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Will AVEO (AVEO) Pull a Surprise This Earnings Season?

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AVEO Pharmaceuticals, Inc. is expected to report second-quarter 2016 results on Aug 8. AVEO has an impressive track record over the last four reported quarters. While the company has beaten estimates on three occasions, it met expectations in one. Overall, the company has posted an average positive surprise of 64.73%.

In the last reported quarter, AVEO’s results were in line with expectations. Let’s see how things are shaping up for this announcement.

Factors to Consider

AVEO, a development-stage biopharmaceutical company, is focused on the development of treatments targeting cancer and other areas of unmet medical need. The company has an interesting pipeline with the most advanced candidate being tivozanib. Regulatory applications seeking approval for tivozanib for the first-line treatment of renal cell carcinoma (RCC) are currently under review in Europe and Russia. We note that these applications were submitted by AVEO’s partners, EUSA Pharma and Pharmstandard, in their respective territories.

During the quarter, AVEO announced the dosing of the first patient in a randomized, controlled, multi-center, open-label pivotal phase III study (TIVO-3) comparing tivozanib to Nexavar for the treatment of refractory advanced RCC. Top-line data from the study is anticipated in the first quarter of 2018. Results from the TIVO-3 study, along with the previously completed TIVO-1 study on tivozanib for the first-line treatment of RCC, are expected to support a first- and third-line indication for tivozanib in the U.S.

Apart from tivozanib, AVEO has several early- and mid-stage candidates in its pipeline including ficlatuzumab (phase II – non-small cell lung cancer) and AV-203 (phase I completed – advanced solid tumors) among others. AVEO has collaborations with several companies for the development of its pipeline candidates.

With no approved product in AVEO’s portfolio at the moment, the company depends entirely on license fees, collaboration revenues, and milestone and other payments for its top line. Therefore, the top line may vary on a quarterly basis depending mainly on the timing of these payments.

Investor focus should remain on tivozanib’s progress and other pipeline-related updates.

What Our Model Indicates

Our proven model does not conclusively show that AVEO 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. That is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is pegged at 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at a loss of 14 cents per share.

Zacks Rank: Though AVEO has a favorable Zacks Rank #2, an ESP of 0.00% makes a 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.

AVEO PHARMACEUT Price and EPS Surprise

AVEO PHARMACEUT Price and EPS Surprise | AVEO PHARMACEUT Quote

Stocks That Warrant a Look

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

BioMarin Pharmaceutical Inc. (BMRN - Free Report) has an Earnings ESP of +4.00% and carries a Zacks Rank #3. It is also scheduled to report second-quarter results on Aug 4.

The Earnings ESP for Impax Laboratories Inc. is +3.03% and it carries a Zacks Rank #2. The company is scheduled to report second-quarter release results on Aug 9.

Mylan N.V. has an Earnings ESP of +1.75% and carries a Zacks Rank #2. It is also scheduled to report second-quarter results on Aug 9.

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