Tuesday, November 13, 2007

Questcor (QSC) Announces Q3 Earnings -- Please read the report, then explain to me how market forces can curb rising healthcare costs in America

So Questcor finally releases their 3rd quarter earnings report which includes 1 month of sales of H.P.Acthar Gel after raising the price 15 fold at the end of August.

News from the Yahoo message board - Very telling

mastered: "QSC now a CASH COW with blockbuster drug in captive market."

Read my previous posts for more information regarding Questcor's use of Orphan Drug Status and claims of Income Losses to justify the price increase from ~$1600 per vial to $23,265 per vial.

From the 3rd quarter earnings report:

Demand by patients utilizing Acthar for infantile spasms (IS) and opsoclonus myoclonus syndrome (OMS) has remained at approximately the same levels experienced prior to the implementation of the new strategy.

Notice the lack of reference to MS patients. I can't speak for other MS doctors, but Acthar is off-the-table now for use in exacerbations in my neurologist's office directly due to the price increase. Solumedrol IV is the preferred drug anyway. But I'm sure that Questcor knows this already.

Questcor has also seen a positive pattern of insurance coverage and expanded use of the safety net programs [ie. NORD] for Acthar patients.

So...insurance companies are paying the 1500% increased price? Where's the cost control? Negotiated rates anybody? Out-of-pocket maximums or benefit limits? And if Questcor is not directly funding the safety-net programs 100% at NORD, then they are sucking resources away from other programs, or are draining the financial reserves of the patients.

As a result, Questcor is not aware of a single IS or OMS patient requiring Acthar that has been denied treatment.

Ahh...now doesn't that make you feel good? Not!

Being denied treatment is not the same as being denied coverage, being denied assistance, being denied reimbursement, or simply being denied the prescription in the first place. Perhaps doctors are choosing alternatives even if they have to be purchased from Canada.
BTW: Questcor moved the manufacturing of Acthar to Canada.

While the trend in ordering and insurance reimbursement has resulted in higher net sales, as Questcor expected, since the implementation of its new business model, overall unit demand for Acthar has decreased significantly.

Net sales of Acthar were $14.6 million and $21.8 million, respectively, for the three and nine month periods ended September 30, 2007 as compared to $3.8 million and $9.0 million for the same periods in 2006.

In June 2006 Questcor submitted a Supplemental New Drug Application (sNDA) to the Food and Drug Administration (FDA) and is currently pursuing formal agency approval for Acthar in the treatment of IS. Previously, the FDA granted Orphan Designation to Acthar for the treatment of IS. As a result of this Orphan Designation, if Questcor is successful in obtaining FDA approval for the IS indication, Questcor will also qualify 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.

Ahh...the power of evidence-based medicine to provide market exclusivity and tie the government's regulatory hands.

On November 9, 2007, Questcor met with the FDA to further discuss its sNDA seeking approval of Acthar for the treatment of IS. At the meeting, the FDA concurred with Questcor’s suggested pathway to preparing a complete application for FDA review.

Shouldn't the original application have been complete? Come on.

Since the implementation of the new Acthar strategy, Questcor estimates that end user demand for Acthar has been 425 to 475 vials per month. Of this demand, Questcor estimates that approximately 30 percent of vials are used by patients covered by Medicaid and other government related programs.

Ok. Let's make some assumptions here and use 450 vials for demonstration purposes only.

$23,265 price per vial x 450 vials = $11.05 million

Plus 4 extra days at new price in August...maybe 65 vials = $1.51 million

Total net sales for Acthar in Q3 = $14.6 million

Net sales for Acthar in 8 weeks July/August = $2.0 million?

$2.0 million / $1600 price per vial = 1250 vials

So from ~625 per month demand down to ~450 per month, significant decrease AND Questcor was able to match 2006 total sales of $12.1 million in only one month.

Shouldn't the payors be concerned? I know the investors are happy.

For periods after September 30, 2007, the amount of Medicaid rebates and government chargebacks that reduce Questcor’s net sales may result in minimal, if any, net sales revenue to Questcor from products used by Medicaid patients and certain government entities. As discussed above, Questcor has experienced a consistent level of ordering and insurance reimbursement for Acthar since the inception of the new strategy.

Good...Questcor will not be allowed to drain government funds in a greedy manner. But I'm still curious to know how the level of ordering and insurance reimbursement compares before and after the new strategy.

