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Medical Marvel By BILL ALPERT | MORE ARTICLES BY AUTHOR
Questcor has parlayed one drug and a clever strategy into good growth and profits. But a new law and doubts about new uses for its costly product pose big challenges.
For years, Questcor Pharmaceuticals lost money making Acthar, a drug for desperately ill babies. Then in 2007, it found a success strategy. It raised Acthar's price from $1,650 a vial to $23,000, and has been solidly profitable ever since. Its stock (ticker: QCOR), quoted below 40 cents in 2007, hit a record $16.40 in January, on hopes for added sales of Acthar to patients with multiple sclerosis or kidney disease.
But the one-drug company, whose stock-market value has soared to nearly $1 billion, will see its profits vanish this year on prescriptions covered by Medicaid managed-care programs. The villain: a provision of the big federal health-care overhaul that gives the Medicaid plans a 100% rebate on Acthar's sales price. Questcor has set aside reserves for those liabilities, but not enough, says Mark Roberts, an analyst who's spotted many an overpriced stock at his Off Wall Street Consulting Group research boutique in Cambridge, Mass. "They are way under-reserved," he contends.
Slippery Slope Questcor hopes its promotion of Acthar for multiple sclerosis will offset Medicaid cuts.
..Questcor aims to offset Medicaid's rebates by promoting Acthar as a treatment for multiple sclerosis, whose sufferers usually have commercial health insurance. Prescription sales for MS rose 66% in the December quarter from the year-earlier level. "The key question for investors," says Questcor CEO Don Bailey: "Can our scrip levels continue to grow in MS?"
THE ANSWER IS NO, ACCORDING TO Roberts and those investors who have shorted more than 10% of Questcor's free-trading shares. Growth in Acthar's MS prescriptions will slow, he argues, after some doctors and patients try the $50,000 treatment after failing with the standard treatment of methylprednisolone, which costs less than $1,000. So while bullish analysts at firms like Citadel Securities expect Questcor stock to hit 20 bucks, on 2011 earnings of better than 90 cents a share, Roberts expects earnings of 42 cents. He thinks the stock could drop to $6.50.
Questcor was floundering in 2001, when it got $1.6 million from Sigma Tau Finanziaria, an Italian drug conglomerate run by brothers Claudio and Paolo Cavazza. A few years earlier, Claudio had earned notoriety—and 1½ years of probation—for his role in a 1993 scandal in which he admitted paying kickbacks to health officials to get Sigma Tau products onto Italy's national drug formulary at increasingly higher prices. He also delivered bribes on other drug companies' behalf.
While the Cavazzas were building their control of Questcor to more than 30% of its shares, the little company acquired the rights to Acthar in 2001 from a manufacturer eager to ditch the slow-selling drug. An injectable hormone first marketed in 1952, Acthar stimulates the brain to manufacture the natural version of steroids. It's a first-line treatment for infantile spasms, a rare, terrible seizure disorder that affects about 3,000 babies a year in the U.S. For this tiny population, Questcor maintained Acthar production, but couldn't turn a profit.