By Christopher Stern, Ph.D. and Andrew McDonald, Ph.D.
In September 2012, Aetna announced that it would restrict coverage of Questcor Pharmaceuticals' (QCOR) leading product Acthar Gel. Fears that other HMOs and government providers would follow suit pushed the company's stock price into a 55% plunge. To determine whether this precipitous drop was the result of a fundamental change in Acthar Gel reimbursement policy or simply due to the headline effects of the subsequent short attack by Citron Research, LifeSci Advisors conducted a survey of 976 nephrologists and 691 neurologists who belong to our proprietary Expert Network. The results of this survey can be downloaded at no cost here. The responses from 96 physicians, 41 of whom had prescribed Acthar Gel in the past year, predicted that the use of the therapy would actually increase over the next year. These data strongly suggested that Aetna's decision would not have widespread influence on physician prescription decisions and that Questcor fundamentals were strong. It should be noted that since that time, Questcor reported two consecutive quarters of record sales: $140.3MM in 3Q and $160.5MM in 4Q.
We recently conducted a similar survey of rheumatologists to determine how the landscape of Acthar Gel is evolving now that the company has expanded their rheumatology sales force from 12 to 55 representatives. Results can be downloaded for free here. Of the 31 practicing rheumatologists who responded to our survey and had prescribed Acthar Gel in the past 3 months, the average number of prescriptions was 3.7 with a median of 2 patients. These responses map closely to those given by nephrologists and neurologists in our previous survey, which averaged 4.7 with a mean of 1 patient, suggesting that the therapy is used similarly across physician subspecialties where Acthar Gel is approved for use.
We asked rheumatologists for which indications they have prescribed Acthar Gel. The therapy was most commonly prescribed for dermatomyositis/polymyositis (14 patients), systemic lupus erythematosus (10 patients), and rheumatoid arthritis (10 patients).
We asked physicians to describe their reimbursement experience with Acthar Gel. Of the 31 physicians who responded, we classified their comments as positive (9), neutral (11), negative (4) and unsure (8). Only two physicians reported that reimbursement issues were prohibitive to their continued use of the therapy. The reimbursement process was much more benign when following a pre-authorization format or when the physician used the Company's support program. Together these results support the assertion made by the company that reimbursement has been stable and consistent. Hence, we think the headline policy changes are more noise than substantive.
Physicians continue to prescribe Acthar Gel and a majority of responding rheumatologists predict that their use would either stay the same or increase in the future. Respondents reported that they expected to use the therapy to treat an average of 4.8 patients, or a median of 2 patients over the next three months.
The results of this rheumatologist survey affirm findings from our previous nephrologist and neurologist survey. Physicians will continue to use Acthar Gel despite the wave of initial headline negative concerns surrounding policy decision notices. A majority of responding physicians is willing to navigate the reimbursement landscape in order to bring Acthar's benefits to their patients. While we expect pre-authorization prior to Acthar use, the results of our surveys indicate that this is not an impediment to continued physician prescription of Acthar Gel for patients who cannot tolerate steroids and who have no other treatment options. Our survey confirms our previous assertion that Acthar Gel fills an important unmet medical need for patients that are refractory to other therapies, that these physicians and patients are experiencing the benefits of Acthar Gel, and that continued physician use over the foreseeable future should drive Acthar Gel sales.
We believe that as investor concerns dissipate over 2013, Questcor's stock price should recover its losses and reach new highs. Questcor currently trades at $31.39 per share (58.5 MM shares) and as of December 31st the Company had $155MM of cash and cash equivalent (or $2.65 per share in cash), no debt, and an EV of $1.67B. The company reported 4Q12 GAAP diluted EPS of $1.03 (or $4.12 annualized). Ex the cash per share, shares of Questcor are currently trading at a P/E or 7. Compared with the current S&P 500 P/E of 17.5, Questcor is trading at an extreme discount, particularly for a company that has exhibited net sales increases of 31%, 90%, and 133% per year since 2009 (not to mention consistent record quarter over quarter sales and earnings). Based on our survey results, we expect that Questcor will continue to diversify its sales into additional therapeutic areas and will return to a P/E of at least 15 in 2013, a conservative estimate, sending the stock price north of $60/share.