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Bert J. Wilkison, of Chicago, IL, is the CEO and a Managing Member at Kinetic Investments, a subsidiary of Wilkison Financial, LLC. He is also an active pooled funds manager who enjoys stock picking, trading, ETF strategizing and finding long-term value plays ahead of the ever-evolving markets.... More
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  • Q1 2012 Biotech Chronicles: Avanir Pharmaceuticals 1 comment
    Apr 2, 2012 6:41 PM | about stocks: LUK, TEVA, AVNR

    The following is the Q1 2012 week-by-week summation/record of factual information, personal thoughts and insights of a patient, optimistic long-time-long Avanir Pharma (AVNR) shareholder (and little known financial writer) known as reppeptgs. His messages are generally well-received and he is well-respected among his fellow shareholders. Of note: shares of AVNR are up nearly 67%, YTD.

    Monday January 2nd

    Monday Report

    Happy New Year, lads and lasses!

    Last week was surprisingly positive. I thought it might be the final salvo of tax loss season. Instead there was a pleasant turn of events. Take a look at the 5-day chart--it will give you a smile. The gain was 20 cents, or 10.8%, for AVNR's second green week in a row. Now for a dose of reality: for 2011, AVNR lost 49.8%. Yes, 2010 closed with AVNR just above 4 bucks a share. A year that started with high hopes, ended with a rally needed to close above the Mendoza Line (for the baseball fans out there).

    So what happened? Did the company fail in its marketing plan? Is Nuedexta a flop, an ineffective drug for a made-up malady? How could the stock of a company with one of the few drugs approved in 2009 go down?

    First, let's be honest. The initial rollout was disappointing. I was expecting many of those who participated in the trials for N. to get Rx's right away. This did not happen.

    Then, just when sales began to gain traction, outside events began to happen. On May 27, the stock closed at $4.67, on 6.1 million volume. Things looked good. Calls were heading toward profitability, and short sellers seemed on the run. Then, there was an event that hurt the stock. Yahoo won't let me talk about it. It involved an elected official. Let's see if I'm allowed to post this.

    Continued....

    Then another event happened. For reasons unknown I'm not being allowed to post the details. Let's say a company like Teva (TEVA)...filed some papers. The stock price got hit again.

    Unfortunately, AVNR proved that in at least this case, there was a 3rd shoe. After the earnings report in December, which was favorable, Jefferies (JEF) lowered its price target from an absurd $3.50 to a ridiculous $3.00. The bottom of $2.46 gave way to $1.98, then $1.77. A week before Christmas, things looked gloomy.

    But I truly believe this is a case of a stock's price not reflecting the company's value. Short sellers, which peaked at over 35 million shares on July 29 (thanks, Sir F.), have had a hand in all this, and some day, I hope the story is told.

    Because while all these hurdles have been placed in the way of the stock price, the company has been executing. Within just a few months, the stats showed that a large number of the Rx's were coming out of long term care facilities. Avanir pounced on this, launching a pilot program that added 30 new sales people to their original force of 75, a 40% increase.

    Sales have been ramping. In mid-November, the company passed 1,200 Rx's per week, WHICH COVERS THE SALES FORCE. So if it weren't for R&D, AVNR would be profitable. Now. Meanwhile, the EU application process was started ahead of schedule, as the 210 day clock started ticking in November.

    Anecdotal evidence is mounting that this drug is effective, with very few side effects. Off label Rx's seem likely, not only for MS pain but also for irritability in Azlheimer's patients, for which trials are also on the way.

    My prediction? Last year, I said the stock would end the year between $6 and $8 a share. After 365 days of malarkey, I think this is reachable in 2012. Remember, closing over 6 would mean almost a 200% gain.

    This is truly the beginning. January will give us the results of added Medicare coverage, and the fruits of the LTC program. Rx numbers, I believe, will jump this month. The number of shares held short will continue to decline, and at some point, there will be no holding back this stock.

    But hang on, longs. I'm quite sure the journey will have unforeseen perils. Keep your tin hats at the ready, and I'll keep the flask full.

    Saturday, January 7th

    Saturday Tide Report

    Well, longs, I won't sugarcoat it: it's been a great week!

    This is definitely unfamiliar territory. AVNR is on a roll. I guess this is how Casey Stengel must have felt when the '62 Mets had a win streak. This is great! How long will it last?

    The numbers for the week were good. Starting the week and year at $2.05, closing at $2.20 is a 7.3% gain. 3 days out of 4 were green, and while volume was less than impressive early, Friday's volume (when we gained 4.27%) was 1.58 million, well above the 10-day average of 1.35 million.

    And that's not all. Bullish signs are here. This marks the 3rd WEEK in a row that AVNR has been green. And over the New Year holiday, AVNR strung 3 green days in a row together. An old friend from here, Joe, held that this was a positive sign. Hey, Joe!

    Now for a dose of reality: 1/6/11, the stock closed at $4.26. That means we're down 48.3% year over year. There is much work to do.

    This period of uncertainty is not over. Remember, there are still over 27 million shares held short. They will not go down without a fight. At least one tussle looms: options expiration. 10 million January options are still out there, and I believe there will be some fireworks before they expire.

    In the meantime, I don't think we can count on any news to save the stock price short term. Avanir appears focused on executing the marketing plan, and I can't argue with that philosophy because in the end, Rx's, and therefore earnings growth, are all that matters. The next two earnings reports are crucial, and I think the company is correctly focused on sales.

    What that means is that while the February and May earnings calls may well be all we longs can hope for, we're just going to have to wait.

