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.

Avoid your own Obamacare problems
LabCorp might think Obamacare is problematic, but you can solve the challenges it creates for your own finances. In only minutes, you can learn the critical facts you need to know in a special free report called Everything You Need to Know About Obamacare. This FREE guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.

Read/Post Comments (1) | 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 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.

Add your comment.

DocumentId: 2762148, ~/Articles/ArticleHandler.aspx, 4/16/2014 6:36:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...