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We are very aware of the grave nature of the above headline, and the impact of information disclosed in this story. We understand clearly that there are consequences for making statements that are false or based upon incorrect assumptions. We have been exposing fraud for 13 years and have never hidden behind a guise of anonymity. We have always invited our work to be subject to legal scrutiny. That being said, we ask all Questcor (QCOR) shareholders - long and short - to take a big breath, sit down and read. Citron publishes what we believe to be our most detailed and explosive report to date on Acthar and Questcor.

It is no secret that Acthar is a controversial drug, marketed by Questcor, a highly controversial company. Its hefty price tag, aggressive marketing strategy, and secretive management have landed it in the crosshairs of multiple government agency investigations, including two U.S. Attorneys General, plus the SEC. But this might be the least of their problems. What we reveal here will now change the game on Questcor.

Please read the first 5 pages for proper background - you'll understand the route by which the truth came to light.

What Led Us To This Study?

For those familiar with the background on Acthar, management consistently tells a story about the "secret sauce" inside the drug that makes it unique. Here is a vintage excerpt in CEO Don Bailey own words:

I'd like to go through the barriers to entry because this is the key question most investors have with respect to the longevity of this unusual asset. The first barrier to entry is the formulation. Acthar is a biologic. Acthar is an extraction of porcine pituitaries. It's an undisclosed composition, so that's a trade secret. The manufacturing process is also a trade secret. It's complex, it's unique, and we own all elements of the manufacturing process. We have exclusive worldwide rights to Acthar, so we own it lock, stock and barrel. We have no partners. The composition of Acthar that comes out of the manufacturing process is tied to the process, so if you don't know the process you can't figure out what's actually in Acthar. Acthar is technically a polypeptide, but there are probably multiple active ingredients and there are multiple peptides within Acthar, and they're undisclosed.

Questcor Investor presentation Aug 22, 2011, filed as an 8-K (here)

The company's claim of a very difficult manufacturing process and unknown ingredients supplementing highly purified ACTH has always been its competitive moat. Management claims this makes Acthar a unique drug for multiple difficult-to-treat diseases, and not possible to compete with.

Until now, it has been Citron's strong opinion that evaluating the above statement was pivotal to assessing the barrier to entry for any competitor to Acthar - and therefore, to determine whether the value of Questcor's stock was sustainable.

However, all of this rhetoric is completely false. Based on previously undisclosed independent laboratory findings, the above is a blatant misrepresentation to investors and patients alike. That is the essence of today's report.

It is critically important for every Questcor investor, long or short, to understand fully the claims implied by CEO Bailey's statement above. Acthar's label (revised in 2012), by which it gains grandfathered permission from the FDA to sell Acthar in the United States, states it has one active ingredient: Corticotropin, or purified ACTH.

Despite the drug's explicit and unambiguous label, CEO Bailey claims there is "something else" in the vial. Can he blame anyone for trying to find out what it really is? Read on.

(For the FDA Web page on approved drug products with therapeutic equivalence evaluations - Orange Book - click here.)

There is no debate about what Acthar Gel is supposed to be. According to its label, which must be carefully approved by the FDA, as specified in the FDA Orange Book, and backed up by Good Manufacturing Practice standards, Acthar is labeled as, and supposed to be corticotropin - the hormone ACTH.

In recent years, the company has engaged in an intense word-crafting exercise, suggesting that something else is active beside the ACTH in the drug, which creates a barrier to entry.


This is a truly intriguing statement. First of all, the company misquotes its own label (footnote #10), which actually states: "The pharmacokinetics of H. P. Acthar Gel have not been adequately characterized." Not the components. The pharmacokinetics.

Next, consider the word "believed." Questcor has now sold Acthar for over seven years, with a current run rate approaching a billion dollars per year, and still they have no idea what's inside the vial, except for what they "believe?" How sustainable is that?

