California-based Questcor Pharmaceuticals (QCOR) gave investors a case of whiplash Tuesday after reporting a fantastic quarter, yet following up with news about pending investigations into the company’s promotional practices.
QCOR shipped 8,132 vials of its Multiple Sclerosis gel H.P. Acthar in the third quarter, a 15% increase over the previous quarter. Prescriptions were up across the board for all indications, a sign that Rheumatologists view Acthar favorably. Earnings beat even the highest projections and came in at $1.52 per share. On the top line, revenues were $236.3 million, a 68% increase from $140.3 million. The consensus analyst estimate on EPS and revenue were $1.20 per share and $199.7 million, respectively. By all accounts, this was a storybook quarter for Questcor.
Nevertheless, the stock is down 18% on Wednesday following the earnings release as investors digest the news that two new regulatory bodies are looking into the company’s promotional practices. Investors have known about an existing inquiry by the US Attorney’s office in the Eastern District of Pennsylvania for more than a year already, but news that the Southern District of New York and the Los Angeles offices are joining the investigation does not bode well for QCOR. Investors have to believe that the US has some type of a case. Further, these investigations are not without precedent. Both Pfizer (PFE) and Novartis (NVS) paid fines of about $400 million each after allegations that they illegally promoted Trileptal and Bextra a few years ago. A similar fine of $400 million works out to about $5 per share for QCOR, yet the stock is down by over $8 in early morning trading on the heels of a historic quarter.
All indications are that Acthar is successful, but the fact that investigations are not winding down but are in fact ramping up, suggests that there may be more to this story. While PropThink has been pounding the table on QCOR since last year when the stock tumbled to less than $20 per share, the investigations are a major risk, and it makes more sense for investors to take profits off the table rather than stick around for a few more dollars. All it takes is a few rogue salespersons to put a major hiccup in this giant’s gait.