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Summary

  • Questcor disclosed adverse events to Acthar as was found in the FDA's FAERS system by the NY Times.
  • This amendment could have been what was holding up the merger proxy; we'll have to wait and see.
  • The FDA seems to continue to backhandedly confirm that there is an ongoing review of Questcor's Acthar at the agency.
  • Fantastic reporting done by Gretchen Morgenson at the NY Times.

It was just about three weeks ago, that Gretchen Morgenson over at the NY Times penned this piece about the Questcor (QCOR) / Mallinckrodt (NYSE:MNK) merger.

The piece, among noting a few things that would perk the ears of investors up, noted mainly that Questcor seems to have failed to disclose its adverse events reported to the FDA for its sole drug, Acthar.

Morgenson's piece noted that the preliminary proxy - which I wrote about yesterday - failed to note the risks that are specific to Acthar, Questcor's sole drug and the meat and potatoes of the entire Mallinckrodt deal. Morgenson's piece went on to point out that since 2012, "20 deaths and 6 disabilities" were reported to the FDA where Acthar was suspect. A small fraction, it would seem, depending on how many total users are prescribed Acthar, but important data nonetheless for a company who derives all of its revenue from its sole product.

Questcor filed an 8-K early yesterday morning. In it, the company looked to amend its annual filing and include data about adverse events. My question? Why do this only after being prompted by the NY Times? Nearly every securities lawyer I've spoken with in my professional career is always quick to say that you have to include the whole enchilada in your fillings, the good, the bad and the ugly. Perhaps Questcor's counsel was unaware of these adverse events?

From Questcor's 8-K:

From January 1, 2011 to December 31, 2013, 1,022 patients have reported an adverse event while on Acthar and 3,100 adverse events have been reported by these patients. The number of patients reporting an adverse event as a percentage of prescriptions was 4.8%, 4.9%, and 3.0%, respectively, for the years ended 2013, 2012 and 2011. The number of adverse events reported per year among patients reported to have been using Acthar as a percentage of prescriptions was 13.7%, 15.8% and 9.1%, respectively, for the years ended 2013, 2012 and 2011. These adverse events are based on reports to the Company and the FDA. As the FDA's FAERS website points out, "there is no certainty that the reported event (adverse event or dedication error) was actually due to the product. FDA does not require that a causal relationship between a product and event be proven, and reports do not always contain enough detail to properly evaluate an event." For these and other reasons, the FDA states "FAERS data cannot be used to calculate the incidence of an adverse event or medication error in the U.S. population." Also, the types of adverse events that have occurred are consistent with the current safety profile of Acthar as presented in its prescribing information, no new safety signals have occurred, and we continue to comply with all appropriate safety, surveillance and reporting required by the FDA.

The amendment could be one of the explanations for why Questcor has failed to file a definitive voting proxy for the merger yet. As I stated yesterday, Chris DeMuth Jr. - someone with extensive experience in M&A - asked me about what the holdup could be on the proxy. Longs and bulls responding to my piece yesterday assured me that 8 weeks isn't an untoward amount of time for the SEC to finalize the company's proxy. More on that in the coming weeks.

After the market closed yesterday, the NY Times put out yet another piece on the company talking about the disclosures it finally made. The piece states:

But according to a regulatory filing made by Questcor early Thursday, the number of patients reporting a so-called adverse event while using the drug last year represented almost 5 percent of prescriptions dispensed. The total number of events in 2013 reported by patients, who can experience multiple ill effects, was almost 14 percent of prescriptions, up from 9.1 percent in 2011.

The most important item in this newly penned NY Times piece, in QTR's opinion, is the statement that seems to once again backhandedly confirm that there is some kind of review of Acthar ongoing at the FDA.

Many of you have said to me, "we already knew this!" - but that's far from the truth. After Citron's report was initially released, we failed to hear from the FDA regarding what, if anything, they were doing. It was only in the NY Times' first piece in early June that they claimed the FDA was reviewing the drug. This prompted QTR to get in touch with his own contact at the FDA, who assured him that "no formal review is on the FDA website" but it was an "ongoing issue" that was "under review." The NY Times' correspondence with the FDA yet again seems to echo this story:

Asked on Thursday whether Questcor's new disclosures would result in heightened oversight, an F.D.A. spokeswoman said, "Because this is an open compliance matter, we cannot discuss or speculate on future potential actions related to any Faers reports," referring to the Food and Drug Administration's Adverse Event Reporting System, whose acronym is pronounced "fares."

Last month, an F.D.A. spokeswoman said the agency was reviewing accusations by an independent research firm that the Acthar label did not accurately reflect the drug's ingredients.

The NY Times piece can be found in this morning's paper, on page B1. Ms. Morgenson has done a fantastic job looking into this situation and continually scratching under the surface to help get to the bottom of the Questcor story.

Interesting from my piece yesterday are comments like this one, from Aristides Capital:

[B]efore I was a hedge fund manager, I was a board certified Internal Medicine physician, so I have a pretty strong opinion on this one. [J]ust so we are straight on this: QCOR sells for $28k a vial a substance that, if it is indeed what the label says it is (and that appears quite unclear at this point), makes your body make steroids which themselves would be available on the market for less than $10, or less than $100 in injectable form. [W]ith no clinical trial evidence that the $28k vial is any better than the $10 or $100 therapy for the mast majority of indications they sell the drug for. The company has done a great job marketing. A very, very great job indeed. [S]o great of a job that it makes one wonder how they did such a great job and what consequences there may be.

I continue to remain bearish and short on Questcor, as I believe questions about the drug's efficacy for its main indications are massive issues that insurers are already starting to realize. With only limited upside to QCOR until the merger closes, I am still short through long dated puts as I believe any formal announcement by the FDA or other regulatory agency regarding Questcor could serve to cut the party short any day now.

Best of luck to all investors.

Disclosure: The author is short 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.

Source: Questcor Comes Clean On Acthar; NY Times Seems To Confirm FDA Interest