Spectrum Heeds Biotech's Golden Rule: BioBuzz

Irvine, Calif. (TheStreet) -- The first rule of biotech: You do not talk about biotech.

Oh wait. That's the first rule of Fight Club. Sorry. Let's try that again.

The first rule of biotech: Raise money when you can get it, not when you need it.

That's an important rule, and one that Spectrum Pharmaceuticals(SPPI Quote) followed last Friday when it raised another $50 million in a registered direct offering of shares and warrants priced at $7.55.

The knee-jerk reaction to this deal was to get angry. Why the #$%&% are these $%^$& raising money and diluting shareholders now?!? Spectrum is supposed to be on a roll. The company just received expanded approval for its lymphoma drug Zevalin and is awaiting FDA action on another smallish cancer drug. This is not the time to kill the stock's momentum by raising money, right?

Understandable sentiment, but Spectrum did the right thing in grabbing another $50 million at market value. Yes, the stock is a bit weaker today as a result, but the stock was in a downtrend anyway since Zevalin's approval earlier this month. Investors are a bit skeptical about Spectrum's ability to turn the moribund Zevalin into a growth driver.

With the new cash, Spectrum has about $150 million in the bank. It now has the freedom to spend what it needs to market Zevalin, with cash to spare. And who knows what will happen in the future? If the early Zevalin sales reports aren't great, the stock could drop further, making it more difficult to raise money later.

No one likes it when a smallish drug or biotech company raises money and dilutes shareholders -- again. But that's the nature of the business. Spectrum is paying heed to Biotech Rule No. 1. Deal with it.

BioCryst and the Financially Limber Analyst

(At 1:06 PM EDT)

What happens when a sell-side analyst needs to keep a stock rating and price target intact, but the business outlook for the company he's covering just took a dive? Well, the analyst simply uses some creative accounting. Call it valuation acrobatics.