    There are some negatives out there. First and foremost is Europe. Doesn't it seem like we've dodged a bullet whenever there is no disastrous news from Greece or Italy or…wherever? We can almost count on some crisis at least once a week that will bring the U.S. market down. AVNR usually gets caught in that tide.

    Don't be surprised if the stock price goes down in the next couple of weeks. We may test support at $2.00. Heaven forbid, we could even test the low of $1.77. But please don't panic. Because I think the tide has turned. Look at the 3-month chart:

    The reason I mention tides is that I think of stock prices as like the tides. They come in and go out. They only come in to a certain point and then, at some point, they reverse. I think the reversal happened in the last 3 weeks. Harry talks about 2 steps up and one step back…we're pretty much saying the same thing.

    So don't be spooked if the tide reverses for a bit (hello, spook!). Because the trend, finally, is in our favor, IMO. It's time to enjoy the beach:

    http://www.youtube.com/watch?v=XG8MQ8f4n...

    Because AVNR is not the '62 Mets. More like the '69 Mets. Just wait with me, longs. But keep the tin hats ready. I'll try and wrestle the flask from Gary when he's napping.

    Saturday, January 14th

    Saturday Reflect

    Part I of II

    Wow-what a week! Let's get straight to the numbers: AVNR gained .56 to close at $2.76, a gain of 25.4%. Since we're on a roll (4th straight green week), YTD gain is also impressive: 34.6%.

    These strides have cushioned the blow of other comparisons. On 1/13/11, the stock closed at $4.46. Year over year, the stock has lost 38.1%. Sadly, this is an improvement over recent yearly comparisons, which until last week showed losses of over 50%. Where does this leave us? Let's take a look at the 6-month chart:

    This gives me 3 questions: 1. What caused AVNR to sink so much in December? 2. What has caused it to rise so much since $1.77? 3. Are we going to re-visit the lows?

    1. December. I'd attribute the plunge to 2 main factors: tax loss selling and the exercise of warrants. Since AVNR did sink basically from 4 to 2 from January to November, we had to expect tax loss selling. Our own ilovedthe80s was one. The warrant issue kind of slid in under the radar. Right after earnings, we read that warrants had been quietly exercised. This had 2 results: some needed cash to the company, and a few million shares added to the float (can someone please supply the exact figures?). Add in the Jefferies target change, and we had a lousy week before Christmas.

    2. After Christmas, the stock began showing signs of life. I expected more tax selling, but AVNR rallied to close over $2 just before the 31st. Since then, it has only gained momentum. Why?

    Again, I see two factors. 1) some of those who sold for tax losses have waited the 30 days and are buying back in. 2) I think when the numbers come in, we'll see we've had a lot of short covering in the first 2 weeks of 2012.

    I have to take my tin hat off to the shorts. They've been masterful. Take a look at Sir F's great chart on shares held short, and their relation to the stock price:

    https://docs.google.com/spreadsheet/ccc?...

    These shorts are pros. From August 1, they've covered 8 million shares, while the stock has gone down from $3.75 to $2.05. They have played this stock like a Stradivarius.

    But things may be changing. The retreat may be getting less orderly. And longs may be reaping the benefit. We'll find out in a couple of weeks if I'm right and we've had a big drop in shares held short since the first.

    3. So, where from here? Generally, I'd say up. Looking at the chart, closing this week clearly above the $2.50 mark, which has been an inflection point since August, is encouraging. I don't think the stock is going back under $2 again.

    Continued...

    Part II of II

    But that doesn't mean we're out of the woods. With many here, I've been awaiting the expiration of the January options. Have they been a hedge for shorts? Perhaps. They've certainly put an effective ceiling on the stock price. Right now, there are 8,118 open options at $2.50. These would obviously end in the money if they closed today. There are NO open options at $3.00 and one at $3.50. Then it jumps to 8,966 at $4.00 and a huge 68,539 at $5.00.

    Next month? There are 247 options open at a strike price of $2.00. Nothing else. So this is the month we need to worry about.

    Am I worried? Of course. After last month, I have a little PTSD. So I'll sigh in relief when this month's options expire. Next week, we could have a last ditch attack on the share price, and as we learned last year, the shorts aren't too proud to play dirty.

    But I think the overall trend for the stock price is up, finally. One poster here gave a link to a chart with a "cloud". Sorry I don't recall his/her handle, but AVNR closed above that cloud, which corresponds to the $2.50 mark, roughly. We may have more doubtful times ahead, but I do think we've seen the worst.

    Ok, Karma, please don't make those my famous last words. After close last night, we saw that S&P had downgraded several countries in the EU. Thankfully we have a Monday holiday. But I would not be surprised to see the overall market go down early next week. Unlike the old days when AVNR was lightly traded and tended to be independent of the market, the stock now often follows the trend.

    So hang on, longs. Good stuff awaits. One I'm waiting for is the hits to Nuedexta.com, which OFP provided. Numbers for December come out on 1/20. It will be interesting to see if that great trend has continued.

    We also have sales numbers coming, which will soon reflect added coverage and LTC. Time IS on our side, so don't be discouraged if the going gets rough. Again.

    Saturday, January 21st

    Saturday Report 1/21/12

    GOOD MORNING, AVANIR!!

    We should feel like it's a good morning, after 5, count 'em-5-green weeks in a row. This is fun. Here are the numbers:

    For the week, AVNR gained 7 cents to close at $2.83, a gain of 3.6%. YTD is much more impressive: a 38% gain. Even year over year, the number is getting less depressing. Last Jan. 20, the stock closed at $4.20. Since then the stock has dropped 32.6%. While this is sobering, it is much less traumatic than comparisons in weeks past.

