Press release from PR Newswire
Questcor Reports Third Quarter 2010 Results
Thursday, October 28, 2010
Questcor Reports Third Quarter 2010 Results16:05 EDT Thursday, October 28, 2010-Third Quarter Net Income $0.18 per share on Record Net Sales of $31.3 Million- -Paid Acthar Prescriptions for MS up 129% Compared to Third Quarter 2009- -Launch of New IS Indication Underway Following October 15th FDA Approval- -Initial Data for Acthar as Treatment for Nephrotic Syndrome to be Presented at ASN on November 20- -Acthar Sales Force Expansion from 38 to 77 Reps Completed- -Conference call today at 4:30 p.m. ET-ANAHEIM, Calif., Oct. 28 /PRNewswire-FirstCall/ -- Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) today reported financial results for the quarter ended September 30, 2010. Net sales totaled $31.3 million and net income was $11.5 million or $0.18 per diluted common share for the quarter ended September 30, 2010. The Company's financial performance was driven primarily by an increase in net sales for Acthar in the treatment of acute exacerbations of multiple sclerosis (MS). Acthar net sales for the treatment of infantile spasms (IS) continued to be within its historic range.In the third quarter of 2009, the Company reported net income of $1.2 million or $0.02 per diluted common share on net sales of $13.9 million. Questcor's financial results in the third quarter of 2009 were negatively affected by the combination of a lower number of prescriptions for the treatment of IS, unusually high amounts of Medicaid rebates related to Acthar usage in previous quarters, and rebate reserves related to usage by the Tricare pharmacy network.In the second quarter of 2010, the Company reported net income of $9.3 million or $0.14 per diluted common share on net sales of $28.3 million."The third quarter of 2010 results reflect the continued execution of our straightforward growth strategy for Acthar," said Don M. Bailey, President and CEO of Questcor. "We continue to have success in educating neurologists about the benefits of Acthar for patients afflicted with acute exacerbations of MS who have medical issues with steroids, the first-line treatment for this condition."With the recent approval from the FDA to market Acthar for the treatment of infantile spasms, we have initiated our commercial efforts in this therapeutic area," continued Mr. Bailey. "Importantly, the approval of Acthar as a treatment for IS also resulted in an updated and modernized label that allows for Acthar to be used in the treatment of 19 diseases and disorders. In addition to the treatment of IS and MS, the label includes two indications for nephrotic syndrome (NS). We believe that the NS market represents a significant opportunity for Questcor."Net sales for the nine months ended September 30, 2010 totaled $85.8 million, compared to $62.4 million for the same period of 2009. Net income for the nine months ended September 30, 2010 was $28.7 million, or $0.45 per diluted common share, compared to $18.2 million, or $0.27 per diluted common share, for the first nine months of 2009.Acthar Sales for MS, IS and NSDuring the third quarter of 2010, Questcor shipped 1,890 vials of Acthar compared to 1,354 vials in the third quarter of 2009. Because Acthar prescriptions are filled at specialty pharmacies, the Company does not receive complete information regarding either the number of prescriptions or the number of vials by therapeutic area for all of the patients being treated with Acthar. However, Questcor is able to monitor trends in payer mix and areas of therapeutic use for new Acthar prescriptions based on data it receives from its reimbursement support center. Questcor estimates that over 90% of new Acthar prescriptions are processed by this support center, but believes that very few refill prescriptions are processed there.In order to help investors better understand historical trends in sales of Acthar for each of its three key therapeutic uses, acute exacerbations of multiple sclerosis (MS), infantile spasms (IS), and nephrotic syndrome (NS), Questcor has grouped new prescriptions processed by its reimbursement center into two groups -- "Paid" and "Fully Rebated." "Paid" prescriptions include those prescriptions for which Questcor retains the full selling price for Acthar, as well as a relatively small number of Tricare prescriptions that receive a 24% rebate. "Fully Rebated" prescriptions are those for which Questcor can identify that it has recorded a rebate liability approximately equal to or greater than the price charged to its distributor. From time to time during the past two years, the rebate liability for some government insurance programs has shifted between these two categories. Therefore, the prescriptions that fall into the "Paid" and "Fully Rebated" categories have also shifted over time as