In a Seeking Alpha blog post last October we brought to light shady practices of the Chronic Disease Fund (CDF) as well as Questcor Pharmaceuticals' (NASDAQ:QCOR) all-too-cozy relationship with the charity. Since then, the CDF has turned over its entire board of directors, and the founder and chairman at the center of those activities has severed ties with the charity. The CDF has stopped the egregious activities, cleaned up its image, and rededicated itself to helping patients in need. In addition, the CDF is no longer conducting business with QCOR. Even more impactful, since our whistle-blowing article, the Department of Health and Human Services' Office of the Inspector General (OIG) has started taking steps to change the way the entire Patient Assistance Program industry operates -- specifically around the points we revealed in our post.
Now, we see evidence that we believe is grounds for another government agency, the FDA, to intervene, this time to safeguard patient health simply by holding QCOR and its H.P. Acthar Gel to the same standard as modern drugs. We have found that a large number of the recently reported Acthar-related deaths are people who were taking the drug for nephrotic syndrome (NS), a vulnerable population for which the drug's safety was never tested in clinical trials or even established by prior usage.
The New York Times last month broke the news that Acthar is suspected of causing the deaths of an alarming number of people -- nearly one per month reported to the FDA since marketing for 'new' indications nephrotic syndrome and rheumatology ramped up, and possibly dozens more that have not been reported. With that information having been revealed publicly, QCOR decided that the risks were relevant enough that it had to re-file portions of its 10-K to include drug safety and other important information. After the company failed to reveal these material facts to investors for quite some time we question whether QCOR was forced to do so by some outside party. There are several aspects to this recent filing we find interesting:
1) We take exception to QCOR's statement that, "the types of adverse events that have occurred are consistent with the current safety profile of Acthar as presented in its prescribing information." Nowhere in Acthar's prescribing information does it mention death or disability. As for specific reactions that could lead to death, there is no mention of some of the common ones being reported in connection with these deaths, such as respiratory failure and sepsis (blood poisoning).
2) We also disagree that "there is no new safety signal." The New York Times' story on QCOR's disclosure of the problems quotes an FDA spokeswoman who declined to comment on actions the agency might take, "Because this is an open compliance matter." We have to ask, if there is no new safety signal (pharmaco-vigilance-speak for a previously unknown safety problem), then why is it "an open compliance matter"?
The Wall Street Journal's take on the disclosure quotes pharmacology expert and former FDA medical officer Dr. David Gortler, PharmD, FCCP, of Georgetown University as saying there appears to be a safety signal. We reached out to Dr. Gortler who explained, "Whether or not as a result of increased prescriptions for legacy uses for which the drug might not be appropriate and has not been clinically tested, the increase in adverse events ... represents a safety signal worthy of attention from both Questcor Pharmaceuticals and the FDA ... With the FDA-documented under-reporting of spontaneous adverse events, even the increased numbers seen here are likely a very small percentage of the adverse events that actually have occurred. "
With many of the deaths occurring in patients being treated for nephrotic syndrome, an indication for which Acthar's safety has not been assessed in a clinical trial, these deaths alone strikes us as a new safety signal. QCOR's explanation for the increase in adverse events as a percentage of prescriptions -- that the drug is being used more extensively in nephrology and rheumatology patients, who are more susceptible to certain adverse events -- pretty much makes the point that Acthar is more dangerous in these settings and should be tested rigorously so that prescribing doctors and patients know the true health risks.
3) To those who say the dustup is much ado about nothing, we refer you to the words of an expert on such matters, Brian Overstreet, president of AdverseEvents. "Clearly, someone over at Questcor made the realization that these safety issues were, in fact, a big problem. In order to: a) salvage any possible deal with their pending acquirer; and b) not run afoul of federal securities laws, Questcor needed to get out in front of this story and publicly disclose what has been reported," wrote Overstreet, whose firm provides healthcare decision makers 'with important insight on drug safety concerns that were not revealed during clinical trials, and are not being communicated by the manufacturer.'
4) We also are skeptical of QCOR's statement to the New York Times that the reason the information was not disclosed previously was because the safety profile of Acthar was "well known." Maybe to company insiders. Maybe even to the handful of neurologists who have been prescribing a vial or two to treat multiple sclerosis (MS) relapses for the past couple decades. But how about the nephrologists who have been putting patients on Acthar regimens of nearly 11 vials (bi-weekly injections for 6 months)? How many of the 7,400 patients who received the drug during 2013 were aware of the risk of death? We are assuming not many. In QCOR's words, "Ultimately, each physician must decide for himself or herself whether the patient's medical condition warrants the use of Acthar. In making that decision, the physician considers various forms of evidence as to the safety and efficacy of Acthar for each specific patient." Regardless of whether any failure to disclosure the drug's risks to doctors is a focus of the previously disclosed Department of Justice (DOJ) investigation, sound medical practice dictates that those doctors should be fully informed of the potential negative outcomes as they weigh Acthar's risks against its potential benefits.
