2 Pharma Companies To Consider Ahead Of Earnings

Includes: ARNA, NKTR
by: Matt Schilling

In my opinion Thursday August 9th could end up being a very positive day for both Arena Pharmaceuticals (NASDAQ:ARNA) and Nektar Therapeutics (NASDAQ:NKTR) as both companies plan to release their second quarter earnings after the bell. Analysts are expecting ARNA to post a loss of -0.08/share on revenue of $7.38 million and expect NKTR to post a loss of -$0.33/share on revenue of $20.1 million.

Arena Pharmaceuticals which trades in a 52-week range of $1.23 (52-week low) and $13.50 (52-week high), closed trading at $7.30/share on Wednesday as the company prepares to release its second quarter results after the bell on Thursday. Based on recent EPS trends, this quarter may very well miss the -$0.08/share loss analysts are predicting, even though ARNA received one of the most significant FDA approvals of the year with regard to its weight-loss drug Belviq. There are a few things investors should note with regard to ARNA. First and foremost, even though the company received approval for Belviq, it most likely won't affect earnings until the early part of 2013 when sales are initiated. Secondly, on July 30th, ARNA transferred the Belviq application to Eisai (OTCPK:ESALY) for two reasons; it will establish Eisai as the marketing authorization holder and establish a joint development relationship between both Arena and Eisai.

Nektar Therapeutics which trades in a 52-week range of $4.07 (52-week low) and $9.94 (52-week high), closed trading at $8.33/share on Wednesday as the company looks to report second quarter earnings after the bell on Thursday. When it comes to NKTR the first thing we need to consider is the fact that the company has surpassed revenue estimates in each of the last three quarters, as compared to some of its competitors such as Enzon (NASDAQ:ENZN), which has seen revenues drop in two out of the last four quarters. The second thing potential investors should consider with regard to NKTR is the company's total debt to total cash ratio, which is 0.599 and considered to be a very positive catalyst moving forward.

Final Analysis

I'd remain slightly conservative on both companies and keep an eye out for any analyst upgrades or price target increases. All eyes are going to be on post-Belviq revenues with regard to ARNA and the continuation of revenue surprise in terms of EPS estimates for NKTR. Investors should remain slightly conservative and consider a small to medium sized position to begin with and add to that position as positive developments occur.

Disclosure: I am long ARNA.