Questcor: Another Serious Reason To Be A Skeptic

| About: Mallinckrodt PLC (MNK)

Summary

Questcor shorts "lost" when the company announced its proposed merger with MNK and the stock rocketed.

It was then "all quiet on the Western front" for a little while, until a recent note from Cigna seemed to once again question the efficacy of Questcor's Acthar.

Following that note, the NY Times penned a skeptical piece questioning some of the potential adverse effects of Acthar that have been reported to the FDA.

A FOIA request provided the FAERS documentation, as well as Citron's original 31 page letter to the FDA inclusive of their professional lab findings, both linked within.

The DOJ continues to have an ongoing investigation into QCOR's promotional tactics for Acthar, leaving QTR still skeptical of QCOR, despite not having a position for the time being.

For a while, my angle on Questcor (QCOR) was that of other noted skeptics of the company. Namely, I was concerned about Citron's allegations that the drug isn't what the company says it is, and that it isn't offered in the dosage that the company claims. Those two items, in and of themselves, are massive questions.

So far, the FDA has done nothing, which has my skepticism of the company looking like it's unwarranted. But, being a skeptic by nature, I still think there are some items that need to be cleared up either way - by the FDA. If I were an Acthar Gel user, I would certainly want an answer, either way, to the allegations that have been lodged. Why is someone claiming there's no "ACTH" in my H.P. (highly purified) "ACTH"ar Gel? It would concern me that Questcor is under regulatory scrutiny the way that it is, and the questions about there being no corticotropin or deamidated ACTH in the place of "purified ACTH" would raise some eyebrows for me.

If I worked for the insurance companies that were in charge of reimbursing Questcor for its $28,000/vial drug, I'd have even more questions.

In my last article "Questcor's 'Buyout' Could Fall Through", I pointed out that Cigna could be getting hip to the game, and that if other insurers "get wise", it could be bad news for Mallinckrodt (NYSE:MNK) shareholders, who are going to be assuming a lot of Questcor's risk when the two companies merge.

In my last article, I pointed out this Cigna Medical Coverage Policy for Acthar Gel, where the insurer notes that Acthar Gel is "significantly more expensive than conventional corticosteroid and immunosuppressive therapies, but is not clinically superior for such indications."

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Mallinckrodt shareholders are also going to assume risks like this one, pointed out in Questcor's 10-K Risk Factors:

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We are involved in an ongoing government investigation by the United States Department of Justice involving our promotional practices and related matters, the results of which may have a material adverse effect on our sales, financial condition and results of operations.

But again, with my previous article, my point was made, and it was back to the Questcor waiting game.

Until, just days ago, a new article skeptical of Questcor made its way to the NY Times.

The article didn't have its primary focus on the questions that have already been asked - even though they were included in the article. The main point of the article was to get across the amount of adverse effects that had been reported by Acthar's users - rather material for a public company that derives 95% of its sales from Acthar alone.

The Times article stated:

Not included in the filing, however, are the risks specific to Questcor, a company that derives 95 percent of its revenue from a 60-year-old immune-system drug called Acthar.

Among those risks is a rising number of significant "adverse events" in recent years among users of Acthar.

Since 2012, the events, as reported to the Food and Drug Administration's Adverse Event Reporting System, or Faers (pronounced "fares"), have included 20 deaths and six disabilities among patients reported to have been using Acthar and in which Acthar was recorded as "suspect," or the drug most likely to have been associated with the event. From January 2000 through 2011, by contrast, 13 deaths involving Acthar were reported to the F.D.A.'s system.

Although Questcor has reported some of these events to the F.D.A., as required, the company has not discussed the adverse outcomes in its financial filings. A Supreme Court ruling in 2011 concluded that reports of adverse events among patients using a drug, even if few in number, are of interest to investors weighing whether to buy or sell shares in the manufacturer.

Asked why Questcor had not disclosed the adverse events, a company spokeswoman provided this statement: "Our mission as a company is to help patients suffering from serious diseases, so we are always deeply saddened when we hear of a patient passing away. The safety profile of Acthar is well known, having been established over several decades of the drug's use in treating seriously ill adult and pediatric patients who are often at risk regardless of treatment, have serious co-morbidities, and are often taking many other drugs at the same time.

If what the NY Times is poking at here holds any water, we have the risk of not only the drug not being what's on the label, but of adverse effects that the drug may or may not be part and parcel with, going unnoticed.

The full FDA adverse effect list can be found here.

It's 121 pages of examples that look like this one, a page I just took at random:

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It's important to note that every FDA-approved drug has these FAERS reports generated for them - they're like 10-K risk factors - everybody has them. However, getting light shed on Questcor's once again reminds skeptics of how the entire company and its value is built solely on Acthar.

Additionally obtained by FOIA and now finally in the public forum is the letter that Citron's law firm sent to the FDA, urging them to look at this issue. You can read the entire letter here (which I encourage any and all QCOR and MNK shareholders to read).

This is a 31-page read that all QCOR/MNK shareholders need to at least look at.

I've taken the liberty of noting some of the most important parts below:

The above shows the initial claims made by Citron's world-class laboratory simply asserting that from their studies, Questcor's Acthar Gel is not what it's purported to be.

The above shows the difference in protein function between deamidated ACTH, which is what Citron's lab claims to have found, versus pure ACTH, the active ingredient that is noted for H(ighly) P(urified) (ACTH)ar Gel.

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The above shows the QC measures taken to ensure chain of custody and respect the process of making sure that vials were taken at random, and not altered, from several different lot numbers.

And the above simply concludes that this world-class lab has found that the drug being sold is - again - not the drug that was once used for studies that purportedly showed Acthar's efficacy.

QCOR Percent of Shares Outstanding Short Chart

QCOR Percent of Shares Outstanding Short data by YCharts

And, again. I'm not alone. There's continually a major portion of the outstanding shares in QCOR being held short, because people hold the same skeptical views as me. Would an FDA exoneration via a public statement clear this up for me and get me to shut up? Probably. Until then, these questions remain big enough that if I were an Acthar Gel user, I'd be looking for some serious answers.

While seemingly being proved wrong for the time being, and admittedly losing money on my Questcor short and puts that I held through the "buyout" (read: merger), I remain skeptical of this company and its "too good to be true" story.

Again, I am urging Questcor and Mallinckrodt shareholders to be aware of the skepticism and questions that surround Questcor's sole drug, Acthar.

As an investor, I'd remain cautious here. If I were along for the QCOR ride to the "buyout" price, I'd be taking profits. If I were an MNK shareholder, I'd consider trimming or eliminating my position.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a short position in QCOR over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.