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Questcor (QCOR) Reports Solid Fourth Quarter Results

Mar. 1, 2010 (PR Newswire) —

UNION CITY, Calif., March 1 /PRNewswire-FirstCall/ — Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) today reported financial results for the fourth quarter and year ended December 31, 2009. The Company’s financial performance in the fourth quarter of 2009 was driven primarily by:

— a 223% increase in the number of new paid Acthar commercial
prescriptions for the treatment of multiple sclerosis (MS) exacerbations
versus the fourth quarter of 2008,
— a sequential 56% increase in new paid Acthar commercial prescriptions
for the treatment of infantile spasms (IS), and
— lower sequential Medicaid usage.

In addition to the financial improvement in the quarter, the Company also received an encouraging initial set of Acthar prescriptions for the treatment of nephrotic syndrome (NS). Also, during the fourth quarter, the FDA accepted for review Questcor’s supplemental New Drug Application (sNDA) filing which seeks approval for an indication for Acthar in the treatment of IS.

Net sales totaled $25.9 million for the quarter ended December 31, 2009 compared to $13.9 million for the quarter ended September 30, 2009, and $27.0 million for the fourth quarter of 2008. Net income for the fourth quarter of 2009 was $8.4 million, or $0.13 per diluted common share compared to $1.2 million, or $0.02 per diluted common share for the third quarter of 2009, and $16.2 million, or $0.24 per diluted common share for the fourth quarter of 2008. An additional $1.2 million in sales reserves was recorded during the fourth quarter of 2009 for retroactive Tricare rebates. Significantly higher sales reserves adjustments reduced net sales and operating income for the third quarter of 2009 by $4.6 million. Tax benefits resulting from the reversal of a valuation allowance positively affected net income in the fourth quarter of 2008 by $4.4 million.

Net sales totaled $88.3 million for the year ended December 31, 2009, compared with $95.2 million for 2008. Net income for 2009 was $26.6 million, or $0.40 per diluted common share compared with net income applicable to common shareholders of $35.3 million, or $0.49 per diluted common share for 2008. The 2008 earnings were impacted by a one-time net tax benefit of $5.2 million and a deemed dividend of $5.3 million.

“We are making excellent progress on all of Questcor’s top priorities,” said Don M. Bailey, President and CEO. “Our fourth quarter financial performance improved significantly on a sequential basis. Questcor’s sales in the MS market showed marked growth and there are preliminary indications that Acthar may also begin to be adopted in the NS market, which is much larger than either the IS or MS markets. In addition, IS prescriptions and payer mix both improved during the fourth quarter from a very weak third quarter. To date, we are seeing little or no impact on Acthar sales in the IS market from the September 2009 introduction of Sabril (vigabatrin).”

IS, MS, and NS Sales

During the fourth quarter of 2009, Questcor shipped 1,626 vials of Acthar compared to third quarter 2009 shipments of 1,354 vials and fourth quarter 2008 shipments of 1,510 vials. Because Acthar prescriptions are filled at specialty pharmacies, the Company does not receive complete information regarding either the number of prescriptions or the number of vials by therapeutic area for all of the patients being treated with Acthar. However, Questcor is able to monitor historic trends in payer mix for new Acthar prescriptions based on data it receives from its reimbursement support center. Questcor estimates that approximately 90% of new Acthar prescriptions are processed by this support center, but that very few refill prescriptions are processed at this center. The following tables show the number of prescriptions shipped by payer category for each of three therapeutic areas for those new prescriptions processed by the Questcor support center:

Multiple Sclerosis New Prescriptions
————————————
Paid/Commercial Medicaid Tricare/VA
————— ——– ———-
Q108 24 5 0
Q208 35 1 0
Q308 50 5 1
Q408 66 3 2
Total 2008 175 14 3

Q109 78 5 3
Q209 125 11 6
Q309 141 14 5
Q409 213 10 5
Total 2009 557 40 19

Infantile Spasms New Prescriptions
———————————-
Paid/Commercial Medicaid Tricare/VA
————— ——– ———-
Q108 98 38 2
Q208 114 47 3
Q308 113 67 3
Q408 103 56 3
Total 2008 428 208 11

Q109 104 70 5
Q209 93 63 5
Q309 61 55 3
Q409 95 40 5
Total 2009 353 228 18

Nephrotic Syndrome New Prescriptions
————————————
Paid/Commercial Medicaid Tricare/VA
————— ——– ———-
Q109 1 0 0
Q209 3 0 1
Q309 2 0 0
Q409 14 2 1
Total 2009 20 2 2

Note: Historical trend information is not necessarily indicative of
future results. The total number of vials associated with an individual
prescription varies by the condition being treated and by patient.