FAERS Data Analysis
According to data published by the New York Times, starting in August 2012 - about the time QCOR doubled its nephrology sales force and also started actively selling Acthar in rheumatology settings - adverse reactions to Acthar were a suspected cause for 17 deaths over a 21-month period. Because reporting such incidents to the FDA Adverse Event Reporting System (FAERS) is voluntary (and time-consuming), drug-safety experts have estimated that only between 1% and 13% of serious events are actually reported, with an average of 6%. This analysis implies that the actual occurrences of deaths and other serious outcomes could be 16 times larger than the figures reported by QCOR or contained in the FAERS database.
The New York Times data, which it obtained from the FDA, show that since 2012 Acthar also has been named as a suspected cause for more than 75 hospitalizations, 7 life-threatening situations, 4 disabilities, and dozens of other complications. The numbers QCOR reported in its July 10 8-K filing were more inclusive -- 1,022 patients reporting 3,100 adverse events from Jan. 1, 2011, to Dec. 31, 2013, with no details on the number of deaths, disabilities, or other serious AEs. Adverse event reports in 2014 (through the mid-April end date of the Times data) appear to be accumulating at a rate more than double the pace of the previous two years.
A large portion of the adverse events are occurring in patients being treated for nephrotic syndrome and rheumatology-related conditions. Because the original FDA approval came before the advent of rigorous clinical trials, there is no clinical-level safety data underpinning the use of Acthar in these settings. QCOR's sNDA (supplementary new drug application) approved in 2010 included safety data from studies pertaining only to infantile spasms; not only are daily dosages for young IS patients lower than for adults, but the typical NS patient receives 8 vials of the drug, vs. 4 for the average IS patient. Until the past few years, usage for the NS and rheumatology indications was minimal (hence the scarcity of safety data in this regard); by QCOR's own admission, it acquired Acthar in 2001 because it was all but "being abandoned" by the prior manufacturer, and only 25 NS patients had been prescribed the drug before 2010. Importantly, from the FAERS databases we know that of the 11 Acthar-as-suspected-cause-of-death cases reported in the 13 months from August 2012 to September 2013 (the latest data publicly available), 8 of those patients were being treated for nephrotic syndrome, 1 for multiple sclerosis relapse, 1 for lupus, and 1 for opsoclonus myoclonus (off label).
Furthermore, the value of historical safety data would be uncertain given the questions surrounding what exactly is in the vial. Interestingly, Cigna's Medical Coverage Policy notes that while the most-recent study evaluating the efficacy of corticotropin (i.e., H.P. Acthar Gel) in treating acute exacerbations in MS patients was published 25 years ago in 1989, "it is unlikely that the corticotropin or ACTH products studied are identical to formulations available today." Of course, it is difficult to say for sure what potentially harmful compounds could be in Acthar, since even Questcor itself doesn't seem to know exactly and says, "Acthar may potentially include other active peptides" beyond ACTH 1-39. In our view, these facts could lead the FDA to place more scrutiny on the safety signals generated from its FAERS data.
How Significant Is the Problem?
It is difficult for even medical professionals to say with certainty that a particular health reaction was definitively "caused" by a drug. But investors need to understand that fatalities and other adverse events are included in FAERS only if the reporting person (typically a doctor) suspects the event was caused by a reaction to the drug rather than to some other factor like the underlying illness.
It is difficult to know what the FDA considers to be an acceptable frequency of deaths as it weighs the potential risks and benefits. Certainly some of the 7,400 patients who were treated with the drug last year had their symptoms at least temporarily alleviated with minimal side effects. But here again the paucity of research on the newly commercialized indications is not helping the murky situation.
Depending on how significant the FDA judges the adverse events to be, the agency could do anything ranging from nothing (a possibility) to minor (request changes in the "warnings and precautions" section of the labeling, or making additions to "contraindications") to quite serious (sending a "Dear Doctor" letter warning physicians of previously unknown safety risks, or requiring a "black box warning") or even worse (requesting removal from the market). While the latter would be a rare step, recall that Omontys, a drug marketed by Affymax (NASDAQ:OTCPK:AFFY) and Takeda Pharmaceutical (4502.JP), was pulled from the market last year after being reported as causing 3 deaths and 19 cases of anaphylaxis among the 25,000 patients who took the anemia drug. AFFY shares, which traded above $21 in 2013, now trade around $0.10 after the company's board decided to liquidate and dissolve the company. That's a near 100% wipeout in the share price.
