Questcor - Short Squeeze Starting
February 15, 2013 | about: QCOR
Disclosure: I am long QCOR. (More...)
Questcor Pharmaceuticals, Inc. stock (QCOR) took off in early 2010 from a $5 price tag, increasing more than 10 fold, to a $50 price tag by early September of last year as other uses for a drug named "Acthar" were found. Its most important use is in the treatment of infantile spasms. Acthar is Questcor's primary drug and Questcor is the sole manufacturer. It was approved for use in 1952, before the FDA required clinical trials to show a drug's effectiveness for a particular disease. Consequently, short-sellers have written scathing criticisms disputing the Acthar's effectiveness against cheaper alternatives and questioning its marketing practices. Regardless, all was well until the end of September last year when Aetna (AET) announced limited reimbursement of Acthar and investors worried that other insurers would follow suit. Shortly afterwards, Questcor announced that the U.S. government was investigating its promotion of the drug. Between the two events, shares dropped about 65% to a 52 week low of $17.25.
As a consequence, Questcor has become one of the most heavily shorted stocks in the S&P 500 with over 48% of the stock currently being shorted as noted in Bespoke Investment Group's article here.
On September 28th, 2012, after the stock price had plummeted, the company announced a new dividend and a doubling of the current stock repurchase program, from 3.2 million left on the last one to a total of 7 million shares. The new quarterly dividend and the increased share buyback program has provided support for the stock around $25 since mid-October.
Meanwhile some savvy investors have increased their holdings in the company. Chase Coleman of Tiger Global has increased their holdings by 50%. Although QCOR sports an almost 3% dividend, Tiger Global's purchase is because they expect significant capital appreciation. See Insider Monkey article here.
Three of the top five institutional holders are Fidelity Management and Research Company, Vanguard Group Inc. and Blackrock Fund Advisors who own about 40% of the shares - see others here. As of the last 13F filing, Vanguard Group, Oppenheimer Funds Inc., and State Street Corp. have all increased their holdings.
Questcor Pharmaceuticals, Inc. is due to report it's fourth quarter and full 2012 financial results on Tuesday, February 26th after the market close. With only 8 trading days left before Questcor reports their results, the shorts are gradually trying to get out of their positions as no further bad news has appeared on the horizon. Yesterday, QCOR rose over 2% and almost 2% the prior day in a flat market. The stock popped over 9% today and is still up over 4% as of early afternoon.
Sales of Acthar, which accounts for essentially all of Questcor's sales, totaled nearly $350 million in the first nine months last year and were up 145 percent from the period a year earlier. In the same period, Questcor's earnings per share nearly tripled, to $2.12. With Aetna only accounting for roughly 5% of the company's Acthar sales and the other 95% of Questcor's business remaining unchanged, or still growing, it is hard to see how Questcor's results could not continue to be good, at least in the near term.
Even if you are concerned with Questcor's long term prospects, the stock is likely to go higher prior to the release of their financial results as the shorts get squeezed.