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

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 (MRK 0.10%) 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' (NVS 1.10%) Sandoz and Actavis (AGN). 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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