follows:"Paid" prescriptions (Rxs) include all prescriptions in the following payer categories:Commercial--For all time periods.Tricare--For 2008 and 2010 (but not 2009).Medicaid Managed Care--For all time periods through March 22, 2010 (see Note 1 below the tables)."Fully Rebated" prescriptions (Rxs) include:Those reimbursed by fee-for-service Medicaid insurance and other state programs eligible for full rebates as Medicaid Waivers Programs for all time periods.Tricare--For 2009.Medicaid Managed Care--For all time periods beginning March 23, 2010 (see Note 1 below the tables).The following tables show, for each of the three key Acthar therapeutic uses, the number of new prescriptions shipped grouped into "Paid" and "Fully Rebated":Multiple Sclerosis (and related conditions) New Rxs2008PaidFully Rebated Q1-08 24 5 Q2-0835 1 Q3-08 515 Q4-0869 4 Total 2008179152009 Q1-09 78 8 Q2-09 12417 Q3-09 14120 Q4-09 21315 Total 2009556 602010 Q1-1023112 Q2-1030424 Q3-1032319Infantile Spasms (and related conditions) New Rxs2008Paid Fully Rebated Q1-089637 Q2-08 11747 Q3-0811667 Q4-0810658 Total 2008 4352092009 Q1-0910475 Q2-09 9168 Q3-096058 Q4-099445 Total 20093492462010 Q1-108948 Q2-109566 Q3-109278Nephrotic Syndrome (and related conditions) New Rxs2009PaidFully Rebated Q1-0910 Q2-093 1 Q3-092 0 Q4-09 143 Total 20092042010 Q1-10110 Q2-1041 Q3-1080Notes: (1) Because the March 2010 health care legislation made Medicaid Managed Care prescriptions rebate eligible effective 3/23/10, a rebate liability for the prescriptions estimated to be filled on or after 3/23/10 has been accrued. During Q1-10, Q2-10 and Q3-10, the Company did not have the ability to accurately identify every Medicaid Managed Care prescription so it is possible that some prescriptions identified as "Paid" in Q1-10, Q2-10 and Q3-10 may subsequently be reclassified as "Fully Rebated." Questcor is enhancing and refining its processes for identifying Medicaid Managed Care prescriptions.(2) Historical trend information is not necessarily indicative of future results.(3) "Related Conditions" includes diagnoses that are either alternative descriptions of the condition or are closely related to the medical condition which is the focus of the table. For example, a prescription for "Demyelinating disease of the central nervous system" would be included as an MS related condition for purpose of this table. About 5% of the prescriptions in the tables are for a related condition.(4) Questcor uses business rules to determine whether a prescription should be classified as new for inclusion in this table. From time to time the Company may modify these rules which could cause some changes to the historic numbers in the table above."Acthar prescription activity and net sales for MS continued upward in the third quarter," commented Steve Cartt, Executive Vice President and Chief Business Officer. "Importantly, we have completed our Acthar sales force expansion to 77 sales representatives and expect this expansion to drive further MS sales gains in 2011.""In addition to greatly expanding our selling activity in the MS market, we will also focus some promotional effort on the new IS indication, which was approved by the FDA on October 15th. While Acthar has been the standard of care in treating IS for many years, we believe that our commercial launch of the new IS indication will ultimately result in modest IS prescription growth for Questcor and better outcomes for children with IS," added Mr. Cartt."With respect to NS, new data on Acthar is scheduled to be presented on November 20 at the American Society of Nephrology annual meeting. The data presented will be the first assessments of Acthar treatment in nephrotic syndrome and in diabetic nephropathy, for which there are very few therapeutic options. Because nephrotic syndrome remains on the recently modernized Acthar label, we have decided to expand our selling effort in NS. To do this without distracting our main sales force from its critically important MS and IS selling activities, we have begun to hire a handful of sales representatives who will market Acthar exclusively to nephrologists. What we learn from this dedicated NS selling effort will help us finalize our commercial strategies and selling plans for this potential Acthar market," concluded Mr. Cartt.Sales Reserves--Medicaid, Tricare and VA AdjustmentsAs required by federal regulations, the Company provides rebates to state Medicaid programs for Acthar dispensed to Medicaid patients covered under Medicaid rebate-eligible insurance plans.The Company believes, based on an extensive state-by-state analysis of Medicaid rebate bills and prescription activity, that its sales reserve of $17.2 million as of June 30, 2010 for periods up through that date has proven to be adequate.As of September 30, 2010, the Company had a liability