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  • my_honest_opinion my_honest_opinion Aug 2, 2012 7:44 AM Flag

    QCOR update by Opco this am

    Questcor Pharmaceuticals
    Zooming in on Acthar Competition: Consultant Sees
    Significant Barriers to Entry
    Following our conversation with a consultant, we remain optimistic about Acthar's
    commercial longevity. We believe much of the recent volatility around the stock is
    due to "noise" regarding if and when some form of a competitive threat to Acthar
    could emerge. Our key takeaway from our consultant is that the most likely form of
    competition (new biogenerics) is at least ~5yrs away. At current levels, we believe
    the stock is pricing in a generic entrant in YE2017, which we think is unlikely. We
    expect shares to rebound by YE12 as competitive concerns subside. We expect
    Acthar monthly script updates (released by the 10th of every month) to provide upside
    with share repurchases to further boost QCOR shares.
    ■ Consultant Believes New Biogenerics Are Most Likely Threat. Our consultant
    believes new biogenerics, not older corticotropin products nor NVS's Synacthen,
    represent the most probable threat, given difficulties with attaining manufacturing
    approval for older/discontinued corticotropin products, and the limited period of
    exclusivity for Synacthen, should NVS pursue US approval.
    ■ Biogenerics Face Significant Hurdles With Approval Unlikely For > ~5yrs.
    The composition of Acthar (including level/consistency of impurities) hasn't
    been disclosed, presenting a moving target from a manufacturing/composition
    replication standpoint. QCOR may erect another barrier by proving activity of other
    peptides in Acthar. Last, we believe FDA biogeneric guidance won't be finalized
    until >2014.
    ■ Our Analysis Implies Shares Are Already Pricing in Generic Threat. Assuming
    a generic comes by YE2017, which we view as highly unlikely and the absolute
    worst-case scenario, our analysis implies ~$37 fair value. Therefore, we believe
    shares are currently at a valuation floor and see a highly attractive risk/reward
    ■ Acthar Remains Well Protected from Generic Threat; Near-term Catalysts
    to Drive Shares. Despite limited IP protection, we believe Acthar sales remain
    well protected for many years. With ~30% short interest and material near-term
    positive catalysts, including monthly script updates and disclosure of additional
    share repurchases, we expect QCOR shares to return to the high $50's by YE12.

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