Questcor’s Acthar fairy tale goes sour

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The story of Acthar, an established drug decades off patent that had turned around the fortunes of Questcor Pharmaceuticals, could be close to running full circle.

Questcor had bought Acthar 11 years ago for just $100,000 before seeing it ramped by analysts to a potential blockbuster on the strength of its use in orphan diseases. But reality caught up with the company yesterday after an activist investor publicised the fact that a major US insurer would likely drop coverage of Acthar for most uses, causing a 48% share price crash that wiped $1.4bn off Questcor’s market cap. A few days earlier the company's CEO, Don Bailey, had unloaded $2m of stock.

It was only at the end of yesterday’s frenetic trading activity that Questcor put out a brief statement, insisting that the amendment by Aetna, one of the biggest US healthcare insurers, of a clinical policy bulletin on Acthar would in the company’s view have no “material impact”. Investors remained largely unconvinced, with the shares up slightly in early trade today.

Bizarrely, Aetna had actually published the amendment last Friday, but analysts and investors either did not notice or did not appreciate its significance. The shares did not fall until yesterday’s publication of an article about the amendment by Citron Research, a website run by the financial blogger and activist investor Andrew Left, who is noted for targeting problem companies.

Not medically necessary

On September 14 the insurer had said it considered Acthar “medically necessary” only for infantile spasms. Devastatingly, it stated that, in a host of other corticosteroid-responsive conditions including multiple sclerosis flares that together account for the vast majority of sales, Acthar was not medically necessary because Aetna had found it to be no more effective than steroids.

Acthar’s effectiveness for all other indications has not been established, Aetna stated. Although such a policy can be reversed, on the face of it it signified that insurance would likely be dropped for all Acthar uses except infantile spasms.

Questcor says it is continuing to review the document, and claims that it does not represent a material change in insurance coverage. “During 2012, Aetna has accounted for approximately 5% of the company's shipped prescriptions for Acthar,” its statement said.

But the problem does not lie solely in the stance taken by Aetna – however significant a managed care player it might be – but rather in the threat of other insurers following suit. Citron, which had turned its guns on Questcor some time ago, said Aetna’s move enabled “all managed care providers to exit the business of overpaying for an expensive legacy drug”.

It is particularly crushing that Aetna’s amendment followed a detailed review of clinical data and was apparently not driven by cost considerations.

CEO dumps stock

And sentiment could be battered further by the disclosure in an SEC filing that Don Bailey, Questcor’s CEO, had sold $2m of shares at an average price of over $50 a share on September 13 – the day before Aetna published the amendment.

Questcor’s stock has been volatile, though overall it had tripled in value since early 2011 to hit $50.52 before yesterday’s crash. The company had been transformed in 2007, six years after acquiring Acthar from Aventis for $100,000, when it managed to increase the drug’s price from $1,650 to $23,000 per vial.

Acthar is a still uncharacterised polypeptide extracted from porcine pituitary glands, and was first launched in 1952 (EP Vantage Interview - Questcor fighting Acthar's corner, May 28, 2010). It makes up over 99% of Questcor’s group sales – $217m in 2011 – and consensus was for this to rise to $431m this year and $984m by 2018.

But being a drug with orphan pricing its sales are almost entirely dependent on the availability of reimbursement from third-party payers such as insurance plans. As recently as two weeks ago, analysts at Jefferies, Oppenheimer and Piper Jaffray were putting out bullish recommendations on the back of strong prescription data.

If Aetna’s move does lead to a widespread drop of insurance coverage, Questcor’s options might include sharply cutting Acthar’s price or carrying out clinical trials to establish its benefit; both might jeopardise the drug’s economics. The only R&D pipeline the company has to speak of comprises line extensions to – you guessed it – Acthar.

Questcor, whose focus was once described by Mr Bailey as “Acthar, Acthar, Acthar”, might be about to find that all good things come to an end.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com

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