Was Questcor's Q1 as Bad as It Looks?

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Questcor Pharmaceuticals (UNKNOWN: QCOR.DL  ) reported first-quarter results after the market closed on Tuesday -- and they didn't look great. Shares fell 3% in after-hours trading, but were things really as bad for Questcor as they might seem? Let's take a look.

By the numbers
Non-GAAP earnings for the quarter were $0.76 per diluted share, up nearly 25% from $0.61 per share in the same period last year. That result fell far short, though, of the average analysts' estimate of $0.96 per share.

Questcor reported GAAP earnings of $0.65 per diluted share. This reflects a 12% increase over the $0.58 per share earnings from the first quarter of 2012.

First-quarter net sales totaled $135.1 million, up 41% year over year from $96 million reported in 2012. However, analysts expected sales of around $157 million -- 16% above what Questcor delivered.

The company held cash, cash equivalents, and short-term investments of $156.3 million as of April 19. That amount is up slightly from the $155.3 million on hand at the end of 2012.

Behind the numbers
It's not hard to find the reason behind Questcor's disappointing quarterly results. Shipments of its Acthar gel were clearly below expectations. The company's steady sales growth pattern for Acthar has now been broken.

Source: Company press release and 10-Q reports.

Some have predicted a bleak outlook for the company for quite a while now. Does this decline reflect gloomy days ahead for Questcor?

Let's look at the big elephant in the room: a 17% sequential drop in multiple sclerosis prescriptions for Acthar. This decrease follows an 8% sequential drop in the fourth quarter. Questcor says that insurance coverage for Acthar still appears favorable. Assuming this is the case, what's going on?

For one thing, the seasonality effect on multiple sclerosis flare-ups that I noted after last quarter's results were announced could still be a factor. Research supports the idea that there are fewer MS relapses in colder months.

Questcor also launched a new reimbursement support center during the first quarter. Since most new prescriptions for multiple sclerosis require assistance from the company to navigate the insurance reimbursement process, this transition likely affected figures to some extent.

The company noted that Acthar shipments in April set a record high of 2,550. Questcor CEO Don Bailey said in the earnings conference call that MS prescriptions in April appear to be especially strong.

Looking ahead
My view is that next quarter will be where the rubber meets the road for the supposition that the decline in Acthar prescriptions for multiple sclerosis is only temporary. If the strength that the company reported for April continues, second-quarter results should be solid.

Multiple sclerosis will increasingly take a less prominent role, though. New paid prescriptions for rheumatology indications shot up 58% sequentially with a beefed-up sales force. I expect continued strong growth in this area.

Questcor has a super-high short interest at just shy of 60%. A lot of people are betting this stock will fall. Maybe they're right, but that seems like a risky longer-term bet -- at least until second-quarter results come out.

If Acthar shipments return to the strong growth trajectory from past quarters, Questcor looks like one of the cheapest pharmaceutical plays in the market. I suspect this summer will tell whether the stock is cheap for a reason -- or just cheap for a season.

Questcor is one of the most debated names in all of biotech. Its premium priced drug Acthar has grown at a torrid pace -- and minted money in the process. However, recent events have created significant doubts about Questcor's future. Will insurance companies continue to cover the drug? Will a government investigation lead to huge fines? We highlight these high-profile issues inside our brand-new premium research report on Questcor. In it, you'll learn about the key opportunities and threats facing the company, as well as multiple reasons to buy and sell the stock. So make sure to claim a copy today by clicking here now.

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