Will ARIAD (ARIA) Disappoint Estimates in Q3 Earnings?

Zacks

ARIAD Pharmaceuticals, Inc. ARIA is scheduled to report third-quarter 2015 results on Nov 3, before the opening bell. ARIAD has a mixed track record with the company beating estimates in two of the last four quarters with an average positive earnings surprise of 16.88%.

In the last reported quarter, ARIAD had posted a negative earnings surprise of 13.79%. Let’s see how things are shaping up for the third quarter of 2015.

Factors at Play in Q3

Iclusig, the company’s sole marketed product, should continue to perform well in the third quarter of 2015 driven by patient growth and reimbursement in additional EU countries. Iclusig recorded a 16% and 19% sequential increase in sales in the U.S. and EU, respectively, in the second quarter of 2015. Meanwhile, the lower dose of Iclusig should drive sales further.

On the second quarter call, ARIAD informed that there were 870 prescribers of Iclusig at the end of the quarter, up almost 16% from the preceding quarter. Meanwhile, about 145 new patients were treated with Iclusig in the U.S. during the second quarter of 2015 (up 22% sequentially).

Moreover, Iclusig uptake in EU countries has been strong with the company securing pricing and reimbursement in several EU countries while full pricing and reimbursement are expected to come through by year end.

Meanwhile, ARIAD continues to work on focusing its promotional efforts on third-line chronic-phase chronic myeloid leukemia patients. The company estimates that 58% of current patients on Iclusig are in the second or third line. ARIAD is also working on studying Iclusig in earlier lines of therapy and intends to initiate three studies by year end with one of the studies having already commenced.

During the quarter, ARIAD also witnessed quite a few interesting developments. In Jul 2015, ARIAD entered into a non-dilutive synthetic-royalty financing deal with PDL BioPharma, Inc. PDLI that could see the company receiving up to $200 million as revenue interest in exchange for royalties on net sales of Iclusig. In addition, the company finished enrolling patients in a pivotal phase II (ALTA) study on its pipeline candidate, brigatinib. The study is being conducted to evaluate the safety and efficacy of brigatinib in refractory non-small cell lung cancer patients who tested positive for ALK+ and were previously treated with Pfizer Inc.’s PFE Xalkori.

In its second-quarter 2015 results, ARIAD revised its research & development (R&D) and selling, general & administrative (SG&A) expenses. For 2015, the company expects R&D expenses in the range of $177 million to $183 million (previous guidance: $185 million to $195 million) and SG&A expenses in the range of $166 million to $172 million (previous guidance: $135 million to $145 million) due to reclassification of certain expenses and others.

On the third quarter call, investor focus will remain on updates on the performance of Iclusig. Investors will also be keen on evaluating the company’s progress with its strategic plans targeting sustained profitability, starting 2018.

Earnings Whispers?

Our proven model does not conclusively show that ARIAD 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 be able to beat earnings. 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 0.00% since the Most Accurate estimate and the Zacks Consensus Estimate are both at a loss of 20 cents per share.

Zacks Rank: ARIAD carries a Zacks Rank #3. ARIAD’s Zacks Rank #3 when combined with an ESP of 0.00% makes 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.

A Stock That Warrants a Look

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

Sarepta Therapeutics, Inc. SRPT has an Earnings ESP of +10.08% and carries a Zacks Rank #3. The company is slated to release third-quarter results on Nov 5.

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