Why Questcor Pharmaceuticals Inc. Soared Today

Questcor Pharmaceuticals (NASDAQ: QCOR  ) is up over 10% today on unusually high volume following CEO Don Bailey's presentation at the 32nd annual J.P. Morgan Healthcare Conference. What started out as a fairly routine tour of the company's financials and lead commercial candidate, Acthar Gel, quickly turned into statements that suggest radical changes may be coming to Questcor.

From an investor's viewpoint, the most interesting part is that these statements came completely out of left field, leaving short sellers little room to find cover. In case you are new to this story, Questcor is quite a unique stock in the biotech sector. Despite growing revenues by double-digits over the last few quarters, short sellers have piled into the stock based upon ongoing investigations into the company's marketing practices for Acthar. As a result, Questcor shares have been trading for as little as three times annual sales lately. In the frothy biotech sector, that's basically unheard of.

Questcor's management, however, has actively fought back against short sellers by increasing dividends, instituting a hefty share buyback program, among other measures. Nonetheless, shorts have continued to attack the stock without mercy over the past year.

CEO mildly announces radical changes on the horizon
Mr. Bailey caught many investors off guard today by casually announcing during the company's presentation that Questcor is exploring the possibility of going private. If that wasn't enough, he later suggests that moving the company abroad might be a good idea to lessen the company's tax burden under U.S. Law. While these two bombshells started the rally, I believe what is most profound is Mr. Bailey's acknowledgement that it's time that Questcor moves beyond Acthar. 

What to do with all this cash?
There is no doubt that Questcor has been generating significant revenue from its highly successful orphan drug Acthar. Sales should top $1 billion year over year, once the company announces fourth quarter earnings next month. And so far, Questcor has primarily used this mountain of cash to buyback stock and reward shareholders by increasing dividends. In my view, however, the best way to quiet the critics about investigations into Acthar is to acquire or license another blockbuster drug. That appears to be an avenue Questcor is actively exploring this year.

Foolish final thoughts
With all of the licensing, partnering, and straight-up buyouts going on in the sector right now, Mr. Bailey's statements don't exactly surprise me. And with the company facing mounting criticism over Acthar's marketing, something big was bound to happen this year. Looking ahead, I personally think a merger with a company like Jazz Pharmaceuticals or Shire makes a lot of sense in terms of the synergies such a move would create. Regardless, Questcor definitely woke up the market today and looks ready to generate more debate among investors in 2014.

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  • Report this Comment On January 16, 2014, at 9:16 PM, drdonrs wrote:

    Yes, Don Bailey was succinct and effective in his presentation and may finally have the shorts on the run. Lots of room to maneuver and run over the shorts.

  • Report this Comment On January 16, 2014, at 9:44 PM, ztnjpv wrote:

    Go Don Go!

    Run them over!! I am so sick of the short circus.

  • Report this Comment On January 17, 2014, at 3:58 AM, Caffeinsomniac wrote:

    Here were the highlights for me and the same highlights I am sure are responsible for starting to return the pps back to where it was before the massive shorting (20M Short Positions / 33% of Float / 13 Days to Cover) and Citron attacks (which are turning out to be bogus again just like his hit pieces in 2012 were as well).

    Highlights:

    “we will probably continue a fair amount of return of cash to shareholders but we are starting to look at business development. And really there is, all options around the table at this point for the Strategic Committee. We will be looking at everything from leverage re-cap to business development, acquisitions, in-licensing, partnering, GOING PRIVATE, you name it we are going to look at it.”

    “We have a very strong free cash flow generation and we believe that will enable PARTNERING and ACQUISITIONS.”

    “We are a full U.S. tax payer, so obviously if we can do something about that through our business development activity, or ACQUISITION ACTIVITY, we would WANT to do that.”

    “So for ALS, Lou Gehrig's disease we are in the Phase 2. Basically a study oriented towards safety. It’s a four arm open-label study. We are trying to decide is there enough impact here with these efficacies and exploratory end point. We would like to see whether there is enough evidence here for us to run a Phase 3 trial. That's the GOAL, help us a design a PHASE 3 trial.”

    “MS which was one of our earlier indications is now about a quarter of the business; rheumatology which we really have been promoting for a year, we’ll talk about in a minute, [actually has grow] looks like it’s grown past MS during the fourth quarter”

    "In rheumatology where we’ve just been in the market for a year you can see very modest, almost negligible penetration numbers and yet the sales are at a run rate of $200 million, $225 million, $250 million. And we have sizeable population. It looks, it’s very early, so we can’t really give you vials first for Rx here to be sure but it’s running in the neighborhood of four to may be even five vials so far."

    “There is a basket of rheumatology indications including rheumatoid arthritis, lupus, lupus flares, ankylosing spondylitis, psoriatic arthritis, polymyositis, dermatomyositis, juvenile RA, a whole bunch of them and then in addition symptomatic sarcoidosis. We believe there are some significant areas of unmet need and significant GROWTH POTENTIAL here for these indications.”

    "Rheumatology, so our largest indication, we believe largest opportunity again because there are so many different indications here, I won’t go through all those again. The breakout of what we believe the addressable market is over on the right. Now I mean for example, RA the numbers we’re showing in RA there are 80,000, there is obviously a lot more than 80,000 patients with RA.

    So we’re talking about severe RA here, especially patients that are having trouble finding really from all the other therapies that are on the market. So we believe that this area represents a great area for GROWTH. We have just in the last year increased our sales force. We started with a pilot of 12 and have increased that up to about 62 reps."

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