Friday, November 30, 2007

Questcor's 'REAL' Strategy creates Huge Opportunities for PROFIT!!

UPDATE: I have to admit that when I wrote the following, I was rather annoyed by statements I was reading on the Yahoo Financial Message Board discussing Questcor's rising stockprices. My sense of calm logic was spread thin indeed.

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Well, I'm no expert and I certainly don't get paid for my opinion.

If you are a biotech investor or a pharma industry commentator or even a health policy expert, you are most likely aware that a little company called Questcor has created quite a stir since the summer.

Initially news focused on the non-approval of their sNDA for Acthar Gel's indication for Infantile Spasm, a rare pediatric epilepsy disorder. Then the President and CEO, James Fares, resigns in May.

"'re in trouble!!!," the board seems to say and upgrades one of their own to Interim President to figure out this mess. It's like they are saying, "we're doomed without the FDA on own side."

So what happens? Three board members resign in July, including the Chairman of the Board of Directors, Albert Hansen. Interestingly, the Senior Vice President of Strategic Planning and Communications, Eric Liebler who worked at Questcor for less than one year, resigns three weeks before the Board announces their 'NEW STRATEGY' after which Questcor loses another board member, Gregg Lapointe.

Now, it sure does seem like former CEO James Fares screwed up and jumped ship, but he wasn't the first to resign. [I don't really know the reasons Fares resigned, but I have doubts that strategy suddenly changed after his departure.] In March, Craig Chambliss, Vice President of Sales and Marketing, resigned...the first big player to do so since James Fares 'took the helm' in February 2005.

James Fares, Steven Cartt (Executive Vice President of Commercial Development), Craig Chambliss, and George M. Stuart (Vice President Finance and CFO) have connections to each other from dealings with Elan and Xcel pharmaceutical companies. This is not surprising since new folks in charge will understandably want familiar faces to work with.

Eric Liebler, former Senior Vice President, Strategic Planning and Communications, was hired in October 2006. No doubt in relation to his expertise as Treasurer and Trustee of American Academy of Neurology Foundation. After resigning his position at the end of July, Liebler is staying close by as a consultant.

David Young was appointed to the Board in September 2006. No doubt in relation to his expertise as a PharmD, researcher, and frequent presenter to the FDA. Young became Chairman of the Compensation Committee in July, replacing Virgil Thompson who replaces Albert Hansen as Chairman of the Board.

Just wait.... the shuffle is not done!

Gregg Lapointe was appointed to the Board in July 2005 primarily due to his position as COO for Sigma Tau Pharm (in US-Gaithersburg, MD office) which is a HUGE investor/owner of Questcor. In fact, Paolo Cavazza of Italy owns Sigma Tau and the other affiliated companies which also collectively own no less than 20% of Questcor. Lapointe was also quite useful due to his connections with National Organization for Rare Disorders (NORD), Child Neurology Foundation, and Kidney Cares Partners.

NORD is an organization which administers pharmaceutical assistance programs for many companies who don't want to do it for themselves. They serve as a buffer between the patient and the company. NORD holds the keys but they are not responsible for the contents. [NORD prides itself on being objective, but it has 'run out of funds' a number of times during the past two has said my neurologist. Being denied sufficient assistance, I paid $16,000 for meds last year on an income of $19,500.] Lapointe resigned in August just after the 'new strategy' was announced and the NORD program was beefed-up. You better bet that he made the transition go much more smoothly. Job you can go.

Taking up the position as Rare Disease expert, Robert J. Rubin joined the Board in September just before reports of the successfulness of the 'new strategy.' Rubin is a professor at Georgetown and served as Assistant Surgeon General and Assistant Secretary of HHS in 1981-1984 and in 1987-2001 was president of The Lewin Group, "a premiere national health care and human services consulting firm" in Falls Church, VA (just 3 miles from my home. I wonder if they ever have lunch meetings over at 2941 Restaurant...hmmm.)

Then Questcor appoints Stephen Farrell to the Board as Chairman of the Audit Committee just after releasing the 3rd Quarter results. Followed by upgrading, Don M. Bailey to full-time President and CEO.

Now, I've read some interesting comments that Bailey came in and turned this sinking ship around (hmm..mixed metaphor) 180 degrees. However, it really seems that Fares should be given credit for creating the huge buying opportunity at $0.21 a share this summer to yesterday's closing price of $6.02.

Do the math....that's insane!!

And it's all based on Questcor's dire financial straights as evident from the 2006 annual report where they reported huge, I mean HUGE, losses.
Baloney!! Phaloney!! Rigatoni!!

And today the stock is establishing a new support level at around $5.40.

So what, you say.

Well, just think, one investor Paolo Cavazza purchased 326941 shares between Oct 1-Nov 13 around $1.93-$2.059 a share at a cost of $667,518 which at today's opening was worth $1,961,646. Not bad for a few days of work. Through Sigma Tau and affiliated companies, Paolo Cavazza has owned significant percentages of Questcor since March 2002. Just looking at the shares purchased between March 2002-December 2006, Cavazza could potentially have close to $100,000,000 value of stocks from about $21,000,000 investment, assuming that no profits had been taken during that time.

I also read estimates that former CEO, James Fares, owned around 1,500,000 shares in March 2007 and had over 800,000 vested stock options valued at $0.44 when he resigned in May. I wonder if he exercised those options or did a little purchasing on his own after the stock dropped so low. Nobody could convince me that he didn't exactly know what would occur later this year.

In case any readers think that this is really cool investor stuff, just remember that Questcor has created this dog-and-pony show by exaggerating income losses (IMO) and outrageously increasing the price of their cheaply acquired ($400,000?) Acthar Gel to over $23,000 per vial.

Increase price 15x - Increase revenue 12x = create stock flurry - take profits

That's it folks. Our innovative U.S. healthcare system thriving.

Who cares about the little folks who are being passed the expense?!!

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