Avanir Pharmaceuticals (Nasdaq: AVNR), one of our inaugural picks for our Small Cap Gems portfolio, rocketed up more than 85% today on the back of very solid results in Phase II trials for a compound meant to target agitation in Alzheimer’s patients. The stock ended the day right at $12.50 a share. This is approximately 135% above the $5.25 a share price when we recommended it in the July issue of Small Cap Gems and already significantly exceeds the $10 a share price target we had placed on the stock.
I am delighted one of our “gems” has delivered such upside to our subscribers in such a short time period. The treatment for some of the tertiary effects of Alzheimer’s was one of the additional “shots on goal” in Avanir’s pipeline we mentioned within our investment thesis on the company. Avanir’s core product on the market, Nuedexta, continues to see substantial sales growth and overall revenues were up some 45% year-over-year gains in Avanir’s last reported quarter.
The new trial results increase the chances of Avanir being bought out in the near future by a larger player. I could easily see the company now easily getting north of $15 a share given how prevalent Alzheimer’s is in our aging population.
That being said, I would fault no one for selling half their stake for substantial profits and would even encourage it. Today I sold covered calls against nearly 40% of my position given the lucrative options premiums available and this is a risk mitigation strategy I am comfortable with and have used successfully in the past.
There is no weakness in taking some gains here. As Jim Cramer has stated many times “Bulls make money, Bears make money, Pigs get slaughtered”. Besides there are few better feelings than playing on the “house’s” money.
I am thrilled that one of our first selections has been able to provide such huge shareholder value to our growing subscriber base so soon after launch. I also look forward to sharing more of these off the radar “gems” in upcoming editions.