When it comes to traditional blue-chip dividend investing, income driven investors are looking for solid yields with regular (monthly, quarterly, etc.) dividend distributions. When income-investors tend to go off the 'traditional' path, things could get a bit hairy when it comes to such sectors as biotech and such variables as value. In this article, I wanted to examine one company in the biotech sector which should now be considered from an income-based strategy.
Questcor Pharmaceuticals (QCOR)
Questcor, is a biopharmaceutical company which:
provides prescription drugs for the treatment of multiple sclerosis, nephrotic syndrome, and infantile spasms indications. It primarily offers H.P. Acthar Gel, an injectable drug for the treatment of acute exacerbations of multiple sclerosis in adults; to induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus; and as monotherapy for the treatment of infantile spasms in infants and children under two years of age
In my opinion, there are two positive variables to consider when it comes to Questcor. First and foremost, the company has recently initiated a brand new share buyback plan and announced it will be paying a quarterly dividend of $0.20/share. According to Ben Fox of Marketwatch.com:
The buyback program was boosted to 7 million shares, including the 3.2 million shares that were previously authorized. The company had about 64.1 million shares outstanding, as of June 30.
For a stock which has a seen a year to date decline of 36.25%, these two catalysts should not only strengthen shareholder confidence, but attract a new type of potential investor.
The second variable to consider when it comes to Questcor concerns revenue performance. Revenues are up 150% so far this year, which is nearly 2.5 times that of the 61% average revenue growth the company has experienced over the last 5 years. Even though Aetna has stopped reimbursing patients for the use of its Acthar Gel, I strongly believe the company can maintain or even exceed its current growth rate of 33.50% over the next five years. Why? The number of vials of Acthar sold this year has already exceeded 887, which is roughly 3.3 times the number of vials sold last year.
Are there any negative catalysts to consider in terms of Questcor? The biggest negative catalyst is clearly the ongoing investigation by the US government regarding the company's marketing practices. According to ThinkEquity analyst Jim Molloy:
The difference between this (investigation) and Aetna is that the Aetna deal is quantifiable, but it is hard to quantify what the risk is in an investigation with the U.S. government
Since we are unable to quantify the risk associated with the US government investigation, potential investors should prepare for the worst and hope for the best. Such an investigation has the ability to wipe away not only significant market cap, but significant market share when it comes to the company's Acthar Gel.
For potential investors looking to establish a position in Questcor, I'd take a closer look at the company and keep in mind any unfavorable news pertaining to the US government's investigation could send the stock into a downward spiral. If potential investors are going to consider QCOR from an income perspective, I'd begin by establishing a small to medium sized position and add as ex-dividend and record dates approach.
Disclosure: I am long QCOR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.