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Press release from PR Newswire

Questcor Reports Third Quarter Financial Results

Tuesday, October 23, 2012

Questcor Reports Third Quarter Financial Results16:01 EDT Tuesday, October 23, 2012ANAHEIM, Calif., Oct. 23, 2012 /PRNewswire/ -- Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) today reported financial results for the third quarter and nine months ended September 30, 2012.  Three Months Ended 9/30/12Three Months Ended 9/30/11Percentage ChangeNet Sales$140.3 Million$59.8 Million135%GAAP Diluted EPS$0.91$0.35160%Non-GAAP Diluted EPS$0.97$0.37162%Nine months Ended 9/30/12Nine months Ended 9/30/11Percentage ChangeNet Sales$348.8 Million$142.6 Million145%GAAP Diluted EPS$2.12$0.73190%Non-GAAP Diluted EPS$2.25$0.80181%Net sales for the third quarter were $140.3 million, reflecting expanded physician usage of H.P. Acthar® Gel (repository corticotropin injection) in the treatment of serious, difficult-to-treat autoimmune and inflammatory disorders.  Net sales in the third quarter of 2011 were $59.8 million.  GAAP earnings for the third quarter were $0.91 per diluted share, compared to $0.35 per diluted common share for last year's comparable quarter.  Non-GAAP earnings for the quarter ended September 30, 2012 were $0.97 per diluted common share. Non-GAAP earnings exclude non-cash share-based compensation expense, impairment of purchased technology and goodwill, and depreciation and amortization expense. Non-GAAP earnings for the year ago quarter were $0.37 per diluted common share. Questcor shipped 5,590 vials of Acthar during the third quarter 2012, up 92 percent compared to 2,910 vials in the year ago quarter.  Quarterly vial shipments are subject to significant variation due to the size and timing of individual orders received from Questcor's distributor.  The timing of when these orders are received and filled can significantly affect net sales and net income in any particular quarter.  Channel inventory at the end of the third quarter appeared to be within the normal historical range. Questcor believes that investors should consider the Company's results over several quarters when analyzing its performance.  "Overall, our commercial expansion effort continued to show progress during the third quarter," said Don M. Bailey, President and CEO of Questcor. "Health care providers are expanding their usage of Acthar as an FDA-approved treatment alternative for patients with idiopathic types of nephrotic syndrome, MS relapses and rheumatology related conditions. We also continue to support patients suffering from infantile spasms.""Based on information available as of this release, patients with serious, difficult-to-treat medical conditions addressed by Acthar on-label indications have continued to have access to Acthar through commercial insurance, Medicare, Medicaid and other government programs, as well as through our free drug program for uninsured patients," noted Steve Cartt, Chief Operating Officer of Questcor. "Acthar is most commonly prescribed by physicians as an appropriate treatment alternative for patients in whom first-line therapies have not provided the intended treatment outcome and an additional FDA-approved treatment alternative is needed.  For such patients, insurance coverage for Acthar continued to remain favorable."  Year-to-Date Financial ResultsNet sales for the first nine months of 2012 were $348.8 million, compared to $142.6 million in the first nine months of 2011.  GAAP earnings for the first nine months of 2012 were $2.12 per diluted common share, compared with $0.73 per diluted common share for the comparable period of 2011.  Non-GAAP earnings for the nine months ended September 30, 2012 were $2.25 per diluted common share, excluding non-cash share-based compensation expense and depreciation and amortization expense.  Non-GAAP earnings for the comparable period of 2011 were $0.80 per diluted common share.  Shipped Acthar Vial and Prescription Trend InformationThe Company has been publicly disclosing on Form 8-K shipped vial and prescription trend information on a monthly basis for the past several months.  Sales have reached a level where the Company believes that the more traditional approach of providing financial information and related analysis of results on a quarterly basis is appropriate, and the Company expects to return to a quarterly public filing approach going forward. 