For the past few years, we have been assuming that Questcor was invoking this mystical language to create the appearance of a "competitive moat" - the "secret sauce" claim - that it is the presence of other additional biologically active components that make Acthar the special medicine the company claims it to be.

But today, we have new information that changes everything.

Concerned investors, trying to understand and evaluate CEO Bailey's statements above, have undertaken a multi-month project, involving biological laboratory testing of Acthar, to find out what Questcor has never disclosed about the product. We all knew what the main active ingredient of Acthar was supposed to be ... but what could be learned about the "1%"?

Instead, what was found is beyond appalling.

The state-of-the-art lab results - which have been confirmed at a second laboratory - decisively conclude that in our tests of production Acthar released to patients, from at least two separate batches - nearly all of what is being detected in Acthar is degraded remnants of what used to be ACTH. There is almost no detectable ACTH in any of the Acthar we tested.

That's right, a world-class laboratory detected little to no ACTH in Acthar.

Background on the lab that conducted the study:

Citron is redacting the identity of the lab to the investing public because the testing is ongoing. While we are confident enough in the consistency of the findings thus far to justify publishing them, we are currently analyzing even more batches of Acthar, and seeking answers to further questions about its composition.

Meanwhile, we all know that Questcor is a litigious company. When investors attempted to attend a charity function for the Chronic Disease Fund, an organization purportedly strictly independent of Questcor, Questcor lawyers sent threatening letters to them.

We do not want Questcor to attempt to obstruct the further testing of Acthar currently underway. However, we warrant to the investing public that the labs have top-flight credentials, perform work for many Fortune 500 companies, and have ample facilities for performing this type of work, and in particular, FDA cGMP credentials and experience. We will willingly share the name of the lab and all test results with any government agency that contacts us. We are confident enough in the protocols used to defend this work before any regulatory body.

We publish today significant excerpts of the voluminous findings as delivered to the FDA. Needless to say Citron is neither a biochemical engineer nor an FDA legal expert, so we will not opine on those matters. We will just quote from the sources themselves.

What the FDA Has Just Been Notified Of

The results of these studies, with all the supporting documentation, were summarized and delivered to the FDA in early December 2013 by a highly credentialed attorney at one of Washington D.C.'s five top firms, who formerly served as a top legal enforcement official at the FDA himself.

While not publishing the entire 31-page document as submitted to the FDA, in order to protect the name of the attorney and the firm, Citron publishes for the investing public the most relevant excerpts. For anyone seeking a full copy of this entire submission, including over 270 pages of supporting lab reports, and literally hundreds of liquid chromatography and mass spectrometer measurements in graphic formats, we suggest an FOIA request to the FDA. Meanwhile, Citron will supply this documentation in full to any interested government regulatory agency.

Here are the key excerpts with the name of the lab redacted. Investors do not need to see the price increase story rehashed again, so we have simply skipped that part. Without further editorial comment, this is what the professionals say.

Lab Reports Citron has Reviewed in Preparation of this Report

Lab Doc 0002: Pages: 62

Date: July 2013

Method: LC/MS/MS

Separate Spectroscopic Measurement Graphics: 172

R&D Grade Testing of a 4.5 kDa

Peptide rug Product by "LC/MS/MS"

Lab Doc 0003: Pages: 87

Date: Oct. 2013

Method: LC/MS/MS

Separate Spectroscopic Measurement Graphics: 258

Comparison of Acthar against controls (known deamidated and non-deamidated ACTH)

Lab Document 0004: Pages: 47

Date: October-November 2013

Method: LC/MS

Separate Spectroscopic Measurement Graphics: 162

Method Development and R&D Grade Testing for Quantitation of a 4.5 kDa Drug Product by LC/MS

Lab Document 0005: Pages: 34

Date: October-November 2013

Separate Spectroscopic Measurement Graphics: 63

Method Development for the Analysis of a 4.5kDa Peptide Drug Product by LC/MS/MS

Lab document 0006: Pages 19

Separate Spectroscopic Measurement Graphics: 12

Date August 22, 2013

Analysis of Drug Product by LC/MS/MS

Lab document 0007: Pages 16

Date November 18, 2013

Quantitation of Drug product by LC/MS

Lab document 0008: Pages 11

Date November 18, 2013

Quantitation of Drug Product by LC/MS (Study Specifications)

