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Aerie (AERI) Down 19.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Aerie Pharmaceuticals (AERI). Shares have lost about 19.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aerie due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Aerie Beats on Q2 Earnings & Sales, Lowers Guidance

Aerie reported better-than-expected results for the second quarter of 2019. However, the company lowered its annual revenue guidance.

The company reported a loss of 80 cents per share in second-quarter 2019, narrower than the Zacks Consensus Estimate of a loss of 87 cents and the year-ago quarter’s loss of $1.14.

In December 2017, Rhopressa (netarsudil ophthalmic solution) was approved by the FDA for the reduction of elevated intraocular pressure (IOP) in patients with open-angle glaucoma or ocular hypertension. The drug was launched toward the end of April 2018. Aerie’s second drug, Rocklatan, a once-daily, quadruple-action, fixed-dose combination of Rhopressa and Pfizer’s Xalatan, was approved by the FDA in March 2019 to reduce elevated IOP in patients with open-angle glaucoma or ocular hypertension.

Sales from both drugs came in at $15.8 million in the quarter, beating the Zacks Consensus Estimate of $15 million and increasing from $2.4 million in the year-ago quarter. Sequentially, revenues were up 46%.

Quarter in Detail

Total operating expenses (excluding stock-based compensation expenses) in the second quarter of 2019 were $50.5 million, up from $47.7 million in the year-ago quarter. Research and development expenses increased to $18.1 million from $15.6 million in the year-ago quarter. Selling, general and administrative expenses increased to $27.4 million from $26 million in the year-ago quarter.

Pipeline Update

Enrollment for the phase II trial on Rhopressa in Japan is now complete ahead of schedule and data are expected by the end of the year.  The phase III trial, Mercury 3, in Europe on Rocklatan continues to progress. The trial is designed to support commercialization in the region. Top-line results are expected in the first half of 2020.

Aerie expects to obtain approval for Rhokiinsa (the name for Rhopressa) in Europe later in 2019.

Aerie’s retina program, evaluating AR-13503 (Rho kinase and Protein kinase C inhibitor implant) and AR-1105 (dexamethasone steroid implant), continues to advance as well.  In March 2019, a phase II study was initiated on AR-1105 for macular edema due to RVO (retinal vein occlusion).

Clinical trials on AR-13503 are expected to begin shortly for wet age-related macular degeneration and diabetic macular edema (DME).

2019 Guidance Lowered

Aerie lowered its annual revenue guidance. The company expects full-year 2019 net revenues of $70- $80 million, down from the previous guidance of $110-$120 million as volumes have been lower than expected.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -27.11% due to these changes.

VGM Scores

At this time, Aerie has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aerie has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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