Biotech Investors: Today’s Big Plunge and Rally

Today’s key stories revolved around a big biotech plunge, and another rebounding in a big way. Let's start with the bad news first.

Horizon Pharmaceuticals (Nasdaq: HZNP  ) plunged 24%, after pricing a secondary offering at $3.50 per share significantly below yesterday’s close of $4.58. Even worse for existing investors, the offering size increased by 40%, from 15.3 million shares to 21.4 million. Dilution is a part of life for small cap biotechs, and the $75 million will go a long way to paying down debt, ramping up its sales force, and keeping the business funded for another 12 months. Horizon recently signed a deal with a Covidien (NYSE: COV  ) subsidiary to sell Duexis, but bringing Rayos to market has raised cash burn to $70 million over the last 12 months. If successful, all will be forgiven; but if they don’t scale up fast enough, expect more dilution, likely in late 2013.

Speaking of bad days, no one had a worse one than Questcor Pharmaceuticals (Nasdaq: QCOR  ) yesterday -- their shares were cut nearly in half, as it appeared that major insurer Aetna (Nasdaq: AET  ) indicated it would no longer reimburse Achthar use, except for infant spasms.  After a conference call today, Questcor management assured investors that there was no change in policy; Achthar reimbursement will continue to happen on a case by case basis. Wall Street firm Piper Jaffray agrees, noting that confusion around the policy bulletin has created a buying opportunity, and CRT Capital stands by its $57 price target, almost 90% higher than the current price, even after factoring in today’s 15% rally.

Investors are attracted to biotechs like Horizon and Questcor because they hold the allure of substantial short-term gains. But there is more than one approach to building long-term wealth and retiring well. In our free report, 3 Stocks That Will Help You Retire Rich, we reveal some stocks that could help you, as well as some winning wealth-building strategies. Click here to keep reading.

David Williamson holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Covidien. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 21, 2012, at 10:25 PM, TruffelPig wrote:

    I am glad you changed your mind from the negative article on QCOR. What a difference one hour of a conference call can make. Amazing.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2025994, ~/Articles/ArticleHandler.aspx, 3/31/2015 11:52:29 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...