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

Arena Pharmaceuticals, Inc.ARNA is expected to report fourth-quarter 2017 earnings this mid-month.

Shares of the company have skyrocketed 179.8% against the industry 's 4.1% decrease in a year's time.

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 in the other two. Overall, the company delivered an average beat of 63.39%.

Last quarter, the company outpaced the Zacks Consensus Estimate with a positive earnings surprise of 1.52%.

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

Factors at Play

The only approved product in Arena's portfolio is obesity treatment drug, Belviq, which delivered an unimpressive performance in 2017. 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 treatment and historically, low third-party insurance coverage. We expect this trend to continue in fourth-quarter release as well.

However, Arena's partner Eisai, a Japanese pharma company, is working to utilize certain cost-efficient strategies to market Belviq in potential 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.

Moreover, the company expects Belviq sales to pick up once results from the cardiovascular outcomes trial (CVOT) are out and included in the product label, if positive. Results from the CVOT study are not expected until 2018.

Arena has a few pipeline candidates and updates on the same are expected on fourth-quarter conference call. In October 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). This positive finding from the trial paves way for an expedited initiation of a phase III program on the candidate.

Other candidates include etrasimod (ongoing phase II studies for ulcerative colitis) and APD371 (phase II study for managing pain associated with Crohn's disease). 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 will likely beat on earnings this 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 64 cents.Moreover, a company's 0.00% ESP makes surprise prediction difficult.You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Arena carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. Hence, we always caution against Sell-rated stocks (#4 or 5) going into the 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 That Warrant a Look

Here are some health care stocks with the right combination of elements to beat estimates this time around:

Gemphire Therapeutics GEMP is expected to release fourth-quarter 2017 results on Mar 21. The company has an Earnings ESP of +24.74% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here.

Aptose Biosciences, Inc. APTO is expected to report fourth-quarter financial numbers on Mar 27. The company has an Earnings ESP of +20.00% and a Zacks Rank #3.

BioDelivery Sciences International, Inc. BDSI is expected to announce fourth-quarter earnings this month. The company has an Earnings ESP of +19.36% and a Zacks Rank of 3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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