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Questcor Pharmaceuticals, Inc. (QCOR) Message Board

  • pjmyers_tsi pjmyers_tsi May 6, 2013 9:35 PM Flag

    Still not clear why the massive revenue and EPS "misses"

    After re-reviewing the call, I still can't find any good evidence to allocate "blame" for the miss between the Reimbursement process changes (RPC) and/or the drawing down-then-up of inventory at the main distributor and/or the specialty centers (INV).

    If RPC, then were the losses permanent (needed to give product away free because authorizations could not be obtained fast enough?) or will they be made up as the review and reimbursement processes for Q1 trx catch up, during Q2?

    If INV, then was this due to (1) more orders stuffed into Q4 than admitted (2) NDC code-change-related inv drawdowns (3) Medicaid inventory 100% drawdowns of old inventory (4) all-around below-trend demand growth?

    All-in-all, while I am in awe of the work on QCOR Max and Mikey do, am still not convinced that the RPC (changes) can be blamed for a permanent reduction in profits (maybe only a temporary one, and maybe not even that), or that there is a need for wholesale revision of forecasts.

    Worst case for PPS at year end seems to be about 40, best about 75 or so. I derive this as EPS for 2013 looks like $4-$5. Multiple can stay as low as 10 or go as "high" as 15. Naturally, litigation news, or a massive Q2 beat, as the wave rolls back in the positive direction, can change all our perspectives again.

    Bottom line: don't think anyone (Q included) has really nailed the Q1 "miss". Contrary opinions very much welcomed. I find it a bit depressing that Q has so little quantitative insight into its own business that we are all so uncertain and bemused.

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    • Throwing my two cents into this informative string:

      1. Agree that Q1 free drugs will stay free--revenue lost.

      2. The reimbursement center transition was a botch--especially when coupled with the launch of 40+ sales reps for rheumatology. The positive is that the botch will very likely be corrected and Q2 will likely be the last quarter impacted--by how much I can't guess.

      3. As QCOR migrates from MS/IS to NS/Rheum, not sure we have clarity on the vials per script and that could be part of the reason for the declining ratio. Maybe NS/Rheum are actually split into two or three scripts/two vials each--since they are administered over the course of a few months. Maybe Medicare/Medicaid--a growing piece of the QCOR revenue pie--is reimbursing in two vial per script increments.

      And I believe, a piece of overriding good news: there is growing demand for Acthar Gel.

      Script levels for Q1 were right on the linear growth curve (too bad they gave so many away due to processing problems). We have no reason to expect any different in Q2--another quarter of 9-10% growth in scripts. If they stop giving those scripts away--we have every reason to expect a very strong quarter.

      Comment welcome as always.

      Sentiment: Strong Buy

      • 1 Reply to pharmaman58
      • So you, too, pharmaman, are convinced they gave away a ton of free vials in Q1.

        Any back-of-envelope idea/estimate (I am not an IMS subscriber), what EPS (GAAP or non-, according to taste, but state which) would have been if they had charged a normal proportion of shipped vials? Close to the analysts 0.97, or closer to Max's (revised) $1.19? I ask because am still trying to get some idea of the impact of the much vaunted NDC and inventory-restocking excuses and - hence - some idea of how culpable management is for disguising the true nature of the miss.

        My impression from you, mikey and Max is that the RC was responsible for MOST of the miss. TIA.

    • pjmyers_tsi,

      You nailed the question and the rationale behind the lack of quantitative measure being available.

      With that being said, I have 10 metrics I track for high tier drugs (that have pre-auth requirements at insurers) and as I mentioned in a post yesterday, Q1 broke them all hard.

      The simplest example of one of my metrics is a Paid Scripts Conversion ratio, which is simply the amount of IMS scripts divided by the paid scripts reported in their 10Q each quarter. Three year tracking shows a slowly lower, and not really significant change each quarter, and then Q1 with a very sharp drop.

      Throw in the fact that gov't program scripts are now included, per Questcor, in the paid scripts number and it looks even worse. With more categories of scripts included, the number still plummeted. Keep in mind Medicaid was 30% of all scripts in Q3 and Q4. So how did we drop so hard, if we included more categories?

      The Vials Shipped per Paid Script ratio also provides some insight into what may be a trend. Simply put, this shows a three year trend from a high of 3.6, going down to 2.26 and leveling off, then in Q1 it was about 1.75

      All the other metrics show a similar pattern.

      Regarding those 360 vials, I had thought Questcor was wrong about them being a preorder. According to my numbers, that was the exact amount makes Q4 shipped vials ratios, match Q3. In other words, there has to be a logical point where certain ratios like vials per script levels off and based on the exactness of how those 360 fit into a long term slowing and leveling trend, I thought maybe we finally hit it.

