QCOR - Questcor Pharmaceuticals

[sdeo21]

Good morning all,

 

This is my first post on the message boards.  I have been reading the posts for a little while and I enjoy the interactive and intelligent discussion of investment ideas, philosophies and strategies. 

 

A name I am am looking into is Questcor Pharmaceuticals (QCOR).  Typically, you wouldn't think a biotech name would be a value idea but it looks to be one based on its recent trading multiples.

 

Here are some key points:

 

• Revenues from H.P. Achtar Gel, which treats inflammatory and autoimmune disorders like nephrotic syndrome, multiple sclerosis, infantile spasms and rheumatology related conditions.

• Achtar is  approved by the FDA for 19 indications but currently only treats about 8 indications. 

• Received orphan drug status in 2006 or 2007 allowing it to increase its pricing from $1,500 to $23,000 per vial, which really ramped its growth.

• Strong historical revenue and free cash flow growth

• High margins – 90+ gross margins, 45%+ net margins with high ROE

• Clean balance sheet – no debt, lots of cash

• Cheap multiples - ~5x EV/EBITDA and ~9x FCF

• Pays a 3.5% dividend yield and has been repurchasing shares

• Insiders own about 12.3% of shares

• High short interest ratio of 46.9%

• Acquired BioVectra, its 3rd party manufacturer, to secure supply and manufacturing trade secrets

 

Shorts have really crushed this stock claiming they are losing insurance reimbursements, charge too much for Acthar, etc.  Regardless of these claims, they are churning out free cash flow with high margins and returns on capital.

 

Some of its biggest risks I can see from a brief look are its high dependency on the single drug, competition from synthetic drug (could take a long time), loss of reimbursements and a volatile stock.  The Street seems to like the stock, which concerns me.

 

Let me know what you all think, sounds like a very interesting opportunity for such a high growth company trading at such a cheap valuation.  Attached is their most recent investor presentation.

QCOR_Investor_Presentation.pdf

[physdude]

This has been my 2nd largest investment (behind Berkshire) for a few months. I have been mostly writing puts (and quite a lot of them) as the premiums have been very good but would have probably done better with stock given the quick price increase. I think the short case is very poor and has been more or less debunked at this point.

 

However, any price over 50 doesn't give a large margin of safety IMO. Hence, I am still writing puts on it as they still give a very decent annualized rate of return. For eg., Jan '14 30 puts still going at $2 - that is a very large margin of safety and a 12% annualized return is nothing to be sneezed at in this market.

[docjake]

Don't see any recent activity on QCOR... it's been crushed by the shorts but meanwhile, the company has been posting strong numbers; I see this one having a nice run to it's appropriate multiple as soon as the shorts scatter...

[Vish_ram]

This company should get a Chutzpah medal for their price increases.

 

I think they bought this entire drug for 100K, increased the price from $50 a vial to now $75,000 a vial (over a period of few years).

 

No position.

 

http://www.nytimes.com/2012/12/30/business/questcor-finds-profit-for-acthar-drug-at-28000-a-vial.html

 

 

[physdude]

That is because the previous company had severe manufacturing issues and was not carrying out clinical trials. In fact, the situation got so bad Acthar ended up on the FDA shortage list until Questcor stepped in to rectify the situation (this is easily verified with a quick search). They also got it approved for infantile spasms by the FDA as it was only being used off-label for that indication before.

 

There are currently over 50 clinical trials being conducted using Acthar as can be seen from clinicaltrials.gov. These cost a lot of money and are the main reason for the high price as I understand it. As with most pharmaceuticals, the real cost is not in the manufacture but in the rest of the drug research process. Whether that is worth 30k is a matter of opinion but the price of $1600 when it went on to the FDA shortage list was obviously too little to incentivize manufacturing.

 

I think that New York Times article is presenting only part of the story.

[physdude]

Today's merger news makes the shorts' lives a little bit tougher though they seem to have adapted by shorting the hell out of MNK. I have not sold yet having missed the pre-market and early morning surge as I was not at the computer at that time and hadn't heard the news yet. It will be quite interesting to see how the shorts play this for the long run given that they are so many big players on that side (Whitney Tilson, Herb Greenberg etc.)