What's In The Cards For Aeterna (AEZS) This Earnings Season?

Aeterna Zentaris Inc. (TO:AEZS) is likely to report its fourth-quarter 2018 earnings soon.

Aeterna’s earnings performance has been encouraging, with the company beating estimates in the last four quarters, with the average positive surprise being 297.95%.

However, shares of Aeterna have significantly outperformed the industry in the past six months. The stock has rallied 124.8% against the industry’s decline of 11.8%.

In the last reported quarter, Aeterna delivered a positive earnings surprise of 40%.

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

Factors at Play

Aeterna is a specialty biopharmaceutical company focused on developing treatments for rare endocrine diseases either through acquisitions, in-licensing or in-house development. The company has one approved diagnostic test – Macrilen – in its portfolio used for assessing patients with adult growth hormone deficiency (“AGHD”).

In January 2018, the company out-licensed rights to the drug to Strongbridge Ireland Limited, a subsidiary of Strongbridge Biopharma (NASDAQ:SBBP) for commercialization of the test in the United States and Canada. Aeterna is eligible to earn royalty on net sales of Macrilen, which was launched in July 2018 by Strongbridge. Aeterna will share development costs of Macrilen with Strongbridge and is eligible to receive milestone payments as well. The companies are developing the test for pediatric patients.

Per the agreement, Aeterna also supplies ingredients for the manufacture of Macrilen to Strongbridge, which is recorded as product sales. Aeterna generated $0.7 million in product sales in third-quarter 2018. Moreover, Strongbridge recorded sales of $1.1 million from Macrilen in the third quarter and Aeterna will receive a royalty on the amount. Uptake of the demand for test in the fourth quarter will impact product sales. In October, Strongbridge entered into an agreement with Novo Nordisk (NYSE:NVO) to transfer Macrilen rights to the latter.

In January 2019, Macrilen received approval in Europe. We expect management to be flooded with questions on its commercialization plans in Europe at the conference call.

Operating expenses for the company are likely to remain low due to decrease in clinical activities as well as elimination of sales activities following the agreement with Strongbridge.

Investors will primarily focus on the progress of Macrilen in pediatric studies on the company’s fourth-quarter earnings call.

Earnings Whispers

Our proven model does not conclusively show that Aeterna is likely to beat 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) to be able to beat estimates. But that is not the case here, as you will see below.

Earnings ESP: Aeterna’s Earnings ESP is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 19 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Although Aeterna’s Zacks Rank #2 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

A Stock That Warrants a Look

Here is a biotech stock that has the right combination of elements to beat on earnings:

BioDelivery Sciences International, Inc. (NASDAQ:BDSI) has an Earnings ESP of +38.46% and a Zacks Rank #2. The company is scheduled to report results on Mar 14.

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