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Pigs and Drug Prices



January 23, 2014 – Comments (6) | RELATED TICKERS: QCOR.DL , NVS

Board: Value Hounds

Author: LeKitKat

Questcor is another overpriced "biotech" that is living large on high prices for a drug that is FDA approved for a very small population of patients. Questcor makes Intercept look saintly by comparison.

Questcor was the beneficiary of Armour & Company research that purified ACTH from hog pituitary glands Since they were in the meat packing business they had plenty of these laying around. ACTH is adrenocorticotropic hormone produced by your pituitary and is a polypeptide(meaning organic biologic) that stimulates the release of glucocorticoid steroids from the adrenals (we all need corticosteroids to function). It's made up of 39 amino acids. It's not all that easy to make and the initial gel was an animal product made from pig pituitary. The ACTH synthetics are available. Acthar gel is still porcine derived.

Questcor bought the rights to Acthar gel for $100,000 in 2001 from Aventis (now Sanofi-Aventis). The only approved FDA indication for it is infantile spasms and there are only about 800 cases per year. With prices initially at $50 ( raised to $700 shortly after acquisition) per vial, Questcor lost money for several years.

Because the drug was approved way back in 1952, it can be expanded beyond its tiny orphan status market for any indication Questcor wants to claim and do that without clinical trials. They now sell it for MS, nephrotic syndrome, dermatomyositis and infantile spasms. Other cheaper alternatives are available. Since it is essentially increasing steroid levels, prednisone or prednisolone can be given--mondo cheap generic alternatives. The diseases they claim effectiveness for are autoimmune disorders-- dermatomyositis, nephrotic syndrome (lupus) and MS. Infantile spasms do seem to do better with Acthar--a form of epilepsy not necessarily autoimmune.

Questcor has raised the price of Acthar gel from $700 to $28,000 per 5 ml vial (for injection.) Most of the hike came in just three short months with a change in management--CEO James Fares left and the great humanitarian Don Bailey in 2007.

“We could lower the price and make less money,” Mr. Bailey says, “and then we would be sued by our shareholders.”

Over the last two years, as the company’s share price mainly soared, Questcor insiders have sold more than $100 million of stock.

Novartis has an ACTH synthetic drug approved in Europe that they may get to market in the US. In response to competition Questcor says that the pig pituitary also contains other proteins that make Acthar gel more effective than simply injecting an ACTH synthetic.

Questcor is now arguing that its studies show that Acthar, despite the “highly purified” in its name, actually contains other substances from the pig pituitary glands that account for some of its effectiveness. The company does not intend to say what those other ingredients are, thus making it extremely hard for a generic company to copy Acthar.

“Coca-Cola is not going to tell you what Coke contains, either,” Mr. Bailey says.

Because the Novartis drug Synacthen is not grandfathered in, Novartis would have to do clinical trials for every indication they wanted to market the drug for and that will be expensive and costly. Even though Questcor is the king of pharma sleaze, their position may prove to be unassailable in the short term at least and insiders and lucky investors will continue to benefit from a drug costing $28,000 per dose that has no clinical evidence of efficacy.

--recently some insurance companies have begun to push back and not pay or authorize use and this is one instance where I am in their corner:

6 Comments – Post Your Own

#1) On January 23, 2014 at 7:23 PM, awallejr (33.33) wrote:

You basically used most of the "shorts" arguments here except you left out multi investigations into marketing practices.  Something that also occurred with MRCK and PFE for example.

Bill Gates paid $50,000 for a computer operating system and turned that purchase into making him the richest man on the planet. Kudos to QCOR for having the smarts into buying a drug for $100,000 and refining it to a point where over THREE THOUSAND doctors are now prescribing it.

It has NINETEEN indications and while QCOR hasn't marketed it for all indications they are expanding its usage.

You did make a couple good quotes by their CEO, all of which I completely agree with and would think conceptually any shareholder in any company would:

“We could lower the price and make less money,” Mr. Bailey says, “and then we would be sued by our shareholders.”

“Coca-Cola is not going to tell you what Coke contains, either,

As for the insider sales, now you have been in the business long enough to recognize pre-arranged option executions and sales such as these.

As a shareholder I want my company to produce earnings.  And that is what QCOR is doing.  Aside from Aetna, the insurance companies are covering it and why?  Because it works and is cheaper than dialysis. Something the shorts never mention.

So what have we garnered from the author's blog:

1)  How dare someone, other than Bill Gates, turn a $100,000 purchase into a 4 billion dollar market cap company.

2)  The CEO has some nerve trying to make the most money he can for the shareholders.

