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Questcor Pharmaceuticals Responds to Questions From Investor Blog
ANAHEIM, Calif., Jan. 16, 2012 /PRNewswire/ -- On January 9, 2012, Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) received a communication from an individual representing herself to be associated with a website identified as StreetSweeper.org ("StreetSweeper"). The individual requested that the Company provide responses to a series of questions about the Company by January 10, 2012. Due to management's schedule, the individual was offered an opportunity to have the questions answered by management on Monday, January 16, 2012. On Wednesday, January 11, 2012, StreetSweeper distributed the following content:
"TheStreetSweeper would like to reward its loyal followers by offering them advance notice about its newest investigative report. The first story in a detailed two-part series on Questcor Pharmaceuticals (Nasdaq: QCOR - News) will be released early next week, with the second installment scheduled to appear soon after that. The first article raises serious questions about the aggressive marketing practices that QCOR has used to generate explosive – but potentially unsustainable – growth in prescriptions for its only drug. The second story further examines QCOR's business practices, while taking a hard look at the leaders who have struck it rich as a result of the company's controversial growth strategy. Important Disclosure: TheStreetSweeper has sold 80,599 shares of QCOR short at an average price of $41.46 a share in anticipation of a future decline in the stock price."
Questcor has been unable to determine the exact nature of StreetSweeper.org, its ownership structure, or its revenue sources. The website, www.thestreetsweeper.org, provides no information on these topics, and standard listings about it are limited and opaque. Based on our examination to date, we believe that the website lists people that it claims are associated with it, one of whom the website and media reports identify as a felon who pled guilty to two conspiracy charges – for securities fraud and money laundering – and who later pled guilty to racketeering charges related to stock manipulation, another of whom has the same name as an individual who, according to media reports, was arrested recently for kidnapping and extortion, and another of whom has the same name as an individual who, according to media reports, has been involved in extensive litigation regarding fraud, defamation, and slander. The exact nature of the relationships between these individuals and StreetSweeper.org is unclear. It is also unclear whether the website's purpose is journalistic or to further the economic interests of short sellers without regard to accuracy (a practice referred to as "short and distort").
On Monday, January 16, 2012, Questcor management participated in a telephone conversation with Melissa Davis, who identified herself as a "reporter" for StreetSweeper. At the beginning of the conversation, management asked that the call be recorded and Ms. Davis provided her consent.
During the call, management stated that it would respond to the questions received on January 9th.
Questcor maintains a policy of not commenting on trading activity in its stock and does not intend to make a regular practice of engaging with short-sellers. In early 2011, Questcor had a dialog with the author of another publication that later became the basis of an article published in Barron's. Notably, on January 14, 2012, Barron's published its Annual Report Card on its stock picks during the calendar year 2011. In the article Barron's notes "Our worst bearish call was Questcor Pharmaceuticals (QCOR), which soared after we questioned its growth prospects a year ago. We gave up on the call in a follow-up article…"
In the current situation, the Company is concerned about the apparent tactics of StreetSweeper and its background, and believes that responding to its questions and publicly disclosing the content of the questions and answers is in the best interest of the Company's shareholders. The questions asked by StreetSweeper that it provided on January 9th and Questcor's responses to those questions are set forth below. Many of the questions are vague, imprecise, are based upon erroneous assumptions or incomplete information. Notwithstanding, the Company provided responses based upon a reasonable interpretation of the questions. Certain responses are limited because of the manner in which the questions were phrased. The Company, under no circumstances, adopts, endorses or validates any factual statements or assumptions posed by any question.
Prior to Questcor providing responses to the questions provided by StreetSweeper on January 9th, Ms. Davis asked the Company to discuss its compliance program. Questcor noted that it would do so later in the call and provided a response to her. That response is provided at the end of this press release. The questions provided on January 9th and Questcor's responses to the questions are set forth below:
1. Is Acthar considered a first-line or a second-line treatment for MS flares? Either way, please explain.
Questcor Response: As stated in its FDA approved label, H.P. Acthar® Gel is approved for the "Treatment of acute exacerbations of multiple sclerosis in adults." Exacerbations are also commonly referred to as flares or relapses. The indication, as approved by FDA, is not limited to a specific line of therapy. IV corticosterioids are widely considered first-line therapy for acute exacerbations of MS. It is solely up to the prescribing physician to decide when Acthar should be prescribed for any particular patient. We do not always know whether the doctor has written Acthar first line or second line, but it is our understanding that the vast majority of prescriptions to treat MS relapses are written for patients who have previously been prescribed some form of steroids.