Does Any of This Makes Sense? Of Course it Does

To add more context to this story, just earlier this month Questcor slipstreamed into a "management team" PR the abrupt mention that its head of manufacturing and CTO, David Medeiros, an 11-year veteran, is being transitioned to a "non-executive advisory role." Medeiros was the most knowledgeable person about the complete process of manufacturing Acthar at Questcor. There is no succession plan offered other than Questcor claiming it is initiating a search for a replacement. Hmmmm... (here)

Meanwhile, Questcor has never completed a clinical trial for any Acthar indication, and even the trials that have been published on Infantile Spasms have come back as inconclusive over the years. (here) (here)

Questcor abruptly bought its supply manufacturer and its facility - Now it makes sense.

When, out of nowhere, Questcor began to make claims about unknown lesser ingredients, what they possibly were really doing was positioning to cover up the mislabeling of the active ingredient.

Lastly, the arrogant and cryptic answer given by CEO Bailey to the New York Times can now be seen within its fuller context. He has claimed repeatedly that Acthar is a biologic, its manufacturing is a trade secret, and its composition is "undisclosed." Here's where he compared it, on record, to a "secret sauce" formula such as the one for Coca-Cola. He gave this quote to The New York Times:

One big uncertainty hanging over Questcor is competition. As an old drug without patent protection, Acthar would seem to be a sitting duck for generic rivals. And other versions of ACTH have been sold in the past. Yet Questcor is now arguing that its studies show that Acthar, despite the "highly purified" in its name, actually contains other substances from the pig pituitary glands that account for some of its effectiveness. The company does not intend to say what those other ingredients are, thus making it extremely hard for a generic company to copy Acthar. "Coca-Cola is not going to tell you what Coke contains, either," Mr. Bailey says. (here)

The US Food and Drug Act was incepted precisely to bring to an end this type of "snake oil" claim - unproven medicinal claims for products with "secret ingredients" that have not proved safety and efficacy.

Questcor's drug comes to market under a grandfathered label for purified ACTH, not an unknown compound-ingredient biologic. So its claim with regard to pending competition is that there are "some other ingredients other than ACTH, which give it unique efficacy" - although there is no modern clinical evidence of that efficacy.

What is known about these substances - which we now know to be deamidated ACTH, is that there are findings that observe decreased biological activity compared to ACTH.

These findings on the real content of Acthar were formally reported to the FDA over two months ago. The submitter has top credentials; he is not some hedge fund guy complaining about a pharma company for his own self interest. He is a former FDA legal official, with specific experience and enforcement authority in the area of seizure, injunction, and civil penalties.

Questcor's Response

We have no doubt that Questcor is going to respond to this report by stating its relationship with CSL Behring, which they retain to test the drug for toxicity and potency. Do they supply CSL Behring with true random samples of production batches, or is the relationship more casual for the potency testing?

While we do not know this answer, we do know that over the years Questcor has become experts at exploiting loopholes. Most importantly, we have had recent conversations with former top executives at Questcor who have verified that it is not easy to deamidate Acthar - the results we share today are very unlikely to be "an accident" or a lab anomaly. The lab results we report cannot be easily dismissed with excuses.

Of all the conversations we have had with former employees and executives at Questcor, one observation stands consistent. Questcor keeps its manufacturing a complete secret. It does not allow people to visit the plant and keeps that plant firewalled from the rest of its corporate structure.

It is Citron's belief that these findings, and the inquiry on which they are based, is highly legitimate and credible.

Obviously, Questcor is a battleground stock, and the analysts have already made up their minds. But these questions change the landscape for Questcor investors.

Questions we can't answer today... but they're vitally important to the future of Questcor.

