Questcor Pharmaceuticals Inc (QCOR) has potential to make $5 per share in earnings over the next 12 months, with a 50% gain from its current market price due to numerous positive developments at the company, including steady growth of its one-of-a-kind Acthar drug, continued share buybacks, and increased research and development spending, says Brian Poma, Partner and Portfolio Manager at Neumeier Poma Investment Counsel, LLC.
“We like to find companies that have some sort of edge over their competition that is highly defensible. Well, Questcor’s lead drug, H.P. Acthar, fits this bill. Acthar is a biologic drug with orphan status that’s approved to treat 19 different indications. Although Acthar has patent exclusivity on just one of these indications, generic competition has never been able to develop a copied version of this drug. This has to do with the complex makeup of Acthar’s 39 aminoacid peptides with impurities that have never been disclosed. Matching these impurities, which is a task that would be required by the FDA in order for a generic company to get approval, has been basically impossible. Further barriers to generics are a proprietary manufacturing process and required FDA clinical trials, which make us feel comfortable that Acthar won’t have a generic competitor for at least the next seven to 10 years, if ever,” Poma said.
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While Questcor‘s price was rocked in September 2012 due to Acthar’s higher price and restricted reimbursement by some insurers, the stock eventually recovered because of the company’s numerous positive developments, Poma says. QCOR has continued on this positive trend as it buys back shares, has initiated its first dividend and increased its research and development spending, Poma says, and he predicts that the company will roughly double its market share price in the future.
“The stock has recovered almost to its price before that panic event, because of a number of positive developments. One, there was no significant restrictions forthcoming from Acthar’s other reimbursement insurers. Two, NS revenues continued their steady growth. Three, Questcor bought the rights to Synacthen, thus eliminating any threat of that future competition. And four, Questcor initiated the marketing of a new important indication, rheumatology. In addition, over the last six months, the company has continued to buy back shares, initiated its first dividend, strengthened the quality of its board of directors, tightened its reimbursement procedures, purchased its Acthar manufacturer,” Poma said. “We believe a fair valuation is around 15 times our 2014 estimate of $5. So that sets our price target around $75, roughly a 50% gain from its current market price.”
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