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Questcor: When things go from Bad to Worse, and even Worse

Posted in Citron Reports by Stocklemon on the October 17th, 2012

Nov 2nd update:

Perspective on breaking news for Questcor: November 2, 2012

This morning, researchers posted this link from the FDA website.

http://www.accessdata.fda.gov/scripts/opdlisting/oopd/OOPD_Results_2.cfm?Index_Number=378212

Questcor's stock reacted immediately, but now Citron shares some thoughts on the significance of this data point. 

At first, Citron, was skeptical about this link.  A previously unheard of firm, Cerium Pharmaceuticals, from a residential address, filing for Orphan Drug Product Designation for Synacthen Depot.  This appeared highly questionable.  Then we looked at the corporate registry for Cerium Pharma, and found Gregg Lapointe of Gaithersburg, Md. 

http://sdatcert3.resiusa.org/UCC-Charter/DisplayEntity_b.aspx?EntityID=D14573919&EntityName=CERIUM+PHARMACEUTICALS%2c+INC.+++++++++++++++++++++++++++++++&TabNum=1

http://www.linkedin.com/pub/gregg-lapointe/7/285/a27

Gregg Lapointe is a critical person in the history of Questcor.  He was a member of the Questcor Board of Directors during the period that Sigma-Tau Pharmaceuticals was the early venture backer for Questcor.  Then he left the board in 2007 to become CEO of Sigma-Tau , which is a large, privately held European-based (but with US headquarters in Gaithersburg, Md)  pharmaceutical company specializing in treating rare diseases: http://en.wikipedia.org/wiki/Sigma-Tau

 

Then he returned to Questcor with much fanfare in 2009, but declined to stand for re-election to Questcor's board in 2010.

Gregg Lapointe is a  member of the corporate council of the National Organization for Rare Diseases (NORD), the Child Neurology Foundation and Kidney Care Partners. 

And Questcor's own words about Mr. Lapointe's return in 2009:   

"He brings to our Board and shareholders significant pharmaceutical and public company experience, as well as hands on operational familiarity with therapies that treat patients with rare diseases. As we continuously explore additional opportunities for our product, H.P. Acthar® Gel to meet the unmet medical needs of patients, Gregg will bring valuable perspective to our Board. We look forward to working with him again."

In brief, he was the most medically experienced member of Questcor's  Board of Directors  … and now he is filing for Synacthen for orphan drug status. 

And he resigned from Sigma-Tau in 2012, the same month he filed the Corporate registration for Cerium in Gaithersburg, Maryland. 

NOTE:  This FDA finding is NOT US approval for Synacthen; it represents the first step in a licensing process.  Synacthen is widely available in Europe, and is very inexpensive.  Its safety profile is well understood because of its availability in the European market for many years.  Its approval in the US will signal the end for Questcor, whose entire financial underpinning is its pricing power for its single high-priced drug, Acthar.   

This conclusively proves that Questcor management is and has been lying when it states its market for Acthar is not imperiled by the appearance of a generic version of Acthar in the US market. 

 

Oct 19th update:

Questcor update from Humana- Need for Preauthorization- The Walls are Closing in

Humana is now requiring pre-authorization for Acthar reimbursement. 

http://apps.humana.com/marketing/documents.asp?file=1978730

  • The document is new.  (Revision date Oct 26th, 2012, effective date January 26, 2013)
  • For Acthar, the preauthorization requirement is new – specifically asterisked.  Acthar was not listed on the 2012 version of this document.

It is Citron's opinion that this is part of a pattern of insurers taking a more restrictive stance on authorization policy with regard to Acthar reimbursement. 

These industry-leading insurers may be offering the appearance of being more open about Acthar approval, but Citron has sought opinion of experts (such as a former Blue Cross/Blue Shield Chief Medical Officer) who state that, in practice, these new pre-authorizations set the stage for insurers to frame reimbursement decisions in view of Aetna's policy and its rationale (lack of clinical evidence, and discussions with thought leaders).   

Citron notes that none of the recent round of defenses of the company even mention the ongoing Department of Justice investigation.  It is Citron's opinion that this investigation remains highly material to the company's future business prospects.

Neither the company nor analysts seem inclined to update the investing public about any of these changes.  In the next month, insurers will be publishing their reimbursement schedules and policies for 2013.  Citron will continue to update the market about these changes with regard to reimbursement for Acthar prescriptions.  Citron believes these decisions will align with Aetna, who stated that their tightening pre-authorization requirement is based on the lack of clinical evidence for superior efficacy of Acthar to steroid therapies.

   It's never a problem, until it’s a problem

Oct 17th:

A few weeks ago, another ominous datapoint was disclosed in regard to the status of health insurers' reimbursement policies for clinical use of Questcor's primary drug Acthar.   United Healthcare, the largest health carrier in the US, has issued new guidelines for 2013, specifically tightening scrutiny on Acthar, and taking it to the highest of all scrutiny levels

https://www.unitedhealthcareonline.com/ccmcontent/ProviderII/UHC/en-US/Assets/ProviderStaticFiles/ProviderStaticFilesPdf/Tools%20and%20Resources/Pharmacy%20Resources/Trad_PDL_Changes_Summary_1-1-11.pdf

 

Status change summary : United Healthcare Acthar reimbursement policy

Prior Status for 2012

Tier 3

Medications that offer the least health care value (either clinically and/or financially) than similar medications in their therapeutic classes.  No prior notification of the insurer was required.

New Status for 2013

Tier 3 plus Notification

Above definition plus "required to provide additional clinical information to verify member benefit coverage".  No grandfathering.

Note:  No grandfathering is permitted.   Patients on existing therapy are not exempt.  This adds emphasis to the gravity of the policy change. 

This ratchets up scrutiny of Acthar even further — from the most restrictive class of drugs to a case-by-case basis at the largest single health carrier in the United States.

Note:  This is a notification document, not a conditions of coverage document.   Conditions of coverage are proprietary to the company, and might or might not be released.  This document doesn't specify  the medical conditions under which Acthar is prescribed, but only to the increased scrutiny such prescriptions will be subject to prior to reimbursement.

So here's what we know:

Best Case Scenario:

EVERY prescription for MS and Nephrotic Syndrome get scrutinized on a case by case basis, including each patient's prior medical records

Worst  Case Scenario:

United is aligning with Aetna and leading thinkers from the country's top clinical institutions to restrict Acthar use because there is no clinical data to support its use, beyond Infantile Spasms. 

http://www.aetna.com/cpb/medical/data/700_799/0762.html

Some may spin this as good news – the "nothing is changed" justification – the argument is the company is already accustomed to having to get individual prescriptions approved for reimbursement.

Citron asks:  How can the company justify a growth path when it is obligated to pre-authorize every single prescription by submitting individual patient medical records while under an open investigation from the Department of Justice on its sales and marketing practices ?

  

   Conclusion

 

It is Citron's opinion that Questcor is a hand-holding operation on how to skirt insurance company reimbursement procedures and policies, and it is finally catching up with them.   Citron also notes that the sell-side analysts again demonstrate that relying on them to keep abreast of this story is risky. 
 
It is Citron's opinion that this business model is the very definition of not sustainable, that it should not be conferred valuation predicated on a "customary" multiple, and restates its opinion that it is headed to single digits in the next twelve months. 
 
And worst, why didn't the company disclose this ?

It's never a problem, until it’s a problem.

 


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