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What's in the Cards for Arena (ARNA) This Earnings Season?

Zacks Equity Research
Updated

Arena Pharmaceuticals, Inc. ARNA is expected to report first-quarter 2018 earnings in the second week of this month.

Shares of the company have rallied 17.2% against the industry’s 10.9% decrease so far this year.

 

Arena’s earnings performance has been a mixed bag over the trailing four quarters. While the company surpassed expectations in two of the last four quarters, it missed the same on another couple of occasions with an average beat of 5.10%.

Last reported quarter, the company outpaced the Zacks Consensus Estimate with a positive earnings surprise of 44.62%.

Let’s see, how things are shaping up prior to this announcement.

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Factors at Play

The only approved product in Arena’s portfolio is obesity treatment drug, Belviq, which delivered an unimpressive performance last year. We note that ramping up sales in U.S. anti-obesity market is challenging due to several factors including the tendency of health care providers to treat obesity symptoms instead of the disease itself, lesser focus on certain patient types for the therapy and historically, low third-party insurance coverage. We expect this trend to continue in first-quarter release as well.

However, Arena’s Japanese pharma partner Eisai is working to utilize certain cost-efficient strategies to market Belviq in new, untapped areas. To that end, specific parts of the country with high obesity rates and insurance coverage are mainly being earmarked to target opportunities for the same.

Arena has a few pipeline candidates and updates on the same are expected on first-quarter conference call. In the second half of 2017, the company presented positive results from a phase II study, evaluating its key pipeline candidate, ralinepag, for the treatment of pulmonary arterial hypertension (PAH). The company expects to start the phase III analysis on the candidate during the second half of 2018 for the given indication.

Other candidates include etrasimod and APD371, both being evaluated in phase II trials for the respective ulcerative colitis and pain management associated with Crohn’s disease.

Notably, this March, Arena announced that etrasimod met the primary endpoint in the phase II study. The candidate achieved statistically significant improvements in primary as well as secondary endpoints. The company believes that etrasimod has potential to be developed for additional indications beyond an inflammatory bowel disease.

What Our Model Indicates

Our proven model does not conclusively show that Arena is likely to beat on earnings this last completed quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Arena has an Earnings ESP of 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 70 cents.You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Zacks Rank: Arena has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.   

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Arena Pharmaceuticals, Inc. Price and EPS Surprise

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

 

Stocks to Consider

A few health care stocks with the right combination of elements to beat estimates this time around are as follows:

Emergent Biosolutions Inc. EBS has an Earnings ESP of +61.80% and a Zacks Rank of 3.  The company is scheduled to release first-quarter results on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vanda Pharmaceuticals Inc. VNDA has an Earnings ESP of +25.00% and a Zacks Rank #2. The company is scheduled to release first-quarter results on May 2.

Adverum Biotechnologies, Inc. ADVM has an Earnings ESP of +6.90% and is a Zacks #3 Ranked player. The company is expected to release first-quarter results on May 8.

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Arena Pharmaceuticals, Inc. (ARNA) : Free Stock Analysis Report
 
Emergent Biosolutions Inc. (EBS) : Free Stock Analysis Report
 
Vanda Pharmaceuticals Inc. (VNDA) : Free Stock Analysis Report
 
Adverum Biotechnologies, Inc. (ADVM) : Free Stock Analysis Report
 
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Zacks Investment Research