Is Avanir Pharma Fully Valued After Monday's Rally?

Avanir Pharmaceuticals Inc. (NASDAQ: AVNR) posted amazing gains on Monday following the announcement of a successful Phase 1 trial for AVP-923. On the day, Avanir’s stock price rose by 85% to $12.49, a gain of $5.75 from its previous closing price of $6.74. What 24/7 Wall St would like to ask is if Avanir is now fully valued?

After the 85% rally on the previous day, the stock price has met some profit taking. Honestly, this should have been expected, but it is a biotech news pop and we all know those can act with a mind of their own. Avanir shares were down about 6.2% in the premarket shortly before the open. Then the post-opening bell trading had Avanir shares down about 7% at $11.61, with 3.5 million shares having traded in the first 10 minutes.

Investors may have gotten a little ahead of themselves on Monday as the buying frenzy forced the stock higher and higher. The shares had what appears to be a record-setting trading volume on Monday of 88 million shares, compared to its average trading volume of only 3.5 million.

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After a stock has skyrocketed, it should be considered normal and expected for investors to sell off and realize their gains. For Avanir in particular, most investors who bought into the stock made money on Monday. As such, the sentiment appears to be turning to sell, whether investors believe the stock is fully valued or they do not want to take the risk of losing Monday’s gains.

To recap recent developments with the company: Avanir announced positive Phase 2 results for its drug candidate AVP-923. The drug candidate is a potential new therapy for treatment of patients with Alzheimer’s disease. Specifically, the drug candidate helps by alleviating dementia-related neuropsychiatric symptoms such as agitation and aggression. The potential impact that AVP-923 could have would be significant in terms of improving not only the patients’ lives, but also those of caregivers.

The stock closed Monday at $12.49 and has a consensus analyst price target of $8.73, with a high analyst estimate of $10.00. The 52-week trading range is $2.62 to $13.09.