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 (NAS: 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 (NYS: 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 (NAS: QCOR) yesterday -- their shares were cut nearly in half, as it appeared that major insurer Aetna (NAS: 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.
The article Biotech Investors: Today's Big Plunge and Rally originally appeared on Fool.com.David Williamsonholds no position in any company mentioned.Click hereto see his holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Covidien. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.