(By Mani) Shares of Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) shares traded lower by as much as 21 percent following a negative report published by Citron Research.
We present interesting arguments for and against the company whose lead product is Acthar gel, which is repository corticotropin injection and is a natural source ACTH (adrenocorticotropic hormone). Acthar is currently approved in the U.S. for the treatment of acute exacerbations of multiple sclerosis in adults and as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age.
Investor concern was focused largely on the possibility of a generic Acthar and potential competition from previously approved corticotropin drugs.
Analysts said Citron's report cited other corticotropin products which are similar but not identical to Acthar, but these are "dead" applications requiring refiling and label modernization. It took about 4 years for Questcor to complete this process.
"We believe potential approval/commercialization of either a generic Acthar or competing corticotropin drug remains years away and does not represent a near-term threat," oppenheimer analyst Christopher Holterhoff wrote in a note to clients.
In addition, generic competition to Achtar is overblown. Despite, Acthar has a lack of patent protection, a generic company may need to overcome many commercial and technical issues to launch a generic substitution to Acthar. Even, if a generic competitor is successfully launched, it would take at least two years to have a material impact.
Novartis is selling cheaper ACTH in Europe for one-third the price of Achtar and may bring the product to U.S. If this happens, then it would be devastating for Questcor, and that is probably the reason why the company is studying Achtar for new indications.
"We believe generic Acthar filers, any company interested in commercializing previously discussed corticotropin products or Novartis (with its Synacthen product) would be required to run clinical studies that may require up to ~3-5 years in order to file for approval or label modernization," Holterhoff added.
However, analysts failed to answer the vital concern raised by Citron – insurance. Questcor gets a major portion of its revenue from insurance reimbursements for Acthar, which costs $27,000 a vial. So, continuing insurance coverage of the drug is essential if Acthar is to retain and grow its market.
Recently, two health insurance have tightened their reimbursement policies for Acthar claims Both Blue Cross / Blue Shield of North Carolina and UnitedHealthcare/Oxford Health lay out conditions for reimbursement in strict detail.
Both companies said that they would reimburse Acthar only if patients fail to respond to other corticosteroids or have adverse reactions taking them. Questcor nor the analysts covering the company have offered explanations for the issue.
"Insurance coverage continued to remain favorable for Acthar during June 2012," Questcor said in an 8-K filing in June. The company needs to give more color on the issue to dissipate investor concerns.
Meanwhile, it seems that doctors prescribe Acthar on an individualized basis, not in wide clinical setting. In the fourth quarter ended December 31, 2011, the average number of prescriptions written by physicians treating MS exacerbations with Acthar was approximately 2, and the average for physicians treating nephrotic syndrome with Acthar was approximately 1 to 1.5.
Meanwhile, Citron interviews at major MS treatment centers indicate that Acthar has no presence and the company itself does not have sufficient data to answer this question fully.
"Acthar is prescribed by some major clinics (MS clinics) but we have not analyzed prescription data sufficiently to be able to provide a quantitative response to this question," Questcor said in a statement in January.
So, Questor needs to break its silence and convince the investors to stop the free fall of the shares. Hope the second quarter earnings results would offer some light on the current issues. The company is expected to reveal its second quarter numbers on July 24, and the Wall Street expects the company to earn 62 cents on revenue of $107.97 million.
The consensus estimate implies a whooping increase in earnings and sales from last year when it earned just 23 cents a share and generated $46 million in sales. The company also has the backing of Wall Street, with all of the nine analysts covering the firm with a "strong buy/buy" rating for the stock.
It remains to be seen whether Questcor can rise from unscathed remains; however, second quarter results could be a catalyst for the stock's price.