    The chart continues to look friendly:

    http://finance.yahoo.com/q/bc?s=AVNR+Bas...

    What does all this mean? For one thing, it means that in future years, we DON'T want to get caught up in December tax loss selling. That stuff is brutal. I'm going to go out on a limb here and predict that in 2012, that should not be a problem. Knock wood.

    But what about the near term future? Some months back, when options expired as they did yesterday, I boldly predicted that AVNR would have a nice bounce. This only revealed what a lousy short-term predictor I am. But the fact is that 10 million shares' worth of calls expired last night. That would seem significant.

    I do think it's significant that the stock price remained under $3.00, allowing a good chunk of calls to expire worthless. For one day, it seems that options expiration trumped coverage initiation, which is noteworthy. Friday morning I was pleased to see MLV and Co. initiate with a "Buy" rating and a price target of $6.00. Last time this happened, with JMP Securities, the stock rallied. This time? No immediate benefit.

    The stock has rallied impressively over these 5 weeks. The low was at $1.77 (inspiring me to use the word "Ridiculous" in the headline that week). Since then AVNR has climbed just about 60%. That's a lot of territory in a short amount of time. While I'd love to see the stock stay green for 52 straight weeks, things don't work that way. I wouldn't be surprised to see some profit taking.

    But maybe we've already seen some. The stock has had a few red days like yesterday, and one or two days that ended even. In the meantime, as I mentioned last week, I suspect we've had some short covering in early January. So maybe we're not in for a pull back.

    It's been interesting to watch the posters here lately, especially on the bearish side. Either they love their work, or they're getting increasingly aggressive. The tone seems…a bit more shrill than in times past. A sign? Oh, and Gary…oozed back into the room yesterday afternoon (sorry Gary-I just think that term is funny). His appearance sometimes signals a move in the stock price. Far as I know, our favorite contrarian indicator hasn't made a call yet.

    So I can't and won't say how things will go next week. But I do continue to think the stock is trending up, and that 2012 will be a banner year. Why? One thing only. For all the rhetoric here, there is only one thing that matters: the number of Rx's for Nuedexta. This factor will make or break this stock this year.

    Did the hits to Nuedexta.com really rise from 7,500 to 150k in a month? If so it could be an indication of increased interest in the product. We got a report of 1,250 new Rx's in the week of January 1, which of course only had 4 work days. If this is true, it would seem the numbers continue to ramp up in a healthy fashion.

    But as this is the market, we won't know until next earnings, which should come in around February 9. In the meantime, we get to wait. It's what we do best. If the stock price goes down between now and then, I'm not going to worry. Because the quarterly report is what really matters. From what we've heard from the company, the last quarter was good. The May report will also be crucial, as it will be the first time the LTC and added coverage really come into play.

    So keep waiting with me, my long friends. And please share the flask.

    Saturday February 4th

    Saturday report 2/4/12

    Isn't this fun, longs?

    AVNR is a high "beta" stock. This term compares a stock's volatility with that of the S&P 500. A Beta of 1.0 would mean that on average, the stock moves about the same as the general market. Not Avanir. OUR Beta is a gaudy 2.5. Which means this thing is volatile. So far, 2012 has shown how much fun a high Beta stock can be.

    Let's see a chart. Here's how AVNR has compared to the NAS over the past month:

    For the week, AVNR gained 39 cents to close at $3.31, a gain of 13.3%. YTD is more impressive: a 61.5% gain. Year over year, the comparison is getting less agonizing. Last Feb. 3, the stock closed at $4.11. Since then the stock has dropped 19.5%. Even this metric is improving.

    So, where from here? Let's start with where we've come from. The low in December was 1.77. Since then we've gained 87%. At $1.77, the stock was oversold. At $3.31, is it overbought? Could be. This marks 7 green weeks in a row. AS MUCH as I would like it not to be true, no stock goes up all the time. No stock. Ever. In history. So what do we do?

    First, many of us will need to get over our regret at not buying more when the stock was under two bucks! Hindsight is SO 20-20! But don't kick yourselves. I thought sure the stock would not go below two. So when it hit $2.01 (around 12.14), I added some "trading" shares. Then I sat with my mouth open as it went down another 12%. It took some long weeks for me to feel smart about that $2.01 purchase. I told you I was a lousy market timer!

    Why have the past several weeks been so good? First, the stock truly was oversold. Second, the overall market has been chugging along. U.S. stocks had a great January. And over the past couple of weeks, we haven't had our daily headache from the EU (Sir F. and Dairyman, keep it up!). And it appears from the sketchy reports that are available that the Rx numbers have kept climbing impressively, even with holiday weeks taken into consideration.

    As much as the naysayers here would have us believe that Nuedexta has had a miserable launch, as time has gone on, the numbers have become increasingly impressive. Take a look at this chart that the Great Basher OFP has put together:

    http://i1134.photobucket.com/albums/m605...

    It's okay if you linger there for a while-it's a thing of beauty.

    Anyway, it'll give me time to cut and paste the rest of the report. When I was a kid, we had a riddle: would you rather get $1,000 per day for thirty days, or start with a penny, and double it every day for 30 days? Sure, the penny starts slow, but after just 3 weeks, you're up to $20,971.52. And counting. While AVNR is not doubling every quarter, it's coming close enough to be really impressive. Look at that graph again. See how the growth is steepening? No wonder the shorts here are getting shrill.

    So things look pretty good. On Tuesday we'll get the earnings report, which will show significant growth from Q4 of FY 2011. And I hope we get some figures for January.

