After years of sitting on the sidelines, this small biopharmaceutical company has seen dramatic changes in recent years. Not only has the company become profitable but it is also debt free and cash flow positive. This newfound financial stability of the company is attributed to growing sales of its flagship product - a repository corticotropin injection, used in the treatment of acute exacerbations of multiple sclerosis and for several other uses.
Did you guess that the repository corticotrophin injection is Acthar Gel?
And yes, it is Questcor Pharmaceuticals Inc. (QCOR) that markets H.P. Acthar Gel that we are bringing to your radar.
Located in San Francisco Bay Area, Questcor is focused on providing prescription drugs for the treatment of rare central nervous system and inflammatory disorders. The company's primary product is H.P. Acthar Gel, also called Acthar, a repository corticotropin injection.
Acthar is an injectable drug that is approved by the FDA for the treatment of 19 indications. Of these 19 indications, the company derives a major part of its net sales from two indications - the treatment of acute exacerbations of multiple sclerosis, or MS, in adults, and the treatment of infantile spasms, or IS, in infants and children under two years of age.
In 2009, net sales of Acthar fell 7% to $87.6 million. However, with increasing new paid Acthar prescriptions for the treatment of MS exacerbations since the beginning of this year, the sales of Acthar are on the mend. Net sales of Acthar for the nine months ended September 30, 2010 totaled $85.5 million, up from $61.9 million in the comparable year-ago period. The sales force expansion related to Acthar, which was completed in the third quarter, is expected to drive further MS sales gains in 2011.
Market research indicates that 10,000-20,000 MS patients per year are candidates for Acthar treatment. The market potential for Acthar in the MS exacerbations indication is estimated to be $500 million to over $1 billion, according to Questcor.
Acthar has long been used by many neurologists to treat infants afflicted with infantile spasms, pursuant to guidelines published by the American Academy of Neurology and the Child Neurology Society. The drug, which has had many years of off-label usage in the treatment of infantile spasm, was approved by the FDA for that indication only as recently as mid-October.
Infantile spasm, or IS, is a devastating, refractory form of childhood epilepsy affecting 1,500-2,000 patients annually. IS is not responsive to standard epileptic drugs and Acthar is currently used to treat 30%-50% of IS patients. Acthar has an orphan drug designation for IS, which confers seven years of marketing exclusivity for that indication.
Sabril, developed by Danish pharmaceutical company H.Lundbeck A/S (HLUKY.PK), was the first FDA-approved drug for infantile spasms. Sabril was approved last year and was launched with an extensive REMS (Risk Evaluation Mitigation Strategy) program as required by the FDA.
Questcor announced the commercial launch of H.P. Acthar Gel for infantile spasms early this month. The company is confident that there is going to be no significant impact on the sales of Acthar for IS indication because of its rival drug Sabril.
Nephrotic Syndrome, or NS, is another key approved indication of Acthar. Nephrotic Syndrome, which is characterized by excessive spilling of protein from the kidney into the urine, represents a significant unmet medical need. NS presents a sizable market opportunity for Acthar, which is estimated to be over $1 billion.
Acthar is indicated to induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus.
Though nephrotic syndrome is an approved indication for Acthar, there was no modern published data regarding its use in this condition till yesterday. In order to fully assess Acthar's value in treating NS, the company has been clinically exploring the drug.
New data related to the use of Acthar in the treatment of NS were presented at the American Society of Nephrology Annual Meeting on November 20. Initial data presented at the meeting revealed that 9 of 11 patients (82%) with nephrotic syndrome due to idiopathic membranous nephropathy who were treated with Acthar achieved complete or partial remission of proteinuria.
According to Questcor, the new data presented at the meeting represents the first modern clinical evaluation involving the use of Acthar for the treatment of nephrotic syndrome. With the early data suggesting that Acthar may be a viable treatment option for resistant nephrotic syndrome due to idiopathic membranous nephropathy, the company is looking forward to further study of that promising treatment option.
Questcor also presented encouraging interim results from an ongoing independent study of Acthar Gel in patients with advanced diabetic nephropathy at the American Society of Nephrology Annual Meeting.
Acthar is not currently indicated for the treatment of proteinuria associated with diabetic nephropathy. Diabetic nephropathy represents the most common cause of ESRD (end-stage renal disease) in the U.S.
At present, the only treatment alternatives available for patients who progress to ESRD are dialysis and kidney transplant. With the interim data demonstrating that Acthar may reduce proteinuria and stabilize renal function in patients with advanced diabetic nephropathy, the use of Acthar could represent a novel pathway for the management of proteinuria associated with diabetic nephropathy.
The company also markets Doral, which is indicated for the treatment of insomnia characterized by difficulty in falling asleep, frequent nocturnal awakenings, and/or early morning awakenings.
Questcor provides its products to Medicaid participants under an agreement with the Center for Medicare and Medicaid Services, or CMS.
Now let's take a quick look at the company's financial data over the last few years.
After reporting a loss of $10 million or $0.18 per share in 2006, Questcor reversed to net income of $36 million or $0.51 per share in 2007 as sales rose nearly four-fold to $49.7 million. However, in the following year - in 2008, while sales improved nearly two-fold to $95 million, operating expenses took a bite out of the bottom line and net income slightly dipped to $35 million or $0.49 per share. The company has been maintaining a gross margin level of 92% over the years.
In 2009, both sales and net income declined to $88 million and $26.6 million or $0.40 per share, respectively. However, things have been looking up for the company since the beginning of 2010, with sequential and year-over-increase in net income and sales.
Shares of Questcor, which have gained more than 200% year-to-date, touched an all-time intraday high of $14.27 on Friday before settling down at $14.18. Based on QCOR's P/E of 24.4x, its PEG (price earnings-to-growth ratio) is 0.78, suggesting the stock is trading at a discount relative to its future earnings potential.
The company has a pristine balance sheet with zero debt and about $1.76 per share in cash.
Acthar is effectively a pipeline in itself, according to Questcor, and considering the growing sales of the drug in the multiple sclerosis market, its recent approval for infantile spasm and its significant upside with nephrotic syndrome, QCOR is a stock worth holding for the long haul. But also be aware that a disappointment in Acthar's sales could send the stock price lower... quickly.
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