Aerie (AERI) Q1 Loss Wider than Expected, Pipeline in Focus

Aerie Pharmaceuticals, Inc. AERI posted a first-quarter 2016 loss of 85 cents per share (including stock-based compensation), wider than both the Zacks Consensus Estimate of a loss of 66 cents and the year-ago loss of 70 cents.

Being a development-stage company, Aerie has not generated any revenue from product sales yet.

Quarter in Detail

In the reported quarter, research and development (R&D) expenses (excluding stock-based compensation expense) were up 6% to $12.3 million. Adjusted general and administrative (SG&A) expenses escalated 22.2% to $9.8 million. The company stated that the rise in operating expenses was primarily due to increased activities related to the phase III programs for pipeline candidates Rhopressa and Roclatan, and preparatory activities associated with commercialization efforts.

Pipeline Update

Aerie's efforts to develop its pipeline have been encouraging. The company remains on track to file for an FDA approval of Rhopressa in the third quarter of 2016 (with an anticipated launch by the end of 2017). Meanwhile, the phase III trial, Rocket 4, is progressing on schedule. The trial is designed to provide adequate safety data for a potential regulatory filing in the EU and the company expects top-line efficacy data from the trial in the fourth quarter of 2016.

Another later-stage candidate in the company's pipeline, Roclatan, is in a phase III study (Mercury 1) for glaucoma or ocular hypertension. The trial is almost fully enrolled and the company expects the 90-day top-line interim efficacy data readout in the third quarter of 2016. Aerie commenced another study on Roclatan (Mercury 2) in Mar 2016, in which enrolment is progressing on schedule. The company continues to expect to file a NDA for Roclatan in the second half of 2017. The company plans to conduct another trial in Europe, Mercury 3, which will compare Roclatan to a fixed-dose combination product marketed in the continent. This study is scheduled to commence in the first half of 2017.

Meanwhile, the company is looking to foray into Japan and Europe as well, and intends to make some headway in these regions by the end of 2016.

Our Take

The wider-than-expected loss in the first quarter was disappointing. Expenses continue to increase as the company is gearing up for a potential NDA submission for Rhopressa in the third quarter of 2016.

We note that Aerie released disappointing safety data on Rhopressa from two phase III trials – Rocket 1 and Rocket 2 – earlier in 2016. This raised concerns regarding the safety of Rhopressa.  Hence, we expect investor focus on further updates from the company on Rhopressa later this year.

Aerie is a Zacks Rank #2 (Buy) stock. Other well-placed stocks in the health care sector include Shire plc SHPG, Gilead Sciences GILD and Aegerion Pharmaceuticals AEGR. While Gilead Sciences and Aegerion Pharmaceuticals sport a Zacks Rank #1 (Strong Buy), Shire carries the same Zacks Rank as Aerie.

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