Can Rhopressa's Approval Drive Aerie (AERI) In Q4 Earnings?

Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) is expected to report fourth-quarter 2017 results on Feb 28, after market closes. Last quarter, the company reported a wider-than-expected loss.

Aerie’s performance over the last four quarters has been mixed. The company incurred a narrower-than-expected loss in two of the trailing four quarters while reporting wider-than-expected loss in the remaining two, with an average negative surprise of 4.07%.

Aerie’s shares have returned 18% over a year compared with the industry’s 1.1% gain.

Why a Likely Positive Surprise?

Our proven model indicates that Aerie 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen, which is the case here.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.41%. This is because both the Most Accurate estimate stands at a loss of $1.15 and the Zacks Consensus Estimate is pegged at a loss of $1.29. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aerie has a Zacks Rank #3, which is favorable. The combination of a Zacks Rank #3 and a positive ESP indicates a likely positive surprise. Conversely, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Factors at Play

Aerie’s stock received a major boost with the FDA’s approval of lead candidate, Rhopressa 0.02%. The drug can lower elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension.

Since Aerie did not have any approved glaucoma product in its portfolio and given the potential the market holds, the news came as a major breather for the stock. Glaucoma is one of the largest segments in the global ophthalmic market. According to the National Eye Institute, it has been estimated that more than 2.7 million individuals in the United States suffer from glaucoma. This number is expected to reach 4.3 million by 2030. The FDA approval comes two months ahead of the scheduled Prescription Drug User Fee Act goal date of Feb 28, 2018.

Aerie plans to employ 100 representatives by first-quarter 2018 and plans to launch the drug by mid-2018.

We expect management to throw more light on the drug’s launch during the fourth-quarter call.

Meanwhile, Aerie’s second product candidate, Roclatan (netarsudil/latanoprost ophthalmic solution) 0.02%/0.005% — which is a fixed dose combination of Rhopressa and Pfizer’s (NYSE:PFE) Xalatan — achieved its primary efficacy endpoint in two phase III registration trials, named Mercury 1 and Mercury 2. The candidate also achieved successful 12-month safety and efficacy results in Mercury 1. The company expects to submit its NDA for Roclatan in second-quarter 2018.

Cash burn for the year is projected at $115 million, up from $120 million due to further pipeline development.

Other Stocks to Consider

Here are a few other health care stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter.

Gemphire Therapeutics (NASDAQ:GEMP) is expected to release fourth-quarter results on Mar 21. The company has an Earnings ESP of +6.62% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Puma Biotechnology (NASDAQ:PBYI) is scheduled to release fourth-quarter results on Mar 1. The company has an Earnings ESP of +2.02% and a Zacks Rank #3.

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