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.

George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.