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.

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