What's In Store For Prothena (PRTA) This Earnings Season?

Prothena Corporation plc (NASDAQ:PRTA) is expected to report second-quarter 2016 results on Aug 2.

Prothena’s track record has been has dismal so far. Over the four trailing quarters, the company’s earnings have missed estimates thrice and beat the same once, with an average negative earnings surprise of 6.51%.

Let's see how things are shaping up for this announcement.

Factors at Play

With no approved product in its portfolio yet, investor focus should remain on pipeline updates by the company. Currently, its pipeline has three lead candidates – NEOD001 for the treatment of AL amyloidosis, PRX003 for the treatment of psoriasis and PRX002 for the treatment of Parkinson’s disease and other related synucleinopathies. The company’s top line mainly comprises collaboration revenues under its license agreement with Roche Holding (SIX:ROG) AG (RHHBY) for PRX002.

NEOD001 is in a phase III study (the VITAL Amyloidosis Study) for the treatment of primary systemic amyloidosis (AL amyloidosis). The study is designed to support full global regulatory registration. The company also initiated a randomized, registration-directed, global phase IIb study, PRONTO, on NEOD001 in previously treated AL amyloidosis patients with persistent cardiac dysfunction. Top-line results from the study are expected in late 2017 or early 2018. Enrollment in the VITAL study is expected to be completed by the second quarter of 2017.

Meanwhile, both PRX002 and PRX003 are being evaluated in phase I studies. The company is currently conducting a phase I multiple ascending dose study on PRX002 in patients with Parkinson's disease and expects to report top-line results from the multiple ascending dose study in the fourth quarter of 2016.

The company is also conducting a phase I study on PRX003 for evaluating its safety, tolerability, pharmacokinetics and immunogenicity in the treatment of psoriasis and other inflammatory diseases. Results demonstrated that PRX003 was generally safe and well tolerated, following a single infusion, up to and including the highest dose level tested (30 mg/kg).

The company also initiated a double-blind, placebo-controlled, multiple ascending dose, phase Ib study on PRX003 in patients with psoriasis. Top-line results from the study are expected by the second half of 2017.

Like any other development-stage biotechnology company, Prothena is likely to see an increase in research and development expenses due to higher spending on pipeline development.

What Our Model Indicates

Our proven model does not conclusively show that Prothena 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) for this to happen. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Prothena is 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 89 cents.

Zacks Rank: Prothena currently carries a Zacks Rank #3. Although Prothena’s Rank #3 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

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

Stocks to Consider

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

Ironwood Pharmaceuticals (NASDAQ:IRWD) has an Earnings ESP of 13.33% and a Zacks Rank #2. The company is expected to report earnings on Aug 4.

Exelixis, Inc. (NASDAQ:EXEL) has an Earnings ESP of 3.70% and a Zacks Rank #3. The company is scheduled to report results on Aug 3.

Impax Laboratories (NASDAQ:IPXL) has an Earnings ESP of 3.03% and a Zacks Rank #2. The company is scheduled to report results on Aug 9.