Michael Fuller's  Instablog

In an move that caught shorts off guard, news was posted that Kaiser Permanente established coverage of Questcor's (QCOR) flagship product Acthar.

Kaiser of Georgia is the first to release new 2013 reimbursement coverage documentation. It does, of course, include the need for pre-authorization as all high tier level drugs do.

Will we see more soon, as other regional Kaiser entities publish their new formularies?

Here is the link to their new 2013 formulary.

https://healthy.kaiserpermanente.org/static/health/pdfs/formulary/ga/ga_formulary_members.pdf

Disclosure: I am long QCOR.

Questcor (QCOR) is getting a lot of press lately, mainly because of the document updates that insurance companies are performing.

The question of why they seem to be doing this now, was raised to me.

Let's look at some history, to set the stage. Questcor started marketing Acthar as an MS second line drug, for patients with steroid contraindications. It is also considered an expensive drug, and would fit under the higher tiers in a drug formulary.

Before that, the FDA approved Acthar for use with Infantile Spasms, with little more efficacy data than was available for MS, or any of it's other previously FDA approved indications.

That sounds odd, why would the FDA approve a drug so easily? First, like MS, the studies that are out there on IS, showed efficacy, even if anecdotally. Second, it's main active ingredient, is the hormone that your body uses in a regulatory feedback loop. ACTH is created by your Pituitary Glands, sent to your Adrenal Glands via your blood, and then Corticoids are released by your Adrenal Cortex. Yes, the same Corticoids that you could get injected with, but these are your body's steroids, so there won't be a risk of an allergic reaction or other problems.

Textbooks have documented what ACTH is for decades, in the Endocrine chapter.

Over the last few years, Questcor has been funding studies to show efficacy, in an attempt to answer the question within more updated FDA standards for testing. Is this necessary? Let's consider their motives.

First, it lays to rest the questions. Second, a lot of the studies are for other indications that they want to market to. Third, these new studies, like the ones that will be presented at Kidney Week, are uncovering new ways in which the hormone interacts with the body. I smell some textbook updates in the works...

Back to the Insurance Companies, a few years ago they added Acthar to their formularies. It was a rare occurrence that they needed to step through the process of pre-authorization, so it wasn't really on everyone's radar or even something other business units were concerned about. It's in the drug formulary and it's loaded into our case and disease management systems for our RN's to discuss with prescribing docs. It's NDC code is even in our Claims Adjudication system. Our medical review staff have the information, for when it's necessary, done.

Recently, Acthar is being used more. Maybe due to increased marketing, maybe due to MDs remembering there is an alternative for their patients who have difficulty with steroids, maybe because the studies Questcor funded a few years ago are being completed, and word is spreading between colleagues... Probably, all the above.

With Acthar now being more prevalent, insurance companies are looking at their member documents, and seeing that it never made it in. Expecting more questions from patient's and doctors (maybe they are already starting to get them), they are updating the documents, for 2013.

So far, any of the updates that Citron has brought to light, Oxford, United Health (UNH), and Humana (HUM), all seem to reflect the coverage they have had all along (see my articles for more information).

Aetna (AET) is the only outlier to the equation so far, so let's examine that. Aetna changed their coverage based on 1 study. The same study they used to decide coverage for the previous years. The study in question, actually states that their is 'no significant difference' between ACTH and steroid treatments. Aetna's coverage policy always has included language that ACTH is effective, and it still does today (just checked). So, what they didn't want to cover was Acthar, or did they?

The information that came out, resulted in a confusing storm of press. Reporters, patients, investors, lawyers, you name it. They attempted to provide some quick answers, and that resulted in the news cycle speeding up. They finally said they'd review it, with an expected date of Oct 13th.

In the meantime, an investigation was launched, lawsuits were being filed daily, and everyone seems focused on Aetna.

Sometimes the old adage of any press is good press, isn't true. It's distracting. Information is being garbled no matter how clear it is provided, and having your policy being named in all these lawsuit's complaints... If Aetna were a person, they'd have drawn the shades, turned out the lights, and called the police to get the reporters off their property or maybe that's just me.

I know one thing for sure, my lawyer would tell me to not talk to anyone until he has time to do a review of the situation.

Besides, in the meantime, I believe we were informed that Aetna will be covering Acthar for their current members, for the next 12 months. They really don't have a reason to hurry and jump in the news cycle again.

One thing I will make a bet on is that Aetna didn't expect all this. It was a simple coverage document change, which after reading multiple times, I can still go back and forth on interpretation.

Back to everyone else, now that Aetna has gotten so much press, wouldn't it be prudent for other Insurance Companies to take a look at their documents and avoid all that?

