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Summary

  • Two respected investors have come to me asking about when Questcor/MNK's proxy is going to be finished.
  • Questcor's Acthar is under major scrutiny from UnitedHealth, who proclaimed it "not medically necessary" for 4 of its 5 last indications.
  • Article was out this morning blindly supporting Acthar sans clinical trials, data, and zero knowledge of how Citron performed their testing.
  • Much of what I've heard from longs, Questcor and Mallinckrodt alike is that they assume Citron's research was done incorrectly.
  • Which means if Citron's results were correct and done properly - which I contend they were - there's still quite a bit on the table to have pause about.

(This article is a respectful rebuttal to "Questcor's Acthar Gel: Clinical Usage Suggests Efficacy" that was put out early this morning by Jack of All Trades. You can read his piece here.)

Introduction: Conversations About the Proxy and Acthar

This morning, Jack of All Trades put out a counterpoint to my many articles skeptical about what we know about Questcor's (QCOR) Acthar. If you need a crash course in what's new with Acthar, you can read my last piece about how UnitedHealth (NYSE:UNH) seems to have determined that Acthar - at $28,000 a vial - is not medically necessary for four of its five biggest indications. Not only that, but nephrotic syndrome and MS are two of the company's highest revenue producers, and UnitedHealth found that "statistically robust randomized controlled trials are necessary to establish the safety and efficacy of H.P. Acthar to treat these conditions."

(click to enlarge)

QTR finds this as massive, massive news.

I spent a good portion of my afternoon yesterday on the phone with SA contributor Chris DeMuth, Jr. - another sane head who really knows what he was talking about, especially when it came to M&A. He had questions about the Questcor/Mallinckrodt (NYSE:MNK) merger - more specifically, he was asking me what I thought was taking the proxy so long to process through the SEC. It's been something like 8 weeks now and while I'm not an expert on procedure for M&A, Mr. DeMuth (as well as Whitney Tilson in a similar conversation earlier this month) alluded to me that it may be taking a bit longer than usual to get the definitive proxy back from the SEC.

The merger proxy, after being approved by the SEC, will offer both companies' shareholders the opportunity to vote through the deal. It's significant because it's part of the protocol necessary to finalize the merger/buyout transaction between the two companies. Every day that goes by without it, a small shred of doubt creeps into the minds of those watching the situation carefully. Will the SEC allow this transaction to take place while QCOR is already under investigation from them and DOJ regarding their promotional tactics? Is it okay for MNK to undertake QCOR's risk in that fashion?

This could mean something, or it could mean absolutely nothing at all. Just bringing it up.

Regardless, I woke up unamused this morning by both the futures being off 140 points on overseas trade data (as Joe Kernen said this morning, "what was the number, zero?") and a Questcor article that really seems to miss the point and rely heavily on guesses and circumstantial evidence, as opposed to hard data. As such, I wanted to address several points from this morning's thesis.

1. In Jack of All Trade's article this morning, he asserts:

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.

This line of thinking doesn't rely on facts or evidence, it relies on hypotheticals.

We are looking for scientific evidence here, not the opinion of someone who has heard from or observed doctors.

Anyone who has ever worked in the pharmaceutical sales industry as one of those reps that goes around and pesters doctors for a living knows firsthand that increasing usage does not necessarily imply positive clinical outcomes. Ask a doctor - I have.

This is simply a farcical statement that suggests we ignore the fact that, through science, we've found controlled, doubled blind clinical trials to be the most effective way of finding the efficacy in a potential drug. Jack wants to ignore that, and equate the fact that doctors that are being wined and dined by reps for selling more Acthar means that it works. If more is sold, it must be working.

Not how science works, I'm sorry.

Imagine you have a cold. You're trying to fight it off one day when you get hungry for a snack. Passing a fruit stand, you buy a banana and chomp it down. The next day, your cold is feeling a little better and your cough has gone away. Must have been the banana, right?

This is the line of logic that Jack wants you to follow.

Real clinical results are done in a controlled, robust, double blind study - of which Acthar has completed ZERO of for its major indications.

2. In Jack of All Trade's article this morning, he asserts:

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 insurance companies are not the bogeymen in this situation. All they're doing is injecting a healthy dose of skepticism around Acthar - the same as many shorts/skeptics of the company are doing. I'll even give you the fact that UnitedHealth does have a reputation for being one of the stingiest companies with drug approval.

