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Brandes Investments Expands Stake in Avadel Pharmaceuticals

- By Holly LaFon

The firm founded Charles Brandes (Trades, Portfolio), Brandes Investment Partners, on Thursday announced that it expanded its position in Avadel Pharmaceuticals Plc (AVDL) to 13.5% of the company, enlarging its exposure to health care, the second-largest sector represented in its portfolio.

Brandes acquired 1,207,688 shares of the company, increasing the position by 24.3% to 6,177,794 shares. The transaction took place on Aug. 31, a session in which the stock traded at an average price of $5.13. Shares have since fallen to $4.82 as of Thursday afternoon.

The value investing firm has been building its stake in Avadel as the company's stock price has declined. Shares are down about 46% from the average price of $9 in the fourth quarter when Brandes established a stake. It purchased shares in each subsequent quarter.

Shares of the company, which focuses on urology and sleep medicine, are down roughly 20% after the company announced second-quarter earnings results on Aug. 7. Avadel reported revenue of $29.2 million, a decline from $46.3 million from the same quarter a year ago. Results were negatively affected by lower selling prices and volumes of two of its drugs, Bloxiverz and Akovaz, on stronger competition.

Its net loss was $3.44 million, versus net income of $29.93 million in the second quarter the a year earlier.

The introduction of competitors to three of its drugs, Vazculep, Bloxiverz and Noctiva, in the second quarter prompted the company to reduce its full-year revenue guidance. Avadel reduced its expectations to a range of $90 million to $105 million from a previously forecasted range of $105 million to $125 million.

The results include lowered revenue expectations for its drug Noctiva, released a few months earlier, from $5 million to $10 million from a previous range of $10 million to $20 million. Avadel attributed the decline to pricing discounts resulting from a change in the ratio of Medicare Part D to commercial prescriptions. It sees a rise in selling prices on increasing prescriptions and market access in the next year to year and a half.

Avadel forms part of Brandes' larger interest in the health care sector, which composes 20.48% of its portfolio, behind only financial services at 25.1%. Its largest trades in the sector are larger established drug manufacturers Pfizer Inc. (PFE) and Sanofi SA (SNY).

Founded in 1974, Brandes Investment Partners follows the value investing philosophy of Benjamin Graham, buying companies at discounts to their estimates of business value. Charles Brandes (Trades, Portfolio), who started the firm, retired in February.

See Brandes Investment Partners' portfolio here.

This article first appeared on GuruFocus.