Questcor Pharmaceuticals (NASDAQ:QCOR) shares fell as much as 15% on Nov. 1 before rebounding to close down 6% for the day. Now, it's a few days later, but the stock still hasn't quite made its way back to the Oct. 31 closing price.
It all started with the Food and Drug Administration granting orphan drug designation on Oct. 31 to Cerium Pharmaceuticals for Synacthen Depot in the treatment of infantile spasms. Online financial news source Benzinga initially reported the news incorrectly, stating that the FDA actually approved the drug. Benzinga subsequently corrected the error, but panic had already caused Questcor shares to tank.
Questcor's Acthar gel is used in the treatment of infantile spasms and already has orphan drug status. The stock has been beaten down in the past few months partially because of concerns that generic competition could emerge.
Assessing the risk
It is important to first differentiate how FDA orphan drug designation compares with orphan drug approval. To receive orphan drug designation, a company essentially just needs to show that the drug can be used to treat a disease or condition that affects fewer than 200,000 Americans. Receiving actual FDA approval, though, requires a company to jump through multiple hurdles and provide substantial documentation of clinical studies showing the drug's efficacy and safety.
Cerium Pharmaceuticals obtained the FDA's orphan drug designation, but the FDA website clearly states that Synacthen Depot is not approved for treating infantile spasms. To obtain orphan drug status for Synacthen, the FDA must overturn Questcor's orphan drug exclusivity that currently extends through 2017.
When you examine the properties of Synacthen Depot, one contraindication jumps out. The drug contains benzyl alcohol, which can cause poisoning in children under 3 years old. Think about that for a second. How likely does it seem that the FDA would approve a drug that can poison young children for use in treating infantile spasms?
Fears that Cerium and Synacthen Depot could actually hurt Questcor's sales of Acthar in treating infantile spasms seem very overblown. Some might point to the developments related to Cerium as evidence that a generic threat to Acthar is on its way, even if that threat doesn't come from Cerium. Perhaps they could be right, but that time hasn't arrived yet.
Fool contributor Keith Speights has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.