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ANAHEIM, Calif., Feb. 23, 2011 /PRNewswire/ -- Questcor Pharmaceuticals, Inc. (Nasdaq: QCOR) today reported financial results for the full year and fourth quarter ended December 31, 2010.
For the year ended December 31, 2010, net sales increased 30.4 percent to a record $115.1 million from $88.3 million in the prior year. The Company's financial performance was driven by an increase in net sales for H.P. Acthar® Gel (Acthar), for the treatment of acute exacerbations of multiple sclerosis (MS). Full year 2010 net income was $35.1 million, or $0.54 per diluted common share. Net income for 2009 was $26.6 million, or $0.40 per diluted common share.
"Strong gains in MS prescriptions throughout 2010 drove record net sales for Acthar and Questcor," said Don M. Bailey, President and CEO of Questcor. "Our number one focus in 2010, as it will be again in 2011, was the growth of MS prescriptions for Acthar. In the fourth quarter, we expanded our MS sales force for the fourth time. Each of the previous expansions resulted in significantly increased sales. We expect MS sales to continue to grow in 2011."
"Also in the fourth quarter, the FDA approved our sNDA for infantile spasms (IS) and modernized the label for Acthar, so that the label now includes 19 approved indications. This development allowed us to begin promotion of Acthar in IS as well as for the on-label indications associated with nephrotic syndrome (NS)," added Mr. Bailey.
"Despite the disruption caused by doubling our sales force, new shipped MS Acthar prescriptions so far in the first quarter of 2011 are running slightly ahead of the pace in the fourth quarter and well ahead of the pace in the first quarter of 2010," continued Mr. Bailey. "Also in the first quarter we are initiating an in-depth commercial exploration of the on-label opportunity for Acthar in NS. In parallel with this NS selling effort, we are currently planning to commence company-sponsored, dose-response clinical trials of Acthar in the treatment of NS, specifically treatment-resistant idiopathic membranous nephropathy (on-label), and diabetic nephropathy (not-on label)."
Net sales increased 13.1 percent during the fourth quarter of 2010, to $29.3 million from $25.9 million in the fourth quarter of 2009. The Company often receives large orders from its exclusive distributor for Acthar; the timing of these orders at the end of any quarter can significantly affect net sales and net income in any particular quarter. For example, the Company filled an order for 90 vials on the last day of the third quarter of 2010 and received an order for 120 vials on the first day of the first quarter of 2011. For this reason, as well as other factors causing quarter-to-quarter variability in Questcor's operating results, the Company believes that investors should consider net sales and net income over several quarters when analyzing the Company's financial performance. Fourth quarter 2010 operating expenses increased by $4.6 million from the third quarter of 2010 due to the significant expansion of the MS sales force and costs associated with several major conferences and meetings held during the fourth quarter.
GAAP and Non-GAAP Net IncomeNon-GAAP net income for the quarter ended December 31, 2010 was $8.0 million, or $0.12 per diluted common share. Questcor defines Non-GAAP net income as GAAP net income plus the after-tax impact of the following non-cash items:
Non-GAAP net income for the quarter ended December 31, 2009 was $9.0 million, or $0.14 per diluted common share. On a GAAP basis, net income for the quarter ended December 31, 2010 was $6.4 million, or $0.10 per diluted common share, compared to $8.4 million and $0.13 per diluted common share for the fourth quarter of 2009. The reconciliation between GAAP and Non-GAAP net income is provided with the financial tables included with this release.
The Company believes it is important to share these non-GAAP financial measures with shareholders as they better represent the ongoing economics of the business and reflect how we manage the business. Accordingly, management believes investors' understanding of the Company's financial performance is enhanced as a result of our disclosing these non-GAAP financial measures. Non-GAAP net income should not be viewed in isolation, or as a substitute for, or as superior to, reported GAAP net income.
Cash As of February 18, 2011, Questcor's cash, cash equivalents and short-term investments totaled $127 million. As of December 31, 2010, Questcor had 62.4 million shares of common stock outstanding.
Acthar Sales for MS, IS and NS During the fourth quarter of 2010, Questcor shipped 1,680 vials of Acthar compared to 1,626 vials in the fourth quarter of 2009. For the full year of 2010, Questcor shipped 6,696 vials of Acthar compared to 5,973 vials in 2009. Because Acthar prescriptions are filled at specialty pharmacies, the Company does not receive complete information regarding either the number of prescriptions or the number of vials by therapeutic area for all of the patients being treated with Acthar. However, Questcor is able to monitor trends in payer mix and areas of therapeutic use for new Acthar prescriptions based on data it receives from its reimbursement support center. Questcor estimates that over 90% of new Acthar prescriptions are processed by this support center, but believes that very few refill prescriptions are processed there.
