Why Questcor Pharmaceuticals' Shares Popped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of biopharmaceutical company Questcor Pharmaceuticals (Nasdaq: QCOR  ) jumped as much as 11% in intraday trading Tuesday following positive analyst comments from Jefferies, as well as an upgrade from the research firm.

So what: The covering analyst at Jefferies, Biren Amin, bumped up his rating on the company to "buy" from "hold" while boosting his price target to $28. The reasoning behind the move, according to Amin, is that investors have become too pessimistic with regard to Questcor's leading -- but expensive -- drug, Acthar, being dropped by insurers. Currently, only Aetna (NYSE: AET  ) has said it was dropping coverage on all but one indication of the drug. In addition, Amin points out that Medicaid will be reducing the reimbursement rate for Acthar, which should net Questcor more in revenue since it had been forced to pay full rebates to state Medicaid programs that purchased the drug.

Now what: Eight simple words here are all you need to know: The U.S. government is probing its marketing practices. With that dark cloud hanging over Questcor, none of this white noise matters very much. Analyst upgrades and downgrades tend to be very short-term movers of a company to begin with and usually have very little bearing on the investment thesis of a stock.

What matters is that previous government probes resulted in hefty fines of $2.2 billion to Johnson & Johnson (NYSE: JNJ  ) and $780 million to Amgen (Nasdaq: AMGN  ) , and could result in a whopper of a fine for Questcor if its deemed that it improperly priced its Acthar at $33,000 per treatment across all indications while relying on the protection of its orphan-drug status. To me, these are risks that can easily be avoided by avoiding the stock altogether.

Craving more input? Start by adding Questcor Pharmaceuticals to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of, and creating a diagonal call position in, Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 09, 2012, at 2:41 PM, NotTheDroid wrote:

    Aetna bulletin overstated in this article and severely over-simplified.

    US gov't is not conducting an investigation, it is a localized Eastern PA District Attorney, not the Federal Gov't DOJ (which conducted the investigations you mentioned) and is the thesis for your negative comments "Eight simple words here are all you need to know".

    Amin (JEF) modified his rating based on increased visibility, and a survey of insurance reps at the Biotech conference. Statement that he believes the selloff was overdone, is a drastic oversimplification and doesn't take into account new information available.

    More information in links below.

  • Report this Comment On October 09, 2012, at 5:00 PM, Riskon4life wrote:

    "Eight simple words here are all you need to know:"

    Don't attempt to publish an article without FACTS.

    The previous respondent is 100% correct -- Overstated and under-researched.

    Did you write this during the bus ride on the way to work?

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