Let's face it. Some investors seemed spooked by Questcor's (NASDAQ: QCOR) fourth-quarter results even though the company blew the doors off with fantastic sales and earnings growth that beat analyst projections. All of the gains from Tuesday (and then some) were wiped out in after-hours trading.
I'll admit that I was surprised that Questcor reported an 8% decline in sales of Acthar for multiple sclerosis, or MS. However, after hearing the company's management discuss the results, I think there are three messages that should provide reassurance for Questcor shareholders.
1. Reimbursement is fine.
There has been a lot said over the last several months about the impending danger of insurers choking back reimbursement of Acthar. Aetna (AET +0.00%) kicked off the frenzied speculation in September when it announced a decision to only pay for use of the drug in treating infantile spasms. At the time, some Questcor critics predicted that Aetna would be just the tip of the iceberg as other insurers followed suit.
Questcor's message in the company's call following the earnings announcement was clear: "The overall reimbursement environment for Acthar remains favorable."
Even if the company's management had not said those words, the numbers speak for themselves. When net sales jump from $140.3 million in the third quarter to $160.5 million in the fourth quarter, I'd say signs point to an overall favorable reimbursement environment.
But what about that 8% drop in MS sales? Steve Cartt, Questcor's COO, said that the company didn't see any significant changes with reimbursement for MS and that the percentage of scripts reimbursed still looked good. Cartt suggested that the dip in MS sales could be seasonal. He noted that prescribers have observed that they see fewer relapses in the colder winter months but added that Questcor doesn't have data to confirm that.
There actually is scientific research that supports this seasonality theory. A five-year study conducted in Europe found that the number of sunshine hours in a month predicted the frequency of MS relapse pretty well. Another study in the U.S. performed in 2010 also pointed to seasonal influence on relapses.
2. Diversification is good.
Even with the decline in MS sales, total sales for Acthar were quite strong due to Questcor's continued focus on diversification. In particular, prescriptions for nephrotic syndrome really picked up the pace. The indication now makes up between 44% and 48% of net Acthar sales.
It might be helpful to look back on Questcor's growth in indications beyond MS. The company discontinued providing detailed information in late 2012, but we do have data up to that point.
Source: Company 8K SEC filing
While prescriptions for infantile spasms have been relatively steady, nephrotic syndrome has seen considerable momentum since the middle of 2011. Note also the small sliver in 2012 Q3 for rheumatology. Questcor now has 55 sales representatives calling on rheumatologists, up from 12 just a few months ago. Investors should see fruit from this expanded sales team over the next few quarters.
3. Research will help.
Questcor emphasized another reassuring message in the earnings call: a bigger focus on research. The company already has clinical studies under way looking at the effects of Acthar on patients with lupus, idiopathic membranous nephropathy, and diabetic nephropathy. It is also now talking with the Food and Drug Administration about a potential study of Acthar in treating patients with amyotrophic lateral sclerosis, or ALS, which is commonly referred to as Lou Gehrig's disease.
Beyond these studies, Questcor is researching how and why Acthar works. This effort includes investigating the biological activity differences between Acthar and corticosteroids. Chief Scientific Officer David Young said that while more research is needed, preliminary results are confirming the company's position about the unique properties of Acthar.
Investors shouldn't get too excited over preliminary results. However, this research is exactly what Questcor should be doing. The company says that it is basically doubling its spending on research and development in 2013. That's good news. A big part of the stigma surrounding Acthar has been the lack of clinical studies proving that it is effective. If Questcor's research can make the case convincingly, the value that many investors see in the company's stock could be realized.
Controversial?
Anything written about Questcor seems to be controversial, no matter what position is taken. That's simply a reflection of strong feelings about the company on both sides of the fence. It's to be expected with a stock that has 51% short interest.
I don't think these three messages from Questcor's management should be controversial, though. Can anyone really say that reimbursement doesn't look fine -- at least for now? Who's going to protest that the company's diversification strategy isn't a smart move? Isn't focusing on research the correct course of action as well?
And yet -- I suspect there will be controversy anyway. I'm glad investors can be passionate about something. That's, in a weird kind of way, reassuring itself.
