3 Beyond-the-Hype Things to Watch With Questcor

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It's been a dizzying (and likely nauseating) few months for shareholders in Questcor Pharmaceuticals (Nasdaq: QCOR  ) . The stock shot up by 45% for the year by early July. Then shares plunged nearly 40% from that point by the first week of August.  

Just when despair ruled the day, Questcor rebounded. Shares rose 47%. But, alas, investors' joy didn't last long. Since mid-September, the stock has collapsed by around 60%. 

No one could blame investors from throwing in the towel after such a wild ride. However, the possibility for long-term profits with Questcor still exists. Here are three key things to watch beyond all of the hype associated with this volatile stock. 

1. Payer poker
The most recent stock collapse stemmed from a bulletin issued by Aetna (NYSE: AET  ) . The large insurer stated that Questcor's H.P. Acthar gel was medically necessary (and, therefore, reimbursable) only for infantile spasms, a rare disorder making up a small fraction of total Acthar prescriptions. The primary use for the gel -- and biggest money-maker for Questcor -- is in treating multiple sclerosis.

Even though Aetna accounts for only 5% of Acthar paid prescriptions, massive selling of Questcor shares kicked into gear. Fears mounted that other insurers would follow Aetna's lead.

It certainly is possible that major payers could decide not to cover Acthar. But none has taken any negative action so far. On the contrary, UnitedHealth Group (NYSE: UNH  ) recently announced minor changes to its policies for Acthar reimbursement that could allay concerns that the insurer will limit coverage for multiple sclerosis.

The cards in this game of payer poker seem to be generally in favor of Questcor at this point.

2. Litigation lottery
Another flurry of bad news for Questcor came from the announcement by the U.S. Attorney's Office for the Eastern District of Pennsylvania that it was investigating the company's promotional practices. A flood of other lawsuits poured in after the announcement.

These investigations and related lawsuits can prove to be quite costly. Pfizer (NYSE: PFE  ) , for example, paid a record $2.3 billion in 2009 to settle litigation based on allegations about its promotional practices. Amgen (Nasdaq: AMGN  ) settled for $780 million last year over alleged sales and marketing violations.

These examples are exceptions, though. Some investigations don't result in any finding of wrongdoing or need for settlement. Others are settled but for relatively insignificant amounts.

For its part, Questcor maintains that it has "meritorious defenses" to the allegations. However, the company acknowledges that it can't determine the likelihood of a positive or negative outcome or possible losses, if any.

The bottom line on this front is that it's just too early to know what will happen. It is also difficult to predict how long it might take for the dark cloud hanging over Questcor associated with the investigation and lawsuits to go away.

3. Revenue roulette
Questcor recently released preliminary September results for paid prescriptions of Acthar. At first blush, these numbers don't look too good. 

Paid prescriptions for use of the gel in multiple sclerosis fell from 508 in August to between 400 and 410 in September. Nephrotic syndrome prescriptions decreased from 119 in August to between 105 and 110 in September.

Do these drop-offs mean that the Aetna decision and other bad news could be taking a toll? Not really. 

The key point to note with the preliminary numbers is that August had 23 business days but September only had 19. When we look at prescriptions per business day, September was a better month than August for nephrotic syndrome and only slightly lower for multiple sclerosis.

So far, the revenue continues to roll in. 

The gamble
I used gambling references for all of the key things to watch because Questcor remains a gamble at this point.

Risks are easy to find. The prospect of further payer restrictions on Acthar reimbursement and/or costly litigation settlements make for a compelling case on why to avoid this stock like the plague.

On the other hand, if the other big payers stay the course and the U.S. Attorney's investigation doesn't pan out, Questcor could make intrepid risk-takers a lot of money. 

For those who really want to play this high-risk/high-reward game, perhaps the best approach is to use options -- as long as you know what you're doing. Either buy Questcor calls instead of the stock or buy the stock along with a protective put. 

Most investors, though, should stay away for now. There just isn't enough evidence to know whether or not the dizzying ride will keep going.

Biotech stocks like Questcor can provide great gains but sometimes cause great pains to investors' portfolios. That's why it makes sense to manage risk through diversification. Dividend stocks are a smart way to help you diversify.

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Keith Speights and The Motley Fool have no positions in the stocks mentioned above. Motley Fool newsletter services recommend UnitedHealth Group. 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 (7) | Recommend This Article (4)

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 11, 2012, at 7:56 AM, NotTheDroid wrote:

    Purposeful short hatchet article.

    Any stock journalist knows, if you use the word gamble or poker in an article, the rest of the article could say this is the perfect investment, and it would not matter.

    Also, comparing DOJ settlements to this small Eastern DA's settlements is intentionally bad journalism. Why didn't you do the research, go to that DAs website, and find out what his settlements look like???? His history shows he is trolling Pharma companies for settlements, and they are rather low. He also always takes a settlement, regardless of charges.

    Lastly, spending 2 paragraphs putting a negative spin on the Rx numbers, just to finally explain a short month of days... just shows the desire to sensationalize, instead of report.

    Motley Fool started out as a good idea 15 years ago, but now they have nothing but amatuer hacks.

  • Report this Comment On October 11, 2012, at 8:00 AM, NotTheDroid wrote:

    PS. also taking note of the statement "not enough evidence". You did no research, provided no information, so of course you have no evidence.

    In the last 3 business days, subscribers to the analyst firms, have gotten over 10 updates. Information from surveys at the Biotech Forum provided other Insurance Companies take on Aetna, and their plans to not change anything.

    Etc etc etc.

    So, yes, you have no information to provide anyone.

    Intentional hatchet job for shorts.

  • Report this Comment On October 11, 2012, at 10:24 AM, goodvsevil wrote:

    Your article is exactly why good companies like this get slammed down. The excessive bantering of this type of PR journalism got this stock where it is, way undervalued.

    Unbelievable that this is LEGAL, this whole situation is nothing but stock manipulation for greed. Nobody is mentioning how QCOR has been a great company, runs properly and have benefited thousands of patients that have little options. Why not report that these short sellers have used extremely tactics like calling doctor's offices, employees and shown up at major meetings trying to intimate people?

    You are playing with people's lives and should be ashamed of yourself. Referring to this whole situation like a casino game is disgusting -- try reading what patients, doctors and organizations think of this product.

    Agree with all of NotTheDroid comments, you need to do your homework. Oh I guess you did do that for Andrew Left.

  • Report this Comment On October 11, 2012, at 10:55 AM, MikeInTampa wrote:

    This is a wreck less unprofessional posting.

    You did no research. If you are going to post, you should at least do some research.

    Here’s an idea for you… go find the subpoena related to the investigation, read it, and do some reporting on it.

  • Report this Comment On October 11, 2012, at 11:09 AM, altssyf wrote:

    Majority of posts in this site are ridicules and biased. And this article is a PERFECT example. Reports are purposeful and meritless. They tell you 10 random facts to arrive at a totally IRRELEVANT conclusion which happens to be what they want you to act upon. Be it to buy a stock or sell it. BE CAREFUL!

  • Report this Comment On October 11, 2012, at 11:14 AM, MikeInTampa wrote:

    Motly fool really isn't what it used to be... most postings are just random thoughts and baseless conclusions... very sad, it's a gamble to read them.

  • Report this Comment On October 14, 2012, at 7:28 PM, ChartMyStock wrote:
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