“As the above tables illustrate, our efforts in MS continue to show that the use of Acthar is expanding,” commented Steve Cartt, Executive Vice President. “Our initiatives to educate MS specialists about the treatment benefits of Acthar have resulted in a tripling in MS prescriptions year over year.”

“In addition, spontaneous IS prescriptions during the fourth quarter rebounded to 140 new paid prescriptions from a low level of 119 in the third quarter,” noted Mr. Cartt. “If we are able to receive approval from the FDA to market Acthar for the treatment of IS, we may be able to expand our sales in this therapeutic area.”

“The modest set of prescriptions for NS in the fourth quarter was an unexpected development at this stage in our efforts to generate sales in this market,” added Mr. Cartt. “NS is a devastating kidney disorder which leads to end-stage renal disease (ESRD). NS is an on-label indication for Acthar and we are working to generate more clinical data to further support the effectiveness of Acthar in the treatment of this disease.”

Sales Reserves–Medicaid, Tricare and VA Adjustments

As required by federal regulations, the Company provides rebates to state Medicaid programs for Acthar dispensed to Medicaid patients. The Medicaid rebate portion of sales reserves for the fourth quarter of 2009 was $8.4 million or 22% of 2009 fourth quarter gross sales. While total new commercially paid Acthar prescriptions for the treatment of IS processed through the Company’s reimbursement support center increased to 95 in the fourth quarter from 61 in the third quarter, the number of Medicaid-reimbursed IS prescriptions dropped 27% sequentially.

The Department of Defense (DOD) operates a prescription drug program through its Tricare Management Administration (Tricare). As a result of uncertainties in an on-going dispute between the pharmaceutical industry and the DOD over Tricare rebate regulations, Questcor recorded a sales reserve related to a portion of Tricare-claimed rebates during the third quarter of 2009. Due to recent developments in that dispute, Questcor recorded an additional $1.2 million in sales reserves during the fourth quarter of 2009 for the remaining potential Tricare-claimed rebates. Effective January 1, 2010, Questcor established new prices for Acthar purchased by Tricare and Veterans Administration (VA) medical centers. Additionally, Questcor has removed uncertainty regarding Tricare rebate liabilities going forward. The new agreement with Tricare does not diminish Questcor’s rights in regards to the fully reserved 2008-2009 liability. Any sales in 2010 to Tricare or the VA will represent an increase from the negligible net sales to these customers in 2009.

Regulatory Activity

Acthar is currently approved in the U.S. for the treatment of MS exacerbations, nephrotic syndrome and many other conditions. Acthar is not approved in the U.S. for the treatment of IS, a potentially life-threatening disorder that typically begins in the first year of life. However, pursuant to guidelines published by the American Academy of Neurology and the Child Neurology Society, many child neurologists use Acthar to treat infants afflicted with IS.

On December 23, 2009 the FDA accepted for review Questcor’s supplemental New Drug Application (sNDA) seeking approval to market Acthar for the treatment of infantile spasms. The FDA has notified Questcor that an Advisory Committee Meeting of independent experts will be held to discuss the approval and use of Acthar in infantile spasms. The FDA has also notified Questcor that it has set a PDUFA goal date of June 11, 2010, but there is no assurance that this date will not be delayed. Approval of the IS indication would allow Questcor to promote the use of Acthar in treating IS to child neurologists.

Previously, the FDA granted Orphan Designation to Acthar for the treatment of IS. As a result of this Orphan Designation, if Questcor is successful in obtaining FDA approval for the IS indication, Questcor believes that it will also qualify for a seven-year exclusivity period during which the FDA is prohibited from approving any other adrenocorticotropic hormone (ACTH) formulation for IS unless the other formulation is demonstrated to be clinically superior to Acthar.

Cash, Accounts Receivable and Share Repurchase Program

At February 26, 2010, Questcor’s cash, cash equivalents and short-term investments totaled approximately $81 million, and accounts receivable totaled approximately $9 million.

During the fourth quarter, the Company repurchased 2.5 million shares of its common stock at a total cost of $9.9 million. In the last two years, Questcor has spent $67.0 million for the repurchase of 14.5 million common and preferred shares.

As of December 31, 2009, Questcor had 61.7 million common shares outstanding, with 5.1 million shares remaining under its common share repurchase program.