    Meanwhile, what do the tea leaves say? Last week Root was rooting around, and found that AVNR was hiring 10 Reimbursement Specialists nationwide to supplement the LTC sales force. 10 hires, when AZ is laying off hundreds? That's almost 10% of the sales force, when the LTC group already added 40% before. I hope we'll hear about this Tuesday afternoon.

    So, where is the stock going short term? Who knows? If it goes up, great. But if it goes down, it's also great. Rx numbers are climbing. Avanir is investing in more staff to keep up with demand. If there is a pause in the stock's upward movement this week or next, I believe it will be just that-a pause. Don't panic. Longs are steadily moving toward the driver's seat.

    I'll leave you with a musical theme for next week. It's a classic some of the younger ones in the crowd should get to know, as part of their overall musical education.

    http://www.youtube.com/watch?v=odUxMlud0...

    Have a great weekend, all.

    Saturday February 11th

    Saturday report 2/11/12

    Well, that's what I get for saying being long AVNR was "fun". The 7 weeks of green arrows was exhilarating, intense, fulfilling, and long overdue. But for now, it's over.

    This week, rather than gaining, AVNR lost 38 cents to close at $2.93, a loss of 11.5%. YTD is more comforting: a 42.9% gain. Last Feb. 10, the stock closed at $3.97. Since then the stock has dropped 26.2%.

    Last weekend, I speculated that perhaps a positive earnings report would keep the streak going. We had positive earnings, but the streak ended anyway. What was this week, then? Failure to beat the "whisper number"? I doubt AVNR's brief history of income merits such a metric. Given how far AVNR had come since its December low, I'd say there was likely some profit taking. I believe it was a pause in the move up. Will that pause last another week? I wouldn't rule it out.

    But the trend is up, and it remain so, because of earnings. Tuesday was good news. AVNR beat estimates by a penny. Importantly, top line income beat estimates handily. The cash expenditures were interesting in that AVNR spent more on marketing and less on R&D than anticipated. I think the company is (appropriately) focusing on income for its approved product, in hopes of reaching break-even ASAP. They said they do not want more dilutive financing. Their actions back this up.

    And the good news is going to continue. During the upbeat CC (in which all analysts offered congrats except the one from Jefferies), KK responded to a question about continued Rx growth. While he wouldn't give an earnings estimate, he indicated he was comfortable saying there would be a 3% per week growth rate in Rx's.

    What did he say? 3% per week? Even without compounding, that comes out to 156% in a year (3% times 52 weeks = 156%). What company wouldn't love that? With that type of growth, even 26 million shorts won't be able to contain stock price growth.

    Oh and there's great news on DNP pain. As Sir F. has pointed out, that 4-year old study on the old formulation that got published in a scholarly journal also, by the way, mentioned the PK study, which involved the 30-10 formulation. It SHOWED efficacy for DNP. Pain is around the corner, fellow longs, and that corner just got a bit closer.

    So I really think management is doing a good job. KK is very bright, and much more diplomatic than I am (he was unduly kind to the Jefferies analyst). The LTC initiative is already showing its wisdom. Doctors are reporting they are gaining confidence in the medication and are likely to prescribe it more and more; the sales force is excited. In terms of executing a plan, AVNR is clicking on all cylinders. We'll determine whether it's more than a 4-banger in time.

    There's only one area where I think management could do (much) better. Here's a link to AVNR's insider transactions:

    http://finance.yahoo.com/q/it?s=AVNR+Ins...

    That, IMO, is pathetic. In this one area, management is sending all the wrong signals. Planned sales. No purchases unless at a steep discount.

    Think about this, Management: do you have any CD's? What kind of return are you getting? At best I'd say 3%. Well, AVNR's stock is at $2.93. IF you believe the company is going to continue to grow its sales, don't you think the stock price will be at $6.00 two years from now? [My target for year's end is $6-8, but that's just me.]

    But back to the question: Will AVNR's stock price double in two years? Management, if you think it will, then plunk down $3,000.00 (each), and buy a thousand shares on the market. If it hits 6 bucks by 2014, you'll be making over 50% a year on your money. Where can you find a better deal? You'll beat the daylights out of your CD, AND be sending a strong signal that you believe in your company, in a perfectly legal way.

    I am optimistic, and would ask our friends at Avanir to show us they feel the same way.

    Saturday February 18th

    Saturday report 2/18/12

    It is a bright, beautiful morning in E. Tennessee, and I hope it is the same wherever you are as you read this. More on that later.

    Here's a news flash: options expired yesterday. Yes, you heard it here first. Most of the open calls (973) were at $3.00, and as I commented yesterday morning, we were poised at $2.995 per share. Ready to rumble! Or, at least the shorts were. Longs lost the skirmish.

    Let's look at the numbers. In spite of losing a battle Friday, AVNR actually gained 4 cents to close at $2.97, an increase of 1.4%. YTD is still a head rush: a 44.9% gain. Last Feb. 17, the stock closed at $3.85. Since then the stock has dropped 22.8%, a continued improvement.

    So, lest we get our daubers down (a phrase S.F. Giants fans will know), this makes 8 weeks out of 9 green. And before we turn our nose up at a 4 cent gain, just think how it would be if we averaged a gain of 4 cents each week for the rest of the year. That's 45 weeks. It would be a gain, from here, of $1.80, leaving the stock price at year's end at $4.77, which would be a gain of 133% on the year. While it's less than I'd like to see by then ($6-8), the year would not be a failure by most any metric.