3)  The CEO has some nerve not disclosing the exact process and ingredients of their drug so others could copy.

4)  There could be questionable marketing practices.  And there quite possibly could be.  That's where fines come in but it does not impact the efficacy and the desireability of the drug itself.

5)  The drug is yucky, it is derived from pig glands.

The ONE thing the author didn't bother to address is if whether the drug WORKS or not.

No short does.  This stock has a tremendously high short interest.  It really is volatile.  Shorts have made several attacks to knock the stock down but it kept holding that $50 range.

The CEO announced that they are considering many strategic options for the company, none of which will make the shorts happy.  If you are short this stock you better cover soon because when the real squeeze happens there aren't enough shares out there to cover with.

And if you are pinning your hopes on governmental investigations first they could takes years and the shares could be selling for $150 by then.  Second if there were inproprieties then fines will be levied and certainly not to the point of bankrupting the company since no lawyer would allow it nor are the agencies looking to do that.  



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#2) On January 23, 2014 at 7:44 PM, awallejr (33.33) wrote:

Oh and as a follow up now with ACA even Aetna will have to pay.  So the only group that wind up being effected are those lovely, wonderful insurance companies.  Little Timmy will get his drug at the probably $70 deductible now.

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#3) On February 18, 2014 at 7:25 PM, awallejr (33.33) wrote:

And the short squeeze has begun.

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#4) On February 26, 2014 at 8:32 PM, awallejr (33.33) wrote:

A reprint from my thread:

Having read the earnings transcript I have to say it was pretty good. The only "negative" if you want to call it that is they are noticing a certain seasonality. So the best way to analyze future performance would be year over year Q comparisons and not current with last.

I notice the snake from GS tried to get them to talk about CDF, but CEO didn't take the bait. This is the last bullet shorts have. The drug is expanding. They are selling more and more vials. Insurance is paying them. They have a solid balance sheet. Excellent free cash flow. They obviously aren't dependent on CDF for sales.

So that is it, the investigations. Jamie Dimon paid what 28 BILLION in fines on behalf of JPM and the stock rebounded because despite the incredibly high amount, the investigations are now in the past. This too will come to pass for QCOR. ASSUMING improprieties they will be settled with fines and that last headwind goes away. Since the drug actually works and helps many especially those facing dialysis and kidney transplants the regulatory agencies will not be gunning to shut the company down. That isn't in their mandates.

With all that said see how the open goes then take advantage. I still urge selling pretty much any $60 or under strike price put because you are getting crazy premiums and this stock has seen under $60 for the last time.

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#5) On February 27, 2014 at 4:30 PM, awallejr (33.33) wrote:

Reprinted from a blog by me on Yahoo:

"I have to admit I did not expect that report by Citron.  That was a desperate act by a consortium who's short thesis no longer existed.  Now they make a materially false allegation that "Acthar Faces Severe Risk of Being Pulled off The Market by the FDA" in a clear attempt to scare investors. Unless there is a formal current inquiry by the FDA regarding doing so, which Citron did not say that there is one, Citron has violated the Securities Exchange Act.  In addition QCOR may very well have a tortious intereference claim against Citron.

Longs NEED to file a complaint with the SEC.  Use my arguments below. Also any large holder should seek counsel regarding a class action against Citron.  It is imperative to find out who was selling shares of stock on the open yesterday as well.  That was a clear manipulative attack to try to crash the stock.  If Citron has any connection there that strengthens claims against them.  Points:

1.  The report is an attempt to bait Bailey into disclosing the drug's formula.  
2.  Nowhere in the report does Citron submit evidence that the drug itself does not work, that it has serious side effects or that the 3,000 doctors prescribing it are doing so not in the best interest of their patients.
3.  Absent the above there is no reason to expect the FDA to pull the drug.  ESPECIALLY since it has ORPHAN status and has been WORKING.
4.  No one really knows why asprin can cure a headache.  But it can.  I was given a compound for a personal ailment where my doctor said no one knows how it works but it usually does, and it did for me.  There are MANY compounds that just simply work.
5.  Doesn't matter who conducted their tests if you don't ESTABLISH A CHAIN OF CUSTODY.  Absent that the results are irrelevent since the vials could have been tampered with.
6.  Not knowing the formula would impair any test result.

Legal action has to come from longs first because as stated Citron is baiting QCOR by getting the formula."

The maliciousness by Citron makes investing here impossible.  So I revoke my reccomendation to do so.  People need to avoid or sit on the sidelines.

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#6) On April 07, 2014 at 11:38 AM, awallejr (33.33) wrote:

Well hope those shorts having read this listened to my advice to cover.  QCOR being taken over for about $86.

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