PropThink: QCOR Delivers Big Upside In 3Q; Acthar Prescribing & Reimbursement Remain In-Tact

Wed Oct 24, 2012 7:38am EDT

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By David Moskowitz

Questcor Pharmaceuticals (NASDAQ:QCOR) trounced 3Q 2012 earnings expectations, with reported revenues of $140.3M and adjusted EPS of $0.97 for the period. This compares to Wall Street Consensus revenue and EPS estimates of $128.8M and $0.76, respectively. In the third quarter, the company shipped 5,590 vials of its primary revenue driver, Acthar Gel, representing 92% growth versus the same period last year. Also impressively, reported sales in 2Q 2012 were $112.5M, indicating sequential growth of 24%. With the drug now at a yearly run-rate of about $560M (3Q 2012 sales annualized), we estimate that if Acthar sales were to flatten from here, shares of QCOR would be fairly valued in the $37 to $46 range. We calculate this by applying a long-term biotech revenue multiple of 4-5x the current revenue run-rate, noting that the $37 end of the range might be more realistic for now given that reimbursement uncertainty still may exist.

Most importantly, QCOR's senior management noted "nothing unusual" with October prescribing trends and health insurance reimbursement for Acthar, as treatment with the product has always been on a case by case basis when patients have failed or can't tolerate all prior lines of therapy including corticosteroids. On Tuesday's conference call, the company presented two examples of Acthar-treated patients, one with multiple sclerosis (MS) flares and the other with nephritic syndrome (NS), both of which did poorly on other lines of therapy, including steroids, but significantly improved when Acthar Gel was used. In addition to the three lead indications for Acthar; MS, NS, and infantile spasm (IS), there are several other 'on-label' indications as well as new indications that the company is pursuing for the product. The most compelling piece of the clinical story is that patients with no other treatment alternatives are helped by this drug, and from a financial standpoint, there is still growth expected from current indications and newer uses could fuel growth of this drug to the blockbuster level ($1 billion or more in annual sales). Expanding and potential new indications for Acthar, according to the company, include: NS, polymyositis and dermatomyositis (PM/DM), lupus (SLE), rheumatoid arthritis (RA), and psoriatic arthritis (PA). QCOR continues to ramp up its R&D expense, with about $22.1M spent thus far in 2012, an increase of approximately 100% vs. the first 9 months of 2011.

The only negative from the 3Q earnings report, in our view, was that the company will cease providing analysts and investors with monthly prescription trend data for Acthar, and less transparency may turn some investors off. However, in doing so, the company may simply be reacting to the negative onslaught on the stock by short sellers and could opt to release prescription trend data at less-regular intervals going forward. Expect QCOR shares to continue to rise in price, as the base of Acthar sales looks quite stable, and thus far, still shows signs of growth. Additionally, the company will likely be back in the market buying QCOR stock per its recently expanded share repurchase program. Typically, companies wait about 2-3 days post earnings to execute such transactions.

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