Questcor Reports First Quarter 2010 Results

UNION CITY, Calif., April 29 /PRNewswire-FirstCall/ -- Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) today reported improved year-over-year financial results for the first quarter ended March 31, 2010.  The Company's financial performance was driven primarily by:

• a 197% increase in the number of new paid Acthar prescriptions for the treatment of multiple sclerosis (MS) exacerbations as compared to the first quarter of 2009.
• a reduced rebate liability to U.S. government insurance plans due to improved Tricare pricing and a provision in the recently passed Patient Protection and Affordable Care Act of 2010.

Net sales totaled $26.2 million for the quarter ended March 31, 2010 compared to $23.3 million for the quarter ended March 31, 2009.  Net income for the first quarter of 2010 was $7.9 million, or $0.12 per diluted common share compared to $7.7 million, or $0.11 per diluted common share, for the first quarter of 2009.  Because rebates owed to government sponsored insurance plans were lower in the first quarter of 2010, sales reserves decreased to $7.2 million compared to $9.8 million during the first quarter of 2009.  The reduction in rebates was due to improved Tricare pricing and a provision in the recently passed Patient Protection and Affordable Care Act of 2010 which limits Medicaid rebates to 100% of a company's average manufacturer's price. Expenses were higher in the first quarter of 2010 than in the first quarter of 2009 because of the investments that Questcor is making in its business.  These investments include an expanded sales and marketing effort to increase Acthar sales in MS and increased research and development expenses to fund studies of Acthar in several indications and to support the company's application for approval of Acthar for the treatment of infantile spasms (IS).  

"We continue to successfully execute our growth strategies for Acthar," said Don M. Bailey, President and CEO.  "For the past year and a half, we have educated neurologists on the benefits of using Acthar to treat specific types of patients experiencing exacerbations due to MS.  Based on company estimates, we believe that net sales of Acthar for the treatment of MS now exceed Acthar net sales for the treatment of IS, which historically has been the primary therapeutic use for Acthar."

"In addition, during the quarter, we continued to observe the filling of a modest number of spontaneous prescriptions for Acthar for the treatment of nephrotic syndrome (NS).  During the period, 11 new paid Acthar prescriptions for NS were filled, which is in the same range as the spontaneous, new NS commercially-paid prescriptions filled in the fourth quarter of 2009.  In addition to these new prescriptions, due to the longer treatment period for NS, we observed refills resulting from new NS prescriptions filled in the previous quarter.  We are encouraged by the potential for this expanded use of Acthar for NS, an on-label indication. Therefore, we have initiated, starting in early April, a pilot sales program calling on approximately 60 out of an estimated 7,000 nephrologists," Mr. Bailey added.

"Questcor continues to experience fluctuations in quarterly demand for Acthar to treat IS.  During the first quarter of 2010, prescription levels for Acthar for the treatment of IS, while lower than the level in the first quarter of 2009, were within the normal historic range.  We are preparing for the May 6th FDA Advisory Committee meeting, where the possible approval of Acthar for the treatment of IS will be discussed," Mr. Bailey concluded.

MS, IS and NS Sales

During the first quarter of 2010, Questcor shipped 1,446 vials of Acthar compared to 1,429 vials for the first quarter of 2009.  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 trends in payer mix for new Acthar prescriptions based on data it receives from its reimbursement support center.  Questcor estimates that at least 90% of new Acthar prescriptions are processed by this support center, but that very few refill prescriptions are processed at this center.  

In order to help investors better understand the trends in sales of Acthar for each of its three principal therapeutic uses (MS, IS, and NS), Questcor has grouped new prescriptions processed by its reimbursement center into two groups—"Paid" and "Fully Rebated."  "Paid" prescriptions include those prescriptions for which Questcor retains at least 70% of the price charged to its distributor.  "Fully Rebated" prescriptions are those for which Questcor has recorded a liability approximately equal to or greater than the price charged to its distributor. From time to time during the past two years, the rebate liability for some government insurance programs has shifted. Therefore, the prescriptions that fall into the "Paid" and "Fully Rebated" categories have also shifted over time as follows:

"Paid" prescriptions include all prescriptions in the following payer categories:

• Commercial—For all time periods.
• Tricare—For 2008 and 2010.
• Medicaid Managed Care—For all time periods (see Note 1 below).