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 monitors trends in payer mix and areas of therapeutic use for new Acthar prescriptions based on data from its reimbursement support center. Questcor estimates that over 90 percent of new Acthar prescriptions are processed by this support center, but believes that very few refill prescriptions are processed there. In an effort to help investors better understand historical trends in Acthar prescriptions within each of its current three key therapeutic areas, Questcor is providing quarterly prescription information for the time period January 1, 2010 through September 30, 2012.  Prescriptions processed by the Company's reimbursement center are segmented into one of two groups -- "Paid" and "Fully Rebated.""Paid" prescriptions (Rxs) include all prescriptions in the following payer categories: Commercial Tricare--Questcor has a per vial rebate obligation of approximately $7,341 in 2012 and approximately 25% of the price of Acthar for 2010 and 2011. Medicaid Managed Care--For Q1 2010 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 rebates as Medicaid waiver programs. 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": Nephrotic Syndrome (and related conditions) New Rxs PaidFullyRebatedTotal2010   Q1-1011011   Q2-10415   Q3-10808   Q4-10707   Total 2010 301312011   Q1-1118119   Q2-1145449   Q3-1160262   Q4-1114619165Total 2011269262952012   Q1-1223814252   Q2-1231424338   Q3-1233517352         Multiple Sclerosis (and related conditions) New Rxs PaidYear-Over-YearGrowth in Paid RxFullyRebatedTotal2010   Q1-10231196%12243   Q2-10304145%24328   Q3-10323129%19342   Q4-1035466%24378   Total 2010 1,212118%791,2912011   Q1-11508120%49557   Q2-11751147%58809   Q3-11886174%46932   Q4-11945167%44989Total 20113,090155%1973,2872012   Q1-121,00097%511,051   Q2-121,11048%411,151   Q3-121,29146%491,340  Infantile Spasms (and related conditions) New Rxs*PaidFullyRebatedTotal2010   Q1-108948137   Q2-109566161   Q3-109278170   Q4-109168159   Total 2010 3672606272011   Q1-118971160   Q2-1110679185   Q3-1111269181   Q4-1112051171Total 20114272706972012   Q1-1211271183   Q2-129673169   Q3-1210270172* Questcor commenced commercial efforts in IS in the fourth quarter of 2010.Rheumatology (and related conditions) New Rxs*PaidFullyRebatedTotal2012   Q1-12101   Q2-12628   Q3-1238038* Questcor commenced commercial efforts in rheumatology in the third quarter of 2012.Notes:(1) Because the March 2010 health care legislation made Medicaid Managed Care Organization (MCO) prescriptions rebate eligible effective March 23, 2010, a rebate liability for the MCO prescriptions estimated to be filled on or after March 23, 2010 has been accrued. The Company does not have the ability to accurately identify every Medicaid Managed Care prescription so it is possible that some prescriptions identified as "Paid" in the tables may subsequently be reclassified as "Fully Rebated."(2) "Related Conditions" includes diagnoses that are either alternate descriptions of the medical 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 related conditions.(3) A prescription may or may not represent a new patient or a new therapy for the patient receiving the prescription. Questcor uses business rules to determine whether a prescription should be included in this table. From time to time the Company may modify these rules, which could cause some changes to the historic numbers in the tables above.(4) Historical trend information is not necessarily indicative of future results. Additionally, paid prescriptions should not be viewed as predictive of Questcor's net sales due to a variety of factors, including changes in the number of vials used in connection with each prescription.Acthar Label InformationThe product label for Acthar includes 19 FDA-approved indications.  Substantially all of the Company's net sales currently result from Acthar prescriptions for the following on-label indications of:Nephrotic Syndrome (NS): "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."  NS can result from several underlying conditions, and prescribing physicians indicate that Acthar is most commonly being prescribed for patients who suffer from NS due to idiopathic membranous nephropathy, focal segmental glomerulosclerosis (FSGS), IgA nephropathy, minimal change disease and lupus nephritis. Multiple Sclerosis (MS): "for the treatment of acute exacerbations of multiple sclerosis in adults.  Clinical controlled trials have shown H.P. Acthar Gel to be effective in speeding the resolution of acute exacerbations of multiple sclerosis.  