Introduction and Background
Questcor Pharmaceuticals (QCOR) has a medication known as Acthar Gel, which has been manufactured since the 1950s. There are increasing FDA endorsed clinical indications, as the potential benefits of this old medication are discovered. Although the chemical mechanisms that confer benefit might not be fully understood, generally, it induces the natural steroid secretion from the patient's own body. This natural mechanism is in contrast to the common and inexpensive man-made steroids that are introduced into the body. Acthar Gel is vital to QCOR because it is overwhelmingly the primary source of income, at an expensive sale price near $28,000 per vile.
Insurance is virtually the only chance at cost restraint in the modern model of medicine. Particularly in the instances where the inexpensive corticosteroids can resolve a particular medial ailment, use of the expensive Acthar Gel is unnecessary. With the robust growth in use of Acthar by physicians, insurance has the obligation and duty to ensure that it is not used when inexpensive alternatives will work. A popular short-investor thesis has been that insurance will significantly diminish the use of the expensive Acthar.
In September 2012, a heightened concern over a more restrictive insurance coverage appears the reason that QCOR stock price dropped from near $50 to less than $20 in a few days. In spite of the concern for coverage, actual usage of Acthar has continued to increase in clinical practice. The stock is currently trading in the $90s.
The initial basis for efficacy in the medical field relates to evidence-based peer reviewed studies. Inconsistent evidence and evidence that is short of complete certainty in any area of medicine typically leaves the medical community of the opinion that further study is needed. However, the FDA has been giving its official blessing to an increasing number of specific clinical indications for Acthar Gel. These approvals demonstrate that evidence supports some level of efficacy/safety.
Another relevant avenue of evidence is the continued clinical observation by practicing physicians. Unfortunately, the ongoing evidence in clinical practice poorly contributes to the knowledge base. This article will propose that increasing usage of Acthar likely implies positive clinical outcomes. These sections follow: (1) why the ethical framework of end justifies the means for attaining insurance coverage conceals efficacy; (2) why the allegation of missing active ingredient lacks credibility; and (3) why the phase II FDA consideration for Acthar treatment of ARDS has potential for life-saving outcomes.
The End Justifies the Means in Modern Medicine
Like it or not, insurance is widely perceived as an evil agency that the public must cope with in order to obtain care. Politicians use charismatic oratory to remind us that such companies have no right to deny coverage based on preexisting conditions and on many other grounds.
The physicians typically have a passion for patient care. These professionals have many years of expensive, intense education. Their average pay is probably much less than equivalent talent in alternative fields. Most of them see many patients. Their approach with patient therapy is to determine what is reasonable based on the medical evidence and their clinical observation of efficacy.
In theory, physicians should fully corroborate the evidence for each case with insurance. This level of communication is not possible. The system itself demands more time than is possible for physicians to offer, and insurance paperwork has become an unrealistic burden. What the physician will do is seek a basis for therapy that insurance covers. The basis given is not necessarily incorrect, but whether it is the primary basis from the perspective of the physician is not the issue.
Patients fully and regularly participate to satisfy some technicality of insurance with no qualms. Coverage is priority. Consider a popular therapy-gastric bypass (or the related procedures). Patients sometimes have the incentive to gorge on food and avoid exercise in order to accumulate enough fat for insurance to cover the procedure. This course of action is grounded in the end justifying the means. It obscures true efficacy after the surgery because the patient enters the surgery at a higher body fat than they would typically carry without the surgery.
A final example of end-justifies-means ethics is admission to substance abuse rehabilitation facilities. I use my brother, a former attorney, to illustrate. In order to get admitted to the facility, he had to arrive at the facility in a profoundly drunken condition. To satisfy insurance, my brother had to intoxicate himself. (He has since passed.)
What is the application of this common ethic to Acthar? If a physician, by experience, observes a better outcome from Acthar, as opposed to inexpensive corticosteroids, he/she will find the loopholes that allow coverage, even if the actual basis is concealed.
