnings of $4.8 billion, or $3.22 per diluted share -- 60% higher than the $3.0 billion, or $1.84 per diluted share, posted in the prior-year period.

The company announced that it had $25.1 billion of cash, cash equivalents, and marketable securities as of the end of third quarter. At the end of the second quarter, Gilead had a cash stockpile of $14.7 billion. Issuance of $10 billion in senior unsecured notes in September made the big difference. 

Gilead also bumped its full-year 2015 revenue guidance up to a range of $30 billion to $31 billion, from the $29 billion-to-$30 billion range previously provided.  

Behind the numbers
Harvoni and Sovaldi combined for $4.8 billion in sales during third quarter -- 58% of Gilead's total revenue. However, that's a decrease from the second quarter and a sign that U.S. payers haven't loosened the purse strings yet as the biotech is hoping for. Even European sales dipped somewhat compared with last quarter. On a good note, though, sales outside the U.S. and Europe are growing for both drugs.

Within Gilead's HIV portfolio, Stribild experienced the fastest growth, climbing to $511 million in sales compared to $327 million in the prior-year period. Truvada continued as the biggest HIV moneymaker, with third-quarter sales of $903 million. 

Gilead also saw some solid revenue growth from its non-antiviral drugs. Hypertension drug Letairis racked up sales of $181 million in third quarter -- a nearly 24% year-over-year increase. Sales for blood cancer drug Zydelig jumped to $36 million compared to $6 million in the third quarter of 2014.

Looking ahead
Gilead seems in good shape to benefit from safety concerns about AbbVie's (NYSE:ABBV) hep C treatment, Viekira Pak. A recent study found that Viekira Pak was more likely to trigger adverse side effects than either Harvoni or Sovaldi. AbbVie also had to update its labels last week to reflect a contraindication in patients with Child-Pugh B cirrhosis and recommend that physicians assess the potential for liver damage before prescribing.

Viekira Pak generated revenue of $385 million in the second quarter. That's only a fraction of the combined total for Harvoni and Sovaldi. However, should Gilead chip away at AbbVie's market share, it would improve Gilead's top and bottom lines in the fourth quarter and possibly into 2016.

Perhaps the biggest threat on the horizon for Gilead comes from Merck (NYSE:MRK). The giant drugmaker submitted for FDA approval of its hep C combo in May. Merck's single pill combination of grazoprevir and elbasvir could hurt Sovaldi's sales, especially if Merck lowers its pricing significantly below what Gilead currently charges. 

This possible challenge from Merck stands as one of the key reasons Gilead's valuation remains on the low end compared to most big biotechs. Investors should keep their eyes on the Merck threat, as well as the potential for major payers to relax reimbursement restrictions for the company's high-priced hep C drugs.

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. 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.