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.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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