NEW YORK (TheStreet) -- Shares of Avanir Pharmaceuticals (AVNR) are up 12.60% to $16.89 in pre-market trade after it was reported that Otsuka Holdings Co. agreed to buy the California-based company for about $3.54 billion, a deal that gives the Japanese company new treatments for neurological conditions, Bloomberg reports.

Tokyo-based Otsuka will pay $17 a share, it said in a stock exchange statement today. That's 13% higher than Avanir's closing price yesterday of $15.

The deal will give the Japanese drugmaker access to Avanir's pipeline of treatments for Alzheimer's, Parkinson's and migraines. Otsuka has been looking for new sources of growth before 2015, when it faces patent expiration on Abilify, one of the world's best-selling treatments for schizophrenia, Bloomberg said.

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TheStreet Ratings team rates AVANIR PHARMACEUTICALS INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:

"We rate AVANIR PHARMACEUTICALS INC (AVNR) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Pharmaceuticals industry average. The net income has decreased by 11.2% when compared to the same quarter one year ago, dropping from -$11.42 million to -$12.70 million.
  • Net operating cash flow has decreased to -$16.08 million or 23.91% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, AVANIR PHARMACEUTICALS INC has marginally lower results.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Pharmaceuticals industry and the overall market, AVANIR PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for AVANIR PHARMACEUTICALS INC is currently very high, coming in at 95.13%. Regardless of AVNR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AVNR's net profit margin of -44.35% significantly underperformed when compared to the industry average.
  • AVANIR PHARMACEUTICALS INC reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, AVANIR PHARMACEUTICALS INC reported poor results of -$0.53 versus -$0.45 in the prior year. This year, the market expects an improvement in earnings (-$0.30 versus -$0.53).
  • You can view the full analysis from the report here: AVNR Ratings Report

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