"Fully Rebated" prescriptions include:

• Those reimbursed by fee-for-service Medicaid insurance and other state programs that are eligible for full rebates as Medicaid Waivers' Programs for all time periods.
• Tricare--For 2009.

The following tables show, for each of the three principal Acthar therapeutic uses, the number of new prescriptions shipped grouped into "Paid" and "Fully Rebated." (Note that the columns in this table differ from the table in Questcor's March 1, 2010 earnings release because of the improved level of Tricare pricing effective January 1, 2010.):

Notes: (1) Because the recent health care legislation made Medicaid Managed Care prescriptions rebate eligible effective 3/23/10, a rebate liability for the few prescriptions estimated to be filled between 3/23/10 and 3/31/10 was accrued in the first quarter of 2010. During Q1-2010, the Company, like all other pharmaceutical companies, did not have the ability to accurately identify specific Medicaid Managed Care prescriptions so it is possible that a few prescriptions identified as "Paid" in Q1-10 may subsequently be reclassified as "Fully Rebated."  Beginning in the second quarter of 2010 Questcor is enhancing and refining its processes for identifying specific Medicaid Managed Care prescriptions. A rebate liability will be taken for this category of prescriptions in future quarters as appropriate.

(2) Historical trend information is not necessarily indicative of future results.  

(3) The total number of vials associated with an individual prescription varies by the condition being treated and by patient.

"As the above tables illustrate, the use of Acthar in the treatment of exacerbations associated with MS is continuing to expand," commented Steve Cartt, Executive Vice President and Chief Business Officer.  "This growth is a direct result of our sustained commercial effort in the MS market.  Our first quarter MS sales were particularly strong during March 2010 and this strength has continued during April.  Furthermore, our MS sales are now benefitting from the revised government Tricare pricing for Acthar which became effective January 1, 2010."

Sales Reserves—Medicaid, Tricare and VA Adjustments

As required by federal regulations, the Company has provided rebates to state Medicaid programs for Acthar dispensed to Medicaid patients covered under fee-for-service and other full rebate eligible insurance plans.  As a result of the recently passed health care legislation entitled the Patient Protection and Affordable Care Act of 2010, effective January 1, 2010, the effective Medicaid rebate for Acthar was reduced from 110% to 100% of the amount Questcor receives for Medicaid prescriptions.  However, effective March 23, 2010, these rebates have been extended to Acthar dispensed to Medicaid patients covered under managed care insurance plans.  

The Department of Defense (DOD) operates a prescription drug program through its Tricare Management Administration (Tricare).  Effective January 1, 2010, new pricing for Acthar went into effect for purchases by Tricare and Veterans Administration (VA) medical centers.  While VA sales were immaterial in the first quarter of 2010, 13 Tricare prescriptions were filled, up slightly from the level experienced in the third and fourth quarters of 2009 (see Note 1 above).

The impact of these changes on Questcor's first quarter results was discussed earlier in this press release.

Cash, Accounts Receivable and Share Repurchase Program

At April 23, 2010, Questcor's cash, cash equivalents and short-term investments totaled approximately $80 million, and accounts receivable totaled approximately $11 million.

During the first quarter, the Company did not repurchase any shares under its share repurchase program.  As of March 31, 2010, Questcor had 62.0 million shares of common stock outstanding, with 5.1 million shares remaining under its common stock repurchase program.  

Conference Call Details

The Company will host a conference call today to discuss these results at 4:30 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 877-941-9205 for domestic participants and 480-629-9039 for international participants.  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 4285207#. An archived webcast will also be available at www.questcor.com.

About Questcor  

Questcor Pharmaceuticals, Inc. is a pharmaceutical company focused on diseases and disorders for which there is significant unmet medical need.  Questcor's primary drug is 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 and other therapeutic areas;
• 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 other policy actions by governmental authorities and other third parties as recently adopted U.S. healthcare reform legislation is implemented;
• Questcor's ability to accurately forecast the demand for its products;
• Questcor's ability to receive high reimbursement levels from third party payers;
• 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 capital 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;
• The complex nature of Questcor's manufacturing process and the potential for supply disruptions or other business disruptions;
• 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;
• The impact to Questcor's business caused by economic conditions;
• Questcor's limited pipeline for new products and its ability to identify product acquisition candidates and consummate transactions on terms acceptable to the Company; and
• Other risks discussed in Questcor's annual report on Form 10-K for the year ended December 31, 2009 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.

SOURCE Questcor Pharmaceuticals, Inc.