AVEO Pharmaceuticals, Inc. AVEO is expected to report second-quarter 2015 results on Aug 10. AVEO's performance has been impressive with the company beating expectations in three of the four trailing quarters with an average positive earnings surprise of 7.50%.
In the last reported quarter, AVEO delivered a positive earnings surprise of 22.22%. Let's see how things are shaping up for this announcement.
Factors at Play
AVEO, a development-stage biotech company, utilizes its proprietary human response platform for developing treatments targeting cancer. Tivozanib is the lead candidate in AVEO's pipeline. Other pipeline candidates include ficlatuzumab (phase II – non-small cell lung cancer), AV-203 (phase I completed – metastatic or advanced solid tumors) and AV-380 (preclinical – cancer cachexia).
During the second quarter, AVEO received a written feedback from the FDA regarding a potential pivotal study for tivozanib for the treatment of NRP-1 low colorectal cancer (CRC). The FDA recommended that the company continue to work on the development of its biomarker assay to address variability between assays presented. The FDA stated that data at present is insufficient to determine the appropriateness of NRP-1 low subgroup for the proposed phase III study.
AVEO has outlined a new corporate strategy aimed at focusing the company’s resources on achieving key value creating milestones in 2015 and 2016, and transforming it into a leading oncology biopharmaceuticals company. The company intends to focus its clinical development activities on tivozanib. The company also announced an approximate 20% reduction in the work force. AVEO expects to realize cost savings from this move in 2015.
On the second quarter call, investor focus will remain on the progress of the candidate apart from other pipeline related updates.
What Our Model Indicates
Our proven model does not conclusively show that AVEO 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) to likely post an earnings beat. 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 pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 16 cents per share.
Zacks Rank: AVEO currently carries a Zacks Rank #3. Although the company’s Zacks Rank #3 enhances the predictive power of the ESP, the ESP of 0.00% makes a surprise prediction difficult.
We caution against stocks with a Zacks Rank #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 a few health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.
The Earnings ESP for Immune Design Corp. IMDZ is +20.41% and it carries a Zacks Rank #3. The company is expected to release results on Aug 13.
Inovio Pharmaceuticals, Inc. INO has an Earnings ESP of +275.00% and carries a Zacks Rank #3. The company is slated to release second-quarter results on Aug 10.
BioDelivery Sciences International, Inc. BDSI has an earnings ESP of +6.45% and carries a Zacks Rank #3. It is set to report results on Aug 10.
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