for sales-related reserves of $22.1 million. During the third quarter of 2010, the Company provided $12.3 million for its sales reserve provision for rebates owed to government-sponsored insurance plans. This quarter-over-quarter increase is primarily due to the increased volume of sales in the third quarter and an increase in the number of Medicaid rebate-eligible patients, including Medicaid managed care patients.Cash and Share Repurchase ProgramAs of October 25, 2010, Questcor's cash, cash equivalents and short-term investments totaled $114 million.During the third quarter, the Company did not repurchase any shares under its share repurchase program. As of September 30, 2010, Questcor had 62.2 million shares of common stock outstanding, with 5.1 million shares remaining under its common stock repurchase program.Conference Call DetailsThe Company will host a conference call today, October 28, 2010 at 4:30 p.m. ET/ 1:30 p.m. PT, to discuss third quarter 2010 results. Don Bailey, President and Chief Executive Officer; Steve Cartt, Executive Vice President and Chief Business Officer; Dr. David Young, Chief Scientific Officer; and Dave Medeiros, Senior Vice President, Pharmaceutical Operations will host the call.To participate in the live call by telephone, please dial 877-941-7133 for domestic participants and 480-629-9821 for international participants. Participants are asked to call the above numbers 5-10 minutes prior to the starting time. The call will also be webcast live at www.questcor.com. An audio replay of the call will be available for 7 days following the call. This replay can be accessed by dialing 800-406-7325 for domestic callers and 303-590-3030 for international callers, both using passcode 4378038#. An archived webcast will also be available at www.questcor.com.About Questcor Questcor Pharmaceuticals, Inc. is a biopharmaceutical company whose products help patients with serious, difficult-to-treat medical conditions. Questcor's primary product is H.P. Acthar® Gel (repository corticotropin injection), an injectable drug that is approved by the FDA for the treatment of 19 indications. Of these 19 indications, Questcor currently generates substantially all of its net sales from two indications: the treatment of acute exacerbations of multiple sclerosis in adults and the treatment of infantile spasms in children under two years of age. Questcor is also implementing plans to commercialize Acthar for use in treating nephrotic syndrome, another on-label indication. Specifically with respect to nephrotic syndrome, the FDA has approved Acthar to "induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus." Questcor also markets Doral® (quazepam), which is indicated for the treatment of insomnia characterized by difficulty in falling asleep, frequent nocturnal awakenings, and/or early morning awakenings. For more information, please visit www.questcor.com.Note: Except for the historical information contained herein, this press release contains forward-looking statements that have been made pursuant to the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "believes," "continue," "could," "estimates," "expects," "may," "plans," "will" or "should" or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the following:Questcor's ability to continue to successfully implement its Acthar-centric business strategy, including its expansion in the MS marketplace and other therapeutic areas;FDA approval of and the market introduction of competitive products;Questcor's ability to operate within an industry that is highly regulated at both the Federal and state level;Regulatory changes or other policy actions by governmental authorities and other third parties as recently adopted U.S. healthcare reform legislation is implemented;The complex nature of Questcor's manufacturing process and the potential for supply disruptions or other business disruptions;Questcor's ability to receive high reimbursement levels from third party payers;Questcor's ability to estimate reserves required for Acthar used by government entities and Medicaid-eligible patients;The inventories carried by Questcor's distributor?Curascript Specialty Distributor, as well as inventories carried by specialty pharmacies and hospitals;Research and development risks, including risks associated with Questcor's preliminary work in the area of nephrotic syndrome;The lack of patent protection for Acthar;Volatility in Questcor's monthly and quarterly Acthar shipments and end-user demand;Questcor's ability to attract and retain key management personnel and sales representatives;The impact to Questcor's business caused by economic conditions; andOther risks discussed in Questcor's annual report on Form 10-K for the year ended December 31, 2009, its quarterly report on Form 10-Q for the quarter ended June 30, 2010 