What To Know About Questcor Pharmaceuticals' Most Important Drug

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Despite only recently entering the market, faster-than-hoped-for growth in rheumatology is sparking revenue for Questcor Pharmaceuticals (NASDAQ: QCOR.DL  ) .

Rheumatology revenue already represents a quarter of sales for Questcor's only marketed drug, Acthar, and as we're only in the early innings, it wouldn't be surprising to see sales tied to autoimmune indications continue to climb, especially since autoimmune diseases -- including dermatomyositis, polymyositis, rheumatoid arthritis, and systemic lupus erythematosus -- have helped create blockbuster drugs for Amgen (NASDAQ: AMGN  ) and AbbVie (NYSE: ABBV  ) .

Expanding indications, pricing, and revenue
Acthar was a toss-away drug when Questcor acquired it from Aventis for $100,000 in 2001. The drug, which had originally been developed in the 1950s from pig pituitary glands as a way to boost the body's production of corticosteroids, was so forgotten that Questcor sales of it totaled just $2 million in the first five months after buying it.

Oh, how things have changed. Questcor's efforts to market the drug as a treatment for multiple sclerosis, kidney disease, and, most recently, rheumatology resulted in sales of $236 million last quarter, up 68% from a year ago. That brought net sales from the first nine months of 2013 up 60% to $556 million.

The company's sales growth has come thanks to a growing patient pool, higher prices per vial, and expansion into indications requiring more vials per treatment course. When Questcor first began marketing Acthar gel, it treated only infantile spasms. It was a tiny market of roughly 800 patients. Today, nearly 2,500 paid scripts for the drug across multiple indications are being written each quarter. A lot of those prescriptions are for the treatment of nephrotic syndrome, or NS, which is characterized by excess protein spilling from the patient's kidney into the urine. If left untreated, NS can eventually cause renal failure. Roughly 35,000 patients have NS in the United States. But treating NS with Acthar requires far more vials per treatment course than treating relapsing multiple sclerosis. On average, it takes six to seven vials to treat NS with Acthar, versus one to two vials for MS.

Similarly, Questcor is seeing more vials prescribed for RA than for MS, too. Roughly five vials were being written per rheumatology prescription in the third quarter.  

That script and unit volume growth is having a big impact on sales, since prices per vial have steadily climbed. Dividing sales by total vials shipped nets an average price per vial of roughly $28,000 in the third quarter, up from $18,000 in the first quarter of 2011.

As a result, steadily increasing revenue has translated into compounded 77% annual GAAP net income growth from 2009 through the trailing 12 months ending in September. Earnings per share have jumped a compounded 81% during that period.

Big money indications pushing sales toward $1 billion
The high-priced Acthar isn't likely to trump much cheaper steroids as a first-line treatment for its approved indications. But in cases that don't respond to those less expensive options, Acthar is carving out a handsome niche.

The company believes it holds only a small 18% share of the addressable market for treating the roughly 30,000 patients inadequately being treated for their MS flares.

One of the largest makers of therapies for MS is Biogen, which markets blockbuster drugs Avonex and Tysabri. Combined, those two drugs, which are used to help slow the disease's progression and reduce the number and severity of flare ups, produced sales of $1.1 billion in the third quarter. Other big-money MS therapies include Teva's $4 billion-a-year Copaxone, Novartis' (NYSE: NVS  ) Gilenya, and Sanofi's (NYSE: SNY  ) Aubagio.

Teva loses patent protection for Copaxone this year, which creates an opportunity for Novartis and Sanofi to step in and win away market share. Sales of Novartis' Gilenya totaled more than $500 million in the third quarter, while sales of Sanofi's Aubagio totaled 53 million euros.

In addition to using those drugs as part of ongoing therapy, steroids such as prednisone may also be prescribed during flare-ups to help speed healing. Currently, MS scripts represent 25% to 30% of the company's revenue, and since not all patients respond to steroids, there's an opportunity for Acthar sales to grow.

Acthar's share in rheumatology is even smaller. Questcor estimates that some 250,000 patients have been previously treated and arguably failed on other therapies. Within that addressable market, the biggest potential opportunities for Acthar to win market share are lupus and rheumatoid arthritis, indications in which Acthar's market share remains below 1%.

AbbVie's Humira has arguably been one of the world's most successful drugs. Used to treat autoimmune disease such as RA, Humira is genetically engineered to hinder production of protein tied to inflammation. Humira generated sales of $9 billion in 2012 for AbbVie, but not everyone responds to it, and it won't prevent flare ups. In those cases, doctors again turn to steroids. Similar to MS, in patients that steroids fail to help, Acthar may be able to win business. As a result, Questcor is ramping its rheumatology sales force from 12 to more than 60 people.

Fool-worthy final thoughts
Questcor has had its fair share of pushback over the past few years. Patients have recoiled at ever-increasing prices, and some question whether Acthar is truly more effective than steroids for most patients. The SEC and attorneys general for Pennsylvania and New York are looking into the company's marketing practices, too.

In addition, new products for MS and rheumatology indications are coming that could prove to reduce flare-ups. Biogen launched Tecfidera, its latest MS drug, this year and it already notched $286 million in sales during the third quarter. Pfizer's Xeljanz won FDA approval as a first-of-its-kind RA treatment in 2012 and produced $68 million in sales for Pfizer in the first nine months of last year. But none of those drugs is perfect, and for those who still suffer flare-ups but don't respond to steroids, Acthare may prove a viable option -- despite its high price.

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Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 22, 2014, at 11:11 PM, drdonrs wrote:

    Todd has written a very complete and honest appraisal of Acthar, a drug with many indications. He did not mention the extensive number of trials that are or will be in progress for other inflammatory autoimmune diseases, including ALS, a devastating disease that has no treatment at present.

  • Report this Comment On January 23, 2014, at 1:24 AM, Caffeinsomniac wrote:

    Excellent article. Thanks. Also, as your previous commenter mentioned, QCOR is exploring an ALS indication with results expected mid-year or even sooner. The lack of alternatives for ALS gives even greater growth potential to QCOR both nationally (and internationally through the Synacthen acquisition).

  • Report this Comment On January 23, 2014, at 7:53 PM, awallejr wrote:

    You have my rec. You made an unemotional presentation and you argued what many who blog about this company don't, namely the efficacy of the drug itself.

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Todd Campbell

Todd has been helping buy side portfolio managers as an independent researcher for over a decade. In 2003, Todd founded E.B. Capital Markets, LLC, a research firm providing action oriented ideas to professional investors. Todd has provided insight to a variety of publications, including SmartMoney, Barron's, and CNN/fn.

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