Will Avanir Pharmaceuticals Earnings Help Shares Bounce Back?

Avanir Pharmaceuticals (NASDAQ: AVNR  ) will release its quarterly report on Tuesday. Investors have been nervous for months about the prospects for the small drug company. Throughout much of 2013, Avanir's shares surged as prospects improved for its Nuedexta treatment for the pseudobulbar affect. But when a negative research report came out from a private research firm, it sent Avanir's stock tumbling. Investors therefore want to see solid progress from the company in its coming earnings report.

Avanir Pharmaceuticals has only a couple of products on the market, including Nuedexta and its over-the-counter Docosanol cream for cold sores. But beyond those products, Avanir also has other drug prospects in various stages of clinical trials, as it hopes to develop treatments for ailments from multiple sclerosis to Alzheimer's to Parkinson's, as well as other pain. Can Avanir stand up to its critics and boost its financial prospects going forward? Let's take an early look at what's been happening with Avanir Pharmaceuticals over the past quarter and what we're likely to see in its report.

Stats on Avanir Pharmaceuticals

Analyst EPS Estimate

($0.08)

Year-Ago EPS

($0.09)

Revenue Estimate

$21.86 million

Change From Year-Ago Revenue

62%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

How will Avanir Pharmaceuticals earnings fare this quarter?
Analysts have raised their views on Avanir Pharmaceuticals earnings slightly in recent months, narrowing their September-quarter loss estimates by $0.02 per share. But the stock has suffered substantial losses, falling 25% since early September.

Avanir's main losses came in mid-September, when research firm Gravity Research released a report making serious allegations against the company. Gravity Research said that it believes Avanir has "engaged in illegal off-label marketing of Nuedexta," representing a substantial part of the drug's sales and potentially creating liability for fines or other penalties if the government investigates Avanir. The report also opined that Avanir would lose a key patent case and that it might have insufficient financial resources to develop its other pipeline drugs. Reports indicated that Avanir denied Gravity Research's allegations, but that didn't help the stock recover its lost ground.

Moreover, Avanir didn't help its case in shareholders' eyes when it announced its own preliminary estimates of its third-quarter results in late October. Investors apparently weren't satisfied with the company's adjusted gross revenue of $95.9 million, especially given operating expenses of $116 million even when you exclude certain special items adding up to more than $30 million in extra costs. Even with Avanir's investor day presentation seeking to bolster its future prospects, the stock fell more than 10% following the announcement.

Regardless of the allegations, Avanir needs to show solid results in order to help regain investor confidence. One way to do so is to move forward with various clinical trials, and in October, it enrolled its first patient in a study trying to determine if its AVP-923 drug can help treat dyskinesia associated with Parkinson's Disease. Avanir also believes that its co-promotion of Merck's (NYSE: MRK  ) Januvia will help give it some valuable revenue and shows confidence in Avanir's sales force.

Yet another threat the company faces is patent litigation. In a presentation earlier this month, CEO Keith Katkin indicated that Avanir had settled with three of five generic filers, including Novartis' (NYSE: NVS  ) Sandoz and Actavis (NYSE: ACT  ) . Katkin said that the company went to trial with the other two filers, and that he expects a decision in January or February. Katkin also gave encouraging news about its efforts to in-license its AVP-825 delivery system for migraine treatment.

In the Avanir Pharmaceuticals earnings report, look to see if the company mentions its November decision to discontinue its poison pill shareholder-rights agreement. The move could be designed to encourage a potential takeover candidate, and although none has yet stepped forward, such an outcome could be Avanir's best way to ensure a favorable outcome for its investors.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 09, 2013, at 2:38 PM, ramblingfools wrote:

    Can you please point out to your readers who Gravity Research is? They might be interested to see how their research is conducted, and what other information they have provided on other stocks.

  • Report this Comment On December 09, 2013, at 4:26 PM, TMFGalagan wrote:

    @ramblingfools - You can find the Gravity Research reports here: http://www.gravityresearchgroup.com/reports

    best,

    dan (TMF Galagan)

  • Report this Comment On December 09, 2013, at 7:46 PM, larssral wrote:

    gravity research has produced reports on exactly two companies since August of this year. At least according to the site.

    they posted a piece on seeking alpha and somehow now it's supposed to be taken seriously?

    look at the website that the author of this MF blog posted in the comments section and ask if this company looks remotely legit.

    i'm not sure that it's necessary to take everything that appears on the internet seriously. i'm skeptical about Gravity research.

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