3 Things You Need to Know From Questcor's Killer Q2 Earnings

3 Things You Need to Know From Questcor's Killer Q2 Earnings

Three months ago after Questcor Pharmaceuticals announced its first-quarter financial results, I asked if those results were as bad as they looked. My view at the time was that the second quarter would show whether those disappointing numbers were just a blip or something more serious.

We now know the answer. Questcor's second-quarter results exchanged the question mark from three months ago with an exclamation point. Here are three things investors need to know from the latest update.

1. The numbers were far better than expected.
Analysts expected Questcor's second-quarter earnings to come in around $1.00 per share. The most pessimistic view of analysts polled by Thomson Reuters was for earnings of $0.76 per share, while the most optimistic estimate was $1.18 per share. They were all off the mark.

Questcor reported non-GAAP quarterly earnings of $1.35 per diluted share, well above even the rosiest projection. Earnings nearly doubled the $0.69 per share from the second quarter of last year.

Even if no special items were factored into the equation, Questcor still beat expectations. GAAP earnings per share were $1.12 per share. That's a whopping 72% jump year over year.

What about revenue? The average analysts' estimate was for revenue to come in just shy of $169 million. Questcor's actual sales for the quarter totaled $184.6 million -- up 64% from the same period in 2012.

2. Practice does seem to make perfect -- or at least close to it.
Questcor's approach with Acthar hasn't changed much. The company first identifies a target indication for the gel. It educates the medical community about how Acthar can help. It works hard to help secure reimbursement. And sales grow.

This approach worked extremely well with multiple sclerosis, infantile spasms, and nephrotic syndrome. Add rheumatology to the mix, too.

CEO Don Bailey said that during the second quarter that more than 300 prescriptions were generated for Acthar by rheumatologists. That's the best launch for a new therapeutic area the company has ever had, according to Bailey.

Rheumatology now represents the fastest-growing area for Acthar, but that doesn't mean the other targeted indications are slowing down. Paid prescriptions for nephrotic syndrome, which accounts for nearly 40% of total Acthar business, jumped 19% year over year. Multiple sclerosis prescriptions, which make up more than 25% of the total, climbed 12% compared to the second quarter of last year. Prescriptions for infantile spasms also increased 27%.

3. Watch out for even more expansion.
Tremendous results from the first full quarter marketing Acthar for rheumatology prompted Questcor to set its sights on another indication -- pulmonology. The company intends to use the same strategy used for other indications to target treatment of symptomatic sarcoidosis.

Acthar claims 19 on-label indications, several of which could be pursued more aggressively. The company is sponsoring a clinical study for Acthar in treating one of these other indications -- lupus. Enrollment is under way for this study. Questcor is also sponsoring an independent study evaluating use of Acthar in treating lupus exacerbations.

Questcor isn't stopping there, though. It also has begun screening patients for a mid-stage trial of Acthar in treating patients with Amyotrophic Lateral Sclerosis, or ALS, commonly known as Lou Gehrig's disease. Currently, Sanofi's Rilutek is the only drug approved to treat ALS. However, the drug helps only moderately in slowing progression of the disease. Rilutek generates sales of around $50 million in the U.S.

Biogen Idec halted its development program for dexpramipexole earlier this year after disappointing results from a phase 3 trial. Just over a year ago, Biogen CEO George Scangos commented that he didn't "know any disease that's in more need of therapy than ALS." Had dexpramipexole reached the market, analysts anticipated that it could have hit annual sales of $1 billion or more in the U.S. alone.

There's no guarantee that Questcor will see success with Acthar in treating ALS, of course. Its phase 2 study targeting diabetic nephropathy could also flop. However, the company's drive to expand use of Acthar (and Synacthen now that Questcor owns the rights to its second drug) is good for shareholders.

Buy, sell, or hold?
One number stands out to me in consideration about what to do with Questcor's stock -- the price/earnings-to-growth, or PEG, ratio. The PEG ratio is a good metric to use with growth stocks. Stocks with a PEG ratio well below 1.00 tend to be valued attractively with growth prospects factored in.

Questcor's PEG stood at 0.47 as of the end of the day on Tuesday. With shares surging in the double-digit percentages in after-hours trading, that ratio won't be quite as low, but it will still be attractive. You're not going to find too many solid, growing companies with a PEG in that ballpark that also happen to sport a 2% dividend yield.

My view three months ago was that the second quarter would show whether Questcor was cheap for a reason or only cheap for a season. I think the company has now answered that question resoundingly. Questcor looks to be a buy.

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The article 3 Things You Need to Know From Questcor's Killer Q2 Earnings originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned, and neither does The Motley Fool. 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.

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