If you want to intervene pharmaceutically in the maximum number of indications, do it with a hormone that is central to the body's functions. That is the lesson provided by Questcor Pharmaceuticals (QCOR), whose major product, Acthar Gel, is useful for nineteen different approved conditions. These include infantile spasms, nephrotic syndrome, multiple sclerosis, psoriatic arthritis, rheumatoid arthritis, ankylosing spondylitis, systemic lupus erythematosus, systematic sarcoidosis, certain ophthalmic diseases and more.
Acthar is a timed release formulation of adrenocorticotropic hormone (ACTH), which is produced in a complicated and expensive process from porcine pituitary glands. Normally secreted by the anterior pituitary gland, ACTH is a major mediator of the stress response. The target organ of ACTH is the cortex of the adrenal gland, from which it causes the release of a number of steroid hormones, including glucocorticoids, like cortisol, and mineralocorticoids, like aldosterone. Glucocorticoids, in general, are useful in ameliorating the effects of allergic reactions or auto-immune diseases like multiple sclerosis.
Although the multiple indications for Acthar might generate significant revenue in the future, almost all of Questcor's revenues come from just three of these indications: multiple sclerosis, infantile spasms, and proteinuria in nephrotic syndrome. More than 80% of paid prescriptions in 2011 were from multiple sclerosis, which increased 250% from 2010. Sales for nephrotic syndrome are still relatively small but increased almost nine-fold from 2010.
Multiple sclerosis is treated with a variety of biotech drugs, including interferons, monoclonal antibodies, immunomodulators, and immunosuppressants that may alter the long term course of the disease. Acthar, however, is indicated for short term exacerbations and competes most directly with the generic glucocorticoids, which are generally considered the treatment of choice. Doctors prescribe Acthar for patients who cannot tolerate high dose glucocorticoids or have not responded to glucocorticoids.
Nephrotic syndrome is a condition in which the kidneys leak blood protein into the urine (proteinuria). This disease is treated with glucocorticoids or Acthar, which sometimes can resolve the condition, particularly in children.
Infantile spasms are a form of early epilepsy. Acthar is the primary treatment in the U.S. The mechanism of action of Acthar is ameliorating infantile spasm is unclear. Vigabatrin, an anti-convulsive drug made by LUNDBECK A/S (OTC:HLUKF) has also been approved for the condition in the U.S., but has significant side effects, including vision problems.
Questcor is exploring the use of Acthar for diabetic nephropathy, which is the leading cause of end stage renal disease (ESRD) in the U.S. In a small clinical trial, Acthar reduced proteinuria by 67% in the treated patients, none of whom advanced to ESRD, while 40% of the control group did progress to ESRD.
Questcor's other drug is Doral, for which the company owns U.S. rights, is indicated for insomnia. Sales were insignificant in 2011.
Questcor is currently has a market cap of $2.6 billion which is about 12 times tangible book value and about 34 times current earnings. Investors are clearly expecting revenues to continue rapid growth. Sales nearly doubled in 2011 from 2010, while income was up 100% to 1.12 per share. Income for the fourth quarter was $0.48 versus $0.10 in the year earlier quarter. Estimates for the second quarter of 2012 average $0.57. A year ago, the average estimate for the same quarter was $0.22, so the outlook on the company has been ramped up.
Of eight analysts covering the stock, seven rate it as a buy and one as an outperform.
Questor's makes most of its revenue from a biotech drug that is used to treat multiple sclerosis. In that respect, it has something in common with major biopharmaceutical companies like Novartis (NVS), Biogen Idec (BIIB), and Teva Pharmaceuticals (TEVA). Novartis and Teva market immumodulating drugs for multiple sclerosis, Gilenya and Copaxone, respectively, while Biogen Idec sells a monoclonal antibody called Tysabri. All of these competitors are much larger: Novartis has a market cap of $139 billion, Biogen is valued at $30 billion, and Teva at $43 billion. Questcor is an anomaly, in that its expensive drug actually competes successfully with generic steroids, so these huge companies aren't really its direct competitors.
Is Questor worth its high PE ratio? If it continues its high growth rate in multiple sclerosis treatments, it certainly is. In a recent response to a blogger's question, the company said the following:
Questcor believes that the number of MS patients who suffer from flares and who are incomplete responders to steroids or who have problematic side effects from steroids, is materially higher than the current annualized run rate of Acthar prescriptions currently written for MS flares. Therefore, the Company believes that a significant opportunity may exist, through the continued education of physicians who treat MS patients, to increase the awareness of and potentially the usage of Acthar to treat MS flare patients. As has been previously publicly announced, the Company currently plans to expand the number of Acthar sales representatives promoting Acthar for MS flares during 2012.
That said, there are risks in investing in a company which makes essentially all of its revenues from a single drug. For instance, the company purifies its ACTH from porcine pituitary glands, but the amino acid sequence of human ACTH is well-known. You can buy ACTH that is 99% pure from a Chinese biochemical company (this doesn't necessarily imply that it has full biological activity). So, the risk in the long-term is that a competitor qualifies a similar competitive compound for some or all of the indications for which Questcor's drug is used. The major impediment is the cost and time required for clinical trials.