However, there is no evidence that it affects the ultimate outcome or natural history of the disease." When Acthar is used, it is typically prescribed as second line treatment for patients with MS exacerbations. Infantile Spasms (IS): "as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age." Collagen Diseases: "during an exacerbation or as maintenance therapy in selected cases of: systemic lupus erythematosus, systemic dermatomyositis (polymyositis)." Rheumatic Disorders: "as adjunctive therapy for short-term administration (to tide the patient over an acute episode or exacerbation) in: Psoriatic arthritis, Rheumatoid arthritis, including juvenile rheumatoid arthritis (selected cases may require low-dose maintenance therapy), Ankylosing spondylitis."Share Repurchase Program and Cash DividendThe Company used $58.1 million in cash to repurchase 1,484,300 shares of its common stock in open market transactions, at an average price of $39.15 per share, during the third quarter of 2012.  On September 28, 2012, the Company announced that its Board of Directors increased the Company's common stock repurchase program authorization to 7 million shares. This authorization includes the 3.2 million shares that were remaining under the prior authorization.  Shares outstanding were 58.5 million at September 30, 2012 and 62.7 million at September 30, 2011.  On September 28, 2012, the Company announced that its Board of Directors adopted a policy to pay a regular quarterly dividend in such amounts as the Board of Directors may determine from time to time. The Company's Board of Directors declared an initial quarterly cash dividend of $0.20 per share to all shareholders of record at the close of business on October 31, 2012, payable on November 15, 2012. The Company has been notified that NASDAQ has established an "ex-dividend" date for the Company's shares of common stock of October 29, 2012, meaning that investors who purchase shares of our common stock on or after October 29, 2012 would not be entitled to the dividend for which the record date is October 31, 2012.Non-GAAP Financial Measures The Company believes it is important to share non-GAAP financial metrics with shareholders as these metrics may better represent the ongoing economics of the business and reflect how we manage the business.  Accordingly, management believes investors' understanding of the Company's financial performance is enhanced as a result of the disclosure of these non-GAAP financial metrics. Non-GAAP net income should not be viewed in isolation, or as a substitute for, or as superior to, reported GAAP net income.  The reconciliation between GAAP and Non-GAAP net income is provided with the financial tables included with this release.Conference Call and Webcast and Investor Communications The Company will host a conference call and slide presentation via webcast today, October 23, 2012, at 4:30 p.m. ET/ 1:30 p.m. PT.  The call can be accessed three ways:By webcast: At Questcor's investor relations website: http://ir.questcor.com/. By telephone: For both "listen-only" participants and those participants who wish to take part in the question-and-answer portion of the call, the telephone dial-in number in the U.S. is (877) 354-0215. For participants outside the U.S., the dial-in number is (253) 237-1173. By audio replay: A replay of the conference call will be available for seven business days following conclusion of the live call.  The dial-in number for U.S. participants is (855) 859-2056. For participants outside the U.S., the replay dial-in number is (404) 537-3406. The replay access code for all callers is 39696380. About Questcor Questcor Pharmaceuticals, Inc. is a biopharmaceutical company focused on the treatment of patients with serious, difficult-to-treat autoimmune and inflammatory disorders.  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 the following indications: the treatment of proteinuria in idiopathic types of nephrotic syndrome, the treatment of acute exacerbations of multiple sclerosis in adults, the treatment of infantile spasms in children under two years of age, and the treatment of certain rheumatology-related conditions. Questcor is also exploring the possibility of developing markets for other on-label indications and the possibility of pursuing FDA approval of additional indications not currently on the Acthar label where there is high unmet medical need.  