Crime is paying very handsomely! A strong company with an effective product, and massively growing sales has been driven down, in all likelihood, by a few puppeteers. Will honest, disciplined investors take advantage of the massive gift!
It should not surprise us that a few unscrupulous players (I cannot call them investors, nor do I want to besmirch the term traders) can, in all likelihood, create news and then drive a stock price down. While I can only speculate, here are the steps that such despicable people would take:
Step 1: Deploy an expert network company to find a former disgruntled former employee of Questcor who is willing to prove his lack of good name by becoming the front-man for a lawsuit that charges the company of some form of illegal activity while he was there. (Yes, these expert networks that proved to be a fountain of insider information in the Galleon case can be used in other inventive ways) For our purposes the critical element is having a suit, not the merits of the underlying suit. In the scope of illegal activity marketing off indication is very bad; paying off doctors is substantially less bad. Given that Acthar is approved for 19 indications, it is unlikely to be the most severe.
Step 2: Given the ace up the sleeve, build a massive short position in the stock. Once built, recognize the slow burn is much better in terms of payoff - time to play puppeteer! Employ discredited sites such as Streetsweeper and Citron to publish silly thoughts that appears to be research to less savvy investors (read marionettes). Continue to hold the lawsuit trump card up the sleeve.
Step 3: Try to get a few round turns on the opportunity. Continue to hold the ace - it pays to be a patient player. The AETNA policy is a great example of one of the smoke bombs at their disposal. A policy position that is consistent to the current policy is published and highlighted by some silly people. As we have learnt, AETNA has not changed its policy - doctors must continue to run through courses of the cheaper medical alternatives before pulling out the heavy and expensive guns; duh!
Step 4: The big reveal. It might not be known to many of the owners of Questcor stock (or former holders, for that matter) the quality, severity or legitimacy of the lawsuit is pretty much irrelevant to these fraudsters. Once the case is filed, the US Government is required to file a suit; ka boom - investors flee. The end game, in all likelihood is here! The sizzle of the suit is the key, it has little to do with the steak.
Let's look beyond the word of the Turd Joint puppeteers and their willing marionettes. Why own Questcor?
1 - The drug works. It has helped many patients, and sales continue to grow because the product works. Further, the drug works on alleviating problems related to inflammation. Any casual reader of periodicals can note the tremendous increase of references of inflammation related to a huge number of health problems. It might be the case that this miracle chemical can attach even bigger markets
2 - Earnings are growing close to 100% year over year.
3- It is trading at approximately 6 times earnings.
4- The business does not need the capital markets. Whether the stock trades for $1 or $100, the company only needs to focus on its strong cash producing business. This is not a company that needs to dip into the capital markets to fund future opportunities - thankfully!!
5- Given current assets of $3 per share and earnings in 2013 of close to $4, the cutting edge inflammation technology is very, very cheap (you could say you are being paid to own it).
The way I see it the market is giving me $50 for less than $20. If the company can further exploit its enviable position in aiding problems related to inflammation, there would be substantially more upside!
Further, if I were the attorney general or the SEC I would follow the money and email, cell phone traffic related to any expert network, or any revealed whistleblower, look at the high frequency trading activity and use this as a case that high frequency trading is not there for liquidity. It is a tool for exploiting the trading activity that we have seen in this stock. I would not be surprised if the players behind this are big game - the only type worth going after.
Disclosure: I am long QCOR.