  • How long has Questcor known that there's little or no ACTH content in shipped Acthar?
  • Is it conceivable that Citron tested a "bad batch?"
  • Has Questcor been contacted by the FDA over the past month and been required to surrender sample vials and records (that would explain corporate departures and outsized insider sales)
  • What is Questcor's exposure to patient lawsuits?
  • Do they manufacture some Acthar that has genuine ACTH content, and other batches that do not?
  • If so, how do they decide on which product from which batch to ship to whom? Do the infantile spasms prescriptions get the good product? How about their own clinical trials?
  • How about their audit samples?
  • What is Really in HP Acthar Gel?
  • Does this finding expose Questcor to a cease-and-desist from FDA on current sales?
  • Will they be required to submit new clinical trials before being allowed to resume sales?
  • Does this corporate act - shipping mislabeled product - lead to a regulatory challenge to its purchase of Synacthen rights?
  • How can any going-private transaction or buyout rumor proceed with the regulatory threat to Questcor losing rights to its only source of revenue?
  • Why does Questcor not have a system in place that can present adverse events to the FDA? Unlike other pharmaceutical companies it appears that Questcor is delinquent in its Adverse Event disclosure.

We assume most of these questions will be answered by the FDA or in a court of law.

Why it is Especially Important for the FDA to Take Action Now

Investors and regulators must understand that Acthar is not a drug that is being prescribed by doctors nationwide through ordinary marketing channels based upon its efficacy. Rather, for MS and to some extent for the other major indications that comprise the bulk of its revenues, the demand for Acthar is patient driven. It is a direct result of aggressive marketing efforts by Questcor.

Questcor runs seminars for MS patients with the inducement of "free dinner" ... during which a presenter from their "Speaker's Bureau" pitches them on the idea of getting their physician to prescribe Acthar for exacerbations of their MS.

Below is a table summarizing Questcor's upcoming events over the next 60 days that shows the scope of their marketing machine. This is a drug that is being marketed directly to patients in need by doctors and other medical professionals that are being funded by Questcor.

Let's be clear: We're talking about a huge number of events. Here's how the calendar looked in late January 2014:

Questcor has an entire team booking and managing these events. They are staging over 200 per week. That's 10,000 free dinner events per year all to pitch a drug that is mislabeled and whole active ingredients are unknown to the FDA and the scientific community.

Incredulous? Here is a live view of their event calendar (here).

Add to this perspective that because of the influence of this marketing campaign, patients themselves are being placed at the center of treatment decisions with regard to a drug that, needless to say, they have less than the full spectrum of information available to them on which to make healthcare decisions that are best for themselves and their own situation.


This report is not just another data point. It is the data point. It is the only data point.

Therefore, in this report Citron is not going to address the multiple investigations into Questcor, massive insider selling, or details of the aggressive marketing tactics that we have uncovered. The gravity of this report cannot be overstated. This information must be evaluated on its own merits by each investor.

With regard to this single point, all the bullish investment theses: new indications, insurance reimbursement, and increasing revenue curves are entirely irrelevant. There is only one question: What is in the vials of Acthar Gel?

Beyond a stock story, this is a story of sick and desperately ill people receiving treatment who are not accurately dosed, and whose active ingredients do not match what is listed on the label as filed with the FDA, and are not clinically proven by modern standards. Everything else about this company is irrelevant. Insurance, charity co-pays, free drugs, indications, and marketing all mean NOTHING if the product being sold is in violation of the Food and Drug Act and not distributed to the public consistent with its FDA approval.

At the turn of the year, respected biotech commentator Adam Feuerstein listed his annual predictions for 2014. He opined that ongoing federal investigations of Questcor Pharmaceuticals, and specifically its marketing practices for its flagship product Acthar Gel, would culminate in civil and criminal indictments against the company, forcing CEO Don Bailey to resign. There was reason enough for that prediction, but we bet in his wildest dreams Adam never thought his prophecy would come true for this simple reason:

What is Really in HP Acthar Gel?