2. What type of MS patient does Questcor target with its drug?
Questcor Response. Questcor's marketing and sales programs attempt to educate physicians who treat MS patients about Acthar. The focus of this education effort is on how Acthar is indicated to treat acute exacerbations of multiple sclerosis in adults and how Acthar may be helpful for patients who have not had a suitable response from steroids and how the mechanism of action is unique and different from steroids. Typically, most neurologists will initially prescribe high-dose steroids for patients who are having an MS flare. Recognizing this widespread medical opinion, we also recommend that steroids be used as first line treatment. Many of those patients have an inadequate or sub-therapeutic response to the steroid treatment, have had an inadequate response to a previous treatment of steroids, have poor venous access which makes the administration of high dose steroids extremely difficult or may have other medical issues that cause the treating physician to believe that Acthar should be prescribed. Questcor attempts to educate physicians about all of these categories of patients. Clearly, it is ultimately, only the physician, in consultation with the patient, who decides whether and how Acthar is to be prescribed.
3. Over time, has Questcor changed the criteria used to determine whether MS patients look like suitable candidates for Acthar therapy? If so, please explain.
Questcor Response: Questcor does not determine whether an MS patient looks like a suitable candidate for Acthar therapy – that is the sole purview of the prescribing physician. Questcor promotes Acthar as a therapeutic alternative for MS patients who experience flares and for whom steroid treatment has been ineffective or problematic., (for example, the patient did not fully respond to steroids, the patient had side effects to steroids that are problematic, the patient has poor venous access so that inserting an IV line is problematic, etc.).
4. On average, how often does an MS patient typically relapse? Has this time span widened with advances in the medications (including powerful new or treatments) used to control the underlying disease itself?
Questcor Response. Based on publicly-available, peer-reviewed literature and information communicated by physicians, the Company believes that MS patients suffer a relapse on average every 12 to 24 months, but this can vary widely from patient to patient. Questcor believes that the number of MS patients who suffer from flares and who are incomplete responders to steroids or who have problematic side effects from steroids, is materially higher than the current annualized run rate of Acthar prescriptions currently written for MS flares. Therefore, the Company believes that a significant opportunity may exist, through the continued education of physicians who treat MS patients, to increase the awareness of and potentially the usage of Acthar to treat MS flare patients. As has been previously publicly announced, the Company currently plans to expand the number of Acthar sales representatives promoting Acthar for MS flares during 2012.
The Company does not have information sufficient to comment on the impact of recently introduced medications, though we have noted the risk of the impact on the Company of these medications in our Form 10-K for 2010, as follows:
"Over the past several years disease modifying agents have been increasingly prescribed to treat the underlying disease state of MS, and the success of these treatments could reduce the overall incidence rate of acute exacerbations for MS including acute exacerbations of MS in patients who might be candidates for being treated with Acthar."
5. How much did Questcor originally pay for the rights to Acthar?
Questcor Response: Questcor rescued Acthar in 2001 after it was abandoned by a large, internationally recognized pharmaceutical company. This other company notified the FDA of their plans to discontinue the manufacture of Acthar due in great measure to the difficulty and expense of the manufacturing and production process. Questcor stepped in and purchased all worldwide rights to Acthar for a nominal price and for a continuing royalty on future net sales. In addition to the purchase price paid at the closing of the transaction, and as was expected at the time of the purchase, Questcor has invested millions of dollars in transferring and improving the manufacturing process, which was necessary in order to continue production and sale of Acthar.
6. How much does Questcor charge for a vial of the drug today?
Questcor Response: Questcor sells Acthar to its distributor for approximately $27,000 per vial. The Company is committed to providing access to Acthar to patients who need it, through our support of the Acthar patient assistance programs administered by the National Organization of Rare Disorders as well as by providing Acthar free-of-charge to Childrens' Hospitals throughout the US. Through our support, these and other important patient-oriented support programs have now provided Acthar with a commercial value of over $124 million at no charge to patients since September 2007.
7. Can analysts/investors utilize the popular IMS database to track Acthar prescription trends? If not, when did this change and why?