Shorts would be upset at such efforts to reach for coverage because they are relying on insurance truly to restrict sales of Acthar. However, longs have a reason to be upset too, as the evidence for actual efficacy remains concealed.
My observation of ethics in the medical arena is in general and not necessarily true for all. Compassion for the patient generally has some role in decisions apart from allegiance to unbending principles. The purpose of this discussion is not to judge the ethical frameworks. The purpose is to explain why clinical efficacy can be distorted and why tightening insurance policies might not reduce Acthar sales.
For the shorts not to consider the real-world circumstances in favor of focus on black and white policies is a pitfall. For days, months, and years actual Acthar sales data goes opposite the short thesis on tightening insurance policy. The surge in Acthar usage perhaps is related to clinical outcomes. The physicians have no motive to continue use of a medication that is not producing positive outcomes. Their goal is to promote healing rooted in compassion, but relevant to their livelihood.
The most recent short-oriented essay on insurance appears to have had no impact on QCOR stock. The investing public appears aware of the long history of scare that continually proves irrelevant to predicting sales.
A Case of Profit Motive At Odds With Benefit to Society -- Short Appeal To The FDA
Ideally, the money at stake in the financial markets (profit motive) should contribute value to society. The scrutiny of short sellers (or those with any financial benefit to a stock's decline) should serve to warn of poor medical implications, for example. The current financial discussions pertaining to QCOR appear at odds with the benefit to healthcare.
The measures and persistence of short sellers seem extreme. Short positioned Citron Research has gone to measures of conducting its own research at an unnamed laboratory and has reported results to the FDA. The allegation is that Acthar contains much less active ingredient (corticotrophin) than is believed. Citron notified the public of its actions on March 13, 2014.
It is my opinion that the FDA should not waste time with the claims of the financial traders. Sometimes, the squeaky wheel gets the oil. But, to give the squeaky wheel attention when protection to society on other matters is more pressing would be an unfortunate waste of resources. Were physicians or others complaining of possibly horrible or deadly adverse consequences to any drug, then absolutely a response from the FDA would be within its mandate for safety to society.
Other drugs surely deserve more scrutiny from the FDA than does Acthar. What attracts noise from short sellers is not related to the worst drugs for society. If the worst drugs happen to be in a well-diversified company, the recall of a single drug would not drastically impact the price of the related stock.
A year ago, I personally had a life-threatening reaction to a cholesterol-lowering drug that required me to be hospitalized. I have also learned that other adverse effects are commonly reported, such as inclination towards Alzheimer's. Further, I am now aware that some cardiologists maintain that particle size of the cholesterol (and not total bad cholesterol) is what creates vascular problems. The FDA most likely spends time evaluating drugs, similar to this one, where benefit might be suspect and the health risk is high.
This cholesterol-lowering drug is an example of a medication that physicians use because it works to lower cholesterol count. However, the connection to health is based on long-term theory, which might change regarding the harmfulness of cholesterol in general. Acthar is quite different from this drug because Acthar is for treatment of acute illnesses.
The notion that the FDA owes an explanation to short traders regarding the allegation that active ingredient is missing is bizarre. The process for producing this medication is long standing. What benefits society is whether the compound works, not why it works. The short thesis, even if true, would only explain that Acthar is effective for a different reason (a scientific discovery). Or, it might substantiate that far less quantity of corticotrophin is necessary for clinical efficacy than previously thought. No implication for changing the formula for Acthar is corroborated.
We might discover that improperly obtained and handled medications (temperature, expiration date, etc.) can result in degrading of the sample. The hyper concern for active ingredient wrongly implies that Acthar is merely a worthless placebo. In the end, efficacy will win.
Did your grandmother recommend chicken soup for colds? Is it acetylcysteine present is chicken soup that confers the benefit? Does it matter that you perfectly understand why chicken soup might help, or does it matter that you might feel better? Do you want allergy and erectile dysfunction medications banned if someone discovers they actually work from a different mechanism? The medical community cannot always understand the exact reasons for outcomes.
