Questcor Will Skyrocket Into 2013

Apr.16.12 | About: Mallinckrodt PLC (MNK)

Questcor Pharmaceuticals (QCOR) has risen 115% since this time last year. This success is mainly due to Questcor's multipurpose drug Acthar, which treats multiple sclerosis, infantile spasms (a form of epilepsy) and a kidney disease, nephritic syndrome. With a drug so versatile, it is no wonder that Acthar has produced $248 million in sales so far in 2012.

I always caution against investing in biotech companies that do not have a successful FDA drug on the market making good capital. Investing in a company because of a "promising" drug in clinical trials is practically begging to throw your money away, due to that fact that it is never completely certain, no matter how effective a drug is, or that it will pass FDA regulation. That being said, Questcor is exactly what I look for in a company. Acthar is an FDA approved drug that has multiple uses. While some of the uses for this drug are in low necessity in the market, it is still a very profitable drug in the market that it has cornered. I believe that there will be upside momentum for Questcor throughout the rest of the year due to the unbeatable versatility of Acthar.

Questcor has a price to earnings ratio of 33.16, a 52-week range of $18-$46 and a market capitalization of $2.5 billion. A competitor of Questcor is found in the giant pipeline development of Novartis AG (NYSE:NVS), which has a price to earnings ratio of 14.51, a 52 week range of $52-$65 and a market cap of $132 billion. Another competitor of Questcor is the sleep medication Ambien by Sanofi (NYSE:SNY), which has a price to earnings ratio of 13.25, a 52 week range of $31-$41 and a market cap of $98 billion. Questcor is facing big competition; Sanofi and Novartis are two of the best and safest companies to invest in currently in the biotech industry.

Sanofi is up 22.14% since its inception in 2002, up 2.14% in the past year. Cash flow for Sanofi this year is a little over $7 billion and its dividend yield is 3.54%. Questcor's FDA approved Doral medication for insomnia faces tough competition from Sanofi's sleep medication Ambien, which brought in $951.1 million in 2010 alone. Yet, Sanofi is falling behind in the multiple sclerosis treatment race with Novartis and Questcor. Questcor has provided about $50 million in Acthar to patients in need. Acthar treatment generally cost about $50 per patient, and a 100% co-pay is available for said patients. Questcor is so committed to its patients well being that its generosity is paying off and doctors are giving preference to Acthar in treating multiple sclerosis, and this is leading to massive profit for Questcor. As of early March, Questcor released that it had made $248 million this year from the Acthar gel.

Novartis is up in share price by 28% since May 2010. Indeed, the price increase was warranted. Novartis still has the highest dividends out of its competitors and the lowest price to earnings ratio. Furthermore Novartis has over 130 drugs in its pipeline moving through development, pre-clinical and clinical trials.

While I do not ever recommend investing in biotech companies unless it has FDA approved drugs, the fact that Novartis has such a sheer number of drugs in development makes it is a very safe bet just by playing the odds of average failed drugs versus successful drugs in clinical trials. Novartis is funding these 130 projects with the $33 billion it made in pharmaceuticals, $10 billion in generic drugs with its partner Sandoz, $10 billion with its partner Alcon, and $4.6 billion for its over the counter drugs and animal health sales. Novartis is in store for a major upside through the next few years and is a much greater choice for long-term investment over Questcor and Sanofi. That is not to say that Questcor and Sanofi are not also good investments as well.

I believe that as far as investing in industries that have many unexpected pitfalls like biotech, Questcor, Sanofi and Novartis are some of the best companies to invest in. They all show positive growth in the past year with momentum to run with. While each company is competing with another in some aspects, none of them provide debilitating competition for each other.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.