Questcor Response: The IMS database service is one of several third-party services that track some pharmaceutical prescription trends. Questcor is not responsible for the accuracy of the information provided by any of these services. In the Summer of 2007, Questcor changed the distribution of Acthar from a traditional wholesale/retail distribution to specialty distribution. Questcor has had no communication with IMS regarding IMS reporting and cannot comment on the accuracy of IMS data with respect to Acthar prescription trends. Our general understanding is that IMS obtains more complete data for pharmaceutical products dispensed at retail pharmacies. Since Acthar has been distributed through specialty pharmacies since the Summer of 2007, IMS data may or may not reflect all Acthar sales. In any case, Questcor provides investors with periodic updates of approximate prescription trend information from analyzing prescription data received by a Questcor sponsored reimbursement support center.
One of the major reasons for the change in Questcor's Acthar distribution model in the Summer of 2007 was that patients with devastating medical conditions, such as infantile spasms which is considered a medical emergency by child neurologists, would be better able to get insurance coverage confirmed and receive Acthar quickly.
8. What percentage of U.S. neurologists and nephrologists has prescribed Acthar so far?
Questcor Response: In the third quarter ended September 30, 2011, we estimate that between 400-500 neurologists and 50-75 nephrologists wrote prescriptions for Acthar. This estimate is based on prescriptions processed by our reimbursement support center. Not all of these prescriptions were what we characterize as paid, shipped prescriptions. Some of these prescriptions were filled through our free drug program and some were covered under Medicaid insurance which incurs no net cost for Acthar due to rebates required by law. We believe that there are approximately 8,000 neurologists and 7,000 nephrologists in the US.
9. How many Acthar prescriptions do most of those doctors usually write?
Questcor Response: In the fourth quarter ended December 31, 2011, the average number of prescriptions written by physicians treating MS exacerbations with Acthar was approximately 2, and the average for physicians treating nephrotic syndrome with Acthar was approximately 1 to 1.5.
10. How many of them have written a dozen Acthar prescriptions or more?
Questcor Response. During the 3 month period ended December 31, 2011, approximately 2 physicians wrote a dozen or more prescriptions.
11. What percentage of total Acthar prescriptions comes from this particular group?
Questcor Response: Approximately 5% of all Acthar prescriptions were written by physicians writing a dozen or more prescriptions in the quarter ended December 31, 2011.
12. Besides neurologists and nephrologists, what types of doctors prescribe the drug? What types of diseases/disorders do those doctors use Acthar to treat?
Questcor Response: Acthar is also commonly prescribed by pediatric neurologists and epileptologists, for the treatment of infantile spasms. Acthar was originally approved by FDA in 1952 and, over the past four years, prescriptions for other on-label indications such as rheumatoid arthritis, lupus, and polymyositis were written without any Questcor promotion. In addition, prescriptions for non-promoted off-labeled indications have also been written for indications such as opsoclonus myoclonus, migraine, and fibromyalgia. All of these non-promoted on-label and off-label indications have accounted for substantially less than 10% of the total Acthar prescriptions.
13. Do the major MS clinics use Acthar right now? If so, which ones, and how often do they prescribe the drug?
Questcor Response: Questcor does not have sufficient data to fully answer this question. Acthar is prescribed by some major clinics but we have not analyzed prescription data sufficiently to be able to provide a quantitative response to this question. The Company does not provide information to external parties regarding the prescribing activity of specific physicians or clinics.
14. Does Questcor offer any financial incentives to healthcare providers who use Acthar (such as price discounts or free samples of the drug)? If so, please explain.
Questcor Response: The Company does not provide financial incentives to doctors or other healthcare practitioners to prescribe Acthar. On rare occasions we have provided an Acthar sample to a very small number of doctors at their request. Providing product samples is of course a very common, accepted practice in the pharmaceutical industry.
15. Questcor now markets Acthar for the treatment of nephrotic syndrome as well, with the Company focusing on a specific type of NS (idiopathic membranous nephropathy) in particular. The official Acthar label actually lists a somewhat different indication, however. Has Questcor received FDA assurance that it can in fact market Acthar as an on-label treatment for NS, including specific diseases related to that syndrome?
Questcor Response: Questcor does not promote Acthar for the treatment of nephrotic syndrome. The Company does promote Acthar for the treatment of proteinuria in nephrotic syndrome, using the specific language from its label which is: "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."
The term "nephrotic syndrome" is typically used in the nephrology field to describe a condition where a patient is losing 3.5 grams or more protein in the urine per day. Some common idiopathic type kidney disorders that can result in nephrotic syndrome include, among others, idiopathic membranous nephropathy, focal segmental glomerulosclerosis, IgA nephropathy and minimal change disease. Nephrotic syndrome can also occur due to lupus erythematosus.
