FOCUS: Questcor Sees More Mileage From Sole Product Acthar
Last Update: 2/23/2012 11:00:43 AM
-Questcor's unique business model relies on single drug
-Acthar initially used to treat infants, MS sufferers
-Company needs more clinical studies to broaden its patient base
By Drew FitzGerald
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Questcor Pharmaceuticals Inc. (QCOR) didn't initially spend
much to turn Acthar into its star drug. Now, it's the company's only drug.
The company bought the rights to orphan drug Acthar in 2001 from Aventis SA for
about $100,000--along with some royalty payments--and has stuck with it since.
Analysts say the drug generated practically no sales for Aventis.
The once-unwanted steroid alternative, approved by the U.S. Food and Drug
Administration in 1952, has continued to deliver an enviable return for Questcor,
which was marketing four other products as late as 2004 before it dropped them
all to focus its efforts on Acthar. The company on Wednesday said it made $218.2
million off Acthar in 2011, a 90% jump over the previous year.
Questcor's challenge now lies in convincing doctors there are new uses for the
compound. To please investors, the company will also need to maintain its surging
sales growth, which often seems out of step with the careful pace of clinical
trials.
"It's a very uncommon model," said Yale Jen, an analyst with Maxim Group. "As
long as the drug is effective and used by physicians, it generates cash flow in a
much more sustainable way with relatively lower risk due to the lack of potential
threat from patent expiration."
Questcor also has its own way of producing Acthar that is hard for potential
competitors to easily replicate. The exact way Questcor does it is a trade
secret, but even if it weren't, analysts say there are significant barriers to
entry for other manufacturers.
In 2010, the FDA updated its approval of Acthar to cover 19 different
indications, narrowing the company's immediate focus for growth to patients
suffering from kidney-related disorders.
Questcor originally sold the drug to address infantile spasms, a relatively rare
neurological disorder, but now markets the compound for multiple sclerosis
flareups and is funding an exploratory study for patients whose kidney problems
are caused by diabetes, opening the company up to an potentially massive market.
Treatments for kidney-related disorders seem to represent the next frontier for
the drug.
Potential future uses include treatment for proteinuria among diabetics, lupus
and rheumatic diseases.
"It was previously a neglected drug and was going the way of the dinosaur," Chief
Business Officer Steve Cartt told Dow Jones Newswires. "We kind of brought it in
and brought it back from the dead."
Cartt said the company isn't looking at potential acquisitions. Buying a Phase II
drug at this point would only "muddy the waters," he said.
Instead, the pace of medical research could represent the biggest drag on
Questcor's growth. Maxim Group analyst Jen said it will take a year or two for
the company to deliver Acthar to lupus patients, another potential market for
which there isn't much clinical research using the drug.
Meanwhile, Steve Yoo, an analyst for Leerink Swan, said the biggest threat to
companies of Questcor's ilk is the failure to keep meeting high revenue
expectations. Two straight quarters of lower-than-expected top-line growth would
be enough to hurt the company's stock, he said.
"Once it loses that growth momentum luster...it kind of gets stuck in limbo land
and gets punished," he said.
Revenue in the second and third quarters easily beat Wall Street estimates,
pushing the stock up about 20% each time, though it didn't see the same boost
earlier this month, when the company projected strong top-line results for the
fourth quarter. The stock climbed about 6% after the company reported full
results Wednesday.
Investor enthusiasm appears to have at least temporarily eased following
criticism from investor blog StreetSweeper, which last month questioned the
company's marketing practices and suggested it lacks enough controls to prevent
its sales force from promoting the compound for off-label use. The investor
acknowledges it has shorted Questcor's stock.
The company has denied the allegations, and Wall Street also seems to have
dismissed the reports, with all of the analysts listed by Thomson Reuters as
covering the company maintaining a positive rating on the stock.
Shares, which have more than doubled over the past 12 months, remain off 11% so
far this year.
Ladenburg Thalman & Co. analyst Juan Sanchez said it's unlikely Questcor's
marketing practices are "inappropriate," though he said in a note to clients the
reports still represent a reminder Questcor isn't diversified and its value
relies primarily on the commercial prospects of Acthar. |