and other documents filed with the Securities and Exchange Commission.The risk factors and other information contained in these documents should be considered in evaluating Questcor's prospects and future financial performance.Questcor undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.For more information, please visit www.questcor.com or www.acthar.com.Questcor Pharmaceuticals, Inc.Consolidated Statements of Income(In thousands, except per share amounts)(unaudited)Three Months EndedSeptember 30,Nine Months EndedSeptember 30, 2010 2009 2010 2009 Net sales$ 31,274$ 13,851$ 85,834$ 62,415Cost of sales (exclusive of amortization of purchased technology)2,2922,0066,2905,119Gross profit28,98211,84579,54457,296Gross margin93%86%93%92%Operating expenses:Selling, general and administrative9,8957,67628,24222,109Research and development2,1782,2157,8686,991Depreciation and amortization137123392359Total operating expenses12,21010,01436,50229,459Income from operations16,7721,83143,04227,837Other income:Interest and other income, net171120386585Gain on sale of product rights???225Total other income171120386810Income before income taxes16,9431,95143,42828,647Income tax expense5,42372814,77410,439Net income$ 11,520$ 1,223$ 28,654$ 18,208Net income per share:Basic$ 0.19$ 0.02$ 0.46$ 0.28Diluted$ 0.18$ 0.02$ 0.45$ 0.27Shares used in computing net income per share:Basic62,10564,00962,01964,570Diluted64,81565,99364,29266,753Questcor Pharmaceuticals, Inc.Consolidated Balance Sheets(In thousands, except share amounts)September 30,December 31,20102009ASSETS(unaudited)Current assets:Cash and cash equivalents$ 45,622$ 45,829Short-term investments65,77629,878Total cash, cash equivalents and short-term investments111,39875,707Accounts receivable, net of allowance for doubtful accounts of $77 at September 30, 2010 and December 31, 200913,92514,833Inventories, net3,2503,378Prepaid expenses and other current assets2,1141,162Deferred tax assets8,0838,180Total current assets138,770103,260Property and equipment, net585407Purchased technology, net3,1493,372Goodwill299299Deposits and other assets710710Deferred tax assets3,3923,392Total assets$ 146,905$ 111,440LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$ 8,363$ 12,921Accrued compensation3,0292,140Sales-related reserves22,10214,922Income taxes payable?477Other accrued liabilities1,8391,751Total current liabilities35,33332,211Lease termination and deferred rent and other non-current liabilities5971,226Total liabilities35,93033,437Shareholders' equity:Preferred stock, no par value, 7,500,000 shares authorized; none outstanding??Common stock, no par value, 105,000,000 shares authorized; 62,169,516 and 61,726,609 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively72,02567,793Retained earnings 38,87810,224Accumulated other comprehensive income (loss)72(14)Total shareholders' equity110,97578,003Total liabilities and shareholders' equity$ 146,905$ 111,440Questcor Pharmaceuticals, Inc.Consolidated Statements of Cash Flows(In thousands)(unaudited)Nine Months EndedSeptember 30,20102009OPERATING ACTIVITIESNet income $ 28,654$ 18,208Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation expense2,7952,394Deferred income taxes46587Amortization of investments51681Depreciation and amortization392359Gain on sale of product rights?(225)Income tax benefit realized from share-based compensation plans352573Excess tax benefit from share-based compensation plans(348)(572)Changes in operating assets and liabilities:Accounts receivable908(180)Inventories128(975)Prepaid income taxes?(1,940)Prepaid expenses and other current assets(953)(139)Accounts payable(4,557)8,393Accrued compensation888(88)Sales-related reserves7,1802,140Income taxes payable(477)?Other accrued liabilities88(557)Other non-current liabilities(628)(222)Net cash flows provided by operating activities34,98427,837INVESTING ACTIVITIESPurchase of property and equipment(347)(100)Purchase of short-term investments(89,992)(50,300)Proceeds from maturities of short-term investments53,71555,135Net proceeds from sale of product rights?225Net cash flows (used in) provided by investing activities(36,624)4,960FINANCING ACTIVITIESIssuance of common stock, net1,085859Repurchase of common stock?(11,189)Excess tax benefit from share-based compensation plans348572Net cash flows provided by (used in) financing activities1,433(9,758)(Decrease) increase in cash and cash equivalents(207)23,039Cash and cash equivalents at beginning of period45,82913,282Cash and cash equivalents at end of period$ 45,622$ 36,321SOURCE Questcor Pharmaceuticals, Inc.For further information: Don Bailey of Questcor Pharmaceuticals, Inc., +1-510-400-0776, dbailey@Questcor.com; or Investors, Gregory Gin or Doug Sherk, +1-415-896-6820, or Media, Janine McCargo, +1-646-688-0425, all of EVC Group, for Questcor Pharmaceuticals, Inc.