More interesting discussion from the Yahoo message board last night:

cjc11730: The earnings may be hard to decipher. The price increase went into effect on Aug 27th. There was only one month left in the quarter (Sept); and insurers normally run at least a 2 week lag time. It would be nice to know how many orders were placed in Sept and approved overall. Another key is will they give guidance as to what is the total number of orders placed and approved in October and early November. Good deal of variables here.

chopper: Keep in mind they STILL have not told the public why the FDA rejected their proposal last March, and what/if any outcome from the conversations they said the FDA requested. This company is not big on making information public.
bernie: I'm curious as to if these orders were mostly in "Mid-Stream" when the price change was made. Futhermore, most of the patients would have stayed with the treatment.... What makes me "nervous" is this... "Is Acthar going out with a bang". (Management: Make as much out of the drug before running it into the ground?)
jillp: Does it really matter today. It is about making money. It is time to get an advantage from positive news. the last year has been painful.
chopper: >>Futhermore, most of the patients would have stayed with the treatment....<<> In fact, it is very dangerous to suddenly withdraw a steroid treatment, so there was little choice in the recent decisions. There will be more choice for those considering treatment for the first time, and I think they "eluded" (LOL) to this in the PR.
medexpert2: At the end of the release, it was noted that as of November 9, there was 15 million in cash and 22 million in accounts receivable. At September 30, just 40 days earlier, there was 10 million in cash and 14 million in accounts receivable! Hold on for the ride of your life, boys and girls!
bernie: Does anyone besides myself see it as strange, that QSC isn't having a CC to accompany the earnings release? Could be too many tough questions....
dochollywood: Yes very strange. Great news, future, and FDA interactions. The volume and price suggest good times ahead of the company. The value is still $300mm based on the numbers even if the medicaid 1/3 is discounted. There was only 1 month of increased profits in these number. 3 times revenue for valuation is not unreasonable. So it seems as though the price should increase over $3.00 accordingly.
coyote: You made a good point, Bernie. However, the reason could well be, because the PR and financial results told us a very compelling story in itself, ......that they felt was adequate and sufficient at this time. I thought the various data submitted for public review, revealed many good things to us.
bernie: Personally, if I were management and produced such extreme results I would be screaming it from the "roof tops", and on "every forum".... The 3rd Quarter Sales were comparable to the entire year of 2006? Maybe, they didn't want any supposed "renagade shareholders", to express their concern in regards to "children dying" due to price gouging, etc.?... Who knows, but strange in my book.
coyote: Adverse market conditions we have been seeing on and off, appear to be helping dictate the course of our share price, at least to some extent, for some of our trading today. I am pleased with the overall progress we have made recently, and the very strong showing for today! May the Gods continue to shine down upon us, and give us guidance with our endeavors.
chopper: Bernie, first of all, congratz on persisting with this. Of course this windfall is based on two things (and hindsight is always 20/20) - the decay that occurred under Fares which created a buying opp, and then the stroke of a pen which changed the price of their (mainly) single product by a factor of 15. For those who guessed correctly that this would happen (I can't envision any other scenario that would have created this runup, since there was no way the MS community, or any of the "54 indications" was going to latch on to Acthar in any meaningful way), congratz to you too. I had no idea they would do this, and still wonder why they didn't do it sooner, but maybe they wanted the buying opp too. In the end, jacking the price up when you have an effective monopoly can make you a lot of money, but even more when you've allowed your share price to sink like a rock. I laugh at all the comments about "we did this to keep Acthar available" because we all know they did this to keep QSC viable. If QSC went under, there is no way Acthar would disappear. Companies are in business to make money, period. I think this is the first quarter in a long time that they've not had a cc, but I suspect they may feel like they are tip toeing across a high wire, and didn't want any wind blowing. In other words, your "too many tough questions" is right on. It will be interesting to see how they spend all this windfall - research and clinical trials aren't cheap, and could well move them back to a non-profitable situation. But this is all well down the road - after all, it took them 6 months to meet with the FDA (which they misleadingly claimed they were required to do before explaining the reasons for the NDA rejection). Good luck to all.
elmccann: >>In the end, jacking the price up when you have an effective monopoly can make you a lot of money<<>>I laugh at all the comments about "we did this to keep Acthar available"<<>who do they think they are kidding? They are also trying to convince the IS community that they will invest in research. Any decent research will help determine which patients do not benefit from ACTH - clearly not something they are going to pursue. If I was trying to hide the truth, I would not have a cc either.
cjc11730: Does anyone want to venture an intelligent guess on the price per share if they can sustain the 11-12 million dollar per quarter (or 45 million per year) allowing for the medicaid give backs?
jillp: Well the revenues are from 1 month of higher profits and charges. So $45 is low. It is more like $12mm-2mm(regular revenues)=$10mm. So say it is low like $8mm(per month) x 12 months=$96mm x.67 Medicaid discount)=$64mm. If you do 3-5 times revenues as a reasonable valuation then value is $180mm to $300mm. Not counting the cash they have now and the other program QSC100.
medexpert2: I would say $9.60 per share. .12 x 4 quarters = .48, multiplied 20x earnings = $9.60. This is a no-brainer boys.
bernie: My main question is... How quickly do they lose market share in regards to competing medications?
jillp: Orphan drug-----standard of care would you take the risk as a treating md?
coyote: Over 7.5M shares traded today, and changed hands. My intuition tells me we should have another big day tomorrow, because the financial world has taken notice of our little company, by virtue of what took place today. A good word travels fast.
Interesting isn't it? Money doesn't magically grow on trees -- it has to come from somewhere. Where do you think the insurance companies will find the $12 million each month to pay Questcor a obscenely bloated price for a 50+ year old drug for which they do not even own a patent?
It's enough to make my stomach churn!!

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