We market H.P. Acthar® Gel (repository corticotropin injection), an injectable drug that is approved for the treatment of certain disorders with an inflammatory component, including the treatment of exacerbations associated with multiple sclerosis (“MS”), and the treatment of nephrotic syndrome. H.P. Acthar Gel (“Acthar”) is not indicated for, but is also used in treating patients with infantile spasms (“IS”), a rare form of refractory childhood epilepsy, and opsoclonus myoclonus syndrome, a rare autoimmune-related childhood neurological disorder. We also market Doral® (quazepam), which is indicated for the treatment of insomnia characterized by difficulty in falling asleep, frequent nocturnal awakenings, and/or early morning awakenings.
In August 2007, we announced our Acthar-centric business strategy, which included a new pricing level for Acthar effective August 27, 2007. The strategy was adopted in order to best position Acthar to benefit patients, advance our product development programs and ensure that the company become economically viable. Since the adoption of the strategy, we have expanded our sponsorship of Acthar patient assistance and co-pay assistance programs, which provide an important safety net for uninsured and under-insured patients using Acthar, and have established a group of product service consultants and medical science liaisons to work with healthcare providers who administer Acthar. We have provided free Acthar with a commercial value of over $20 million to uninsured and under-insured patients. In addition to the free drug program, we have provided significant financial support to patients through the co-pay assistance program of the National Organization for Rare Disorders (“NORD”).
As a result of these efforts, we are not aware of a single patient who needed Acthar but was not able to access it. This was not the case before our strategy change. Because we are now economically viable, we have significantly improved our ability to maintain the long-term availability of Acthar and fund important medical research projects that have the goal of improving patient care, despite the deterioration of the current U.S. economic environment. We have been working closely with the neurology community to identify promising new projects for which we can provide needed financial support. We are providing support to leading researchers in their efforts to better understand the underlying disease processes that cause infantile spasms, a subject for which there has been little research funding in recent decades. We are also in discussions with experts in other disease states with high unmet medical needs for which there is a potential therapeutic role for Acthar. As a result of these initiatives, which have been made possible by our change in strategy, we expect to fund more than a dozen new pre-clinical and clinical studies in 2009. We are also exploring conducting development efforts, or financing the development efforts of third parties, of additional pharmaceutical products addressing serious, rare conditions with unmet medical needs.
Acthar is currently approved in the U.S. for the treatment of exacerbations associated with MS, nephrotic syndrome and many other conditions with an inflammatory component. Pursuant to guidelines published by the American Academy of Neurology and the Child Neurology Society, many child neurologists use Acthar to treat infants afflicted with IS even though it is not approved for this indication. We are continuing to pursue a Supplemental New Drug Application (“sNDA”) to the U.S. Food and Drug Administration (“FDA”) to add the treatment of IS to the list of approved indications on the Acthar label. If the submission is accepted for filing by the FDA, we anticipate that the FDA may take final action on the sNDA in late 2009, though there can be no assurance as to the actual timetable for FDA action or whether the sNDA will be approved by the FDA. Additionally, even if the sNDA is approved, such approval could require various actions by the Company including modification of the existing Acthar label or the adoption of FDA-mandated risk evaluation and mitigation strategies. Previously, the FDA granted Orphan Designation to the active ingredient in Acthar for the treatment of IS. As a result of this Orphan Designation, if we are successful in obtaining FDA approval for the IS indication, we will also qualify for tax credits for certain clinical testing expenses and for a seven-year exclusivity period during which the FDA is prohibited from approving any other ACTH formulation for IS unless the other formulation is demonstrated to be clinically superior to Acthar or is considered by the FDA to have an active ingredient that is different from the active ingredient of Acthar.
We are also currently working on a number of initiatives aimed at developing future growth opportunities for Acthar in therapeutic areas other than IS. These include in-depth evaluation of uses that are currently a part of the extensive list of on-label indications for Acthar.
We have observed some continued usage, as well as favorable insurance coverage, in refractory MS patients who do not respond to, or who cannot tolerate, intravenous corticosteroids, the first-line treatment of most neurologists for MS flares. Market research indicates that many MS flare patients may be in this subset. In response, we modestly increased our promotional efforts directed to MS specialists to further explore the potential of this opportunity. Early results from our increased, promotional efforts directed to MS specialists were positive, as net sales of Acthar for MS increased, reaching approximately $5.5 million in the fourth quarter of 2008. As a result, in January 2009 we announced a plan to double the size of our sales force to 30 sales representatives to ensure greater coverage of the physicians treating refractory MS patients.
