Questcor Will Carry On its Rise

Ishtiaq is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Some companies were happy to see the end of 2012. Questcor Pharmaceuticals (NASDAQ: QCOR) was one of them. The company had a terrible second half of the year, due to fears about insurance coverage and some bad press. The stock lost more than half of its value after reports came out about the suspect marketing practices of the company.

An investigation into the marketing practices of the company created significant doubts in investor’s minds. Despite the negative press and investigation, the company carried on its impressive performance and reported impressive earnings.

Questcor has beaten analyst expectations on more than ten occasions now, which shows that there are no signs of slowing revenue growth. Of course, there will always be concerns about sustainability of the company with only one product in the pipeline. However, if the product is good enough, having just one product may not be a bad thing. In case of Questcor, the product, Acthar, is extremely effective and beneficial. Once again, the company exceeded analyst expectations and reported extremely impressive earnings figures.

Earnings: Impressive as always.

There are a few companies that can match earnings growth shown by Questcor. Fourth-quarter adjusted earnings per share were $1.09, 132% higher than the earnings for the same quarter last year. This is astonishing growth in earnings for a company with only one product in the pipeline, right? As I said, Acthar is an extremely effective product, and there is still a lot of room for the company to grow revenue.

Questcor beat analyst estimates by $0.16; the consensus earnings estimate for the quarter was $0.93 per share. Revenue growth was impressive, and it was the main reason for growth in earnings. Questcor's revenue grew 113% for the quarter to $160.5 million.

Massive growth in revenue was due to the solid performance of Acthar Gel in nephrotic syndrome, infantile spasms, and multiple sclerosis (MS). Questcor has been trying to increase revenue from nephrotic syndrome, and recent results indicate that the firm is able to achieve considerable success. Prescriptions in nephrotic syndrome have increased substantially over the past year.

A total of 6,330 vials of Acthar were shipped during the fourth quarter, 88% more than the same quarter last year. For the full year, the company reported net income of $197.7 million, or $3.14 per share. Earnings almost tripled for the company, from $1.21 per share reported at the end of 2011.

Questcor is also trying to augment its pipeline, and the company spent $12.1 million in research and development, 111.6% more than the previous year. Although operating expenses have also skyrocketed, revenue has grown at a higher rate than the expenses.

No direct competition

There is no direct competition for Acthar in the market, and the firm enjoys complete dominance due to the novelty of the drug. However, there are some interesting investments available in the bio-Pharma sector.

Arena Pharmaceuticals (NASDAQ:ARNA) is close to launching its anti-obesity drug, Belviq. The drug is highly anticipated due to its safety and efficacy profile. Belviq was recently given Schedule IV by DEA, and Arena’s Partner, Eisai, is making arrangements to launch the drug in North America. At the moment, most of the events are priced in; however, the successful launch of Belviq will surely push up the stock price.

Another player in the anti-obesity market, VIVUS (NASDAQ:VVUS), has launched its anti-obesity drug, Qsymia. However, due to the limited marketing and suspect safety profile, the company has not been able to establish itself as the leading player in the market. VIVUS' stock price has come down since the approval of the drug, and the company will have to post some serious revenue numbers to lift it.

Nonetheless, I believe the obesity market is massive, and it will be able to accommodate both of these companies. One will surely sell more pills than the other, however, I am confident that both of these companies can prove to be good investments.

Conclusion

There is still a lot of room for Questcor to increase revenue. Questcor has strong fundamentals, and I expect it to continue its impressive financial performance. From here on, I expect the stock to slowly reach $40 mark within the next six months. It can go even further, but I am keeping my estimate on the conservative side.

There is still wide insurance coverage available for Acthar, which should allow the company to increase its revenue. Investigation into the marketing practices remains the only threat to the company at the moment. If the results of the investigations are positive, Questcor will not have any trouble reaching $40 in the next six months. 


IshtiaqAhmed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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