Short sellers got some bad news in Questcor Pharmaceuticals, Inc. (QCOR) yesterday. The company announced expected changes in its Medicaid reimbursement rate, which could reduce it from 100% today to as low as 23.1%. Up until now, the company has had to rebate back 100% of Acthar's cost to Medicaid. With the change, it will pocket roughly 77%. This means Questcor will finally begin making money treating Medicaid patients.
This is a significant and material change for shareholders
For over a year, the company has been ramping its sales force to target new, previously-approved indications for Acthar Gel, including Nephritic Syndrome ("NS"), which I discussed in more depth back in June.
Only a little over a year ago, the company began sending out a team of five people to talk up the benefits of Acthar for NS. Now, the company employs a team of 58 sales people dedicated to nephrologists. It seems to be worth the effort. In Q2, the sales team produced 340 new NS paid scripts for Acthar, generating annualized revenue of over $200 million. The jump in sales has more than offset the costs of building out the team. Last quarter, operating margins improved to 54.3% from 44.4% a year ago.
The success in NS complements steady growth in use for the treatment of relapsing multiple sclerosis. In the quarter, MS paid scripts grew 48% 1110 vials. Across those indications, and more limited sales for the treatment of Infantile Spasms, Q2 sales jumped 145% to $112.5 million.
This growth has encouraged Questcor to investigate other on-label indications, including the recent launch of a 12 person sales team targeting rheumatologists. This team will be advocating Acthar's use for various on label treatments for indications associated with lupus, Psoriatric arthritis and Rheumatoid arthritis.
The sales growth has also translated into a significant number of dollars being set aside to reimburse Medicaid. In the most recent quarter, 14.6% of gross sales were set aside, bringing sales reserves to $38.7 million at quarter end versus $27.1 million a year ago.
Since most of these reserves are tied to the 100% Medicaid reimbursement rate, the change to 23.1% materially boost both revenue and earning per share.
Given sellers are sitting on over eight days of average volume short, there will likely be additional covering as analysts adjust their models and boost their expectations.