During the past 3 months (3/30-6/30/2010), the shorts have piled onto Avanir Pharmaceuticals Inc. (NASDAQ: AVNR), roughly doubling the short interest to near 6M (10% of O/S) shares.

The increased bearishness has certainly kept the price within the the $3.15-3.40 range for the past couple months. Once shorts begin to realize the value of going ‘long’ on AVNR, the volume and price should begin to pick up again.

AVNR has an SPA with the FDA for their STAR trial supporting their complete response, which featured a new lower-dose than their previous trial. Their 2006 NDA received an approval-letter from the FDA. So they worked with the FDA to formulate a lower-dose and the safety and efficacy results speak for themself. They had a lower discontinuation rate, lower adverse event profile, and an improved QT profile. Additionally, their drug still showed the efficacy necessary to meet the FDA’s standards. 

Their recent 3Q results highlight that they have begun filling key management roles their commercial side and increases educational efforts in PBA disease awareness for a successful launch of AVP-923(formerly known as Zenvia).They have submitted additional trade names for AVP-923 to the FDA for consideration, since the FDA did not accept the proposed trade name of Zenvia for marketing use. Investors should remember AVNR has a patent on AVP-923 until 2025, which allows a plenty of time for AVNR to build strong sales.

We should note funds have significantly increased their positions in AVNR in the past quarter. Specifically, TIAA-CREF has more than tripled their position in AVNR, to roughly 1.4M shares. Ingalls Snyder LLC has added a new 3M share investment in AVNR at a value of about $7.7M. As of June 30, 2010, AVNR had cash, cash equivalents and investments in securities totaling $41.7 million, including cash and cash equivalents. They have been spending roughly $5.5-6 million a quarter.

AVNR is one of the best looking small-cap stocks going into the Super Bowl of FDA approvals in October and many analysts out there agree with our assessment.

Disclosure: No Positions

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