In October 2008, we announced that we are evaluating nephrotic syndrome as a potential new growth opportunity for Acthar. Nephrotic syndrome is characterized by excessive spilling of protein from the kidneys into the urine, known as proteinuria. Acthar is specifically indicated “to induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythamatosus.” If not adequately treated, patients suffering from nephrotic syndrome often progress to end-stage renal disease. End-stage renal disease is a serious, life threatening condition whose current treatments are expensive. Nephrotic syndrome can be caused by a number of different diseases and disorders of the kidney. In order to increase our knowledge of the role of Acthar in the treatment of nephrotic syndrome, we have been in discussions with leading nephrologists and have initiated and funded several planned post-approval clinical trials of Acthar in the treatment of nephrotic syndrome.
The August 2007 implementation of our Acthar-centric business strategy fundamentally changed the nature of Questcor and the success of that strategy to date has resulted in significantly improved financial results for the year ended December 31, 2008 as compared to the prior year. Our total net sales were $95.2 million for the year ended December 31, 2008 as compared to $49.8 million for the year ended December 31, 2007. Our income before income taxes and the deemed dividend on the repurchase of our Series A preferred stock was $58.7 million for the year ended December 31, 2008 as compared to income before income taxes and the allocation of earnings to preferred stock of $23.0 million for the year ended December 31, 2007. As of December 31, 2008, our cash, cash equivalents and short-term investments totaled $55.5 million as compared to $30.2 million as of December 31, 2007.
During 2008, we returned approximately $46 million to shareholders through our common and preferred stock buyback efforts. In February 2008, we completed the repurchase of the outstanding 2,155,715 shares of Series A Preferred Stock from Shire Pharmaceuticals, Inc. for cash consideration of $10.3 million, or $4.80 per share. In March 2008, we announced that our board of directors approved a stock repurchase plan providing for our repurchase of up to 7 million of our common shares in either open market or private transactions. Through December 31, 2008, we have repurchased a total of 3,490,900 shares of our common stock for $15.6 million under our stock repurchase plan, at an average price of $4.46 per share. In addition, we made two repurchases outside of our share repurchase plan. On August 13, 2008, we completed a board-approved repurchase of 2,200,000 shares of our common stock from Chaumiere Consultadorio & Servicos SDC Unipessoal L.D.A., an entity owned by Paolo Cavazza and members of his family, for $10.9 million or $4.95 per share. On September 3, 2008, we completed a board-approved repurchase of an additional 1,800,000 shares of our common stock from Inverlochy Consultadorio & Servicos L.D.A., an entity owned by Claudio Cavazza, for $9.1 million or $5.06 per share.
We have registered trademarks on H.P. Acthar® Gel and Doral®. Each other trademark, trade name or service mark appearing in this document belongs to its respective holder. We believe that our trademarks, trade names and service marks have value and play an important role in our business efforts.
Our corporate office is located at 3260 Whipple Road, Union City, California 94587 and our telephone number is (510) 400-0700. Our corporate internet address is http://www.questcor.com. We do not intend for the information contained on our website to be part of this Annual Report.
H.P. Acthar Gel
H.P. Acthar Gel, which we acquired in July 2001, is a natural source, highly purified preparation of the adrenal corticotropin hormone (“ACTH”). Acthar is specially formulated to provide prolonged release after intramuscular or subcutaneous injection. A primary mechanism of action for Acthar is the stimulation of the adrenal cortex to secrete endogenous corticosteroids, including cortisol, corticosterone, aldosterone, and a number of weakly androgenic substances. It is believed by certain key medical researchers that there may be additional mechanisms of action for Acthar. Questcor has initiated the funding of studies of some of these possible mechanisms. Acthar was approved by the FDA in 1952 and is used in a wide variety of conditions, including the treatment of periodic flares associated with multiple sclerosis, infantile spasms, opsoclonus myoclonus syndrome, and nephrotic syndrome.
Acthar is indicated for use in acute exacerbations of MS and is prescribed currently for patients that have MS and experience debilitating, episodic flares. We promote Acthar for the treatment of exacerbations of MS. Intravenous methylprednisolone is the most common treatment of choice for this indication, but Acthar continues to be used in some patients who do not respond adequately to intravenous methylprednisolone or who cannot tolerate intravenous methylprednisolone.
