A Foolish Questcor Call
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Over the last four years I have been one of the biggest supporters of Questcor Pharmaceuticals (NASDAQ: QCOR), owning the stock off and on throughout various points in time, and I would have never anticipated its 63% loss during the last two weeks. On September 19 the stock fell 48% after health insurer Aetna (AET) said that it would limit coverage on the company’s drug Acthar. And if that weren’t bad enough, on September 24 the stock fell further from $30 to $19 after reporting a government investigation, an event that I feel is much more significant to the future of this company. However, with all things considered, after a 3.59% gain on Friday, is it time to buy QCOR, now that it is presenting great value compared to fundamentals and may be trading higher?
A Foolish Call on QCOR
Since the decision on behalf of Aetna there have been a host of articles and analysis that assesses its meaning and fundamental impact, as well as with the investigation. As I said, the investigation is much more threatening to me, as there has been some speculation into the marketing practices of QCOR. Also, it makes sense that QCOR wouldn’t comment or discuss the investigation, but I find it strange that the company has not, and said that it will not, further comment except for regulatory-compliant disclosures, almost operating as though the investigation is not taking place. Perhaps the company cannot comment in any way, but if innocent of any wrongdoings, I would try in every way to address these issues and indirectly state that I had done nothing wrong, if I were an executive at the company.
I suppose the greatest concern moving forward is that we don’t know what could happen. We don’t know what will become of the investigation nor do we know if more reimbursement reviews will arise. The company has already said that it doesn’t expect a “material impact” from the Aetna change. In terms of importance, and financial impact, Aetna has accounted for about 5% of shipped Acthar prescriptions. Therefore, the news doesn’t quite warrant the reaction, as Aetna is somewhat irrelevant to the sales of the product. However, like I said, the issue is not Aetna, but rather other insurance companies tightening their coverage, such as UnitedHealth Group (NYSE: UNH) and Wellpoint. UnitedHealth Group is the largest U.S. insurer and it considers Acthar to be "medically necessary" for West syndrome in children under 2 years old. The gel is also covered for exacerbations of multiple sclerosis when patients can’t use steroids. As long as UNH, and other insurers, don't make additional changes to coverage then this stock crushing news could become a happy ending for investors who purchased at these low levels. Only time will tell.
Overall, there are major risks associated with QCOR but there is also a large sense of value presented in shares of the company. QCOR is now trading with a P/E ratio of just 9.02, is expected to double its profits over the next year, and trades with a price/sales of just 3.17. However, despite the value presenting metrics, the stock comes with an awfully large amount of uncertainty, due to the investigation. Therefore, I would not buy QCOR at this time, I would wait to see how everything plays out if you are a short-term trader. If you are a long-term investor then it could perhaps make a good investment, but be prepared for volatility and the potential for loss.
The situation surrounding QCOR has been a tough pill to swallow, for myself. I am long QCOR, but have drastically cut my position. I think it makes more sense to invest in a company such as Spectrum Pharmaceuticals (NASDAQ: SPPI), which is a stock that trades with even more attractive metrics: A P/E ratio of 7.96, a price/sales of 3.0, it has more cash, the company is growing just as fast, has a large pipeline, and three approved drugs. But more importantly, it doesn’t have the same concerns surrounding its immediate future.
The Bottom Line
QCOR could be presenting a foolish amount of upside in the near future, but it comes with just as much risk, and I don’t believe it’s worth the risk; not when there are other opportunities without the high level of risk that are just as attractive.
BrianNichols is long Qcor and SPPI. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.