Much ado has been made lately about controversies swirling around Questcor Pharmaceuticals (NASDAQ: QCOR). For sure, the company has encountered plenty of them. Aetna (AET) greatly restricted reimbursement for Questcor's Acthar gel. The U.S. Attorney's Office for the Eastern District of Pennsylvania announced an investigation of the company's promotional practices. Noted short-seller Citron Research focused its bulls-eye on Questcor.
Shares for the beleaguered company responded by dropping more than 64%. The stock has rebounded some since hitting its low mark in late September, but it still trades nearly 50% lower than it did three months ago.
Uncertainty lingers, but sometimes it's good to revisit why hammered stocks did well in the first place. Here are three charts that tell the story behind Questcor's success.
Indications are positive
Some deride Questcor as a one-trick pony since the company's fortunes rest on one product. Depending on a single drug carries its risks, without question. However, the data shows this pony's one trick is quite impressive.
Source: Company 8-K SEC filing.
A couple of things jump out when we look at this chart. The overall trend shows each quarter with strong growth compared to the previous quarter beginning in 2011. That growth is seen primarily in prescriptions for multiple sclerosis.
The other thing to notice is how prescriptions have grown for indications other than multiple sclerosis and infantile spasms. The numbers for nephrotic syndrome are too low to even see on the chart throughout 2010 but began rising in 2011. The indication now ranks second, while prescriptions for infantile spasms have held relatively steady.
Rheumatology prescriptions began hitting the radar in 2012. While the indication still makes up only a small fraction of the total, prescriptions for rheumatology in the most recent quarter were exactly twice where prescriptions for nephrotic syndrome was at the beginning of 2011.
A good gap
Analyzing who is paying for Acthar also reveals a positive development. Unfortunately, the available data doesn't really tell us exactly who is paying for Acthar. However, it does provide hints.
Source: Company 8-K SEC filing.
The "paid" numbers reflect prescriptions that were paid by commercial insurers, Medicare, or Tricare. These numbers also include Medicaid managed-care programs for part of the first quarter of 2010.
"Fully rebated" numbers reflect prescriptions that were paid by Medicaid and other state programs that qualify for federally required rebates. Questcor doesn't record any net sales for these prescriptions because of the rebates. While the company does pay rebates for Medicare and Tricare, it still generates net sales from these payers.
A widening gap between paid prescriptions and fully rebated prescriptions means good news for the company. This gap reflects the growth in use of Acthar in indications other than infantile spasms. Around 40% of prescriptions for infantile spasms are fully rebated compared to single-digit percentages for other indications.
An even better gap
Questcor really doesn't have complete information on how Acthar is being prescribed. That's because the company sells to CuraScript SD, which then resells the drug to specialty pharmacies. These specialty pharmacies don't report detailed information back to Questcor.
So, how does the company get its data? Questcor's reimbursement support center helps most new patients with obtaining pre-authorization approval and reimbursement for their prescriptions of Acthar. Questcor estimates that more than 90% of new prescriptions are processed through this support center.
Of course, the company does know how many vials of Acthar that it ships to CuraScript. Those numbers, though, don't provide any information about the indications for which the drug might be used.
Source: Company 8-K SEC filing.
With all of this in mind, we can gain insight from the chart shown above. The growth trajectory of shipped vials is clearly greater than for prescriptions. This widening gap presents perhaps even better news for Questcor than the gap between paid and fully rebated prescriptions.
The reason why requires some thought. We know that the prescriptions data includes most but not all of new prescriptions. However, the missing new prescriptions is estimated by Questcor to be less than 10%, which isn't enough to explain the gap.
There is a larger type of prescription that isn't included in the prescription numbers but is in the shipment numbers: refills. Once patients get help from Questcor's reimbursement support center the first time, they don't have to go back for more help on refills in most cases.
The good news for Questcor is that the faster rate of growth of shipments implies that more prescriptions are being refilled, presumably because the prescriber and patient feel that Acthar is working satisfactorily. That translates to a higher likelihood of recurring revenue.
Friendly trends
Questcor provided monthly data in the past but has discontinued doing so. The company stated that sales are now at a level where "the more traditional approach of providing financial information and related analysis of results on a quarterly basis is appropriate."
Regardless of whether the data comes monthly or quarterly, Questcor should do quite well if it continues the nice trends shown in the charts above. Any blips, though, could reinforce worries about those nagging uncertainties.
