Questcor Will Soar If Drugs Can Breach New Markets

| About: Mallinckrodt PLC (MNK)

While some see Questcor Pharmaceuticals (QCOR) as a good investment to hold onto, others are less than convinced that its methods and policies will yield success in the future.

Questcor only produces two drugs, namely Acthar and Doral. That's all. It is not working on any new drugs and it does not seem inclined to develop new drugs in the future. It also appears to have no interest whatsoever in acquiring new drugs from other sources. This is quite an interesting tactic for a drug company.

The company instead focuses on finding new uses for the two drugs that it already has available, with most of its efforts being channeled into Acthar. It must be said, however, that this is a fairly remarkable drug that can be used to treat multiple sclerosis, nephrotic syndrome, and infantile spasms. Two years ago, Questcor received FDA approval to use the drug to treat 19 separate conditions, and there are a number of additional trials currently underway to see if the drug's usefulness can be extended even further.

The other drug that Questcor manufactures, Doral, has not received as much attention, and is not terribly well known. However, it does have a strong reputation in the medical field, specifically in the treatment of insomnia.

Questcor's methods are certainly questionable. It does not channel any resources into developing new drugs, believing that it can combat certain difficult diseases simply by continuing to modify and work on its two existing drugs. However, before you question further, this is a method that has already met with some success. The profits roll in regardless of the fact that no new drugs are being manufactured by the company, which means that Questcor remains a solid investment to hold on to.

I would suggest that you continue to hold onto your Questcor stocks, while at the same time looking in on other pharmaceutical companies where more research is ongoing. This is in line with the old idiom "don't put all of your eggs in one basket" and the expression remains especially true regarding the pharmaceutical industry. Competitors of Questcor that are currently in the spotlight for the development of new drugs are Biogen Idec (NASDAQ:BIIB), Novartis AG (NYSE:NVS), and VIVUS (NASDAQ:VVUS).

Biogen is currently is currently focused on finding a treatment for a very difficult disease, namely Amyotrophic Lateral Sclerosis, or ALS or Lou Gehrig's disease, with its new drug, dexpramipexole. This drug is in the final stages of clinical trials and it will soon be determined whether the FDA deems it to be safe and effective and therefore eligible for distribution.

Novartis is actively working on finding a treatment for chronic obstructive pulmonary disease, COPD. Recently, it was declared that all of the primary endpoints in the testing of QVA149 in the treatment of COPD were met and that they were successful.

VIVUS has developed an anti-obesity drug known as Qnexa which is expected to be either approved or denied by the FDA by the middle of this year.

By comparison, Questcor appears to be making very little progress indeed. However, if we accept that companies should be assessed as good or bad investments based on their future potential, then it can be said that Questcor remains a good bet. Questcor has already proven the success of its drug Acthar in 19 separate conditions. This is not something that will change. With other companies, you will experience the uncertainty that comes from not knowing whether or not a trial will be successful. With Questcor the success is already a known variable.

In addition, Questcor was lucky in the initial marketing of the drug. It is not easy to introduce a new drug to the field. If the drug does not make an impact on its first release, then the chances are high that it will not have a great impact on the company. However, Acthar sold quickly and easily despite its price when it was first introduced, and now Questcor is inclined to trade on its success.

To end, let us consider two of Questcor's other competitors, Valeant Pharmaceuticals (NYSE:VRX) and Affymax (NASDAQ:AFFY). Something that we have not seen from Questcor is an inclination to acquire other companies, something which many see as an essential part of being a successful company in the future. If we compare Questcor to Valeant, we can see that the company is falling well behind the normal trends. Valeant recently acquired Pedinol Pharmacal. This is just its most recent acquisition in a long line of similar purchases. This is, in fact, seen as a natural extension for the pharmaceutical company to have made. The more diverse a pharmaceutical company is the more chances it has of achieving success, especially if one of its drugs is not approved.

Affymax is the last competitor that we will consider. Not only has Affymax successfully created the only once-monthly erythropoiesis-stimulating agent (ESA) for anemia available to the dialysis patient population, but it has also managed to get a special Medicare code for the drug which will streamline its distribution significantly. As an investor this is the kind of innovation and forward thinking that I look out for in potential buys. It makes Questcor a more nail-biting kind of purchase, since its price will leans so heavily on two drugs.

Some say that Questcor will soon flounder while others assert that it will keep on going for years to come. The best thing to do is to monitor Questcor's products closely, which is fortunately a very easy thing to do, and to have back up investments with which to cushion any losses that the company may suffer. My recommendation now is to wait on buying until you see on of its two drugs become a recommended treatment for something new. That, and perhaps only that, will drive Questcor up.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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