Sangamo BioSciences, Inc. (SGMO) is scheduled to report its fourth-quarter 2014 results after the market closes on Feb 10, 2015.
Although Sangamo beat estimates in two of the last three quarters, the average earnings surprise over the past four quarters stands at -2.97%. Let’s see how things are shaping up for this announcement.
Factors Influencing Fourth-Quarter and 2014 Results
Since Sangamo is a clinical-stage biopharmaceutical company, currently focused on the development of its ZFP Therapeutics pipeline, investors are expected to keep an eye on its progress. Meanwhile, Sangamo’s lead ZFP Therapeutic, SB-728-T, is being evaluated in a phase II study for the treatment of HIV.
Sangamo has an agreement with Shire (SHPG) for development programs including the treatment of hemophilia, Huntington’s disease and other monogenic diseases. The company also signed a deal with Biogen Idec (BIIB) in Jan 2014 for the research, development and commercialization of the ZFP Therapeutics development program in hemoglobinopathies targeting sickle cell disease and beta-thalassemia. Given that Sangamo’s revenues primarily consist of license fees, research reimbursement and milestones, royalties and revenues from research grant funding, the top line is expected to benefit from increased collaboration revenues. Under the deal with Biogen, Sangamo will receive an upfront payment on a straight-line basis over a 40-month period. The company expects total revenue for 2014 in the range of $45 million – $50 million.
We remind investors that on its third-quarter 2014 call, Sangamo provided updated timelines involving the filing of investigational new drug applications for Factor XI, Factor VIII and Huntington’s disease (expected to be submitted by 2015-end), taking into account the shifting corporate structure at Shire over the past few months. The company may provide further information regarding these timelines, depending on the impact of changes in personnel and procedures at Shire.
Meanwhile, Sangamo’s total operating expenses are expected to increase as a result of higher investments in pipeline development, manufacturing costs and personnel-related expenses. The company expects its operating expenses for 2014 in the range of $70 million – $75 million. Higher expenses may offset top-line growth.
What Our Model Indicates
Our proven model does not conclusively show that Sangamo is likely to beat earnings 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 be able to beat earnings. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% since the Most Accurate estimate is in line with the Zacks Consensus Estimate of a loss of 9 cents.
Zacks Rank: Although Sangamo’s Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident of an earnings beat.
However, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
A Stock That Warrants a Look
Investors may want to consider the following health care stock as our model shows that it has the right combination of elements to post an earnings beat this quarter.
Actavis plc (ACT) has an earnings ESP of +4.38% and carries a Zacks Rank #2. The company is scheduled to release its fourth-quarter 2014 results on Feb 18.
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