Questcor Pharmaceuticals' (QCOR) share prices have remained suppressed following a Sept. 19, 2012 announcement that Aetna, Inc. (AET) would limit coverage for the company's flagship drug H.P. Acthar Gel, refusing reimbursement for conditions other than West syndrome including multiple sclerosis, rheumatic disorders, and other diseases for which the drug is approved. The result was a 48% decrease to $26.35 by the end of trading. The continued woes for QCOR stem from the perception that other insurers will follow suit resulting in a catastrophic decline in sale for the company's flagship drug. I, along with many investors, have believed that the Aetna worries have always been overblown, and now we have new confirmation of that.
In a recent medical policy update, Blue Cross Blue Shield Kansas (BCBSKS) confirms authorization of coverage for Acthar Gel. This policy update is important first in the sense that it reinforces the fact that Aetna is an outlier. Moreover, BCBKS approved reimbursement for Acthar Gel, with prior authorization, for a broad range of indications - everything on Acthar Gel's label. This coverage confirmation should help fuel the rally in QCOR shares as investors are realizing that September's worries were overblown.
Acthar Gel is a repository (long lasting) corticotropin injection of natural adrenocorticotropic hormone (ACTH) in 16% gelatin. It is formulated to provide prolonged release following either intramuscular or subcutaneous injection. H.P. Acthar Gel is approved for the treatment of multiple sclerosis relapses, rheumatic disorders, dermatologic, ophthalmic, respiratory, and collagen diseases, allergic states, and edematous states. It is most often prescribed to treat infantile spasms (West Syndrome), a rare epileptic disorder that normally manifests in infants under a year old. In fact, according to a 2010 report published by the Infantile Spasms Working group, the only two treatments with proven clinical efficacy in West syndrome are Vigabatrin and ACTH. Acthar Gel appears to be the best available option for West Syndrome.
Accordingly, QCOR's revenues have increased at a CAGR of 110% over the past three years to $509M. The gross margin is also high at 94% resulting in annual profit of nearly $481M in 2012. Furthermore, the company has a clean balance sheet with over $155M in cash and no debt. Yet despite these promising financials, the price of common stock is still well below $50, where it was prior to Aetna releasing its new Acthar coverage policies. The decrease in price has resulted in a very low P/E ratio, currently at 10.58, which is over 50% lower than the average of QCOR's industry peers.
Given that only 5% of the company's shipped prescriptions are attributed to Aetna and that recent trends suggest continued support of H.P. Acthar Gel by the insurance companies, I believe that the speculations that have held the price of QCOR down are unwarranted. Coupled with the company's attractive financial metrics, QCOR appears to be a solid value that investors should watch carefully to determine if it can sustain some of its current upward momentum.