    The big event this week, IMO, was the ISM number on Monday. For the week of 2/3, total Rx's jumped 200 to 1620, or 15% week over week. This was confirmed from a separate source by SRK. That's a "wow" number, and I'm anxious to see if there is any follow-through next week. The short posters here may pooh-pooh the jump, saying it has to be sustained, but this number did have an effect on the stock price. Take a look at the 5-day chart:

    Monday is the day on the far left. The numbers came out when the stock was down about 10 cents. Then in the middle of the trading day (when those lazy bum west coasters finally got in to work), the stock jumped. Volume was 2.168 million for the day, which is not bad, but not impressive (the 10-day average was around 2.27 million). And the stock closed at $2.97, which was the margin of gain for the week.

    How will AVNR do next week? I once boasted that with options expiration, the next week would almost surely be green, and I think it offended the stock gods. So I'll say this: if the Rx numbers are above 1620 for this week, we've got a good chance of being green 9 weeks out of 10. But no guarantees.

    There were many other events here this week, but I'll focus on one, with credit to our friend Sir F., who is always digging for gold nuggets. He found one in this presentation by Dr. Smith from 2010:

    http://newmedia.ufm.edu/gsm/index.php?ti...

    The whole talk is 75 minutes, but you can skip right to the bit on emotional lability by clicking on the right side of the screen, if you want. It's great to hear the origins of this product, from a guy who was right there.

    I see Sir F. is at it again today, with a link to the stroke association. Try and view it--I'm sure it is worth while.

    This week also marked an increased level of animosity on the MB. It got fairly nasty mid-week, and I suspect nerves are somewhat frayed on both ends. To his credit, TS decided to play nice with OFP, which I really appreciated.

    The stakes are high, and tension will increase no matter what the stock price does, I suspect. Longs are anxious for deliverance after this Hundred Years War. Shorts are anxious. Can that IMS number be real? If it is, how can we unwind 26 million naked shares?

    So we need to keep our hard hats on. But for now, this weekend, your Sgt. Pepper has a suggestion: stand up, and back away from your computer. Take some R&R. You deserve it, and you'll need it in the weeks and months to come. Life is short. Go out and try and enjoy it, just for a while, on this President's Day weekend. The market and our ever-lovin' MB will be here when you get back.

    Saturday, February 25th

    Saturday report 2/25/12

    News flash: last week was a short week. Sure didn't seem like it.

    In what is beginning to become usual, AVNR got no bounce after options expiration. This is becoming a (bad) habit. Oh well. When I get to where I can trade 250,000 shares at a time, I suppose I'll be able to call the shots, too.

    Let's look at the numbers. The first three days of the week were lousy, with only Friday giving longs reason to smile. AVNR ended up losing ten cents to close at $2.87, a loss of 3.37%. YTD is still good, as we're still enjoying the remnants of a miserable December: a 40.0% gain. Last Feb. 24, the stock closed at $3.71. Since then the stock has dropped 22.6%, so we actually gained a tiny bit by that measurement (last week, it was 22.8%).

    Interestingly, volume was pathetic the whole week (including Friday, unfortunately). I mean, it was seriously anemic. Only Monday had volume over a million (1.139, well under the 10-day average of 1.454 million per E-Trade). Wednesday, when the stock dropped 6 cents, it was only 547,000. It's been a while since we've had a day with a number that low (help me out, stats guys or gals).

    This could be the start of something good, if you believe SRK. Take a look at the chart he showed us yesterday:

    http://www.stockta.com/cgi-bin/analysis....

    He says the low volume is consistent with the stochastic-thingies at the bottom of the chart, and that they show the stock is oversold. I hope he's right.

    That would be a good thing, because the week really wasn't much fun. Think about this. Thursday, VVUS was up over 100% pre-market on news that an FDA panel had recommended their drug. I thought, 'hey, the pharma sector is going to be up today'. Well the sector might have been up, but AVNR wasn't. No, it came in with its 4th down day in a row.

    So, what's the deal? Nothing. It's just the pace at which the market moves. Harry has a lot of critics here, but there's one thing he always says that is the gospel truth: you have to be patient. Which is sometimes confounding.

    But there are signs. Root found a great one last night:

    http://messages.finance.yahoo.com/Stocks...

    So Avanir is hiring. Hmmm. Why would they do that? Is it, to try and get to the point where their overhead is so great that they have to go to the market for more cash? That's how the naysayers here would spin it. Somehow, I don't think that's it. It seems the new hires are all in LTC. Is that so? Could it be that, they're having serious success in their "pilot program"? No, that just couldn't be it. With a 94% margin on each prescription, surely these new reps won't be able to pay for themselves.

    No, they'll be able to pay for themselves, and more.

    I would encourage my fellow longs to think about the naysayers. Why are they here, spouting off about what a lousy stock AVNR is? This stock is at TWO DOLLARS and EIGHTY-SEVEN CENTS. Our naysayers, clearly, are hired to post here. Hired. Paid legal tender, just to post on this board. Why, oh why, oh why?

    I'll tell you why. Because AVP-923 is a threat. A serious threat to the profits companies that make SSRI's and narcotic pain killers have made for decades (and Paul agrees). Nuedexta and its "cousins" are seriously threatening the status quo. And so we get this naysayer element. But don't let anyone fool you. The fact that they are here is a seriously positive sign.

    Be patient, longs. It's not a matter of if, but when (right, burgoo?). Now more than ever.

    Thursday March 1st

    Weekly Report Unlikely

    I'm heading out of town for a couple of days of R&R. I probably COULD do a report, but my wife loses me for most of Saturday morning as it is, so it's best not to inflict that on her while on holiday.

