Analysts: Gov't inquiry bodes badly for Questcor

[September 25, 2012]  WASHINGTON (AP) -- A federal government investigation into Questcor Pharmaceuticals Inc. could deal another blow to sales for its only product and main revenue source, H.P. Acthar gel, according to analysts who cover the company.

The Anaheim, Calif., drugmaker said Monday the U.S. government is investigating its promotional practices. The company's announcement comes after health insurer Aetna Inc. recently said it will stop reimbursement for most uses of Acthar. Company shares plummeted last week after a research website reported Aetna's decision.

The stock sank again Monday after Questcor's brief investigation announcement.

Questcor markets the gel as a treatment for multiple sclerosis, infantile spasms, and a kidney condition called nephrotic syndrome, among other approved uses. The company is completing an expansion of its sales force behind the gel and has said second-quarter revenue more than doubled to about $112 million, as more doctors used it.

Analysts say these investigations can take years to play out. Oppenheimer analyst Christopher Holterhoff said sales may be hurt if the company has to change its marketing.

"We believe investors may be hesitant to put new money to work on (Questcor) given the increased risks/uncertainties associated with the government investigation," Holterhoff wrote in a Monday morning research note. He lowered his rating on the stock to "perform" from "outperform."

But Roth Capital Partners analyst Yale Jen said government investigations into promotional practices are common, and most lead to minor or no penalties. He also said he believes the company has been careful in complying with government regulations.

Jefferies analyst Biren Amin lowered his price target on the stock to $24 from $30. He said in a note the investigation creates a "murkier outlook" for Questcor, and it may create a risk that more insurers will follow Aetna's example and decide to limit their reimbursement for Acthar gel.

Aetna said earlier this month it will drop reimbursement for all uses except infantile spasms, but patients currently receiving Acthar gel will be covered so they can complete their treatment. Aetna has said it expects to further review its policy on Acthar next month.

Questcor dropped 35 percent, or $10.46, to $19.65 in afternoon trading Monday after falling a 52-week low of $19.52 earlier in the session. The company's stock had started last week trading above $50 but then tumbled 48 percent on Sept. 19, the day Aetna's decision was reported.

Questcor shares have fallen more than 50 percent so far this year.

Shares of another biopharmaceutical company, Peregrine Pharmaceuticals, also collapsed Monday after it told analysts they should not rely on recently disclosed data about its lead product, the potential lung cancer treatment bavituximab. The Tustin, Calif., company said that it discovered "major discrepancies" between some patient sample test results and treatment code assignments when it reviewed mid-stage trial data.

Peregrine said earlier this month patients who were treated with bavituximab in a mid-stage clinical trial lived twice as long as patients who were treated with only a chemotherapy drug.

Peregrine shares shed more than 75 percent of their value, dropping to $4.12 to $1.27 in afternoon trading after closing last week at $5.37.

[Associated Press; By TOM MURPHY]

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