      However, if they were a preorder, then the downward trends of how many vials a doctor writes for a script, continues it's trend decline steadily.

      And then we start getting to Revenue per Shipped Vial type of numbers, and we have a massive drop. Generally speaking, those types of metrics hold pretty close to the sales price of Acthar, which makes sense in such a high gross margin c

      • 2 Replies to mikeylikesit33_99
      • Michael - thank you so much for posting this info. I am SO EMBARRASSED to have missed most of the "unpaid vials" threads of May 1. The reason was that I have had that irritatedinvestor (ii) on ignore. I really have to stop doing that!

        Please confirm this, as I am not 100% clear: you have a subscription to IMS data, and can compare the shipped vials that they report for ACTH to Questcor's 10K/cc reports of shipped vials (paid for). You (and ii) see that Questcor essentially covered up the fact that a great many vials shipped WERE NOT PAID FOR. You make the (plausible) assumption that this is because the Reimbursement Center was unable to get the normal insurance auths in, in timely fashion.

        If "yes, I confirm that, you slow-witted nincompoop", then can you please talk a little more about whether these "freebies" will ultimately be reimbursed by the insurance companies, or whether the opportunity for revenue is truly lost (and what governs this)?

        I am especially worried by ii's comment that if insurance co's see that QCOR pays anyway, they will use this to drag feet or even cut back (or is this just childish nonsense, and they HAVE to cover eventually by rule?)

      • continued.

        high gross margin business. Where did the money go? Well there were record free scripts for Q1, according to information in their shareholder meeting filing.

        So apparently they had some issues getting reimbursed in Q1. What is that attributable to? They indicated they had problems with their new reimbursement center staff ramping up.

        What happened to the patients who didn't get Acthar because of this botched project? Have we lost that customer for good, as their doctor wrote a different script that could get filled? Depends. Some of them got free scripts for now. Some of them weren't an immediate need and are probably in the April number.

        Does April show pharmacy restocking or script fulfillment, or a combination. Depends. According to my vials per script metrics, the April numbers could show the reimbursement center is back up and running as it was historically, with just a few pharmacy restock. On the other hand, if they are still having problems at the reimbursement center in converting scripts to paid scripts, then it is some type of combination of pharmacy restocks and scripts.

        Simple fact remains, we just don't know what's really going on with Q1, and won't until Q2.

    • Pj the explanation is actually in the quarter 4 conference call. 360 vials shipped in quarter 4 that should have shipped quarter 1. If EPS was $1.09 for quarter 4 and you subtract the 360 vials X $26,500 Quarter 4 should have been $.94 per share. You add those vials back in quarter 1 then quarter 1 should have been $.90 or so except that expenses were up on new reps and the call center so maybe $.82?. Maybe $.80 or so. But quarter 1 was a horrible month for MS and is not likely to repeat itself.

      But you are right elsewhere. (Max actually, if you count the 360 vials shipped in quarter 4 instead of quarter y, you didn't win the earnings contest for quarter 4) LOL

      • 1 Reply to druid_of_scranton
      • druid: appreciate the reply and the concept. The math works too. But that isn't what they said, in that there was a lot talk about RPC and inventory distortions (plus MS slow, of course, as you said). They need not have been at all downbeat about Q1, if you had been announcing the above.

        I like the idea of re-smoothing out the growth trend, by mentally calling Q4 about 0.94, and Q1 about 0.80, and then expecting 1.25 in Q2 (ie. true Q4 plus 20% plus the dime lost to new reps/RPC in Q1).

        If that is plausible, then Q always had the option of guiding expectations a little better, instead of upsetting us all (shorts included). Still it seems they have cooled the analysts and funds out, else it would be 23 and not 33, right about now.

    • well said

      quite the mstery as to q1 miss

      like i said 3 mths ago

      4.50 eps x 14-15 pe = 65 year end target and yet i received a lot of flak but my targets are looking more likely now - and some actually accused me of being short because of these targets and my conservative and cautious nature

      i see maxdad is now down to $5 eps from 6.7 and $100 year end target from 150 and with more time will likely be even going lower. i said 3 mths ago year end targets of 100-150 were pie in the sky and i will be proven right.

      i assume lonewolf still has his $150 fair value?? lol

    • well said

      quite the mstery as to q1 miss

      like i said 3 mths ago

      4.50 eps x 14-15 pe = 65 year end target and yet i received a lot of flak but my targets are looking more likely now - and some actually accused me of being short because of these targets and my conservative and cautious nature

      i see maxdad is now down to $5 eps from 6.7 and $100 year end target from 150 and with more time will likely be even going lower. i said 3 mths ago year end targets of 100-150 were pie in the sky and i will be proven right.

      i assume lonewolf still has his $150 fair value?? lol

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