    Suffice to say I think the Concert deal is great, in that it's not costing Avanir much at all up front, and may well give rise to a second generation of Nuedexta (how about "Twodexta" or "Deudexta"?).

    The future's so bright, I'm taking my shades.

    http://www.youtube.com/watch?v=8qrriKcwv...

    Take care, y'all, and I'll be back soon.

    Saturday March 10th

    Saturday (Breakfast) Roll

    Last weekend, I stayed at a bed and breakfast that had no phone and no televisions. They theoretically had wi-fi, but you could have fooled me. So my wife and I were basically cut off from news for two days. As composer of this mini-blog, it was just as well.

    Because AVNR was busy treading water. Or more accurately, sinking just a bit. Again.

    Writing this weekly epistle has been a fun exercise. I jot down the daily movements of the stock as compared to the NASDAQ, as well as events of the day that may have influenced the price. I get it all into about 3 lines on a note pad. This has helped me, as an investor, to step back and try to see the big picture. This, as it happens, has been a blessing for my sanity. Because given the GLACIAL pace at which a stock moves, one can and will go crazy watching daily price movements too closely. Especially when one of "your" stocks goes down.

    This past week, on the other hand, was a great deal of fun. Here are the numbers: AVNR ended the week gaining 26 cents to close at $3.03, up 9.39%. YTD is sprinting along, showing a 47.8% gain. Last March 10, the stock closed at $4.06. Since then the stock has dropped 25.4%, so we still have a bit of work to do there.

    The week did not start out happily for longs. Monday and Tuesday the market was down, and so was AVNR. Tuesday was painful, as the stock plunged to $2.48, a support level we've been visiting since last August. It was déjà vu all over again.

    Then came Wednesday. Up 7 cents on the open and 18 cents 28 minutes into the trading day on volume of 467,000. What HAPPENED? Public filings showed it: insider buys. Nicely, the overall market cooperated, so AVNR rode the momentum to close with a 7.2% gain. The only disappointment was volume, which was slightly above average at 1.738 million.

    Sorry. I guess I'm long winded today.

    Once upon a time, when AVNR was AVN, and trading 200,000 shares a day, the market had little effect on the stock. This no longer is the case. Right now, for better or for worse, the stock is a creature of the market overall and the bio sector in particular.

    AVNR has been, accurately IMO, described as a high beta stock. A ten-cent definition of "beta" is a stock's movement relative to the S&P 500. Per E-Trade, AVNR has a beta of 2.4. So it averages moving 2.4 times as much as the broader index on a given day. This week's 5-day chart is a great example of how a owning high beta stock can be a thrill:

    http://finance.yahoo.com/q/ta?t=5d&s=%5E...

    So what's in store? More thrills or more spills? I'd say, a little of both at first. But long term, this long is expecting to be thrilled.

    Thanks to my old friend Spook, we know that the shares held short dropped another half million or so in the last reporting period. As I've said before, those guys are pros. They've shed about 10 million shares short over the past 6 months or so. They have played this stock like virtuosos, shedding risk while the stock actually went down in price.

    As a long, I'd love to see their waltzing retreat turn into a full-on panic. How will this happen? News. Lots of news, all at once. If Avanir management can make that happen, we might have some serious upward movement in the stock price.

    I think management can do it. This past week, with 3 insider buys, they eliminated one of the major criticisms of the stock. KUDOS!!

    On the horizon? Oh, I don't know. Maybe continued Rx growth of 2.5% per week, plus a week or two of higher growth. A partnership for the EU or even the rest of the world, with an up-front payment with a lot of zeroes in it will do wonders. There are many catalysts on the horizon. I think KK is sharp enough to do this in dramatic fashion. If he does, watch out.

    So carry on, bunker dwellers. We're gaining momentum. Next week I'll talk about the Concert deal, and why I think it makes Avanir's future look bright indeed. In the meantime, we need to try not to get bogged down in daily stock price movements, and keep our perspective. Because from this writer's viewpoint, things are going very, very well.

    Saturday, March 17th

    Saturday Greenery

    Happy St. Patrick's Day, one and all. I hope the sun is shining where you are, there's a cool breeze, and that you don't get carried away-figuratively or literally-in the festivities.

    Today, I want to look at the Concert deal, and how it bodes for Avanir's future. For this I had to locate the high-powered rose-tinted lenses. A special hello to Nirv, who may still be lurking out there; I hope you are well, old Chum.

    But first the numbers: AVNR had a second straight green week gaining 12 cents to close at $3.15, up 3.96%. YTD is still impressive with a 53.7% gain. Last March 17, the stock closed at $3.85. Since then the stock has dropped 18.2%, which is a better year-on-year than we've seen in a while.

    The week itself saw what appear to be good numbers from Wolters Klower (thanks, SRK), and news of a 5 million share addition to Fidelity's position. Tuesday saw the biggest gains of the week (the stock was up 14 cents, or 4.62%), and for the most part, the stock held on to those gains. Thursday, the bears did their best to drive the stock price down, doing admirably on an up day for the market and driving the price down to $3.00. But the stock walked back up to $3.12 that day and to my relief, followed up green yesterday. Of course, it's only fitting we were "green" for this particular week…

    But enough of this-I said I'd talk about the effect the license from Concert means from my view. In short, I think it seals Avanir's future.

    For those who have been distracted over the past 3 weeks, Avanir agreed to license patents from Concert Pharma, for a compound mixing Dextromethorphan with heavy hydrogen (deuterium). The heavy hydrogen serves the same function quinidine has for Nuedexta: it allows the Dex to metabolize more slowly. Concert's patent for dDm (in shorthand) was issued in July of 2011, and covers a very wide range of neurological and psychiatric disorders. The deal also covers patent applications in other countries from Concert.