If peer reviewed evidence-based studies can produce conflicting conclusions, how much more should the readers be cautious of the Citron promoted "research" about the contents of Acthar? If Citron were not able to achieve "research" in line with its financial position, is it rational to believe that it would have reported the positive conclusions?
A merger with Mallinckrodt (NYSE:MNK) is under proposal for the third quarter. It is highly unlikely that MNK is unaware of the contents and efficacy of Acthar.
FDA Phase II Studies For Acthar Treatment of ARDS
Acthar has undergone increasing FDA approved indications. The QCOR website provides comprehensive information on uses. The indications address serious medical concerns. Were the traders actually able to influence FDA blessing, wellness outcomes would be altered.
Relevant to mortality is the current FDA phase II evaluation-Acute Respiratory Distress Syndrome (ARDS). This condition is a dire situation that requires a ventilator (breathing machine) and has a high rate of mortality. Estimates on number of Americans affected each year range from 100,000 to almost 200,000. Odds of survival have improved over the last twenty years from slightly worse than the flip of a coin to slightly better than the flip of a coin.
Multi-organ failure often arises from ARDS, where the common link for deterioration to the various organs is the systemic (throughout the body) inflammation.
Currently, the consensus among physicians appears to be that the specific underlying pathophysiology of the inflammatory response is to remain untreated. Why? The existing evidence for use of man-made corticosteroids to treat ARDS is mixed and generally deemed inconclusive. Profoundly positive results when treating early onset ARDS with the synthetic methylprednisolone are offset with studies that resulted in worse outcomes.
With corticosteroids not addressing the problem sufficiently, the theory to search for something to address the improper inflammatory response and prevent permanent damage or death is important. Dismissing the possibility for Acthar benefit would be unwise. A major health concern is at stake, depending on the outcome of the current phase II trial for ARDS.
The escalation and cost of care for ARDS can quickly become extreme. Sometimes, as the lungs shut down, patients are put on a machine where the blood is pumped from their body to be oxygenated and returned to the body (extracorporeal membrane oxygenation). If Acthar can reduce requirement for extreme care and/or reduce mortality, society would benefit tremendously.
It should be noted that the FDA does not require its approval for physicians to use a medication for "off-label." In such cases, the physician must be well informed of the scientific logic and existing evidence, and the physician must document results. However, specific FDA approval on any indication facilitates acceptance.
The on-going insurance concern repeatedly does not correlate with the increasing usage of Acthar Gel. The true fight with insurance companies will not begin until/unless patients who truly need Acthar are denied care. If existing loopholes are sufficient to access care, no motivation for change will occur.
Increasing usage of Acthar suggests that physicians and patients are observing some benefit. Technical basis for achieving insurance coverage is tilted by love for the patient. Meeting insurance requirements is not necessarily related to the primary purpose of therapy. The knowledge base for efficacy suffers.
The allegation of missing ingredient appears rooted in strong financial bias, without evidence of harm to society. The reason a medication works has no relationship to actual efficacy. The argument is a straw man.
I am not sufficiently experienced or qualified to offer investment advice. My reason for writing on this first (and probably last) time relates to my concern over what I perceive as profit motive inconsistent with benefit to society. The stock has a history of dropping dramatically for incorrect reasons. Improper scare is possible again. And, there is significant real risk to investors with relative importance of a single medication. Better medications might be discovered.
I did not discuss traditional financial metrics, as these metrics are irrelevant with waves of uncertainty generated by short traders. Value consideration based on profit from Acthar is less meaningful, in light of the short position that Acthar will become worthless imminently. If QCOR and MNK do merge, there will be less relative importance on a single drug, which I suspect would lift somewhat the short target off Acthar.
I have sold sufficient stock in QCOR to remove my original basis from risk.
Disclosure: The author is long QCOR. 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.