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Pharmaceutical Writers/Business Editors

UNION CITY, Calif.--(BUSINESS WIRE)--April 30, 2008--Questcor Pharmaceuticals, Inc. (AMEX:QSC) today reported financial results for the first quarter ended March 31, 2008 which were sharply improved from year ago levels. Net sales for the period were $19.1 million, as compared to $3.7 million for the same period last year. Income before income taxes for the quarter was $11.0 million, as compared to a loss of $3.8 million for the same period last year. Net income for the quarter was $6.5 million, versus a net loss of $3.8 million for the first quarter of 2007. Fully diluted earnings per share for the quarter were $0.02; excluding the impact of a deemed dividend, fully diluted earnings per share for the quarter were $0.09. During the quarter, the Company completed the repurchase of all remaining shares of its Series A Preferred Stock for $10.3 million. As a result, the Company recorded a one-time, after-tax deemed dividend of $5.2 million.

Acthar net sales were $18.9 million of the $19.1 million in total net sales; net sales of Doral, Questcor’s sleep medication, were $0.2 million.

“During the first quarter, we made solid progress towards achieving our 2008 goals,” said Don Bailey, President and CEO. “We are successfully executing our Acthar-centric business strategy as we solidify our base business while pursuing several Acthar sales growth initiatives. First quarter sales of Acthar were in line with our expectations and we remain on track to achieve or exceed the financial performance guidance for 2008 that we provided on March 3, 2008. We believe that the average, seasonally-adjusted, end user demand continues to be in the 425 to 475 vials per month range. Furthermore, yesterday we announced that our agreement with our U.S. Acthar distributor has been revised. This revision will enhance our ability to achieve our profitability goals and improve our ability to fund important research and development projects. The focus of these research and development projects is to advance scientific and medical knowledge regarding the treatment of neurological disorders such as infantile spasms (IS) and to prepare our resubmission of the Acthar Supplemental New Drug Application (sNDA) filing for IS to the FDA. In addition, we are continuing to use our free cash flow to increase shareholder value as demonstrated by our February repurchase of all of our remaining preferred stock as well as our March repurchase of 1.5 million shares of our common stock under Questcor’s share repurchase plan,” said Mr. Bailey.

“Because of our improved financial position, Questcor can continue its investment in serving our patients and the medical community,” said Steve Cartt, Questcor’s Executive Vice President, Corporate Development. “Our reimbursement support program continues to have a very high rate of success in gaining insurance coverage for Acthar patients. In addition, through our sponsorship of the patient assistance programs operated by the National Organization for Rare Disorders, we have provided free medication to uninsured and underinsured patients approaching $10 million in commercial value since the August 2007 strategy change. We are also now able to support a number of initiatives in the child neurology community, including sponsoring the creation of a new Expert Working Group that will bring together leading experts to focus on optimizing diagnosis, treatment and care of patients diagnosed with IS. In addition, we are identifying and assessing diseases and disorders where Acthar is not currently used but where there is both a high unmet medical need and medical data or reports indicating that Acthar could be effective as a treatment. We look forward to updating our investors on the progress of these initiatives in the coming year,” added Mr. Cartt.

Medicaid Rebates and Government Chargebacks

A portion of Acthar’s estimated end user unit demand is for patients covered under Medicaid and other government-related programs. As required by Federal regulations, Questcor provides rebates related to product dispensed to Medicaid patients. In addition, certain other government agencies are permitted to purchase Acthar for a nominal amount from Questcor’s specialty distributor, which then charges the discount back to Questcor. These rebates and chargebacks are estimated by Questcor each quarter and reduce gross sales in the determination of Questcor’s net sales. The rebate requests for a quarter are generally received and paid in the subsequent quarter. Acthar gross sales in the first quarter of 2008 were reduced by 29% to account for the estimated Medicaid rebates and government chargebacks associated with first quarter 2008 shipments. First quarter gross sales were reduced by an additional 2.7% to account for the payment of a greater amount of Medicaid rebates during the 2008 first quarter than estimated during the fourth quarter of 2007 for shipments in the fourth quarter of 2007.

Net Income and NOL Carryforwards

For the first quarter of 2008, net income applicable to common shareholders totaled $1.3 million, or $0.02 per diluted common share, as compared to a net loss applicable to common shareholders of $3.8 million or $0.05 per diluted common share for the same period last year. Net income excluding the impact of the after-tax deemed dividend of $5.2 million was $6.5 million, or $0.09 per diluted common share.

Non-cash, FAS 123R stock-based compensation expenses totaled $1.9 million for the first quarter of 2008. Of this amount, $1.2 million was related to the Employee Stock Purchase Plan (ESPP). In February 2008, our board of directors approved a reduction in the offering period of the ESPP from twelve months to three months and eliminated the ability of plan participants to increase their contribution levels during an offering period. These changes will be effective during the next offering period that begins on September 1, 2008.

For financial reporting purposes, income tax expense for the first quarter was $4.5 million, recorded at the maximum federal and state tax rate of approximately 41 percent. Approximately $2.6 million of the $4.5 million is a non-cash expense, as the Company will use a portion of its net operating loss carryforwards and tax credits to reduce its tax liability.

Cash, Accounts Receivable and Share Data

As previously announced, Questcor repurchased all of the outstanding Series A preferred shares on February 19, 2008 for $10.3 million. In addition, in early March the Company’s board of directors approved a program to repurchase up to 7 million shares of its common stock. As of April 29, 2008, the Company had repurchased 1,527,700 common shares at an average price per share of $4.06, for a total of $6.2 million. As of March 31, 2008, Questcor had 74.1 million fully diluted common shares.

