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Radius Health (RDUS): Stock to Surprise in Q1 Earnings?

Radius Health, Inc. RDUS is scheduled to report first-quarter 2016 results on May 5.

Radius Health has a mixed track record, with the company posting an average negative surprise of 9.9% over the last four quarters. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Radius Health is a development-stage company working in the field of osteoporosis and other serious endocrine-mediated diseases. Since the company has no approved products in its portfolio yet, it does not generate any revenue from product sales.

In this scenario, investors are expected to keep an eye on pipeline progress.

Radius Health’s efforts on developing its pipeline are encouraging. The company has filed for an approval of its lead candidate, abaloparatide (postmenopausal osteoporosis), in the EU, which is currently under review. The company expects an opinion from the Committee for Medicinal Products for Human Use (CHMP) for its application later in 2016. Radius Health also submitted a New Drug Application (NDA) in the U.S. for abaloparatide-SC at the end of the first quarter of 2016, after a quarter’s delay.

A potential approval would allow Radius Health to record its first commercial sales in 2016. The company is looking for a commercial partner for abaloparatide. Moreover, operating expenses are expected to increase as the company has been expanding its headcount in anticipation of a potential launch in the near future.

The company will also face an increase in research and development expenses due to pipeline development activities. Radius Health is also developing abaloparatide-transdermal, (abaloparatide-TD) as a short wear-time transdermal patch. In Dec 2015, the company initiated a human replicative clinical evaluation to compare the optimized abaloparatide-TD patch with the subcutaneous formulation.

Another candidate, RAD1901, is being evaluated in hormone-driven and/or hormone-resistant breast cancer, and vasomotor symptoms in postmenopausal women. Patient enrollment in the phase I multi-center, open-label, two-part, dose-escalation study on RAD1901 in postmenopausal women with advanced estrogen receptor positive and HER2-negative breast cancer, is ongoing and expected to be complete by mid 2016.The company had earlier collaborated with Novartis AG NVS for the evaluation of the efficacy and safety of a combination of RAD1901 and Novartis’ LEE011.

The company expects its cash balance to be sufficient to fund development plans, commercial scale-up, and other operational activities through 2018. We expect the company to shed more light on its strategic plans during the earnings call.

What Our Model Indicates

Our proven model does not conclusively show that Radius Health is likely to beat estimates this quarter. That 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. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%, since both the Most Accurate estimate and the Zacks Consensus Estimate currently stand at a loss of 83 cents.

Zacks Rank: Radius Health carries a Zacks Rank #3. Although this increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

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

Stocks That Warrant a Look

Here are a couple of health care stocks that you may want to consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Jazz Pharmaceuticals plc JAZZ has an Earnings ESP of +4.58% and a Zacks Rank #3. The company is expected to release first-quarter results on May 10.

Impax Laboratories Inc. IPXL has an Earnings ESP of +8.89% and a Zacks Rank #3. The company is expected to release first-quarter results on May 10.

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NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
 
JAZZ PHARMACEUT (JAZZ): Free Stock Analysis Report
 
RADIUS HEALTH (RDUS): Free Stock Analysis Report
 
IMPAX LABORATRS (IPXL): Free Stock Analysis Report
 
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