Although the FDA-approved package labeling does not include IS as an FDA-approved indication, Acthar has historically been used to treat this condition. Based on the document entitled Practice Parameter: Medical Treatment of Infantile Spasms, a 2004 report of the American Academy of Neurology and the Child Neurology Society, we believe that there has been no clinical evidence to show that any therapy is better than Acthar for the treatment of IS. IS is an epileptic syndrome characterized by the triad of infantile spasms (generalized seizures), hypsarrhythmia and arrest of psychomotor development at seizure onset. We estimate that as many as 2,000 children annually experience bouts of this devastating syndrome in the U.S. In 90% of children with IS, the spasms occur during the first year of life, typically between 3 to 6 months of age. The first onset rarely occurs after the age of two. Patients left untreated or treated inadequately have a poor prognosis for intellectual and functional development. About two-thirds of patients are neurologically impaired prior to the onset of IS, while about one-third are otherwise normal. Rapid and aggressive therapy to control the abnormal seizure activity appears to improve the chances that these children will develop to their fullest potential.
The availability of Acthar in the several years before our acquisition of the drug in 2001 from Aventis Pharmaceuticals, Inc. (“Aventis,” now CSL Behring) was very restricted, so that many physicians used synthetic steroids and other unapproved products to treat IS. Acthar remains the treatment of choice among physicians. Acthar may be challenged by newer agents, such as synthetic corticosteroids, immune system suppressants known as immunosuppressants, and anti-seizure medications (in the case of IS) and other types of anti-inflammatory products for various autoimmune conditions that have inflammation as a clinical aspect of the disease. Vigabatrin is a potentially competitive product that is currently approved for use in Canada and is under review in the United States by the FDA for the treatment of infantile spasms. In January 2009 an Advisory Committee appointed by the FDA voted to recommend that the FDA approve Vigabatrin as a therapy for infantile spasms. Solu-Medrol (methylprednisolone sodium succinate) and its generic versions are the primary competitive product to Acthar for the treatment of MS flares. See section below titled “Competition” and Item 1A “Risk Factors: Risks Associated with our Current Business — We are aware of several competitors attempting to develop and market products that treat IS, which may reduce or eliminate our commercial opportunity” for a discussion of additional risks related to competition.
In addition to being indicated for the treatment of exacerbations of MS and nephrotic syndrome, Acthar has over fifty other labeled indications and uses in certain endocrine disorders, rheumatic disorders, collagen diseases, allergic states, ophthalmic diseases, respiratory diseases, hematologic disorders, neoplastic diseases, edematous
states, and gastrointestinal diseases. Questcor is currently studying the potential use of Acthar in these and other indications and may fund additional studies. There can be no assurance, however, that we will ever successfully market Acthar as a treatment for any of these disorders or diseases.
For the years ended December 31, 2008, 2007 and 2006, net sales of Acthar were $94.4 million, $48.7 million and $12.1 million, respectively.
Doral
In May 2006, we purchased the rights in the United States to Doral from MedPointe pursuant to an Assignment and Assumption Agreement. Doral is a commercial product indicated for the treatment of insomnia, characterized by difficulty in falling asleep, frequent nocturnal awakenings, and/or early morning awakenings. Sleep disturbance and insomnia are very common side effect of many diseases and disorders. Net sales of Doral were $800,000, $1.1 million and $714,000 for the years ended December 31, 2008 and 2007 and the period May 2006 through December 2006, respectively.
Product Development
In November 2006, we initiated a clinical development program under our investigational new drug application with the FDA for QSC-001, a unique orally disintegrating tablet (“ODT”) formulation of hydrocodone bitartrate and acetaminophen (“HB/APAP”) for the treatment of moderate to moderately severe pain in patients with swallowing difficulties. QSC-001 is being formulated by Eurand Pharmaceuticals, Inc. and would utilize Eurand’s proprietary Microcaps® taste-masking and AdvaTabtm ODT technologies. We own the world-wide rights to commercialize QSC-001 and Eurand would exclusively supply the product and receive a royalty on product sales. HB/APAP, in its variety of strengths, is one of the most frequently prescribed products in the U.S. and there are currently no ODT formulations of HB/APAP available in the United States. For the many individuals who experience significant difficulty swallowing pills, we believe QSC-001 represents a valuable option for the treatment of their pain. During the third quarter of 2008, we completed formulation development of QSC-001. Eurand would receive milestone payments upon the achievement of certain development milestones. We did not make any milestone payments to Eurand in 2008. Currently, we are seeking a partner to complete development of this product so that our research and development resources can be focused on pursuing the numerous potential growth opportunities for Acthar that have recently been identified.
Questcor continues to incur expenses pursuing obtaining approval for the treatment of IS with Acthar as well as funding numerous post-approval clinical trials for IS, MS, and nephrotic syndrome.
Our research and development expense totaled $10.6 million, $4.8 million and $3.0 million for the years ended December 31, 2008, 2007 and 2006, respectively.