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Aerie (AERI): Can the Stock Pull a Surprise in Q1 Earnings?

Aerie Pharmaceuticals, Inc. AERI is scheduled to report first-quarter 2016 results after the market closes on May 2.

Aerie’s performance over the last four quarters has been disappointing. The company reported a wider-than-expected loss in three of the last four quarters, with an average negative earnings surprise of 4.10%.

Let’s see how things are shaping up for this announcement.

Rhopressa in Focus

Being a development-stage company, Aerie does not have any approved product in its portfolio yet. Investors are, thus, expected to focus on pipeline updates.

The lead candidate at the company is Rhopressa. The candidate is being evaluated for lowering intraocular pressure (IOP) in patients with open-angle glaucoma and ocular hypertension. Aerie recently released disappointing safety data on Rhopressa from two phase III trials – Rocket 1 and Rocket 2.

Data from the trials showed that 64.9% of subjects treated once daily with Rhopressa experienced eye disorders in the Rocket 2 study, which worsened to 78.3% when treated with Rhopressa twice a day. The rate of disorders was much lower in the timolol arm. Nevertheless, the company is looking to file for an FDA approval of Rhopressa in the third quarter of 2016.

The company expects significant cash burn in 2016 due to the ongoing trials – Rocket 2, Rocket 3 and Rocket 4, as well as Mercury 1 and Mercury 2.

Apart from Rhopressa, Aerie is evaluating Roclatan, a once-daily, quadruple-action fixed-dose combination of Rhopressa and Xalatan. Aerie initiated a phase III registration trial, Mercury 1, on Roclatan in Sep 2015 and top-line efficacy data from this trial is expected later in 2016. Aerie recently commenced a phase III trial, Mercury 2, in the U.S. Top-line 90 day efficacy data from the trial are expected in the second quarter of 2017.

Based on the success of the Mercury 1 and Mercury 2 trials, the company plans to file for approval of Roclatan in the second half of 2017. On the other hand, the company plans to initiate a third phase III trial, Mercury 3, on Roclatan in the first half of 2017 to facilitate its regulatory approval and commercialization in Europe.

We expect further updates from the company on its pipeline during the first-quarter call.

Earnings Whispers

Our proven model does not conclusively show that Aerie is likely to beat estimates 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. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Aerie is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 66 cents.

Zacks Rank: Aerie 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 a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few 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.

Gilead Sciences GILD has an Earnings ESP of +1.65% and a Zacks Rank #1. The company is scheduled to report first-quarter results on Apr 28.

The Earnings ESP for Sanofi SNY is +4.17% and it carries a Zacks Rank #2. The company is scheduled to release first-quarter results on Apr 29.

Amgen Inc. AMGN has an Earnings ESP of +3.52% and a Zacks Rank #3. It is scheduled to report first-quarter results on Apr 28.

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SANOFI-AVENTIS (SNY): Free Stock Analysis Report
GILEAD SCIENCES (GILD): Free Stock Analysis Report
AMGEN INC (AMGN): Free Stock Analysis Report
AERIE PHARMACT (AERI): Free Stock Analysis Report
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