Issues with Acthar Clinical Trials
Now that doctors and potential patients might start to become aware of the possibly severe adverse effects and potentially be hesitant to try Acthar, it becomes more important for QCOR to complete randomized, controlled clinical trials in newly marketed indications such as NS. But here, too, there are issues.
Over the past 3 years, QCOR has spent more than $125 million on research and development in an attempt to find some evidence that Acthar has efficacy in various indications. Thus far, the efficacy and adverse event results seem to raise as many questions as they answer.
The largest effort completed in NS was published in December 2013, a 24-patient study assessing Acthar in treating idiopathic FSGS. Of 24 patients treated, 21 (88%) of them suffered a total of 52 adverse events. Authors of the investigator-initiated, QCOR-funded study downplayed that outcome, writing, "most adverse events were mild and transient," and they "included a high rate of steroid-like adverse events." In fact, while none of the participants in this study died, four were hospitalized due to adverse reactions including an ischemic stroke, new-onset diabetes, acute kidney injuries, and a transudative pleural effusion (buildup of fluid around the lungs). The "high rate of steroid-like adverse events" encompassed only 23 of the 52 reactions (44%). A higher rate (56%) of the adverse events were of the type not commonly associated with steroids, such as upper respiratory infections, rashes, pneumonia, headaches, and shortness of breath. Indeed, the adverse event data seem to concur with the idea that there is more to Acthar's mechanism of action than just steroidal activity.
In terms of efficacy, fully 16 of the 23 patients (70%) who remained in the study did not see enough improvement to even be considered to be in "partial remission." Strikingly, 9 of those patients (39% of total participants) actually suffered increases in their proteinuria. Two patients of the 23 (9%) achieved "complete remission" while 5 (22%) improved to "partial remission;" 2 of those responders later relapsed during the follow-up period.
Dr. Andrew Bomback of Columbia University, a co-author on that study, was also co-author on the groundbreaking study that has been underpinning Acthar's NS franchise since 2011. In this initial NS study, Bomback and co-authors gathered retrospective data on 21 of the 25 patients who QCOR said had been the only adults in the U.S. whose NS symptoms had been treated with Acthar Gel prior to 2010. As would be expected in a non-clinical, retrospective study, fewer adverse events were noted (6 patients), ranging from acute renal failure (thankfully resolved after being taken off Acthar) to hyperglycemia and weight gain (a common reaction to steroids). Efficacy results were noteworthy in the portion of patients who had been diagnosed with idiopathic membranous nephropathy (IMN), with 3 of those 11 (27%) achieving full remission and an additional 6 (55%) seeing partial remission. Of the other 10 patients studied, only one each (10%) achieved complete and partial remission.
While working on the study and initially collecting on a $50,000-a-year consulting fee from QCOR, Dr. Bomback was allegedly providing information to a QCOR shareholder who was charged with insider trading in connection with his conversations with Bomback. Dr. Bomback, whose annual stipend from QCOR later was reduced to $10,000 to conform to university rules, appears to have escaped censure from his employer despite possibly violating the American Society of Nephrologists' policy prohibiting release of study information before it is published. Still, Bomback's credibility was called into question by at least one of his colleagues, with Columbia Law School professor John Coffee saying, "... my bottom line conclusion is that his conduct was unethical … where he knew the intent of the academic journal's rule." Eight of the study patients were treated in Bomback's own practice.
The springboard for Acthar's recent sales efforts in systemic lupus erythematosus (SLE) is a 10-patient study that was trumpeted by QCOR as an "independent investigator-initiated ten patient study" in which "significant clinical response to Acthar was observed." Mallinckrodt (MNK) hailed the paper as one of the methods by which the company could grow sales in indications like SLE that had little prior research backing their inclusion on Acthar's label. We question what is "independent" about the study, when co-authors Dr. Justus Fiechtner and Tresa Montroy (who is not a doctor, but did take general nursing prerequisites at Lansing Community College) both received a grant & research support from QCOR: "study support and writing support ... were funded by Questcor Pharmaceuticals." At least that fact was disclosed in the paper, unlike the mysterious disappearance of results from at least two patients originally in the study.
The SLE study patients all were treated at Dr. Fiechtner's practice and only 2 reported adverse events. The study reported success in its primary objective - "a reduction in the intensity of flares as measured by changes from baseline in the SLEDAI-2K score." Individual results on this measure were not reported (only the group average), and experts have questioned the metric's value: "The utility of SLEDAI-2K in observational studies, and more importantly in clinical trials, is limited, as it does not allow one to discern a signal towards improvement," wrote Dr. Zahi Touma et al. in the journal Rheumatology. On the patient self-assessments, only 3 reported not doing better on day 28 vs. the initial screening day (including patient Number 12 in the "10-patient study").