The entire Acthar label, including each individual indication, went through a very detailed review by the FDA in 2010. This process included confirmation by FDA that the current indication related to the treatment of proteinuria in nephrotic syndrome was appropriate and should remain on label. The Company is thus permitted to promote Acthar per the approved label. In addition, all Acthar promotional materials are submitted to FDA for their review. For purposes of communicating with investors, Questcor uses the term "nephrotic syndrome" to encompass the conditions within the Acthar label.
16. How much scientific evidence does Questcor have to support Acthar as an effective treatment for NS? Please describe any modern clinical studies (such as the Bomback case review) that have been completed in this area so far.
Questcor Response: In addition to a formal approval from FDA , there is a growing body of more recent scientific data supporting the use of Acthar to treat proteinuria in nephrotic syndrome. For example, a retrospective case series publication by Bomback et al. which included a review of treatment results for patients treated with Acthar via prescription showed that in a subset of 10 patients with nephrotic syndrome due to idiopathic membranous nephropathy, 80% achieved a complete or partial remission of proteinuria. More recently, at the 44th Annual Meeting of the American Society of Nephrology in November 2011, Boston University Assistant Professor of Medicine Dr. Laurence H. Beck, Jr., M.D., Ph.D. presented results from a study which found that Acthar may induce a remission of proteinuria in patients with nephrotic syndrome due to idiopathic membranous nephropathy by suppressing production of antibodies to the phospholipase A2 receptor. Separately, results from a prospective clinical study at Columbia University conducted by Appel et al., were presented at the 2011 American Society of Nephrology Annual Meeting. This study found that 47% (7 of 15) of patients suffering from nephrotic syndrome due to various etiologies and who were unsuccessful treated with one or more other therapies were either partial or complete responders to Acthar treatment as defined by the level of proteinuria. Nonetheless, the Company has been clear in warning investors of the limited scientific evidence in this area, as it did in its most recent Annual Report on Form 10-K, as follows:
"There is limited data on the efficacy of Acthar in the treatment of nephrotic syndrome. It is unclear what amount of clinical or other data physicians will require prior to deciding whether or not to use Acthar in the treatment of nephrotic syndrome."
17. Has the Bomback study played an important role in marketing Acthar to nephrologists?
Questcor Response: Questcor's Acthar representatives typically provide reprints of this study to interested physicians as part of the information package on Acthar. Some nephrologists have told company representatives that this information has been helpful to them. However, Questcor has not interviewed physicians directly on the topic of how important this study is in their prescribing decisions.
18. Please describe any past/current financial arrangements between Questcor and Bomback.
Questcor Response: Questcor has no current financial arrangements with Dr. Bomback. As Questcor was learning about the nephrology field and beginning to speak with nephrologists about Acthar, Dr. Bomback was a consultant to the Company with financial arrangements that were within industry norms.
19. Did Questcor allow Bomback to share any details about his study before he released the official results? (Feel free to offer any comments on the controversy sparked by allegations that Bomback revealed material information about that study to a hedge fund manager, who now faces insider-trading charges as a result.)
Questcor Response: The retrospective case series publication by Bomback et al was Dr. Bomback's own evaluation initiated by him as an independent investigator and, as such, the results of Dr. Bomback's case series were not subject to Questcor control.
20. Why did Dr. Jason Zielonka resign as the chief medical officer of Questcor just eight months after he accepted that job? Who serves in that position today? Does the current chief medical officer report directly to the CEO (as Zielonka did in the past)? If not, whom does he report to instead?
Questcor Response: All companies have some executive turnover, and Questcor does not believe that its level of turnover has been different from industry norms. Questcor does not comment on the career plans of departing executives. Dr. Zielonka's hiring and subsequent resignation were disclosed publicly via SEC Form 8-k in a timely and appropriate manner. Questcor continues to wish Dr. Zielonka the very best in his professional endeavors. At this time we do not have a CMO within Questcor. We do have one physician in the Company who is Director of Clinical Research and two physicians who are active consultants. These three physicians together fulfill the many roles in Questcor that require medical expertise. All of these individuals report to the Chief Scientific Officer.
