What does QCOR have in store for investors going forward? Print
By Patrick Crutcher   
Monday, 22 November 2010 22:55


Since obtaining FDA approval  in October, Questcor Pharmaceuticals Inc. (NASDAQ: QCOR) has been under heavy buying. Looking beyond the chart, what does QCOR have in store for investors going forward into 2011?

After the FDA delay in September, we told subscribers that it was an opportunistic entry point for anyone not yet in QCOR. Shares are up more than 40% since that call, following FDA approval and their recent 3rd quarter update. This morning's news was also a welcomed surprise.

To keep things brief, Questcor received FDA approval on October 15th for their supplemental new drug application (sNDA) for H.P. Acthar® Gel in the treatment of infantile spasms (IS), an ultra-rare orphan disorder affecting approximately 2,000 American children annually. Along with with approval of the IS indication, FDA also granted Acthar a 7-year exclusivity period. Vials of their H.P. Acthar® Gel costs around $23,000 and annual cost of around $135,000 per patient. Remember, they don't need too many patients for the drug to generate significant revenue, given the high cost for Acthar. Before approval in IS, Acthar generated annual sales of around $100M for Questor. Their CEO is optimistic that with FDA approval in IS, they can grow sales by 20% over the next two years.

During the 3rd quarter update, we also got several key updates that kept their momentum going. First, they expanded their Acthar sales force from 38 to 77. This has been done in conjunction with educational outreach on Acthar’s uses in MS. The main reason that FDA approval took so long was because QCOR was trying to re-modernize the label, which hadn’t been updated in 30 years. In the update, Don M. Bailey, President and CEO of Questcor noted: "Importantly, the approval of Acthar as a treatment for IS also resulted in an updated and modernized label that allows for Acthar to be used in the treatment of 19 diseases and disorders. In addition to the treatment of IS and MS, the label includes two indications for nephrotic syndrome (NS). We believe that the NS market represents a significant opportunity for Questcor." Not only does QCOR get approval in IS and MS, they will also be able to sell Acthar for NS. Questcor should be able to keep up with their revenue projections, especially with the additional indications and larger sales team.

Today we got word on some clinical data regarding Acthar and Nephrotic Syndrome. We are certainly impressed with the high response rate(88%). This is an early study in nephrotic syndrome due to idiopathic membranous nephropathy (iMN).  Their press release also gave us some numbers on this patient population. Nephrotic syndrome is a by-product of damage to the kidneys. Questcor estimates about 8,000 patients in the US with nephrotic syndrome due to iMN, and a similar number due to primary focal segmental glomerular sclerosis (FSGS) (an underlying disorder seen with NS), so roughly 16,000 patients. Additionally, they reported very positive data from a study in advanced diabetic nephropathy. Again, the trial showed a high(60%) response rate, which is encouraging.

From the release, it looks like Questcor is seriously positioning themselves to capture a much broader market. NS is an known risk factor for progression to end-stage renal disease(ESRD). It would seem that Questcor hopes to eventually show that Achtar is an important therapuetic option for those facing possible ESRD. The American Society of Nephrology estimates there are more than 500,000 patients in the US suffering from ESRD, 100,000 patients are diagnosed with ESRD(per year) and this figure is expected to grow by 50% over the next 20 years(see link). Now that is the kind of patient population that makes big pharma salivate. Only concern would be justifying the cost of their treatment, since it is longer being catered to an orphan disease, which was their original justification for the hefty $23,000 price. One could see insurers challenging their pricing once Achtar is being used much more broadly. Remember, these are early studies, so they are far from over in the clinical process.

To the Street’s surprise, they posted net sales of $31.3 million and net income of $11.5 million($0.18/share) for the quarter ended September 30, 2010. Investors should be aware that Acthar is the only product in their portfolio. Acthar is a complex biologic drug(derived from pig pituitary glands) that has yet to be fully characterised. Due to the significant challenges in developing generics for these types of molecules, QCOR is unlikely to see any real competition. QCOR has a strong balance sheet($111M in cash/cash eq./investments) going into 2011 and looks to continue their marketing success of H.P. Acthar® Gel. Their continued success could eventually draw the attention of a large pharma looking for a profitable drug company that lacks competitors.

Disclosure: No position

Our most recent coverage(09/09/2010) - http://biomedreports.com/2010090953299/fda-needs-additional-time-for-questcor-pharmaceuticals-approval.html

3Q 2010 QCOR update - http://bit.ly/a2TE6l

QCOR data on Acthar and Nephrotic Syndrome - http://bit.ly/eWmCnC

QCOR data on Acthar and Advanced Diabetic Neuphropathy - http://bit.ly/eI1MHc

Numbers on Kidney Disease(PDF) - http://bit.ly/fLJwCK

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