In the MS relapse arena, clinicaltrials.gov lists six current trials with Acthar Gel. We believe the principal investigators on at least three of those trials have at times appeared high on the list of Acthar prescribers for MS (and five have close ties with or have received funding from QCOR - Dr. Brod, Dr. Miller, Dr. Carpenter, Dr. Riser, Dr. Berkovich). Another MS clinical trial worth mentioning is one comparing the performance of Acthar vs. a second round of IV methylprednisolone (Solumedrol) for patients who already have failed an initial course of the steroid. After the study reached its halfway point, QCOR cut off funding; we believe this trial's abrupt cessation was a consequence of the interim results not favoring Acthar's performance. QCOR's CEO simply told BiopharmInsight: "The trial wasn't enrolling very well anyway. It isn't something we're particularly interested in."
Bigger picture, the fact that many patients in the ongoing and upcoming clinical trials will be receiving Acthar as a first-line treatment means that trial results will not be representative of how the drug will perform in actual practice -- when it generally will be used on patients who have failed other treatments. This will translate to a trial result that overstates the efficacy vs. standard-use outcomes on patients responsive to steroids, and understates the health dangers to patients whose susceptibility to adverse events is heightened as a result of prior treatments and disease progression.
What liability does QCOR, and by extension MNK post-merger, face from these reported adverse events and concomitant lack of disclosure? Already, plaintiffs' lawyers are seeking to prepare cases. "Imagine the agony of a family whose loved one is seriously hurt or dies as a result of a company pushing a drug that has not been approved or fully tested for their condition," says attorney Stephen Sheller.
It is an interesting legal question as to whether QCOR should face liability for the numerous deaths of NS patients -- on one hand, the proteinuria indication is technically "on label," but on the other it has not been subjected to what a reasonable person would conclude is adequate clinical safety testing for that condition. Clearly, though, we have no more insight on how to estimate this potential liability than we do in estimating the liability for a potential DOJ fine.
Regarding the latter, some type of DOJ penalty appears likely. Last month, in answering a question from well-regarded Goldman Sachs analyst Gary Nachman at Goldman's Healthcare Conference about QCOR being, "known to be on the more aggressive side," of sales and marketing practices, MNK CFO Matt Harbaugh told a group of investors, "The deal with the DOJ investigation with regards to marketing practice actually speaks to activities that happened a number of years ago." We interpret this statement to mean violations did in fact occur, and MNK found them in their due diligence. With sales commissions that could run in the thousands of dollars for a single Acthar prescription, such an outcome was perhaps even likely. As for what else is within the scope of the various government investigations, we can only speculate.
Will Competitors be Safer?
One may be inclined to wonder if the rash of adverse events is related to the fact that the (labeled) active ingredient in Acthar is a naturally derived polypeptide. This begs the question: would this fact give a leg up to synthetic competitors that soon will be attempting to enter the ACTH market that QCOR has forged? It will be very interesting to see the safety data on Retrophin's RE-034, as well as the data on any of the half-dozen other ACTH analogs that Retrophin (OTC:RTRX) says are in development. We assume the synthetic will be safer; in fact, the reason Armour Pharmaceuticals developed a synthetic Acthar Gel in the 1970s is because scientists recognized that the crude formulation derived from pigs had harsh side effects. Likewise, it's worth watching a forthcoming drug in development to treat infantile spasms, CP-115, manufactured by Catalyst Pharmaceutical Partners (NASDAQ:CPRX), which after pre-clinical development appears to be a much better drug than the other common IS treatment - vigabatrin - as CP-115 is much more potent and its side effects theorized to be much milder.
In assessing the potential value of the Acthar franchise to MNK against the potential risks, we conclude with QCOR's own words:
"Negative health outcomes for patients using Acthar could 1) lessen the frequency with which physicians decide to prescribe Acthar, 2) encourage physicians to stop prescribing Acthar to their patients who previously had been prescribed Acthar, 3) cause reportable serious adverse events and give rise to product liability claims against us, and 4) result in our need to withdraw or recall Acthar from the marketplace."
Disclaimer: This is not a recommendation to buy or sell any investment. Additionally, this document should not be relied upon to make an investment decision as the numbers and figures presented are solely the author's estimates. Investors should contact the company directly and read QCOR public filings to form their own opinions and make their own investment decisions. The author may transact in the securities of QCOR without notice.
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. The author has no business relationship with any company whose stock is mentioned in this article.