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Why Avanir Pharmaceuticals Inc. Shares Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Avanir Pharmaceuticals (UNKNOWN: AVNR.DL  ) , a biopharmaceutical company focused on developing therapies to treat central nervous system disorders, fell as much as 24% after fourth-quarter earnings results were released after the bell yesterday.

So what: For the quarter, Avanir reported net revenue of $21.7 million, which includes $20.2 million in net sales of Nuedexta, a drug for treatment of pseudobulbar affect. The remainder of revenue came from Abreva royalties. Overall, this represents a 61% revenue gain from the year-ago period. However, a 50% increase in operating expenses pushed Avanir's net loss higher to $15.4 million, or $0.10 per share, from $11.7 million, or $0.09 per share in the year prior. Although both figures matched Wall Street's estimates, research firm Mizuho nonetheless downgraded Avanir to neutral from buy.

Now what: Today's reaction looks like nothing more than investor disappointment in the company's ability to drive Nuedexta sales without seeing any improvement in the bottom line. In addition, Avanir burned through another $10 million in cash this past quarter, likely leaving it with just enough cash to get through 2014 before it potentially needs to turn to more cash-raising efforts. Today's drop could represent a buying opportunity for more risk-willing and biotech-savvy investors. Nuedexta unit growth has consistently been in the double-digits and the company recently signed a marketing partnership with Merck to help promote Januvia abroad. As long as Avanir is wise with its spending, I believe the share price could head higher from here.

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