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The pharmaceutical company Questcor (QCOR) saw a huge ~40% drop on September 19th on news that the healthcare company Aetna (NYSE:AET) would change its reimbursement policy for H.P Acthar gel (Questcor's flagship product and most important source of sales revenue).

The renewed policy established Acthar gel as a necessary treatment option for West Syndrome (infantile spasms), but not for multiple sclerosis or nephrotic syndrome. That came as a huge shock to QCOR analysts, who began to anticipate more negative policy updates on Acthar gel. This explains how the stock lost well over half its value on a direct reduction of only 5% of its sales revenue (according to company statements).

Shorts started pilling on, extending declines in QCOR stock until the company announced a huge 7 million-share jump in its share repurchase program and a quarterly dividend of $.20 per share. It was clear that the company was trying to prove that Questcor was more-than-solvent and would be okay, although the market met this move with unsurprising skepticism. It seemed as if Questcor management was desperate to appease the shareholders - a bad feeling in the midst of SEC probes.

The next big update came last Friday (October 5th), which was initially considered a big defeat for the company judging by price action. United Health (NYSE:UNH) issued its own update to its Acthar gel policy. The update contained changes that reduced approval timeframes for multiple sclerosis and infantile spasms.

This seemed like another threat to Acthar sales revenue. Following the market's movements, and the analysts who were upping bearish sentiment, I made the same mistake in my attempt to recap the situation as quickly as possible.

The United Health Oxford update was later revealed to be a very neutral change that would have little impact on Acthar's sales. If anything, this may have a positive impact based on one of the changes to Acthar's MS treatment that allows for three weeks of treatment without MD review. The update is explained more thoroughly in a recent article by Michael Fuller, who takes a look at each of the 4 updates that were made.

QCOR has already moved to $21.30/share, reflecting shareholders' relief that United Health didn't make things any worse. Nonetheless, I think QCOR still remains deeply undervalued. It was a $50 stock prior to the wave of bearish speculation brought about by Aetna's policy change, which assumed that more than 5% of Questcor's Acthar revenue was going to be eliminated. Since the much larger provider United Health didn't cut reimbursement with its own policy update, most of Acthar's business is intact. Due to this, QCOR should gain a lot more confidence later on.

Source: Questcor Reverses Direction On News