    The rate at which Dex metabolizes has been at the heart of Avanir's concerns (no pun intended) for a number of years. It's the whole reason quinidine was added. While quinidine performed the desired function of keeping Dex in the system long enough to be effective, it carried with it a concern about heart implications, specifically an increased "QTc interval". This is the primary reason the 30-30 formula was rejected by the FDA in 2006.

    Last year, we learned another vulnerability to the Dex-quinidine combo: at least the potential for patent vulnerability. Since the 2 drugs are generic, several generic drug makers have filed claims that they should be able to make generic Nuedexta. Regardless of the merits of these claims (which I think would ultimately lose in court), the fact is they create a cloud of doubt over Nuedexta's profitability. And the market hates doubt.

    The company has handled these patent challenges appropriately, filing lawsuits that buy, I believe, 2 ½ years of time before a decision is made. That time will be crucial.

    Back to dDm. IF it works, it will essentially provide a next generation for Nuedexta. But at this point, the drug is still early in the testing phase. While it works in theory, it has not even been through Phase I testing per Concert's graphs. There's work to do, and the process is not quick. That's the bad news. The good news is that Avanir has been in the business of testing drugs for a while now, with a specialty in Dex. Recent presentations indicate the company intends to piggy-back dDm on to the MS Pain study, as well as the upcoming Alzheimer's irritability study. The patent process, which is one of the more glacial processes known to humanity, will be as efficient as it can be.

    I can see this is already getting lengthy, and I'm not near done yet. Let's continue on the reply to this message.

    I'm loathe to admit it, but currently AVP-923 has its share of uncertainty. In addition to the patent issue, we have limited licensing. Currently Avanir has a total of 5 applications for Nuedexta that are licensed from the Center for Neurological Studies. These include of course PBA, cough, pain, irritability, and….one other one I can't recall. If further testing shows another area for which Avanir is not licensed (e.g., swallowing), Avanir will have to purchase another license.

    Now, I don't think this is a huge issue. Avanir has the patent for AVP-923, so the current license holders can't make money without Avanir's cooperation. So the newer applications can be had. It's just that Avanir will have to pay for additional licenses.

    So, currently, with Nuedexta, there are 3 "issues" that shorts can make noise about: patent protection; potential heart issues due to the quinidine component, and incomplete licensing. Here's the good news: dDm fixes all this, and offers the real possibility of a better drug.

    As to patents, dDm's is fresh: acquired less than a year ago, I generally recall it's protected into the 2030's. No generic mix here. Instead, we have a novel concept of altering Dex with heavy hydrogen (where there's an extra neutron in the nucleus). At first blush, it appears this unique scientific breakthrough would not be vulnerable to patent challenge.

    Does dDm have heart issues? Certainly not like those involved with quinidine. Now, there is still a great deal to learn about this compound. As with any drug in testing, there may be unforeseen challenges to address in terms of how this drug affects the system especially in a population that is already vulnerable (MS, ALS patients, etc.). But for now, thinking of dDm as simply Dex on steroids, let's say it's got a benign side effect profile.

    Finally, there's no license issue. From what I've read, Avanir has licensed all uses of dDm, at all dosage levels. So no issue there.

    So, dDm appears to eliminate any and all negatives about Nuedexta. What GOOD is this new license? I can think of 3 big things:

    The license didn't cost much up front. This deal, it appears, is substantially back-loaded, so Avanir didn't have to use up a lot of its precious cash right now, when it needs it most. There will be milestone payments, but at that point, cash on hand will jeopardize profit, rather than the viability of the company.

    The second thing is what really excites me: the early reports I'm seeing show high levels of Dex being used in dDm. 45 and 60 mg levels are being tested, and more(?). So the dosage looks to bring significantly more Dex into the patient's system.

    So, let's say it's 3 years from how, and Nuedexta has caught on like we longs hope it's catching on. It's being used for PBA, and off label (and eventually ON label) for pain, irritability, etc. The drug is popular for its speed of effectiveness and rate of remission. And NOW, there's a more powerful, less risky version of the same thing? How good is that?

    I'll tell you how good. All this work Avanir is doing to establish a market will show a second benefit. Because when dDm comes out, how much work will take for patients and doctors already SOLD on Nuedexta to try out Deudexta (sorry that's just me playing with words)? None. The market will already be in place.

    So the day appears to be coming, fellow longs, when shorts won't have much to talk about. Of course they'll always find something to talk about. But real uncertainty, like the dreaded dilution, will be a thing of the past. And the only question will be how much money this new wonder medication is making. Cool.

    Have a SAFE and happy celebration, everyone.

    Saturday March 24th

    Saturday Delay

    Good morning, everyone. I plan to do a report today, but I'm afraid it will not be in time for the morning coffee. Hopefully it will be in time for Sir F's afternoon tea. Sorry, but I have an obligation this morning that must take priority.

    Latterday Report

    Welcome to Avanirland, everyone, where progress is present on all fronts.

    The numbers bear this out: AVNR was green for the third straight week, gaining 25 cents to close at $3.40 (rounding up from 3.395), up 7.9%. YTD is still impressive with a 65.6% gain. Last March 25, the stock closed at $3.77. Since then the stock has dropped 9.8%, so what was once a depressing comparison is getting almost bearable.

