Questcor reveals U.S. probe of marketing, shares dive

Mon Sep 24, 2012 10:40pm IST

(Reuters) - Questcor Pharmaceuticals Inc said it was being investigated by a U.S. agency over its promotional practices, sending its shares sliding by a third just days after Aetna cut back reimbursements for Acthar, the company's main drug.

Questcor has been under pressure since Citron Research, run by California-based investor and short-seller Andrew Left, raised concerns in July about the drug company's marketing strategy and a possible generic threat to Acthar.

Questcor did not say which agency was undertaking the investigation and said it would not be available for further comment.

Citron's allegation gained further traction last week, when Aetna Inc, the third-largest U.S. health insurer, said it would no longer reimburse patients for the use of Acthar for a number of diseases, wiping more than $1 billion from Questcor's market value.

"The difference between this (investigation) and Aetna is that the Aetna deal is quantifiable, but it is hard to quantify what the risk is in an investigation with the U.S. government." said ThinkEquity analyst Jim Molloy.

The investigation was most likely centered on possible kick-back payments to doctors, Molloy said.

Questcor's shares traded at $20.21 on Monday afternoon on the Nasdaq, with options trading also heavy, at more than two times normal volumes.

"What we are seeing on Monday is that some traders appear to be taking profits by closing their put positions," TD Ameritrade chief derivatives strategist J.J. Kinahan.

"There is also some speculative activity in the October $20 strike puts as some believe that the bad news on Questcor is not over and that the stock could suffer more losses in the near term."

Overall option volume on Questcor saw 31,000 calls and 20,000 puts traded by 12:41 p.m. ET, according to options analytics firm Trade Alert.

Questcor shares have fallen by two-thirds since Citron said the company had used Acthar's "orphan drug" status for treating infantile spasms to aggressively expand usage for other medical conditions.

Orphan status, which is granted in the United States to drugs that treat diseases affecting fewer than 200,000 people, can provide seven years of marketing exclusivity.

AETNA BACKS OFF

Citron alleged that the company used questionable tactics to market Acthar and said that the stock could ultimately retreat to single digits.

Aetna said Acthar, a gel, was medically necessary only to treat infantile spasms and that it was not better than existing therapies in the 18 other diseases that it was approved for.

Acthar has been approved to treat a range of disorders including multiple sclerosis, rheumatic disorders, allergies, seizures in babies, a kidney condition called nephrotic syndrome, and eye and respiratory diseases.

Questcor said at the time it did not expect Aetna's move to have a material impact on its results as the insurer accounted for only about 5 percent of prescriptions for the gel.

Analysts say Acthar makes up almost all of Questcor's sales. The company also sells Doral, used to treat insomnia.

The number of Questcor shares shorted were 21.2 million shares as of the end of August, according to Nasdaq. That would represent roughly 35 percent of the company's outstanding shares. Short interest on the stock has steadily climbed from the 7 million shares in mid-January, according to Nasdaq.

(Additional Reporting by Doris Frankel in Chicago, Editing by Joyjeet Das and Rodney Joyce)

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