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What's in Store for Conatus (CNAT) this Earnings Season?

Conatus Pharmaceuticals Inc. CNAT is expected to report second-quarter 2017 results on Aug 2. Last quarter, Conatus’ earnings were in line with expectations.

Conatus’ earnings history is a mixed bag. The company surpassed expectations on two occasions, missed expectations in one and matched estimates in another, resulting in an average beat of 3.90%.

Conatus’ shares have rallied 15.6% so far this year. This compares unfavorably with 22.2% increase registered by the industry during this period.

Let’s see how things are shaping up for the second-quarter results.

Factors at Play

With no approved product in Conatus’ portfolio at the moment, the company does not generate revenues yet. Hence, investor focus will likely be on the company’s progress with emricasan, an orally active pan-caspase protease inhibitor 

Emricasan, an orally active pan-caspase protease inhibitor, is being evaluated in various phase IIb studies for the treatment of chronic liver disease, including NASH fibrosis. Ongoing studies include ENCORE-PH and ENCORE-NF, evaluating emricasan in patients with compensated or early decompensated NASH cirrhosis and for potential improvements in fibrosis and steatohepatitis, respectively. Data from ENCORE-PH study is expected in 2018 and from ENCORE-NF, in 2019.

In May, Conatus initiated another study – ENCORE-LF. It is a phase IIb trial studying emricasan as a monotherapy in patients with decompensated NASH cirrhosis. The company also plans to soon initiate an additional study – ENCORE-XT – on emricasan under the ENCORE program.

Conatus is also conducting another phase IIb study – POLT-HCV-SVR – evaluating emricasan in patients with liver fibrosis or cirrhosis, post liver transplant. Top-line data from the study is anticipated next year.

Notably, in Dec 2016, Conatus signed an exclusive option, collaboration and license agreement with Novartis AG NVS for the worldwide development and commercialization of emricasan. Earlier this month, the company announced that it has received an amount of $7 million from Novartis with the deal becoming effective. However, this amount will not be recognized in the soon-to-be-reported quarter and only benefit next-quarter revenues.

Operating expenses at the company are expected to rise, particularly research and development costs, due to continued investment toward the development of emricasan.

Earnings Whispers

Our proven model does not conclusively show that Conatus will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. But this is not the case here as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the estimates are pegged at a loss of 11 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Conatus currently carries a Zacks Rank #3, which increases the predictive power of the ESP. However, an Earnings ESP of 0.00% makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some health care stocks you may want to consider as our model shows that these have the right combination of elements to come up with an earnings beat this quarter.

Zoetis Inc. ZTS, which is scheduled to release results on Aug 8, has an Earnings ESP of +1.89% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesaro, Inc. TSRO is scheduled to release results on Aug 8. The company has an Earnings ESP of +16.40% and a Zacks Rank #3.

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Novartis AG (NVS): Free Stock Analysis Report
 
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