Conference Call Details

The Company will host a conference call today to discuss these results at 5:00 p.m. ET. Don Bailey, President and Chief Executive Officer; Steve Cartt, Executive Vice President and Chief Business Officer; Dr. David Young, Chief Scientific Officer; Dave Medeiros, Senior Vice President, Pharmaceutical Operations; Dr. Jason Zielonka, Senior Vice President and Chief Medical Officer; and Gary Sawka, Senior Vice President, Finance and Chief Financial Officer will host the call.

To participate in the live call by telephone, please dial 877-941-2928 from the U.S. or 480-629-9724 from outside the U.S. Participants are asked to call the above numbers 5-10 minutes prior to the starting time. The call will also be webcast live at www.questcor.com. An audio replay of the call will be available for 7 days following the call. This replay can be accessed by dialing 800-406-7325 for domestic callers and 303-590-3030 for international callers, both using passcode 4221516#. An archived webcast will also be available at www.questcor.com.

About Questcor

Questcor Pharmaceuticals, Inc. is a pharmaceutical company that markets H.P. Acthar® Gel (repository corticotropin injection). H.P. Acthar Gel (“Acthar”) is an injectable drug that is approved for the treatment of certain disorders, including the treatment of exacerbations associated with multiple sclerosis (“MS”) and to induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that is due to lupus erythamatosus. In addition, Acthar is not indicated for, but is used in treating patients with infantile spasms (“IS”), a rare form of refractory childhood epilepsy, and opsoclonus myoclonus syndrome, a rare autoimmune-related childhood neurological disorder. For more information, please visit www.questcor.com.

Note: Except for the historical information contained herein, this press release contains forward-looking statements that have been made pursuant to the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “if,” “should,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the following:

— Questcor’s ability to continue to successfully implement its
Acthar-centric business strategy, including its expansion in the MS
marketplace;
— FDA approval of and the market introduction of competitive products and
our inability to market Acthar in IS prior to approval of IS as a
labeled indication;
— Questcor’s ability to operate within an industry that is highly
regulated at both the Federal and state level;
— Regulatory changes or actions including Federal or State health care
reform initiatives;
— Questcor’s ability to accurately forecast the demand for its products;
— The gross margin achieved from the sale of its products;
— Questcor’s ability to estimate the quantity of Acthar used by government
entities and Medicaid-eligible patients;
— That the actual amount of rebates and chargebacks related to the use of
Acthar by government entities, including the Department of Defense
Tricare network, and Medicaid-eligible patients may differ materially
from Questcor’s estimates;
— Questcor’s expenses and other cash needs for upcoming periods;
— The inventories carried by Questcor’s distributors, specialty pharmacies
and hospitals;
— Volatility in Questcor’s monthly and quarterly Acthar shipments and
end-user demand;
— Questcor’s ability to obtain finished goods from its sole source
contract manufacturers on a timely basis if at all;
— Questcor’s ability to attract and retain key management personnel;
— Research and development risks, including risks associated with
Questcor’s sNDA for IS and its preliminary work in the area of nephrotic
syndrome;
— Uncertainties regarding Questcor’s intellectual property;
— The uncertainty of receiving required regulatory approvals in a timely
way, or at all; and,
— Questcor’s ability to identify product acquisition candidates and
consummate transactions on terms acceptable to the Company.
— Other risks discussed in Questcor’s annual report on Form 10-K for the
year ended December 31, 2008 and other documents filed with the
Securities and Exchange Commission.

The risk factors and other information contained in these documents should be considered in evaluating Questcor’s prospects and future financial performance.

Questcor undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

For more information, please visit www.questcor.com or www.acthar.com.

Questcor Pharmaceuticals, Inc.
Consolidated Statements of Income
(In thousands, except per share amounts)

Three Months Ended Years Ended
December 31, December 31,
————– ————–
2009 2008 2009 2008
—- —- —- —-
Net sales $25,905 $27,018 $88,320 $95,248
Cost of sales (exclusive of
amortization of purchased
technology) 1,898 1,858 7,017 7,304
—– —– —– —–
Gross profit 24,007 25,160 81,303 87,944
Gross margin 93% 93% 92% 92%
Operating expenses:
Selling, general and
administrative 7,841 5,075 29,950 19,247
Research and development 2,662 2,511 9,653 10,614
Depreciation and amortization 121 124 480 503
— — — —
Total operating expenses 10,624 7,710 40,083 30,364
—— —– —— ——
Income from operations 13,383 17,450 41,220 57,580
Other income:
Interest and other income, net 101 247 686 1,075
Gain on sale of product rights – 75 225 75
— — — —
Total other income 101 322 911 1,150
— — — —–
Income before income taxes 13,484 17,772 42,131 58,730
Income tax expense 5,063 1,530 15,502 18,198
—– —– —— ——
Net income 8,421 16,242 26,629 40,532
Deemed dividend on Series A
preferred stock – – – 5,267
— — — —–
Net income applicable to common
shareholders $8,421 $16,242 $26,629 $35,265
====== ======= ======= =======
Net income per share applicable
to common shareholders:
Basic $0.13 $0.25 $0.41 $0.52
===== ===== ===== =====
Diluted $0.13 $0.24 $0.40 $0.49
===== ===== ===== =====
Shares used in computing net
income per share applicable to
common shareholders:
Basic 63,086 65,135 64,196 67,761
====== ====== ====== ======
Diluted 64,783 68,345 66,257 71,350
====== ====== ====== ======

