Questcor (QCOR) Lower As Acthar Challenges Highlighted
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Shares of Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) are 12 percent lower in pre-open trading following a negative article from Barron's over the weekend highlighting upcoming challenges for its Acthar drug.
According to the article, Questcor will "see its profits vanish this year on prescriptions covered by Medicaid managed-care programs." The article said a provision in the healthcare overhaul gives Medicaid plans a 100% rebate on Acthar's sales price. Questcor has set aside some cash for the liabilites, but not enough the article claims citing research from Off Wall Street. "They are way under-reserved," Off Wall Street's Mark Roberts said.
Questcor issued a response to the article in an filing with the SEC ahead of an investors meeting today:
1. From August 2007 until March 2010, we did not generate any net sales on our Medicaid fee-for-service sales, due to the Medicaid rebate formula which had resulted in our providing rebates in excess of our Average Manufacturer’s Price for H.P. Acthar® Gel (repository corticotropin injection). As a result of the enactment of the Patient Protection and Affordable Care Act of 2010 on March 23, 2010, the Company’s Medicaid rebate liability per vial was reduced from 110% to 100% of our Average Manufacturer’s Price as of January 1, 2010. Our Average Manufacturer’s Price now approximates the price we charge to our customer, CuraScript Specialty Distribution, Inc.
2. The legislation also made Medicaid managed care programs eligible for drug rebates. This expanded eligibility only affected our rebate liability for those state entities which had Medicaid managed care programs but had not had previously taken legislative action at the state level to permit drugs provided to Medicaid managed care patients to be eligible for Medicaid rebates (approximately 28 states). To account for the increased liability for these approximately 28 states, Questcor, from March 23, 2010 through September 30, 2010, established reserves of approximately $5.6 million to cover this time period. Questcor currently expects to record an additional reserve of approximately $2.6 million for this increased liability for these approximately 28 states in the fourth quarter of 2010, ended December 31, 2010. The Company believes that this increase in its reserve level is consistent with the best information available to the Company at this time. The aggregate size of our Medicaid MCO liability has grown since the adoption of the Patient Protection and Affordable Care Act because it is taking time for state Medicaid agencies to implement their own internal systems in order to submit Medicaid rebate claims to the Company. The Company has received approximately $300,000 of rebate invoices for this increased liability periods through September 30, 2010.
3. The impact of this increased liability has been substantially offset by the following factors:
a. Our revised pricing agreement with the Veterans Administration, which resulted in a reduction in our rebate liability for Tricare and Veterans Administration sales as of January 2010, from $20,535 per vial to $5,670 per vial.
b. The reduction in the Company’s per vial Medicaid rebate liability to 100% of our Average Manufacturer’s Price, as noted in Item 1 above.
4. In addition, the percentage of the Company’s reserves as a fraction of Gross Sales has been reduced by the increased contribution to the Company’s Gross Sales from the Company’s Multiple Scleroris (MS) exacerbations market, as a substantially lower percentage of MS Acthar prescriptions are rebate eligible than for Infantile Spasms Acthar prescriptions.
Questcor believes the historical information above has been previously disclosed in all material respects, but that it may be helpful to investors to have this summary in light of the publication of the articles.
According to the article, Questcor will "see its profits vanish this year on prescriptions covered by Medicaid managed-care programs." The article said a provision in the healthcare overhaul gives Medicaid plans a 100% rebate on Acthar's sales price. Questcor has set aside some cash for the liabilites, but not enough the article claims citing research from Off Wall Street. "They are way under-reserved," Off Wall Street's Mark Roberts said.
Questcor issued a response to the article in an filing with the SEC ahead of an investors meeting today:
1. From August 2007 until March 2010, we did not generate any net sales on our Medicaid fee-for-service sales, due to the Medicaid rebate formula which had resulted in our providing rebates in excess of our Average Manufacturer’s Price for H.P. Acthar® Gel (repository corticotropin injection). As a result of the enactment of the Patient Protection and Affordable Care Act of 2010 on March 23, 2010, the Company’s Medicaid rebate liability per vial was reduced from 110% to 100% of our Average Manufacturer’s Price as of January 1, 2010. Our Average Manufacturer’s Price now approximates the price we charge to our customer, CuraScript Specialty Distribution, Inc.
2. The legislation also made Medicaid managed care programs eligible for drug rebates. This expanded eligibility only affected our rebate liability for those state entities which had Medicaid managed care programs but had not had previously taken legislative action at the state level to permit drugs provided to Medicaid managed care patients to be eligible for Medicaid rebates (approximately 28 states). To account for the increased liability for these approximately 28 states, Questcor, from March 23, 2010 through September 30, 2010, established reserves of approximately $5.6 million to cover this time period. Questcor currently expects to record an additional reserve of approximately $2.6 million for this increased liability for these approximately 28 states in the fourth quarter of 2010, ended December 31, 2010. The Company believes that this increase in its reserve level is consistent with the best information available to the Company at this time. The aggregate size of our Medicaid MCO liability has grown since the adoption of the Patient Protection and Affordable Care Act because it is taking time for state Medicaid agencies to implement their own internal systems in order to submit Medicaid rebate claims to the Company. The Company has received approximately $300,000 of rebate invoices for this increased liability periods through September 30, 2010.
3. The impact of this increased liability has been substantially offset by the following factors:
a. Our revised pricing agreement with the Veterans Administration, which resulted in a reduction in our rebate liability for Tricare and Veterans Administration sales as of January 2010, from $20,535 per vial to $5,670 per vial.
b. The reduction in the Company’s per vial Medicaid rebate liability to 100% of our Average Manufacturer’s Price, as noted in Item 1 above.
4. In addition, the percentage of the Company’s reserves as a fraction of Gross Sales has been reduced by the increased contribution to the Company’s Gross Sales from the Company’s Multiple Scleroris (MS) exacerbations market, as a substantially lower percentage of MS Acthar prescriptions are rebate eligible than for Infantile Spasms Acthar prescriptions.
Questcor believes the historical information above has been previously disclosed in all material respects, but that it may be helpful to investors to have this summary in light of the publication of the articles.
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