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Single Product Fuels Questcor Growth

Questcor Pharmaceuticals Inc. is growing, thanks to its sole drug.

The Anaheim drug maker’s shares got a big bump last week after it said that it sold nearly $50 million worth of its Acthar drug in the first quarter.

Acthar is used to treat multiple sclerosis, a neuromuscular disease that gradually causes the loss of various physical functions. It’s for patients who see sudden worsening and don’t respond to traditional steroid treatment.

The drug also is used to treat a rare and potentially fatal form of epilepsy called infantile spasms and nephrotic syndrome, a disorder under which large amounts of protein are leaked into urine from damaged kidneys.

Last week, Questcor forecast first-quarter sales of $48.6 million before rebates the company provides to the federal Medicaid health insurance program for the poor or disabled.

Questcor is set to release its first-quarter results on April 26.

The forecast sent Questcor’s shares up 25% last week to a market value of more than $1 billion.

Multiple sclerosis prescriptions for Acthar rose 115% in the quarter from a year earlier to 500, according to Questcor.

On many of those prescriptions, Questcor gets the drug’s full sale price with no rebates.

Questcor is built around Acthar.

“Our basic strategy at Questcor is to focus on one drug,” Chief Executive Don Bailey said.

The company is building up a sales team, which now is at roughly 110 people scattered around the U.S.

Those salespeople get “out in front of MS doctors and tell them about Acthar,” Bailey said.

Before the company’s updated forecast last week, analysts on average had been expecting a profit of $9.8 million on sales of $33.6 million for the quarter.

Investors don’t appear concerned about Questcor’s focus on a single product. The company’s shares have more than doubled in the past 12 months.

“It seems like the strategy is clearly paying off,” said Christopher Holterhoff, a specialty drug analyst with New York-based Oppenheimer & Co. “There’s definitely a correlation between the number of sales reps they have and their ability to sell Acthar for MS flares.”

Acthar is an injectable gel that’s not actually a new drug. It was first approved by the Food and Drug Administration in 1952 and is approved for 19 different conditions, including multiple sclerosis, infantile spasms, lupus, rheumatoid arthritis and nephrotic syndrome.

Questcor isn’t planning to seek FDA approval for Acthar as a first-line treatment for multiple sclerosis, according to Bailey. Steroids are effective and less expensive, he said.

Acthar costs roughly $25,000 per episode and is used as a crisis, rather than maintenance, drug.

Anaheim

Business: drug maker

Market value: $1.1 billion

2010 revenue: $155 million, up 12%

2010 profit: $35 million, up 32%

It generally is covered by government programs such as Medicaid and Medicare, as well as most commercial health insurance plans.

Questcor acquired Acthar in 2001 from what’s now France’s Sanofi-Aventis SA and had to fix what Bailey called “manufacturing problems” over a three-year period that led to Aventis deciding to pull the drug before selling it.

Acthar, which originally was owned by Armour Pharmaceuticals, a drug unit of Chicago meatpacking company Armour & Co., comes from the pituitary glands of pigs. Questcor uses contract manufacturers to produce it.

Acthar Focus

Questcor doesn’t have plans to expand beyond Acthar.

Given opportunities for Acthar in current and future uses, “Why go looking for another meal—we’ve got plenty right in front of us,” Bailey said.

Analyst Holterhoff said he’d rather see Questcor stick with Acthar.

“They only do have one product, so there’s no clinical risk here,” he said. “It’s really commercial and execution risk.”

Holterhoff referred to Acthar as “a pipeline in and of itself” because of its multiple uses.

Besides Holterhoff, four other analysts follow the company.

Questcor is making an effort to get more coverage on Wall Street, Bailey said. The company presents at healthcare conferences and puts on “non-deal road shows” to raise awareness.

The company’s stock is bought by different types, including healthcare investors and hedge and growth stock fund managers, Bailey said.

Institutional investors include several funds of Boston-based Fidelity Investments and New York-based Broadwood Capital Inc.

“It’s unusual for a pharmaceutical company of our size to be profitable, so that makes us attractive to non-healthcare investors like growth funds,” Bailey said.

Small R&D

Questcor also is different from other drug makers in that it doesn’t make double-digit investments in research and development.

The company spent $955,000—less than 1% of its $115.1 million in 2010 revenue—on R&D. Questcor’s Baltimore-based R&D group focuses on Acthar, with the idea of getting more data to help promote use of the drug.

“We’re more of a sales company,” Bailey said.

The executive said he isn’t worried about possible competitors because “we think this drug can’t be duplicated.”

It would be hard for another company to get an animal-based drug through regulators, according to Bailey.

Other drugs used to treat multiple sclerosis include Pfizer’s Solu-Medrol, a steroid, and its generic versions.

In the infantile spasm market, H. Lundbeck AS of Denmark sells Sabril for what Bailey said is a limited number of babies with the disorder.

Questcor has rights to sell Acthar outside the U.S. but for now is focused on the domestic market.

New HQ

The company has about 150 workers, including about a dozen at its new, 4,500-square-foot corporate office on Kellogg Avenue in Anaheim.

Besides Bailey, Questcor’s financial team works in Anaheim, while its sales and marketing operations are at its old headquarters in the East Bay’s Union City.

Bailey moved the company here last year to be closer to his home in Yorba Linda.

“I live here. I got tired of commuting—I’d commuted for three years,” he said.

Bailey joined Questcor as a director in 2006 and became chief executive later that year.

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