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Is Aerie (AERI) Poised for a Beat This Earnings Season?

Zacks Equity Research

Aerie Pharmaceuticals, Inc. AERI is expected report third-quarter 2017 results on Nov 1. Last quarter, the company reported a narrowed-than-expected loss.

In fact, Aerie’s performance over the last four quarters has been decent. The company reported a narrower-than-expected loss in three of the trailing four quarters while posting wider-than-expected loss in the remaining one, with an average positive surprise of 0.64%.

 

Aerie’s share price has increased 40.8% year to date as against the industrys 5.6% decline. Earlier in the month, Aerie’s stock price surged on positive news for its lead drug, Rhopressa.

Why a Likely Positive Surprise?

Our proven model indicates Aerie to beat earnings 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 which is the case here.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +1.61%. This is because both the Most Accurate estimate stands at a loss of 61 cents and the Zacks Consensus Estimate is pegged at a loss of 62 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aerie has a Zacks Rank #3, which is favorable. The combination of a Zacks Rank #3 and a positive ESP indicates a likely positive surprise. Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Factors at Play

With no approved product in its portfolio, Aerie depends heavily on its late-stage candidates — Rhopressa and Roclatan. Hence, we expect investor focus on pipeline updates.

Aerie’s lead candidate, Rhopressa, a once-daily formulation for lowering intraocular pressure (IOP) is being evaluated in patients suffering from open-angle glaucoma and ocular hypertension. On Oct 13, the Dermatologic and Ophthalmic Drugs Advisory Committee of the FDA voted in favor of Rhopressa’s approval. The members of the committee unanimously agreed that the trials support the efficacy of netarsudil ophthalmic solution for reducing elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension.

In addition, majority of the members agreed that the Rhopressa’s efficacy outweigh safety risks.

The FDA has set a Prescription Drug User Fee Act date of Feb 28, 2018. We note that the FDA is not bound by the Advisory Committee’s guidance, but takes its advice into consideration when reviewing drugs.

Apart from Rhopressa, Aerie is also evaluating Roclatan. Aerie initiated a phase III study — Mercury 3 in Europe for its other pipeline candidate Roclatan 0.02%/0.005%. Roclatan is a once-daily, quadruple-action fixed-dose combination of Rhopressa and Pfizer’s PFE Xalatan, is being evaluated to lower IOP in patients with glaucoma or ocular hypertension. The company plans to submit its NDA for the same in the first half of 2018.

The trial is a non-inferiority trial comparing Roclatan to prescribed fixed dose combination of Ganfort (a combination of the bimatoprost along with timolol), marketed by Allergan plc AGN in Europe.

We expect investors to focus on further pipeline updates on the call. Cash burn for the year is projected at $110 million, up from $100 million due to further pipeline development.

Aerie Pharmaceuticals, Inc. Price and EPS Surprise

 

Aerie Pharmaceuticals, Inc. Price and EPS Surprise | Aerie Pharmaceuticals, Inc. Quote

Stock to Consider

Here is one another health care stock that you may want to consider, as our model shows that this too has the right combination of elements to post an earnings beat this quarter.

Clovis Oncology, Inc. CLVS has an Earnings ESP of +2.01% and a Zacks Rank #2. The company is scheduled to release results on Nov 1.  You can see the complete list of today’s Zacks #1 Rank stocks here.

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