Questcor Gets a Bid After Q1 2013, Volatility Spikes Print
By Brian Wilson, Lead Contributor   
Thursday, 16 May 2013 07:32
Volatility has increased significantly for many biotech names, including Questcor Pharmaceuticals (NASDAQ: QCOR) – which has been undergoing a major short squeeze ever since the company reported first quarter results on April 30th 2013. Although the company reported a drop in sales of its flagship product H.P. Acthar versus Q4 2012, this was due to distribution channel disruptions associated with the implementation of a recent Medicaid rebate change, the implementation of a new reimbursement support center, and timing of Acthar orders that were received and filled in Q4 2012.

The market generally ignored the record financial performance that Questcor reported in Q4 2012 due to the overhang of lawsuits looking into the company’s marketing practices and due to the potential for companies to alter their reimbursement policies for H.P. Acthar (like Aetna did in September 2012) although it seems that there was some confidence in the company’s upward trajectory after Q1 results – most probably due to the extremely good performance that was seen in April 2013.

From the Q1 earnings press release:

"Our first quarter results were below our expectations," said Don M. Bailey, President and CEO of Questcor. "However, vial shipment activity and prescription levels in MS and rheumatology in late March and throughout April appear to indicate that positive sales momentum has returned. In particular, we note that our newest initiative related to the promotion of Acthar for dematomyositis and polymyositis is off to a strong start."

Acthar’s expansion into new indications has driven much of the top-line growth that we’ve seen in the last year, although we expect this to be reflected more strongly in Q2 2013 results which are due on July 30th 2013. This is because there should be no disruptions in Acthar sales due to any of the three reasons mentioned earlier.

Since the Q1 release, QCOR has moved up about 30% higher, even after a 9.5% pullback in yesterday’s trading. The recent rally seems to be the result of short covering and heavy interest on the long side of QCOR common. This is unsurprising, since Questcor’s financials remain extremely strong.

The company reported net sales of $135.1 M for the three months ended March 31st 2013, which represents a 41% increase relative to the $96 M for the three months ended March 31st 2012. Non-GAAP EPS did not scale to the increase of revenue, as Q1 2013 EPS came in at $.76 versus $.61 in Q1 2012.

This was primarily because of substantial increases in the company’s expenses in the same timeframe – including but not limited to a 63% jump in selling & marketing expenses, a 131% jump in general & administrative expenses, and a 91% jump in the R&D budget. Put together, this resulted in a ~$27M jump in the company’s expenses in Q1 2013 versus Q1 2012.

Much of the increased expense is necessary for Questcor to expand the marketing of Acthar into new indications. Investors seemed to factor this in, along with the temporary dip in Acthar net sales and the notion that QCOR was trading close to $42 per share one year ago. It’s unusual to see a company trade significantly lower after posting the kind of top and bottom line growth that Questcor has in the last year – especially given how strong the biotech sector has been in 2013.

Going forward, expect the market to hold high expectations of QCOR for Q2 2013 earnings based on what we heard about the product’s momentum in April. Assuming that distribution channel disruptions don’t occur again, we should also see a closer correlation between reported prescription data and actual Acthar sales which should be revealed at the end of July (or beginning of August) 2013.

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