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Questcor Pharmaceuticals (UNKNOWN: QCOR.DL ) reported its third-quarter results after the market closed on Tuesday -- and knocked it out of the park on every count. Then shares proceeded to drop, not just by a small amount but by as much as almost 18% before bouncing back some. What in the world happened?
Dissecting the results
Let's first look at Questcor's third-quarter numbers. Analysts expected earnings of $1.29 per share. Questcor reported GAAP earnings of $1.52 per share and non-GAAP earnings of $1.58 per share. Oh, and that profit was also a whopping 73% higher year over year.
What about sales? Questcor reported revenue of $236.3 million -- 68% greater than this time last year. The average analysts' expectation was just shy of $200 million. The most optimistic analyst projected revenue of just below $219 million -- not optimistic enough, as it turned out.
Shipments of the company's H.P. Acthar gel looked great, too. Questcor shipped 8,132 vials of Acthar, 45% higher than the volume shipped in the same period last year and up 15% from the 7,050 vials shipped in the second quarter.
New paid prescriptions were up in every major indication for which Acthar is sold. Rheumatology prescriptions jumped 43% from last quarter, which was the first full quarter that Questcor targeted the rheumatology market. New paid prescriptions for nephrotic syndrome increased 7% year over year. Multiple sclerosis prescriptions climbed 4% from last year, while infantile spasms prescriptions shot up 33% year over year.
Three's a crowd
There was nothing negative with any of the numbers in the quarterly results. So why did the stock sell off? Here's your one- word answer: investigation.
Last year, Questcor announced that the U.S. attorney's office for the Eastern District of Pennsylvania was investigating the company's promotional practices. Now, the U.S. attorney's office for the Southern District of New York and the Los Angeles office of the SEC have joined the investigation.
When the initial investigation was announced in September 2012, Questcor lost more than half of its value. However, back then some speculated that major payers could restrict reimbursement for Acthar. At the time, Aetna (NYSE: AET ) had recently decided that it would only pay for Acthar as a treatment for infantile spasms. Bears piled on, saying that it was just a matter of time before other big insurers would follow suit. That hasn't happened so far -- and, to my knowledge, there are no reasons to think it's about to happen now.
Two other government agencies hopping aboard the investigation is unsettling, though. While Questcor's management didn't make any comments about the ongoing investigation, investors have to wonder how this will unfold.
If history rhymes
Mark Twain once reportedly said, "History doesn't repeat itself, but it does rhyme." Looking at just a handful of past conclusions to government investigations into pharmaceutical companies' promotional practices isn't comforting.
Novartis (NYSE: NVS ) paid $422 million in 2010 for alleged illegal marketing of epilepsy drug Trileptal. In April, the big drugmaker was charged with even more possible violations.
That was relatively inexpensive compared to Pfizer's (NYSE: PFE ) experience in 2009, when it forked out $2.9 billion to settle allegations that it had illegally promoted painkiller drug Bextra. And that came after a prior $430 million fine for alleged marketing violations concerning epilepsy drug Neurocontin.
We don't know what will happen with the investigation into Questcor. In the U.S., individuals --and companies -- are innocent until proven guilty. More parties to the investigation could ultimately mean nothing in the end. For what it's worth, Questcor's third quarter was terrific. If history rhymes, though, the rest of the year could mean that the stock performance is horrific. Questcor shareholders no doubt hope that history has lost its poetic ability.
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