Questcor Pharmaceuticals, Inc. (QCOR)
Presentation at UBS Investment Bank’s Global Life Sciences Conference
September 19, 2011 10:30 am ET
Don Bailey – President, Chief Executive Officer
Ami Fadia – UBS
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Okay, good morning. Oh, this sounds like you can hear me okay. Good. So we’re here today to talk about Questcor Pharmaceuticals. I want to—for those of you who know the story, you already know that Questcor is a little bit of an unusual pharmaceutical company. For those of you who don’t know the story, I need to warn you that you’re going to hear something a little different today. For the most part, Questcor does not fall into the common constructs of most pharmaceutical companies, so—and we’ll get into details of that in a little bit.
This presentation was filed with the SEC on the 9th, which is why the dates—all this information is up-to-date through about 10 days ago. We have the standard Safe Harbor statement. I want to caution everybody to please read all of our risks carefully and invest your time first. Our risks really boil down to a risk of possible future competition and, of course, any action from a regulatory body.
Questcor is a single-product company. We call the company a biopharmaceutical. We fall into both the biotech model a little bit, but probably more into the specialty pharmaceutical model. We are dealing with difficult to treat medical conditions and patients who have serious life-threatening issues. Questcor’s flagship product—Questcor is basically a one-product company. It’s flagship product is Acthar gel. This is a product that’s been on the market for 60 years. It’s an old product. There’s 19 approved indications. I want to repeat that – 19 approved indications for Acthar. We currently have significant revenues in multiple sclerosis and infantile spasms, and a growing level of revenues treating nephrotic syndrome, a kidney condition. The combined market opportunity here is clearly in excess of a billion dollars, or a billion and a half dollars. We really don’t know, and as you get into the details you’ll see why it’s a little bit unknowable at this point. Our current—our run rate revenue level is about 200 million, just under 200 million.
The Company’s strategy is very straightforward. It’s to grow Acthar sales in each of these markets and develop lupus as our next market, another on-label indication, and then go after the other dozen or so on-label indications. The Company is profitable, cash-flow positive. We have a little bit over $2 a share in cash and the Company is debt-free.
The history of Acthar is a little bit unusual, as I mentioned. The drug was first approved in 1952. MS was added as an indication in 1978. Acthar acquired the drug from Big Pharma in 2001 after Big Pharma ran into manufacturing problems and wanted to get out of that market, get the drug off the market. Questcor rescued the drug from Big Pharma and kept it on the market. In 2007 we changed our strategy and adopted an orphan business model strategy, and 2007 was then the first time in a 60-year, 55-year history up to then that Acthar actually made money. So it lost money for 55 years and then we changed the strategy and it’s been profitable ever since. 2010, the FDA reviewed the entire label as part of a label submission that we had with infantile spasms and has now—the label is completely modernized and the 19 indications look good to us for the future.
There are significant barriers to entry. This is a key question we get – you know, what’s the patent situation and what’s the IP? There are no patents but there are significant barriers to entry. The first is the formulation. Acthar is derived from porcine pituitaries. The composition of Acthar is undisclosed. The manufacturing process is complex and proprietary. We own all aspects of it, and we own this drug—all aspects of this drug throughout the world, worldwide. The composition of the drug—the final composition of Acthar is tied to the process, which is a trade secret.
In addition, there are obviously FDA hurdles that a competitor would have to work their way through. When you get done this analysis, we think that a generic would be unlikely, a biosimilar would be unlikely, and that trials would be needed. The trials are needed, we’re into a whole different range of competitors. It eliminates substitutability as a threat, and now if a company is going to bring a new chemical entity into the picture, they’re going to have to try to bring it to market. They have to look at the business economics, they have to look at the cost of getting through the FDA, the probability of getting through the FDA. And if that were to all occur, they would just have a drug on the market for one indication. It wouldn’t be called Acthar or anything like ACTH, so the fact that we have multiple indications producing revenue should give some comfort to investors.