More Controversial News for Questcor?

It's only three days into the new year, yet Questcor Pharmaceuticals (NASDAQ: QCOR  ) has made news twice already. The company was the center of considerable controversy in 2012. Does the latest news stir up even more? Let's take a look.

Buying BioVectra
On Wednesday, Questcor announced that it was buying BioVectra for about $50 million cash upfront with the potential for additional milestone-based payments over the next three years. BioVectra, based in Prince Edward Island, Canada, makes active pharmaceutical ingredients (APIs), chemical intermediates, and bioprocessing reagents for pharmaceutical and biotech customers. 

Questcor's CEO, Don Bailey, mentioned a couple of primary reasons for the acquisition. One was to diversify revenue. The other was to bring the expertise for manufacturing of the API for Acthar gel in-house to help "meet the continuing growth in demand for Acthar."

There really isn't much diversification of revenue with the deal. BioVectra's annual sales for the most recent fiscal year totaled $28 million compared to Questcor's trailing-12-month revenue of more than $424 million.

However, gaining control of the manufacture of corticotropin, the API in Acthar, does make sense. BioVectra is Questcor's sole supplier of the API, which is made through a fairly complicated process of extraction from the pituary glands of pigs. The agreement between the two companies required BioVectra to continue supplying corticotropin up to four years after any termination of the deal. While that seems like plenty of cushion, vertical integration removes the possibility that another supplier would have to be found in the future.

Payer policy change
The other news on Wednesday came from UnitedHealth Group (NYSE: UNH  ) . The large insurer announced a change in policy requiring physicians to submit prior authorization requests for Acthar beginning April 1, 2013. 

After Aetna (NYSE: AET  ) limited coverage of Acthar to infantile spasms in 2012, some Questcor critics have maintained that other insurers would follow. The decision by UnitedHealth really shouldn't restrict coverage, though. What it will mean is that physicians who weren't already submitting prior authorization paperwork will now be required to do so.

This type of requirement is nothing new for Questcor. The company already has a dedicated team set up to help obtain prior authorization approvals from payers. Questcor estimates that more than 90% of new Acthar prescriptions already go through this team.  

Blah beats bad
There really is no controversy whatsoever with either of these latest developments. That's not to say the company won't see its share of turmoil this year; it likely will. With a short interest of more than 50%, plenty of people have a vested interest in finding and stirring up bad news.

Buying BioVectra looks to be a good move, but it's nothing spectacular. UnitedHealth's policy change probably won't make any real difference for Questcor. For Questcor shareholders, blah news beats bad news any day. 


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