JPMorgan Healthcare Conference Highlights: Questcor Pharmaceuticals


The JPMorgan Healthcare Conference just finished up in San Francisco and was arguably the most important event of the entire year for the health care sector. This is one of the rarest opportunities for biotechnology, pharmaceutical, and medical device companies to open up about where they've been and where they're headed, so it pays to take notice.

Questcor Pharmaceuticals is one such company that's had a particularly rough year. In just a matter of weeks it lost about two-thirds of its value, falling from a 52-week high to a 52-week low, after a trio of bad news hit the newswire.

First, over the summer, Citron Research's Andrew Luck questioned Questcor's marketing practices.

Second, Aetna announced that because of Questcor's $23,000 price tag across the board for Acthar gel, its lead drug, it'd be dropping coverage on all but one indication of the drug. Luckily for investors, UnitedHealth Grouphasn't followed suit, only requiring pre-approval paperwork to be filed now.

Finally, the U.S. government announced a probe into Questcor's marketing practice of pricing its Acthar gel at $23,000 across the board, regardless of indication. As my Foolish colleague Keith Speights has pointed out, government probes into Johnson & Johnson and Amgen cost those two companies $2.2 billion and $780 million, respectively.

Needless to say, I was curious to see if Questcor would address many of these concerns in yesterday's presentation, and I must say I'm brutally disappointed with the outcome. In fact, if I had been teetering on avoidance of Questcor prior to this presentation, I am wholly avoiding this company with a 30-foot pole now!

Questcor COO Steve Cartt made sure to emphasize early and often that his company has 19 separate indications for Acthar gel and that it'll be looking at adding more indications down the road. In terms of sales, Questcor is deriving 45%-47% of its revenue from nephrotic syndrome, about 40%-44% from multiple sclerosis, and just 9%-10% from infantile spasms -- where it controls anywhere from 40%-50% of the market but is required to pitch in with heavy rebates.

Financially, the results look strong with sales and profits doubling year-over-year and with total vials shipped increasing for a seventh straight quarter. Questcor noted that it's also spending heavily on share repurchases and dividends in order to boost shareholder value. It also recently purchased BioVectra, the producer of its active pharmaceutical ingredient, for about $50 million in order to internalize its costs and stream its supply if need be.

Unfortunately, that wasn't enough to encourage me in the least.

The biggest concern(s) I had going into this presentation were regarding the U.S. probe and its lack of product diversification. Now I can add one glaring additional concern since Questcor admits to not having any products or additional Acthar indications in the immediate pipeline, nor did it address its U.S. probe status. What concerns me even more is Questcor's naivety with regard to its own FDA-approved drug.

I know this is the COO and not Questcor's chief scientist, but the following statements made me bang my head on the table:

So, how does Acthar work? Well...the science around Acthar is emerging, but all indications at this point are that it treats autoimmune conditions across a variety of organ systems... there's a lot of science going on around fully elucidating how the drug works... But as of yet, it's not completely understood.

Not kidding you! Acthar was discovered in 1950s, and Questcor has 19 indications for it, but it doesn't completely understand how the drug works, yet hopes to be used for additional indications. MEGA-FAIL!

Other tidbits, like the fact that Questcor's R&D doubled in 2012 and would be up in 2013, along with the ongoing U.S. probe, give me all the reasons I need to keep my distance from Questcor.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson and UnitedHealth Group, as well as buying calls on Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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