What happened

Heron Therapeutics (NASDAQ:HRTX), a commercial-stage biotech developing medicines to address unmet medical needs, saw its shares drop by as much as 11.8% today on over five times the average daily volume. This double-digit move lower was sparked by a $150 million public offering of its common stock.

Heron reportedly plans on using the proceeds from this secondary offering to support the ongoing commercial launches of its medicines for chemotherapy-induced nausea, Sustol and Cinvanti, as well as to fund its clinical activities.

A man watches a red arrow breaking through the floor.

Image source: Getty Images.

So what

Heron's sizable secondary offering shouldn't come as a shock to shareholders. After all, Sustol's commercial launch has been extremely underwhelming so far -- this year the drug is on track to rack up a mere $25 million to $30 million in net sales. As a result, Heron exited the most recent quarter with only $74 million in cash remaining in its coffers. That amount simply wasn't enough to support the commercial launch of Cinvanti, along with the late-stage clinical development of its experimental pain medicine, HTX-011.

Now what

Unfortunately, Heron still supports a rather questionable valuation, even after today's noteworthy decline. With a price-to-sales ratio of 38.4, for instance, Heron is easily one of the most expensive biotech stocks right now. Moreover, Heron isn't expected to experience a leap in revenue growth in the near future to bridge this valuation gap. The biotech, in fact, is currently trading at a whopping 12.6 times its projected 2018 sales.

Bottom line: The market appears to have put a little too much faith in Sustol's commercial potential right out of the gate, and reality is now starting to set in. Until this small-cap biotech stock sheds a lot more weight, it arguably isn't worth buying.