Avalanche Biotechnologies, Inc. (AAVL) is expected to report fourth-quarter 2014 results on Feb 11. Last quarter, the company posted a negative earnings surprise of 233.33%. Let's see how things are shaping up for this announcement.
Higher Expenses to Hit Revenues
We expect Avalanche’s revenues to be affected by operating expenses which are expected to rise this quarter as the company continues to invest in its pipeline. The company’s lead pipeline candidate, AVA-101, is in phase IIa development for the treatment of wet age-related macular degeneration (AMD). The company is expecting top-line results from the phase IIa study in mid-2015.
The company believes that the large wet AMD market is worth over $6 billion worldwide. The company’s pipeline also consists of candidates like AVA-201 and AVA-311 being developed for severe ophthalmic diseases.
We note that the company has entered into a collaboration and license agreement with Regeneron Pharmaceuticals, Inc. (REGN) to jointly discover candidates based on Avalanche’s Ocular BioFactory platform for up to eight therapeutic targets including AVA-311. The company receives collaboration and license revenues related to this agreement. The collaboration and license revenues may rise this year.
Earnings Whispers?
Our proven model does not conclusively show that Avalanche is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Avalanche is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 40 cents per share.
Zacks Rank: Avalanche’s Zacks Rank #3 (Hold) when combined with a 0.0% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #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 some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat.
Acorda Therapeutics, Inc. (ACOR) has an Earnings ESP of +106.67% and a Zacks Rank #3. The company is expected to release results on Feb 12.
Actavis (ACT) has an earnings ESP of +4.38% and carries a Zacks Rank #2 (Buy). The company is expected to release its fourth-quarter 2014 results on Feb 18.
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