By now, the bear story on Questcor Pharmaceuticals (NASDAQ:QCOR) is well understood, with health insurer Aetna (NYSE:AET) indicating that it will make it next-to-impossible to get a prescription for the company’s lead product - H.P. Acthar Gel (Acthar) - approved, with other health insurers expected to follow. A government investigation into the company’s marketing practices rubbed salt into this wound, hence, we now have a stock that I calculate is discounting in Acthar sales being cut in half (see PropThink’s prior
story). That’s a big decline to be baking in considering that last quarter the company revealed unit growth of Acthar at 69% year over year. Nevertheless, most sell side analysts and investors ran for the exits given the uncertain outlook, and short-sellers appear to have strengthened their view. Our checks with traders indicate that the cost of borrowing QCOR shares to create or add to a short position has gone from an interest rate of 0.2% several months ago, to 4-5% before the Aetna news, to an estimated 20-25% now, demonstrating that: 1) the huge prior short interest is likely still there; and 2) it has become much more costly to remain short from here. And yes, there are potential forces that could make the short interest even more uncomfortable such as major institutional investors refusing to allow their shares to be loaned out, or worse, the company electing to take the story off-line and simply go private. Management has noted in the past that its biggest competitor is “Wall Street”, so we wouldn’t be surprised if this is being considered. Of course, such an event would force all investors with short positions to cover at once on a tender of the company’s stock – a bloodbath of another kind.