As of March 31, 2008, Questcor’s cash, cash equivalents and short-term investments totaled approximately $32 million and its accounts receivable balance totaled approximately $18 million. Questcor’s recently revised agreement with its U.S. Acthar distributor provides for faster payment terms, which it estimates will result in a decrease in accounts receivable and a corresponding increase in cash of approximately $10 million. This $10 million adjustment should occur in June or July.

Acthar Shipment Levels and End User Demand

As discussed in detail in a press release on March 3, 2008, Acthar sales follow a distinct historical pattern of significant month-to month variability and seasonality in Acthar end user demand in the treatment of IS. The Company used the same historical data from the monthly study disclosed last quarter, provided by Wolters-Kluwer, a leading provider of prescription data for the pharmaceutical industry, to determine the level of historic quarterly seasonality in end user demand for Acthar in IS. The results of this study indicate that end user demand in the first quarter has historically averaged about 15% below the annual average, that the third quarter is about 12% above the annual average, and the other two quarters are slightly above the annual average. As there is significant variability in individual quarters, these averages do not represent predictions of future quarterly results.

Questcor shipped 1,260 vials of Acthar to its specialty distributor during the first quarter of 2008. The Company estimates that seasonally-adjusted Acthar end user demand since the implementation of the new Acthar strategy through April 2008 has continued to average between 425 and 475 vials per month, or between 1,275 and 1,425 vials per quarter.

Regulatory Activity and Product Development

Acthar is currently approved in the U.S. for the treatment of multiple sclerosis exacerbations and numerous other conditions. No drug is approved in the U.S. for the treatment of IS, a potentially life-threatening disorder that typically begins in the first year of life. However, pursuant to guidelines published by the American Academy of Neurology and the Child Neurology Society, many child neurologists use Acthar to treat infants afflicted with this condition.

A recent company-sponsored survey of child neurologists indicated that Acthar is prescribed to treat about 40% of the IS cases in the United States. Based on that survey, the Company believes that FDA approval for Acthar in the treatment of IS could result in an increase in the number of IS patients treated with Acthar.

Questcor is currently pursuing formal agency approval for Acthar in the treatment of IS. Previously, the FDA granted Orphan Designation to Acthar for the treatment of IS. As a result of this Orphan Designation, if Questcor is successful in obtaining FDA approval for the IS indication, Questcor will also qualify for a seven-year exclusivity period during which the FDA is prohibited from approving any other ACTH formulation for IS unless the other formulation is demonstrated to be clinically superior to Acthar. The Company is on schedule to resubmit its Acthar sNDA filing for IS to the FDA by the end of 2008. Based on communications with the FDA, the Company’s efforts are focused on two major projects involving the gathering of efficacy data from prior, randomized control trials and the extraction of existing safety data.

Development efforts on QSC-001, Questcor’s proprietary, orally-dissolving tablet (ODT) formulation of hydrocodone and acetaminophen (APAP) for the treatment of pain, progressed well in the first quarter as Questcor began planning for pivotal trials. In addition, Questcor recently completed market research involving over 100 high-volume prescribers of hydrocodone/APAP and other opioid-based pain products. Physicians participating in the study had a positive reaction to QSC-001. On average, physicians interviewed indicated that they might substitute up to 27% of their current hydrocodone/APAP prescriptions with QSC-001. Because nearly 120 million prescriptions for hydrocodone/APAP products are written annually in the U.S., QSC-001 could have significant revenue potential.

2008 Outlook

For the year ending December 31, 2008, the Company is providing an update to its prior financial performance guidance to reflect the slight increase in net sales due to the recently revised distribution contract, a slight decrease in share count due its recent repurchases of common stock, no change to its guidance on projected expenses, and a $10 million increase to cash generated from operations due to the distributor contract revision:

If Acthar demand remains in the range experienced since the implementation of the new Acthar strategy, then annual gross sales before reduction for Medicaid rebates and government chargebacks would be approximately $117 million to $130 million;Acthar gross sales resulting from Questcor’s reported shipments will be reduced by approximately 30% related to Medicaid rebates and government chargebacks in the determination of net sales. If Acthar demand remains in the range experienced since the implementation of the new Acthar strategy, this would result in annual net sales of approximately $82 million to $91 million;Gross margins of approximately 90%;Selling, general and administrative expense (excluding non-cash FAS 123R stock-based compensation expense) of approximately $15 million to $17 million. Questcor anticipates the addition of selective key new hires and investment in customer service and marketing initiatives;Research and development expenses (excluding non-cash FAS 123R stock-based compensation expense) of approximately $10 million to $14 million resulting from Questcor’s efforts related to its Acthar submission to the FDA for the treatment of IS and the continued efforts related to the development of QSC-001. The higher end of the range would occur if Questcor were to successfully advance QSC-001 to trials;Non-cash FAS 123R stock-based compensation expense of approximately $4.5 million resulting from stock option grants, restricted stock grants, and Questcor’s employee stock purchase plan;For financial reporting purposes, income tax expense will be recorded at the maximum federal and state tax rate of approximately 41 percent, though actual tax payments are expected to be paid at a rate of approximately 18 percent because of the utilization of the Company’s NOLs;Diluted weighted average shares of 72 million to 75 million. These amounts do not include the impact of additional potential repurchases of common stock under the Questcor stock repurchase plan;If Acthar demand remains in the annualized range experienced since the implementation of the new Acthar strategy, cash generated from operations of approximately $50 million to $60 million.

Growth Initiatives

The Company’s most important growth initiative is the planned 2008 resubmission to the FDA of the sNDA in support of a new indication for IS. Should the FDA grant approval for this indication, Questcor could then begin actively promoting the use of Acthar in this indication, something the Company is presently prohibited from doing.

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