For more information about Questcor, 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," "growth," "may," "plans," "potential," "remain," "should," "substantial" or "will" 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: Our reliance on Acthar for substantially all of our net sales and profits; Reductions in vials used per prescription resulting from changes in treatment regimens by physicians or patient compliance with physician recommendations; The complex nature of our manufacturing process and the potential for supply disruptions or other business disruptions; The lack of patent protection for Acthar; and the possible FDA approval and market introduction of competitive products; Our ability to continue to generate revenue from sales of Acthar to treat on-label indications associated with NS, and our ability to develop other therapeutic uses for Acthar; Research and development risks, including risks associated with Questcor's work in the area of NS and potential work in the area of Rheumatology, and our reliance on third-parties to conduct research and development and the ability of research and development to generate successful results; Our ability to comply with federal and state regulations, including regulations relating to pharmaceutical sales and marketing practices; The results of any pending or future litigation, investigations or claims, including with respect to the investigation by the United States Attorney's Office for the Eastern District of Pennsylvania regarding the Company's promotional practices; Regulatory changes or other policy actions by governmental authorities and other third parties in connection with U.S. health care reform or efforts to reduce federal and state government deficits; Our ability to receive high reimbursement levels from third party payers; An increase in the proportion of our Acthar unit sales comprised of Medicaid-eligible patients and government entities; Our ability to estimate reserves required for Acthar used by government entities and Medicaid-eligible patients and the impact that unforeseen invoicing of historical Medicaid prescriptions may have upon our results; Our ability to effectively manage our growth, including the expansion of our sales forces, and our reliance on key personnel; The impact to our business caused by economic conditions; Our ability to protect our proprietary rights; The risk of product liability lawsuits; Unforeseen business interruptions and security breaches; Volatility in Questcor's monthly and quarterly Acthar shipments, estimated channel inventory, and end-user demand, as well as volatility in our stock price; and Other risks discussed in Questcor's annual report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission, or SEC, on February 22, 2012, and other documents filed with the SEC. 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 of this release.For more information, please visit www.questcor.com or www.acthar.com. QUESTCOR PHARMACEUTICALS, INC.CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(In thousands, except per share data)(unaudited)Three Months EndedNine Months EndedSeptember 30,September 30,2012201120122011Revenue  Net sales$    140,339$    59,821$    348,760$    142,634  Cost of sales (exclusive of amortization of purchased technology)7,4993,71819,3998,446  Gross profit132,84056,103329,361134,188  Operating expenses:    Selling and marketing31,76313,73381,08739,731    General and administrative8,3334,31422,42211,977    Research and development7,9974,17622,14711,048    Depreciation and amortization339280951751    Impairment of goodwill987-987299      Total operating expenses49,41922,503127,59463,806Income from operations83,42133,600201,76770,382Interest and other income, net10298536482Income before income taxes83,52333,698202,30370,864Income tax expense27,83610,84666,56822,914Net income$      55,687$    22,852$    135,735$      47,950Change in unrealized gains or losses on available-for-sale securities, net of related tax effects.13(103)90(101)Comprehensive income55,70022,749135,82547,849Net income per share:  Basic$          0.95$        0.37$          2.23$          0.77  Diluted$          0.91$        0.35$          2.12$          0.73Shares used in computing net income per share:  Basic58,65362,49260,99262,249  Diluted61,41766,02363,91465,685Dividends declared per share of common stock$           0.20-$           0.20-Reconciliation of Non-GAAP Adjusted FinancialAdjusted net income$       59,427$     24,315$     143,943$       52,314Share-based compensation expense (1)(2,855)(1,273)(6,908)(3,654)Depreciation and amortization expense (2)(226)(190)(638)(508)Impairment of purchased technology and goodwill (3)(659)-(662)(202)Net income - GAAP$       55,687$     22,852$     135,735$       47,950Adjusted net income per share - basic$           1.01$         0.39$           2.36$           0.84Share-based compensation expense (1)(0.05)(0.02)(0.11)(0.06)Depreciation and amortization expense (2)(0.00)(0.00)(0.01)(0.01)Impairment of purchased technology and goodwill (3)(0.01)-(0.01)(0.00)Net income per share - basic$           0.95$         0.37$           2.23$           0.77Adjusted net income per share - diluted$           0.97$         0.37$           2.25$           0.80Share-based compensation expense (1)(0.05)(0.02)(0.11)(0.06)Depreciation and amortization expense (2)(0.00)(0.00)(0.01)(0.01)Impairment of purchased technology and goodwill (3)(0.01)-(0.01)(0.00)Net income per share - diluted$           0.91$         0.35$           2.12$           0.73Net income per share ? basic and diluted may not foot due to rounding. Use of Non-GAAP Financial Measures Our "non-GAAP adjusted net income" excludes the following items from GAAP net income: Share-based compensation expense. Depreciation and amortization expense Impairment of purchased technology related to our acquisition of Doral in 2012 and impairment of goodwill related to the write-off of goodwill associated with an acquisition transaction completed in 1999 in 2011.  Questcor Pharmaceuticals, Inc.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except share amounts)September 30, 2012December 31, 2011(unaudited)ASSETSCurrent assets:Cash and cash equivalents$36,076$88,469Short-term investments75,837121,680Total cash, cash equivalents and short-term investments111,913210,149Accounts receivable, net of allowances for doubtful accounts of $0 at September 30, 2012 and December 31, 201162,27927,801Inventories, net of allowances of $0 at September 30, 2012 and December 31, 20117,1545,226Prepaid income taxes1,4666,940Prepaid expenses and other current assets5,3933,391Deferred tax assets11,70612,093Total current assets199,911265,600Property and equipment, net1,8601,970Purchased technology, net1,5682,778Deposits and other assets7056Deferred tax assets5,4045,404Total assets$208,813$275,808LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable$11,594$5,503Accrued compensation16,00211,590Sales-related reserves38,38534,119Dividend payable11,691?Other accrued liabilities8,7094,509Total current liabilities86,38155,721Lease termination, deferred rent and other non-current liabilities2261Total liabilities86,38355,982Shareholders' equity:Preferred stock, no par value, 5,334,285 shares authorized; none outstanding??Common stock, no par value, 105,000,000 shares authorized, 58,451,435 and 63,645,781 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively26,62394,976Retained earnings95,753124,886Accumulated other comprehensive income (loss)54(36)Total shareholders' equity122,430219,826Total liabilities and shareholders' equity$208,813$275,808 Questcor Pharmaceuticals, Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)Nine Months EndedSeptember 30,20122011OPERATING ACTIVITIESNet income$135,735$47,950Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation expense10,2955,406Deferred income taxes387357Amortization of investments1,185874Depreciation and amortization951751Impairment of purchased technology and goodwill987299Loss on disposal of property and equipment3311Changes in operating assets and liabilities:Accounts receivable(34,478)(17,087)Inventories(1,928)(1,587)Prepaid income taxes5,4742,964Prepaid expenses and other current assets(2,002)(936)Accounts payable6,0911,093Accrued compensation4,4123,500Sales-related reserves4,2669,728Other accrued liabilities4,200860Other non-current liabilities(259)(81)Net cash flows provided by operating activities135,34954,102INVESTING ACTIVITIESPurchase of property and equipment(651)(1,470)Purchase of short-term investments(122,776)(84,125)Proceeds from maturities of short-term investments167,52487,871Deposits and other assets(14)9Net cash flows provided by investing activities44,0832,285FINANCING ACTIVITIESIncome tax benefit realized from share-based compensation plans6,6786,889Issuance of common stock, net4,6983,771Repurchase of common stock(243,201)(11,453)Net cash flows used in financing activities(231,825)(793)(Decrease) increase in cash and cash equivalents(52,39355,594Cash and cash equivalents at beginning of period88,46941,508Cash and cash equivalents at end of period$36,076$97,102Supplemental Disclosures of Cash Flow Information:Cash paid for interest$17$11Cash paid for income taxes$54,024$12,973Non-Cash Financing Activities:Dividend payable$11,691$---  SOURCE Questcor Pharmaceuticals, Inc.For further information: EVC Group, Investors, Patty Eisenhaur, +1-951-316-0577, Gregory Gin, +1-646-445-4801, Doug Sherk, +1-415-568-4887, or Media, Janine McCargo, +1-646-688-0425