Tuesday, December 24, 2013

A Spiteful New Twist In The Questcor Drama

Here's a perfect example of how the greed of a few, can cast dark clouds over an entire industry. The Questcor (QCOR) drama so far has been well covered except for a fun, unexpected twist at the end.

Illegal? Not necessarily. Morally reprehensible? Definitely.
I'll spare you a rehash of every sordid detail, but here's the tale in a nutshell. Questcor found a way to increase the price of Highly Purified Acthar Gel from $50 to $28,000, and get us all to pay for it.

The best part isn't the aggressive marketing, but the charity. Questcor has been donating heavily to the Chronic Disease Fund (CDF), a charity that helps patients meet the co-pay amount. In effect, Questcor has found a way to buy dollars with nickels. If you're wondering how many nickels, here's a quote from the company's latest 10-Q: "For the three and nine months ended September 30, 2013, we contributed approximately $3.1 million and $9.0 million, respectively, to the Chronic Disease Fund in support of its co-pay assistance programs."

A deeper discussion of the Questcor/CDF shenanigans can be found here, and more recently here.

The Drug
Adrenocorticotropic hormone (ACTH) is typically secreted by the anterior pituitary gland in response to biological stress. It is involved in a number of processes, but mainly its job is to signal the adrenal gland to release corticosteroids.

One reason for Acthar Gel's success is the wide variety of physiological processes that involve corticosteroids. Currently, Questcor's H.P. Acthar Gel is approved by the FDA for the treatment of 19 indications. I won't list them all, but the most popular include infantile spasms, multiple sclerosis, and rheumatology related conditions.

If you can't beat 'em, buy 'em.
Despite an admitted lack of contract manufacturing experience, Questcor acquired Biovectra, a contract manufacturer in January 2013. The CMO is Questcor's manufacturing partner for the API in H. P. Acthar Gel. Although this acquisition was arguably a smart vertical integration move, its next was a bit shady.

Tetracosactide (Synacthen) is a synthetic analogue of ACTH marketed in Europe by Novartis (NVS). Prices and overall volume requirements vary, but in the EU Novartis generally charges less than 1% the cost of H.P. Acthar Gel in the US.

In June 2013, Questcor acquired a license to develop, market, manufacture, distribute, sell and commercialize Synacthen and Synacthen Depot for all uses in humans in the US. Questcor paid Novartis $60 million upfront, and three years of annual cash payments of $25 million. The annual payments will continue until Questcor wins FDA approval for the drug, or the total reaches $300.

I smell something. Do you smell something?
Questcor wasn't the only bidder for Synacthen. New York troublemaker Retrophin (RTRX), a biotech currently traded over-the-counter, offered Novartis $40 million and a 20% royalty on US sales. Less than a year ago, leading up to the Retrophin bid, Questcor management was fairly dismissive of Synacthen, citing the negative effects of benzyl alcohol present in the formula. Now, it's spending hundreds of millions developing it for sale in the US.

Retrophin's new ticker symbol (NASDAQ: SPITE)?
Retrophin isn't finished with its assault on Questcor. It has been making some noise lately about filing an initial public offering to raise around $40 million. Apparently, it intends to use that capital to continue annoying Questcor. On Monday, December 16, Retrophin withdrew an offer for Transcept Pharmaceuticals (TSPT). The following day it announced its intentions for the development of RE-034, another synthetic ACTH analog similar to Synacthen. The only difference, as far as I can tell, is that RE-034 lacks benzyl alcohol.

Wait. It might get even better.
Retrophin was founded and run by former biotechnology hedge fund manager Martin Shkreli. The former parent MSMB Capital Management LLC, spun Retrophin off in 2009.
There has been rumor, I repeat rumor, that MSMB Capital admits to shorting Questcor in its newsletter. Trouble is I can’t find any newsletter. MSMB has allowed its website domain to expire and I can’t find any insider activity relating MSMB to Questcor. Speculator @HedgeyeAC claims it was in "a private letter to clients."