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Is a Beat in Store for Catabasis (CATB) This Earnings Season?

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We expect Catabasis Pharmaceuticals, Inc. (CATB - Free Report) to beat expectations when it reports fourth-quarter 2018 earnings on Mar 14, before market open.

Catabasis beat estimates in three of the past four quarters and missed the same once, delivering average positive surprise of 18.11%. In the last reported quarter, Catabasis delivered a positive earnings surprise of 50%.

However, shares of Catabasis have underperformed the industry in the past six months. The stock has declined 34.9% compared with the industry’s decrease of 11.7%.

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

Factors at Play

Catabasis’s lead candidate, edasalonexent, is being developed for treating Duchenne muscular dystrophy (“DMD”) in a late-stage study. During the quarter, the company developed a clinical site to start enrollment in phase III study – PolarisDMD – to evaluate edasalonexent in DMD. Data from the study, expected in 2020, will be used in regulatory applications seeking approval of the candidate.

edasalonexent is also being developed for other forms of muscular dystrophy – non-ambulatory DMD and Becker muscular dystrophy (“BMD”). In November, Catabasis announced an agreement with the University of Texas Southwestern for pre-clinical evaluation of edasalonexent in improvement of cardiac function in DMD and BMD patients.

In April 2018, the company had announced strategic steps to focus on development of edasalonexent. The strategic initiatives helped the company to reduce costs as evident from the decline in operating expenses in the third quarter of 2018. We expect these expenses to decrease in the fourth quarter as well. However, costs related to the late-stage study on edasalonexent may offset some of the decline in expenses.

Investors will primarily focus on the progress of clinical studies on edasalonexent at the company’s fourth-quarter earnings call.

Earnings Whispers

Our proven model indicates that Catabasis is likely to beat earnings estimates this quarter because it has the right combination of two key ingredients. 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) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate (loss of 86 cents) and the Zacks Consensus Estimate (loss of 93 cents), stands at +7.53%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Catabasis has a Zacks Rank #2. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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

Other Stocks to Consider

Here are some biotech stocks that have the right combination of elements to beat on earnings:

Cara Therapeutics, Inc. (CARA - Free Report) has an Earnings ESP of +11.86% and a Zacks Rank #2. The company is scheduled to report results on Mar 21.

Tilray Inc. (TLRY - Free Report) is scheduled to report fourth-quarter earnings on Mar 18. The company has an Earnings ESP of +6.25% and a Zacks Rank #3.

Novavax, Inc. (NVAX - Free Report) has an Earnings ESP of +25% and a Zacks Rank #3.

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