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Analyst Blog

Merrimack Pharmaceuticals, Inc. (MACK - Free Report) is scheduled to report fourth-quarter 2016 results in the next week. Last quarter, Merrimack delivered a positive earnings surprise of 23.33%.

Merrimack’s share price decreased 21.9% year- to -date compared with the Zacks classified Medical - Biomedical and Genetics industry’s gain of 7.3%.

Let’s see how things are shaping up for the company this quarter.

Factors Influencing the Quarter

Merrimack’s only marketed product is Onivyde, which is approval in the U.S. in combination with fluorouracil (5-FU) and leucovorin for the treatment of metastatic adenocarcinoma of the pancreas in patients who were previously treated with Eli Lilly and Company’s (LLY - Free Report) Gemzar-based therapy. However, in Jan 2017, Merrimack the company entered into a definitive asset purchase and sale agreement to sell Onivyde to Ipsen for $1 billion.

Merrimack will now focus its resources on the development of its three pipeline candidates – MM-121/seribantumab (heregulin-positive, locally advanced or metastatic non-small cell lung cancer (NSCLC), MM-141/istiratumab (pancreatic cancer) and MM-310 (solid tumor).

We expect management to provide further update on the transaction at the fourth quarter conference call and also give light on the progress of the pipeline candidates.

The company also announced the discontinuation of a phase II trial on its breast cancer candidate, MM-302. The decision was taken following the recommendation and a subsequent futility analysis by an independent Data and Safety Monitoring Board (DSMB). We expect the company to throw some light on this as well during the upcoming quarter.

Surprise History

Merrimack’s track record has been decent so far with a four-quarter average positive earnings surprise of 5.27%. The company has beaten estimates twice in the last four trailing quarters while meeting in one and missing in the other quarter.

What Our Model Indicates

Our proven model does not conclusively show that Merrimack is likely to beat earnings 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) to be able to beat expectations. But 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 0.00%. This is because the both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 22 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Merrimack’s Zacks #3 Rank (Hold) lowers the predictive power of ESP because the Zacks #3 Rank when combined with 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 that Warrant a Look

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.

Exelixis, Inc. (EXEL - Free Report) , scheduled to release results on Feb 27, has an Earnings ESP of +200.0% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exact Sciences Corp. (EXAS - Free Report) has an Earnings ESP of +5.00% and a Zacks Rank #2. The company is scheduled to release results on Feb 21.

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