Is A Beat In Store For Editas (EDIT) This Earnings Season?

We expect Editas Medicine, Inc. (NASDAQ:EDIT) to beat estimates when it reports third-quarter 2018 results early next month.

However, the company’s earnings history has been dismal so far, having missed expectations in three quarters and surpassed in one with an average miss of 4.28%. Last reported quarter, Editas came up with a negative surprise of 18.84%.

Shares of Editas have lost 19.6% so far this year, narrower than the industry’s decrease of 19.8%.

Let’s see, how things are shaping up for this quarter to be reported.

Factors to Consider

Editas Medicine is a development stage genome editing biotech, which makes medicines to treat serious diseases using its proprietary genome editing platform based on CRISPR technology. Its lead pipeline candidate is EDIT-101 that uses CRISPR gene editing to treat Leber congenital amaurosis type 10 (LCA10) — a rare genetic illness that causes blindness. An Investigational New Drug (IND) application to begin clinical studies for EDIT-101 was expected to be filed in October 2018. However, the company has made no such announcement yet. An update is expected on third-quarter conference call.

Pre-clinical data on EDIT-101 presented in May this year showed that it was well tolerated in a study of non-human primates (NHPs) when administered through a subretinal injection. Productive editing was achieved in NHPs regardless of pre-existing or induced immunity to either AAV or Staphylococcus aureus Cas9.

Editas is also pursuing the development of CRISPR candidates for eye diseases other than LCA10 including Usher Syndrome type 2A (USH2A) and the recurrent ocular Herpes Simplex Virus type 1 (HSV-1). Data from pre-clinical studies on these diseases has been positive. Editas also has CRISPR drugs in the pipeline to treat cancer, muscular dystrophy, alpha???1 antitrypsin deficiency and cystic fibrosis.

Editas has a strategic alliance and an option agreement with Allergan (NYSE:AGN) , under which the latter reserves its rights to license up to five of Editas’ genome editing ocular programs. In July, Allergan exercised its option to develop and commercialize EDIT-101 globally. While Editas exercised its right to a profit-sharing arrangement with Allergan under which, it will co-develop and equally share the profits and losses from EDIT-101 in the United States. Also, Editas has the right to choose for co-developing and co-marketing another eye-disease program in the United States. Moreover, the company has a collaboration and licensing deal with Juno Therapeutics (now part of Celgene (NASDAQ:CELG)) to use gene-editing approaches including CRISPR-Cas9 for developing engineered T cell medicines to treat cancer.

We expect management to provide more updates and detailed information on its pre-clinical studies during the upcoming conference call.

Why a Likely Positive Surprise?

Our proven model clearly indicates that Editas is likely to beat estimates this to-be-reported quarter because it has the right combination of the two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for a probable positive surprise

Earnings ESP: Editas has an Earnings ESP of +12.90%, representing the difference between the Most Accurate Estimate (loss of 63 cents per share) and the Zacks Consensus Estimate (loss of 72 cents). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Editas currently has a Zacks Rank #3, which increases the predictive power of ESP. Therefore, this combination of a positive ESP with a top Zacks Rank makes us reasonably confident of an earnings beat.

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

Other Stocks to Consider

Here are some other biotech stocks worth considering as per our model, these too have the right combination of elements to beat on earnings this reporting season.

CRISPR Therapeutics AG (NASDAQ:CRSP) is expected to release third-quarter results on Nov 14. The company has an Earnings ESP of +3.53% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spero Therapeutics, Inc. (NASDAQ:SPRO) has an Earnings ESP of +18.43% and a Zacks Rank #2. The company is expected to report third-quarter results on Dec 13.

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