21. Why have Questcor insiders sold so much stock in recent months?
Questcor Response: Questcor does not comment on individual trading activity in its stock. The Company has previously disclosed in SEC filings that its CEO entered into a Rule 10b5-1 trading plan in the second quarter of 2011 and has executed that plan on a monthly basis since its initiation. Questcor further notes that the price of its stock has increased from 65 cents per share on May 18, 2007, the last trading date prior to the date our CEO joined the management team, to $41.54 on January 10, 2011, the date prior to the short-attack internet posting. This represents an increase of over 6,000 percent. Many holders of Questcor stock, including numerous funds have sold shares as part of a normal process of diversification and/or due to reaching certain portfolio concentration limits. As a publicly traded corporation, Questcor has a strict trading policy with regard to insider buying and selling of shares. Because of the strict window trading policy, insider sales other than those that are subject to Rule 10b5-1 plans are concentrated during open window periods. A review of past open window periods will show that insiders have sold at various times in the last few years following significant increases in the price of Questcor's stock.
22. Has Questcor encountered additional pushback from health insurers since expanding the market for Acthar? If so, please describe any notable changes. If not, does Questcor expect to see more pushback in the future?
Questcor Response: Many health insurers subject pharmaceutical prescriptions to various requirements, such as prior authorizations; these requirements are often applied to Acthar prescriptions. Questcor has experienced a fairly steady rate of insurance approval for Acthar during the last several years with approval rates generally above 85%. The reimbursement environment remains dynamic and Questcor has noted the risk of changes in the reimbursement landscape in its most recent Form 10-K as follows:
"We believe the increasing emphasis on managed care in the United States has and will continue to put pressure on the price and usage of Acthar. In addition, current third-party reimbursement policies for Acthar may change at any time. Negative changes in reimbursement or our failure to obtain reimbursement for Acthar may reduce the demand for, or the price of, Acthar, which could result in lower Acthar net sales, thereby weakening our competitive position and negatively impacting our results of operations."
At this point in the conversation, Michael Mulroy, Questcor's Chief Compliance Officer, made the following statement: "In light of StreetSweeper's unclear background, motives and tactics, Questcor does not intend to engage in an ongoing dialog with StreetSweeper and makes no commitment to respond to any further questions. We believe that substantially all of the information requested in StreetSweeper's questions is already in the public domain. We take our marketing and business practices very seriously. Questcor has a standard compliance program. I am the Chief Compliance Officer and we have another compliance officer within the Company with 10 years of pharmaceutical compliance experience whose sole job is to design and execute our ongoing compliance efforts. We are in substantial compliance with the PhRMA Code on Interactions with Healthcare Professionals. If we become aware of any unacceptable practices from outside parties or our normal ongoing compliance program we will of course deal with any such matters in a responsible manner."
Questcor Pharmaceuticals, Inc. is a biopharmaceutical company whose primary product helps 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 three indications: the treatment of acute exacerbations of multiple sclerosis in adults, the treatment of nephrotic syndrome, and the treatment of infantile spasms in children under two years of age. 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 is also exploring the use of Acthar to treat systemic lupus erythematosus, or SLE, for which Acthar is approved as both a maintenance therapy and to treat exacerbations. 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 are based on management's current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described. All such statements have been made pursuant to the Private Securities Litigation Reform Act of 1995, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "if," "should," "forecasts," "intends," "exploring," "expects," "plans," "appears," "grows," "believes," "estimates," "predicts," "potential," "continue" or "trends" 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 nets 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 generate revenue from sales of Acthar to treat on-label indications associated with nephrotic syndrome, and our ability to develop other therapeutic uses for Acthar including SLE; Research and development risks, including risks associated with Questcor's work in the area of nephrotic syndrome and potential work in the area of SLE, and our reliance on third-parties to conduct research and development and the ability of research and development to generate successful results; 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 operate within an industry that is highly regulated at both the Federal and state level; Our ability to effectively manage our growth, including the expansion of our NS selling effort, and our reliance on key personnel; The impact to Questcor's business caused by economic conditions; Our ability to protect our proprietary rights; Our ability to maintain effective controls over financial reporting; The risk of product liability lawsuits; Unforeseen business interruptions; Volatility in Questcor's monthly and quarterly Acthar shipments 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, 2010, as filed with the Securities and Exchange Commission, or SEC, on February 23, 2011, our quarterly report on Form 10-Q for the quarter ended September 30, 2011, as filed with the SEC on October 27, 2011, and other documents filed with the Securities and Exchange Commission.
You should consider the risk factors and other information contained in these documents 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.