Why Avanir Pharmaceuticals, Opko Health, and Laboratory Corp. of America Tumbled Today

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

Stock markets tumbled Wednesday, as investors saw a preliminary deal among lawmakers to avoid a potential budget impasse as bad news rather than good. The deal doesn't make substantial headway in addressing broader issues, but the greater fear appears to be that it could spur a quicker return to reduced stimulus from the Federal Reserve. Even with major market benchmarks down more than 1%, losses from Avanir Pharmaceuticals (NASDAQ: AVNR  ) , Opko Health (NYSE: OPK  ) , and Laboratory Corp. of America (NYSE: LH  ) were much more severe, as each fell by double-digit percentages.

Avanir plunged 30% after its quarterly report last night included disappointing earnings results. Even though the company's key Nuedexta drug for pseudobulbar affect helped push revenue up 61%, Avanir wasn't able to translate those sales into profits. In fact, Avanir's net loss grew by almost 32% from year-ago levels, as high expenses ate up sales growth. Avanir needs to demonstrate its ability to control costs and keep driving Nuedexta sales higher in order to reassure shareholders that it will be profitable in the long run.

Opko declined 15% after short-seller Lakewood Capital issued a bearish report on the maker of diagnostic equipment and medical products. The report [opens PDF] follows up on similarly negative comments from Lakewood's Anthony Bozza at a New York conference in November, and the report concludes that Opko might never earn a profit and that the shares are worth at most a quarter of its current share price. Even after today's drop, Opko's shares have doubled since the beginning of the year, suggesting that further volatility might be extensive if the debate between bulls and bears continues.

Elsewhere in the diagnostics business, LabCorp fell 11% after its preliminary earnings and revenue guidance for 2014 disappointed investors. With calls for $6.50 in earnings per share falling more than $1 below consensus estimates, LabCorp remains concerned about rising out-of-pocket health-care costs for many Americans as well as potential problems from the Affordable Care Act. Uncertainty is likely to remain hanging over health-care companies for a while, making LabCorp's dip a buying opportunity only for those patient enough to wait out all the potential bumps in the road.

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  • Report this Comment On December 12, 2013, at 10:36 AM, definer wrote:

    One of the items missing from the Lakewood Capital "report" was that along with their short position they also have a long position of approximately 302,000 shares as reported for the quarter ending 9/30/2013. The "bearish" report would seem to be self-serving and a blatant manipulation of the market to lower the shares (supporting the short position) while allowing an opportunity for increasing the long position.

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