However, that does not negate the fact that insurance companies have the same beef with Acthar that skeptics have - it doesn't have any proven efficacy for many of its major indications vs. a synthetic. Deep down, Jack knows this, because he actually eventually makes my point for me in his piece:

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.

Exactly.

Longs have a reason to be upset - there is no evidence for efficacy.

That is all you need to know.

3. He then goes on to state:

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.

This isn't about responding to me, or to Citron. This is about the FDA's responsibility to look into a drug that appears to be mislabeled (by admission of Questcor themselves!) and offered for several indications in which it doesn't have proven efficacy - for $28k a vial.

This is about responding to the patients that are currently injecting Acthar into themselves and/or their children. If you were at war with your insurance company over covering Acthar that you were using on a loved one for acute MS exacerbations - wouldn't you want to know if there's actually efficacy behind the drug? I sure as hell would.

Further, a lot of people - including Mallinckrodt, from what I understand - are under the impression Citron's results are flawed in some way. What if it turns out that Citron's lab results were conducted 100% perfectly, administered by world class experts in the field, agreed upon by a former FDA high ranking employee, delivered by a world class law firm, and were prompted by someone who may have already had suspicions about Acthar? Perhaps a patient? Perhaps someone extremely respected in the medical field? If chain of custody and all of those concerns were of no issue - would longs then admit that the drug being issued is not the drug that's on the label? Hell, Questcor came out themselves and admitted it was deamidated ACTH being administered - why would Citron's results be in question?

Regarding Acthar containing "deamidated corticotropin", this peptide has been listed for many years in the FDA-approved Acthar package inserts. The amino acid sequence for "ACTH" provided in the Description section of the current FDA-approved Acthar package insert and the FDA-approved package inserts before and after Questcor's 2001 acquisition of Acthar is, in fact, porcine deamindated ACTH(1-39) or what has been referred to by others as "deamidated corticotropin." Therefore, what the short sellers' research firm claims to have found appears to be consistent with what is specified on the FDA-approved Acthar package insert.

Except it doesn't list that on the package. The package lists a glutamine in position 30 and Citron has found glutemic acid. Big difference. Major labeling issue.

You can't put this on the package insert:

(click to enlarge)

And then actually ship this:

(click to enlarge - source: Citron Independent Lab Results)

That would certainly cause some people to rethink the mental gymnastics they've done in order to convince themselves that Citron has simply issued a bogus report.

I want to assure Jack that my skeptical view on the company is not a product of me being short. Me being short is a product of my skeptical view on the company - I did my research first, found that there are questionable ethics at play, identified Citron's concerns, and then went short. So, your argument that I'm simply writing about the company because I'm short isn't cogent. As Ackman says, "I would have loved to have just gone long Herbalife - if the company wasn't a pyramid scheme." Along those same lines, I would have loved to have bought into the QCOR story and went long - come on, who doesn't love massive growth - but, there are red flags I still cannot ignore.

4. With regard to Acthar's ARDS Phase II trial:

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.

Dismissing the possibility of Acthar and simply saying there's no evidence yet are two different things. If Acthar is found, properly, to have efficacy for whatever indication - great, more power to Questcor and perhaps they did find the holy grail. However, why aren't we suggesting getting the efficacy results first and then applying the drug after? The cart is in front of the horse. Pretty sure we're going to be using Acthar to treat a runny nose, and then we'll be "waiting on the results" and touting that since Acthar has been prescribed for runny noses, no one has died of a runny nose and 100% of patients got better. Sound absurd? That's how longs thinking sounds to me.

Conclusion

To conclude, this morning's article supplants hypotheticals and circumstantial evidence for finite evidence. There are no finite points of data in this piece that suggest anything else about Acthar than what we know from the evidence.

The evidence, as of right now, says the following:

- Questcor admits that Citron's Lab Results are correct and that they're selling deamidated ACTH

- Deamidated ACTH is not what is on Acthar's label

- We don't have clinical efficacy for ACTH in many of Questcor's indications - deamidated or not

- Insurance companies seem to think Acthar isn't "medically necessary"

Those are all irrefutable facts. Do with them what you may.

Best of luck to all investors here - I encourage keeping a skeptical mind.

Source: Questcor's Acthar: Refuting A Long's Optimism With Irrefutable Facts