4. Questcor Crumbles

Here's one for your 'Never catch a falling knife' or 'Trust a stupid analyst' files.

On Sept. 19, shares of Questcor Pharmaceuticals ( QCOR) lost nearly half their value, falling to $26 from $50 after insurer Aetna ( AET) said it would limit coverage of the company's top-selling multiple sclerosis and infant seizure drug Acthar. The selloff was the stock's biggest one-day drop since November 1992.

For its part, the drug maker said it didn't expect a "material impact" from the change, notwithstanding the stock's shellacking. And for their part, the analysts covering Questcor took the company at its word and told their followers to scoop up the beaten-down stock with both fists.

Did they counsel 'safety first' in the wake of such a massive selloff? Were they worried at all that other insurers would follow suit, or fear that something deeper may be afoot? Did they extract any measure of restraint from the short sellers that comprise roughly 35% of the company's outstanding shares?

No, no, no and no. The ensuing research notes last Thursday from Oppenheimer, Piper Jaffray, ThinkEquity and Leerink Swann all screamed buy, buy, buy and buy. The selloff had created a once in a lifetime bargain they opined. The coast, in their learned view, was clear, and the worst, in their experience, was over.

Alas, that was not the case at all. And investors who threw caution to the wind and rushed into the stock based on these analysts supposedly sage advice quickly discovered that the coast was in fact craggy and the worst was indeed yet to come.

On Sept. 24, Questcor announced it was under investigation by regulators over its promotional practices, sending its shares down another 37% to $19. On the heels of that news, Questcor refused to name the agency undertaking the inquiry and said it would not be available for further comment.

Guess who subsequently downgraded Questcor due to this "uncertainty"? Guess who said the "investigation overhang" wasn't going away anytime soon? Guess who told investors to "move to the sidelines"? Guess who sliced his rating as a result of "reimbursement risk"?

Yes, yes, yes and yes indeed. Our friends, the analysts, had all abandoned Questcor's quest, a mere two trading days after pounding the table with bullish calls.

To which we say: Oh no, no, no and not again!

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