    The Rx numbers were again encouraging. When the IMS number of 1762 for the week of 3/9 came out late Monday, the stock price surged at the end of what had already been a strong day, on volume. That makes two weeks in a row of significant Rx growth (SRK had provided the WK numbers on 3/12, as he does faithfully each week). This is a good trend. So far, March seems to be bringing on a new level of growth for Nuedexta. Perhaps all the hard work and planning by Avanir are paying off.

    The market is impressed so far. Granted, AVNR sank to ridiculous lows in December, and the overall market has been pretty hot so far this year, but take a look at this chart comparing AVNR to the NASDAQ over the past 3 months:

    http://finance.yahoo.com/q/bc?t=3m&s=AVN...

    While the NASDAQ has clipped along at a very brisk pace, gaining around 18%, AVNR has gained over 80%. Wow. Without question, with another streak of green weeks, AVNR is trending upward. Greatday tells us that AVNR has not had closing prices this high since last August. Again, bullish.

    Now don't freak out if next week is red, longs. Looking back at that 3-month chart, the stock has taken breaks along the way. This is a great example of what I've said a few times: no stock can go up all the time. If it goes up too fast, it'll come down just as fast or faster. Better to sprinkle a few down days or weeks in there so the price can consolidate.

    But the technicals are pretty well set up right now. The famous "golden cross" we've been waiting for, where the 50-day moving average crossed over the 200 DMA, occurred on Thursday. This is a bullish indicator about 98% of the time. Our board technicians such as Mike are calling for next resistance around $3.61. I'd take it. AND, if the IMS or WK numbers are again impressive Monday, I don't think the stock will be denied.

    Because, after all, sales of N., for the foreseeable future, will drive the stock's price. Of course there are catalysts such as EU approval and an EU partnership, both of which might give a real pop to the stock . But those are simply means to the same end: Nuedexta sales. Remember, the margins on this stock are around 94%. So each prescription is basically $5,000.00 of revenue.

    We're in a bit of a race. Can Avanir make enough money to break even, in time to prevent going to the market for more cash? Because that's basically all the shorts have left-the dreaded dilution. If Avanir can get Rx numbers to a point where we're break-even by the fall, then this stock is going to be among the gain leaders for the NASDAQ for 2012, simple as that.

    Because if the numbers are impressive enough, pretty soon an analyst or two will have to revise their figures upward. That would be significant.

    So keep the faith, longs. Our day of deliverance (for some like Winkles and OBHF, it's been a long time coming), is approaching. Don't be distracted by the occasional red hour, day, or even week. We are RIGHT on track, thanks to KK and his team. As Mr. Palekar, the newest member of the team, the prospects are "incredible". I stand ready to be in disbelief.

    Saturday March 31st

    Saturday report 3/31/12

    Happy Saturday, everyone. It's a warm and early spring here in Tennessee, and I hope that wherever you are reading this, the weather is not uncomfortable, and you are well. Personally, while I enjoy the flowering trees, my nose is making daily protests.

    But for our favorite stock, things keep chugging along. AVNR was green for the 4th straight week, gaining 2.5 cents to close at $3.42. YTD is still impressive with a 66.8% gain. Last March 31, the stock closed at $4.08. Since then the stock has dropped 16.1%. This is a decline from last week, but given AVNR's performance in the first quarter, there's not a whole lot of room to complain.

    Let's take a look at the first quarter. Here's a chart comparing AVNR to the Dow and the NAS:

    http://finance.yahoo.com/q/ta?t=3m&s=%5E...

    Nice, isn't it? I mean, the whole market has seemed to be on jet fuel so far in 2012. The historical precedents are favorable. When major indexes start out like they have this year, the full year is most often positive. Also, as some here have correctly pointed out, this is an election year, and the markets are usually green in such years. All of this is positive.

    But we can't expect the NAS to gain 18% every quarter, any more than we can expect AVNR to gain 70%. As I said last week, we could have a down week soon. But that would not change the trend for AVNR, which is up.

    The Rx numbers, of course, are central to the stock price. Last week, after reaching a dizzying 1762 the prior week, the IMS total Rx numbers backtracked to 1,600. Does this mean Avanir's sales people have lost focus, and that Nuedexta's delusions of grandeur are coming to an end? No. Weekly fluctuations are going to happen. The trend is what matters. Look what OFP has provided for us:

    http://i1134.photobucket.com/albums/m605...

    As long as the trend looks like this, longs have little to worry about.

    Now I'd like to talk a little about the tone of this MB. The last few weeks have been punctuated by some nasty back-and-forth, which I've done my best to stay out of. But it gets distracting.

    The fact is, everyone here has an agenda. As a long, I get my hackles up when I see a short talking about what a lousy investment AVNR is, more so when the arguments raised to support the point are done in a belittling manner. I think it's safe to say that no one likes to be called an idiot. But we're seeing it a lot here.

    So I'm asking everyone here, long and short, to treat others here as they would like to be treated themselves. This "golden rule" crosses all belief systems, and there is real wisdom there. We are fortunate to have money to invest in something beyond sheltering and feeding ourselves. Perhaps we would do well to remember that. The great Satchmo gave us a song in the turbulent 60's to remind us of what's real and what's important:

    http://www.youtube.com/watch?v=m5TwT69i1...

    In the words of Forrest Gump, that's all I'm going to say about that. I wish everyone here good health and good fortune.

    And, I wish Sir F. would stop making puns...

    Disclosure: I am long AVNR.

    Additional disclosure: The author of the weekly journal, reppeptgs, is also long AVNR.

    Themes: long-ideas Stocks: LUK, TEVA, AVNR
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    Author’s reply » For those who would enjoy a good long read from Sarge.

     

    Bert
    2 Apr 2012, 06:42 PM Reply Like
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