I mentioned this in one of my articles, I expect that other insurance companies are getting their documents in order for open enrollment, to avoid all this, and to answer questions they may already be receiving phone calls for.

What we also know is that a survey of MDs was conducted, and they still seem to be prescribing. There was a Biotech conference, and some Insurance Company reps indicated essentially a neutral stance on the situation, indicating they would not be changing their coverage.

In the meantime, a lot of Big Institutions were caught off-guard, and took short positions. I'm seeing their holdings at 110%, which means they effectively could have shorted all of their shares, to hedge against the doom Citron wrote about last month.

The doom doesn't appear to be occurring though, and further evidence provided by Citron, doesn't pass the most basic of smell tests. If there is real evidence, Citron either doesn't know it, or isn't sharing.

Deerefield decided to enter the fray though. They bought a lot of shares sometime in the past few months, and they had a decent short position 3 months ago.

Questcor also seems willing to up the ante, and announced a dividend and new share repurchase. That was after they bought a boatload of shares earlier this year. If they keep this up, there won't be any shares to trade in a few years...

So here we are, a stock that has a low outstanding share count, shorted more heavily than most have seen before, and waiting for clarity on Wednesday.

In my new article, which should be published by Monday, I share some of the guidance we already have, and some upcoming catalysts.

Enjoy the rest of your weekend!

Disclosure: I am long QCOR.

These are some notes and ramblings from my research. I haven't completed all my research, or compiled all that I do have, so there may be some inaccuracies. For that reason, I do not warrant any of it as accurate, and I do welcome comments.

I did want to share it with everyone though, as it may be helpful, or I may have someone with more background, that provides better insight or corrections.

I have researched the company that is contracted to manufacture Acthar for Questcor (QCOR). I have also researched the make up of Acthar, from what is available, and using textbooks to fill in some gaps.

From a therapeutic perspective, Acthar is an easy drug to understand, considering it contains 2 hormones that are rather well know. The caveat to that, is the newer research has started to uncover additional ways it affects the immuno-suppression system. So, it's not just your basic endocrine chapter of information.

From a manufacturing perspective. A generic would need to contract with a high tech Bio manufacturer, as purified ACTH requires quite a bit.

One of Citron's claims, that the drug was shelved based on it's usefulness is inaccurate. The previous company used Bovine, and as we all remember, there was a mad cow problem for a while, starting in the late 90s. Aventis had the manufacturing done, where mad cow was a problem. Questcor's manufacturer is up in Canada, and they use Pig.

For those that don't know, ACTH is created using animal pituitary glands. Those are hanging from the infidibulum (a little stalk), in your brain.

Acthar also contains joining and other peptides. That's where the 'secret ingredients', if you want to call them that, reside. They know how the ACTH and LH are connected, and what other peptides they are using for purposes like probably increasing cell uptake (via receptors), etc, etc.

The synthetic ACTH, used in Europe, only has 24 of the 39 amino acids. It is claimed that those are the only 24 that are functional. However, as I stated before, the newer research (like what will be presented at Kidney Week), is finding newer ways that the hormone ACTH interacts. So, 15 less amino's may make a difference, at least for some indications like NS.

It's also interesting to note, that the Synthetic is not approved in all other countries abroad. Some only allow it for adrenal insufficiency testing, and others only for Veterinary use.

While my previous statement 'newer ways of the drug interacting' may sound like it plays into some of Citron's claims, it really doesn't. These new interactions, are also the same interactions that the ACTH your body is constantly creating (half life of 10 minutes in your body), interact. So, this is literally new Human Anatomy information too.

With all that in mind, it may be feasible to bring a generic to market but I tend to agree with Questcor and other investors. Barriers are:
- R&D costs
- FDA testing, and we all know how fast that is
- Contracting with a manufacturer that has the right facilities
- Time Premium Decay

The last one is probably the most important. By the time another company has spent millions to get a generic approved, Questcor's costs will probably have gone down with volume. They are actively pursuing other indications, and not only the price, but the acceptability of price will be better. For example, it may end up on Tier 2 of UNH's policy, based on cost.

There are calculations out there, StreetSweeper even uses a standard calculation in their hatchet piece, that determine whether another Pharma should look into pursuing a generic.

Right now, it may look enticing from the price perspective, as Citron and SW claim, but for small current population groups being treated, well that is a risky proposition. Are you really going to spend millions and millions just to grab 200 NS patients of market share?

Again, by the time it may be feasible for a generic, it still won't be worth it because the price will be lower, and Questcor will still be a very profitable, growing company, on much larger volume.

Disclosure: I am long QCOR.