Questcor gives the bulls another short-term reason to cheer

Analysis

Questcor Pharmaceuticals’ purchase of Novartis’s rights to Synacthen is a logical step to securing its all-important Acthar franchise – even if it does nothing to answer pertinent questions over the ethics of charging huge amounts for a drug decades off patent that it had acquired for a song.

Considering the threat that Synacthen had posed to Acthar it is hardly surprising that Questcor’s stock climbed 15% yesterday, taking the company’s market cap to over $2.5bn. Questcor’s next move should be to secure Synacthen’s US orphan drug designation, currently in the hands of a little-known company run by one of its former board members.

Synacthen, known under the generic names tetracosactide and cosyntropin, is effectively a synthetic version of Questcor’s Acthar, which is a natural polypeptide extracted from porcine pituitary glands. Questcor bought Acthar 12 years ago for just $100,000 before controversially ramping its price and repositioning it for use in the orphan setting of infantile spasms, and in several corticosteroid-responsive conditions.

Despite the fear that insurers would not support orphan pricing for a drug first launched in 1952, Acthar’s sales reached $508m last year, and consensus 2018 estimates stand at a remarkable $828m (Questcor’s Acthar fairy tale goes sour, September 20, 2012). Synacthen had posed a direct threat to Questcor’s pricing power and to its assurances that Acthar’s exclusive position was secure.

For $60m Questcor has bought Novartis’s Synacthen rights – the drug is sold in over 30 markets outside the US – and the deal calls for significant future payments and royalties. It is important, however, to remember that unlike Acthar Synacthen is a cheap drug, and ex-US rights are mere window dressing, however much Questcor touts this as “an opportunity for an international presence”.

The big prize

Make no mistake: the big opportunity is America. This is a territory where Novartis trademarked Synacthen, but – crucially – even if Questcor did now develop the drug there it would unlikely be able to sell it without further manoeuvring.

This is because US orphan drug status, giving tetracosactide seven years’ market exclusivity for infantile spasms, is held by another company – Cerium Pharmaceuticals, of Gaithersburg, Maryland. According to the US FDA website this exclusivity was granted last October 31.

Local records also reveal that Cerium was founded in March 2012, and is controlled by Gregg Lapointe, who happens to have served as a Questcor board member in 2009-10. There is no suggestion that Cerium has any actual capability to develop Synacthen, but holding orphan status effectively blocks anyone else from doing so.

This would not be a problem if Questcor’s purchase of rights from Novartis were merely indended to eliminate an Acthar competitor, with no real aim to launch. Yet the deal is not so simple: its terms do force Questcor to develop Synacthen in the US, and for every year that the drug is not approved Questcor will pay Novartis $25m.

Questcor has obtained a collateralised $75m letter of credit with Union Bank to secure the first three years of this period.

Franchise extension

Of course, developing Synacthen in the US makes perfect sense as a means of franchise extension, given the expiry of Acthar’s own orphan status in 2017. But this will require the company not only to invest in clinical studies, but also to repeat the massive price hike trick with a second product and to acquire or overturn the orphan exclusivity held by Cerium.

Questcor has already been subjected to one US government investigation into its promotional practices, and it can only be guessed how an already stretched healthcare system would react to the company using what is effectively a position of artificial exclusivity and a legal loophole to exert huge pricing power – not once, but twice.

After all, this is precisely what novel drug development, with its risks and rewards, is supposed not to be about. And it is the minefield into which Questcor is now heading.

For starters, the company can be sure that Mr Lapointe will drive a hard bargain.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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