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Questcor Pharmaceuticals, Inc. (QCOR)

Morgan Stanley Global Healthcare Conference

September 11, 2012, 03:30 pm ET


Don Bailey - President & CEO

Mike Mulroy - SVP & CFO



Unidentified Analyst

We are very happy to be here today with Questcor. We have Don Bailey, President and CEO and Mike Mulroy, the CFO, who I am sure familiar to many of you, so guys, thanks for sitting down with us. I guess before we jump into Q&A, may be take a couple of minutes, you know, to just give people a quick overview of kind of your focus from a strategic perspective right now.

Don Bailey

Sure, I would be happy to do that. So before we start, can we verify that this is being webcast?

Unidentified Analyst


Don Bailey

Alright, of course we need to caution all our remarks. Please review all our filings with the SEC and look at our risk; I got my attorney here. So he is going to make me say this.

Unidentified Company Representative

Thank you very much.

Don Bailey

And welcome to everybody in the room. We may be referring to slides. We filed some presentation, we're having tomorrow at another conference and it was available, it's available on our website. It's available at the SEC. We may refer to it today and I supposed it’s been handed out, so have that and for people who are listening on the web.

So Questcor is a commercial stage company. We have a very interesting product called Acthar; and Acthar has proven to be very helpful to patients with MS exacerbations with a kidney condition called Nephrotic Syndrome and most recently, we've been introducing Acthar into the rheumatology market, first targeting a condition called polymyositis, dermatomyositis. Acthar is also a standard care for a rare epileptic condition affecting babies called infantile spasm. Company sales are roughly, I think last quarter, we did about $112 million; company is profitable and we have been growing nicely.

So strategically our focus is to continue to grow the doctor awareness of our drug in each of these various therapeutic markets. We are very interested especially in MS market, the Nephrology market and Rheumatology markets. The infantile spasm market is premature, so we do see others have good growth characteristics. We are still at a fairly earlier stage in each of these three.

Within MS exacerbations, we've been in that market about four years. We maybe penetrated it at about 10% or 15% of what we potentially could penetrate it. In Nephrology, we've been in that market for one year; probably have a lower penetration there. And in the Rheumatology market, we've been in just for one month.

So our focus is very straight forward, we would likely be able to help more and more patients with each conditions. We are generating cash and basically our strategy with the cash is going to return it to shareholders as opposed to try there go find another product. We have our hands full with what we are doing.

Our development strategy is to continue to look first to developed the markets for the other indications that are already on the Acthar level and there are number of other interesting indications on our level including lupus rheumatoid arthritis, Stevens-Johnson sarcoidosis and a basket of thalamic indications.

Past that, we will be looking at other possible other immune and inflammatory conditions where we think Acthar may have some usefulness. We have started exploratory work in those areas certainly we’ll be looking to see if any of those become viable and could possibly be added through an sNDA process. So that’s basically the overview of the company and our strategy.

Question-and-Answer Session

Unidentified Analyst

Great, so I think that’s a good place to start from. So, maybe as the first question to touch on some of the most recent news which is the news about your Medicaid rebate; so what kind of led to that change and what is the kind of the potential earnings benefit from that?

Don Bailey

Yeah, the real issue is the benefit, so for about three and three and a half years we have been exploring ways to improve our situation with our Medicaid rebate. Going back three years, we were paying out Medicaid rebates that we’re in excess of our price with the healthcare legislation 2010 commonly called Obama Care, that legislation for the cap at a 100% which actually was an improvement for us and kind of a rare situation. And since then we have been working with various lawyers and regulators to try to improve our situation and we have been successful here recently.

It looks like going forward probably starting sometime in the first quarter that rebate will be lowered and the impact on the company is probably something in $40 million revenue range, would be our best guess on it, a lot of depends on whether there is impact on business or not, so this looks to be meaningful and so it’s about may be an 8% to 10% improvement on the net sales line.

Unidentified Analyst

And presumably all of that we’ll talk through, well through the bottomline, are there any plans to reinvest any of that in that commercial franchise?

Don Bailey

Well, we are already cash flow positive, so we are already investing heavily in the commercial franchise; we are investing heavily in science and of course we are growing and we’ll grow also investing in the infrastructure of the business and IT and HR, information systems compliance; everything you need to run a pharmaceutical company, so we give first preference for our cash to the business and it is based on the commercial area as we have invested, that might then return very, very quickly. We have a growing science effort; we have a quite a few studies underway and we are interested in growing our business, but we are still at a very early stage we have only been out there for about two years.

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