Why try to beat 'em if you can just buy 'em? That's the approach that Questcor Pharmaceuticals (NASDAQ:QCOR) is taking. The biotech announced today that it has acquired rights to develop Syncathen and Synacthen Depot in the U.S. from Novartis (NYSE:NVS). Questcor is paying $60 million up front and at least $75 million over the next few years, plus potential milestone payments. Shares were up nearly 25% in early trading.
What it means
Questcor appears to be playing both defense and offense with this move. On the defensive front, buying rights to Synacthen makes a lot of sense. Synacthen is a synthetic version of adrenocorticotropic hormone, or ACTH, which is the active ingredient in Acthar.
There's at least one big difference between Acthar and Synacthen, though. Questcor charges $28,000 per vial for Acthar. Synacthen Depot sells for around 3% of the cost of Acthar. You read that right -- Acthar costs 30 times more than the its synthetic rival.
However, while Novartis markets Synacthen in Europe, the drug isn't sold in the U.S. at this point. Some speculated that the entrance of Synacthen into the U.S. could undermine Questcor's efforts to market Acthar at a huge premium. Last November, Questcor's stock took a hit when the Food and Drug Administration granted orphan drug designation for Synacthen Depot in the treatment of infantile spasms to Cerium Pharmaceuticals.
That's the defensive side. Questcor also says that it plans to seek FDA approval for Synacthen. The company said that it will promote the product for different indications than those for which Acthar is used, as well as "conditions where Synacthen would potentially provide a clinical benefit over Acthar."
This is clearly great news for Questcor. It removes a potential threat to the Acthar franchise in the U.S. while also potentially opening up international markets. While the initial deal involves U.S. rights, Questcor also expects to gain rights for Synacthen in more than three dozen other countries.
One of the biggest dark clouds hanging over the stock related to the threat of cheaper alternatives. This deal lessens that threat considerably. Another much-discussed threat -- payers slashing reimbursement of Acthar -- appears to be largely overblown.
Questcor reported a slowdown in Acthar shipments in the first quarter. However, the company said that the second quarter began on a very good note. If second-quarter results show solid Acthar numbers, I expect the stock to continue its upward trajectory.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.