Questcor Pharmaceuticals, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)

December 31,
2009 2008
—- —-
ASSETS
Current assets:
Cash and cash equivalents $45,829 $13,282
Short-term investments 29,878 42,169
—— ——
Total cash, cash equivalents and
short-term investments 75,707 55,451
Accounts receivable, net of allowance for
doubtful accounts of $77 and $62 at
December 31, 2009 and 2008, respectively 14,833 10,418
Inventories, net 3,378 2,459
Prepaid income taxes – 3,316
Prepaid expenses and other current assets 1,162 1,101
Deferred tax assets 8,180 6,252
—– —–
Total current assets 103,260 78,997
Property and equipment, net 407 450
Purchased technology, net 3,372 3,669
Goodwill 299 299
Deposits and other assets 710 710
Deferred tax assets 3,392 5,021
—– —–
Total assets $111,440 $89,146
======== =======
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $12,921 $4,302
Accrued compensation 2,140 1,896
Sales-related reserves 14,922 11,825
Income taxes payable 477 –
Other accrued liabilities 1,751 1,702
—– —–
Total current liabilities 32,211 19,725
Lease termination and deferred rent
liabilities and other non-current
liabilities 1,226 1,529
—– —–
Total liabilities 33,437 21,254
—— ——
Shareholders’ equity:
Preferred stock, no par value, 7,500,000
shares authorized; none outstanding – –
Common stock, no par value, 105,000,000
shares authorized; 61,726,609 and
65,970,653 shares issued and outstanding
at December 31, 2009 and 2008,
respectively 67,793 84,028
Retained earnings (accumulated deficit) 10,224 (16,405)
Accumulated other comprehensive income
(loss) (14) 269
— —
Total shareholders’ equity 78,003 67,892
—— ——
Total liabilities and shareholders’ equity $111,440 $89,146
======== =======

Questcor Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(In thousands)

Years Ended
December 31,
2009 2008
—- —-
OPERATING ACTIVITIES
Net income $26,629 $40,532
Adjustments to reconcile net income to net cash
provided by operating activities:
Share-based compensation expense 3,066 4,119
Deferred income taxes (290) 4,649
Amortization of investments 181 (456)
Depreciation and amortization 480 503
Gain on sale of product rights (225) (75)
Income tax benefit realized from share-based
compensation plans 783 4,932
Excess tax benefit from share-based compensation
plans (743) (4,841)
Changes in operating assets and liabilities:
Accounts receivable (4,415) 13,221
Inventories (919) (94)
Prepaid income taxes 3,316 (3,316)
Prepaid expenses and other current assets (61) (323)
Accounts payable 8,619 2,525
Accrued compensation 244 (49)
Sales-related reserves 3,097 3,649
Income taxes payable 477 (1,330)
Other accrued liabilities 49 210
Other non-current liabilities (303) (347)
—- —-
Net cash flows provided by operating activities 39,985 63,509
—— ——
INVESTING ACTIVITIES
Purchase of property and equipment (140) (133)
Purchase of short-term investments (61,557) (69,613)
Proceeds from the sale and maturities of short-
term investments 73,375 42,388
Net proceeds from sale of product rights 225 75
Changes in deposits and other assets – 34
— —
Net cash flows provided by (used in) investing
activities 11,903 (27,249)
—— ——-
FINANCING ACTIVITIES
Issuance of common stock, net 1,002 2,161
Repurchase of common stock (21,086) (35,571)
Repurchase of Series A preferred stock – (10,348)
Excess tax benefit from share-based compensation
plans 743 4,841
— —–
Net cash flows used in financing activities (19,341) (38,917)
——- ——-
Increase (decrease) in cash and cash equivalents 32,547 (2,657)
Cash and cash equivalents at beginning of year 13,282 15,939
—— ——
Cash and cash equivalents at end of year $45,829 $13,282
======= =======

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