Seeking Alpha
Profile| Send Message| ()  

By Ishtiaq Ahmed

Shares of Questcor Pharmaceuticals Inc. (QCOR) have lost 60 percent of their value in the last four weeks. Two main events caused the sudden fall in the price of QCOR. First event was the policy bulletin by Aetna (AET) in which the insurance company announced it could stop coverage for Acthar gel. The second event was the investigation by USAO into the promotional practices of the firm. However, the stock has started to pick up again due to favorable ratings by some analysts. At the moment, I believe the market is too pessimistic about the coverage of the drug by insurance companies. As I mentioned in my previous article, other insurance companies reiterated that they will continue to offer coverage for Acthar.

Further, an independent survey conducted by LifeSci Advisors indicates that the use of Acthar gel is expected to increase. A total of 976 nephrologists and 691 neurologists participated in the conducted survey. The participants were asked about their experience with obtaining reimbursement for therapy and their expectations for future use. The overall results of the survey indicated that physicians are usually able to obtain coverage for their patients. The majority of respondents (39/41) in the survey indicated an expectation that prescriptions for Acthar Gel will hold steady or increase over the next 12 months.

Expected Earnings:

Over the past year, Questcor has demonstrated exceptional revenue growth. For the previous quarter, the pharmaceutical company recorded 145% year-over-year revenue growth. In the same period, net income recorded 199% growth. In the second quarter of 2012, the company reported 1,526 prescriptions and it shipped 4,170 vials of Acthar gel. In the most recent 8-K filing, Questcor reported following numbers:

Prescriptions

July

August

September

Total by Condition for the quarter

Nephrotic Syndrome [NS]

108

119

105-110

332-337

Multiple Sclerosis [MS]

376

508

400-410

1284-1294

Infantile Spasms ([S]

39

37

25-30

101-106

Dermatomyositis/Polymyositis (DM/PM)

1

15

11--13

27-29

Other Rheumatology Indications

3

1

5--7

9--11

Total Rheumatology Indications

4

16

16-20

36-40

Total Prescriptions

527

680

546-570

1753-1777

Source: Company Filings

Prescriptions for the company increased significantly and recorded an increase of almost 15% from the second quarter. As a result, the sales for the firm increased. I expect the company to report impressive earnings on October 23, 2012. The company reported an increased number of vials shipped for the quarter. During the past three months, Questcor shipped 5,580 vials of Acthar gel, which shows an increase of almost 39% from the previous quarter. Questcor has been trying to increase its sales for Nephrotic Syndrome by increasing the sales force, and it looks to have paid off. For the previous quarter, total prescriptions for the Nephrotic syndrome were 314. However, for the third quarter, the prescriptions for the Nephrotic syndrome increased to between 332 and 337. This shows an increase of between 5.74% and 7.33%.

Furthermore, Acthar will now be eligible for lower Medicaid rebate amount. The previous levels of rebate were almost 100%, which will now come down to 23.1% in the next 3 to 6 months. This will be an extremely positive outcome for the company, and it can increase the revenues significantly. In addition, Questcor bought one million shares of its common stock and have the option to buy further seven million shares of common stock through its share repurchase plan.

Potential Problems:

At present, the potential problems for Questcor are the decision by insurance companies to follow Aetna and stop coverage for Acthar. The company faces threat of lawsuits from the shareholders. Moreover, any negative results of the investigation into the promotional practices of the company can bring penalties on the company. All of these issues pose a threat to the company, but I believe Questcor will be able to weather the storm. I do not think other insurers will follow Aetna. In fact, Aetna has not made a final decision itself. The company will make a decision on its policy in the current month.

Summary:

Questcor stock has taken a beating due to the above mentioned two events. At the moment, the stock is trading at a substantial discount. There is significant potential in this stock and I believe the stock price will go up as the company reports impressive third quarter results. As I have mentioned in my previous articles, Questcor has a unique product, which is essential for difficult to treat conditions. Questcor is trying to increase the usage of the product by adding more conditions and increasing the use for current on label conditions. I believe QCOR will again go above $30 mark once the company reports its impressive earnings for the third quarter.

Disclaimer: EfsInvestment is a team of analysts. This article was written by Ishtiaq Ahmed, one of our analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Source: Can Its Upcoming Earnings Report Push Questcor Back To $30?