In order to help investors better understand historical trends in sales of Acthar for each of its three key therapeutic uses, acute exacerbations of MS, IS, and NS, Questcor has grouped new prescriptions processed by its reimbursement center into two groups -- "Paid" and "Fully Rebated." "Paid" prescriptions include those prescriptions for which Questcor retains the full selling price for Acthar, as well as Tricare prescriptions that receive a 24% rebate. "Fully Rebated" prescriptions are those for which Questcor can identify that it has recorded a rebate liability approximately equal to or, for periods prior to the first quarter of 2010, greater than the price charged to its distributor. From time to time during the past two years, the rebate liability for some government insurance programs has shifted between these two categories. Therefore, the prescriptions that fall into the "Paid" and "Fully Rebated" categories have also shifted over time as follows:
"Paid" prescriptions (Rxs) include all prescriptions in the following payer categories:
"Fully Rebated" prescriptions (Rxs) include:
The following tables show, for each of the three key Acthar therapeutic uses, the number of new prescriptions shipped grouped into "Paid" and "Fully Rebated": Multiple Sclerosis (and related conditions) New Rxs2008Paid
Fully Rebated
Total Q1-08
24
5
29Q2-08
35
1
36Q3-08
51
5
56Q4-08
69
4
73Total 2008
179
15
1942009Q1-09
78
8
86Q2-09
124
17
141Q3-09
141
20
161Q4-09
213
15
228Total 2009
556
60
6162010Q1-10
231
12
243Q2-10
304
24
328Q3-10
323
19
342Q4-10
354
24
378Total 2010
1,212
79
1,291Infantile Spasms (and related conditions) New Rxs2008
Paid
Fully Rebated
Total Q1-08
96
37
133Q2-08
117
47
164Q3-08
116
67
183Q4-08
106
58
164Total 2008
435
209
6442009Q1-09
104
75
179Q2-09
91
68
159Q3-09
60
58
118Q4-09
94
45
139Total 2009
349
246
5952010Q1-10
89
48
137Q2-10
95
66
161Q3-10
92
78
170Q4-10
91
68
159Total 2010
367
260
627Nephrotic Syndrome (and related conditions) New Rxs2009
Paid
Fully Rebated
Total Q1-09
1
0
1Q2-09
3
1
4Q3-09
2
0
2Q4-09
14
3
17Total 2009
20
4
242010Q1-10
11
0
11Q2-10
4
1
5Q3-10
8
0
8Q4-10
7
0
7Total 2010
30
1
31Notes:
(1) Because the March 2010 health care legislation made Medicaid Managed Care Organization (Medicaid MCO) prescriptions rebate eligible effective 3/23/10, Questcor has accrued a rebate liability for the Medicaid MCO prescriptions estimated to be filled on or after 3/23/10 . During 2010, the Company did not have the ability to accurately identify every Medicaid MCO prescription so it is possible that some prescriptions identified as "Paid" in the tables above for 2010 may subsequently be reclassified as "Fully Rebated."
(2) "Related Conditions" includes diagnoses that are either alternative descriptions of the condition or are closely related to the medical condition which is the focus of the table. For example, a prescription for "Demyelinating disease of the central nervous system" would be included as an MS related condition for purpose of this table. About 5% of the prescriptions in the tables are for related conditions.
(3) Questcor uses business rules to determine whether a prescription should be classified as new for inclusion in this table. From time to time the Company may modify these rules which could cause some changes to the historic numbers in the table above.
(4) Totals do not include Acthar provided through free drug programs.
(5) Historical trend information is not necessarily indicative of future results.
"We completed our sales force expansion, from 38 to 77 reps, in the fourth quarter, and are pleased with the caliber of personnel we were able to recruit to Questcor. Most of our new sales people were hired and trained from September to October, and commenced selling efforts in both MS and IS on November 1," commented Steve Cartt, Executive Vice President and Chief Business Officer. "We are encouraged by the positive early response to our increased selling activity in MS and are now able to deliver sales calls to more than twice as many MS-treating neurologists as we were previously. Neurologists are gradually gaining an understanding of the usefulness of Acthar in treating MS relapse patients for whom steroids are not suitable."
"The initial response from the child neurology community to our IS launch efforts has also been positive," added Mr. Cartt. "We are actively building awareness about the new Acthar IS indication and providing IS educational materials and information on Acthar support programs to children's hospitals and parents of children with IS."
Mr. Cartt concluded, "We have also completed building our five-person, dedicated nephrology sales team. Over the next several months this team will help us develop our commercial strategies and selling approaches for this new market opportunity. The timing of this effort will coincide with the expected availability in March of the first modern peer-reviewed publication for Acthar in the treatment of nephrotic syndrome."
Sales Reserves -- Medicaid, Tricare and VA Adjustments As required by federal regulations, Questcor provides rebates to state Medicaid programs for Acthar dispensed to Medicaid patients covered under Medicaid rebate-eligible insurance plans. Since the Company does not receive rebate claims from the various state Medicaid agencies until well after the close of the quarter in which the underlying sales took place, the Company establishes reserves for expected rebate claims on a quarterly basis. As a result of the adoption of healthcare reform, for periods after March 23, 2010, the Company has also included in this reserve an estimate for the liability due to states for Acthar prescribed for patients covered under state Medicaid Managed Care Organizations (Medicaid MCO) which were not previously rebate eligible. The Company has reserved $8.2 million for this Medicaid MCO liability since March 23, 2010, including $2.6 million in the quarter ended December 31, 2010. The reserve established for the fourth quarter for Medicaid MCO was approximately the same amount as the reserve established for each of the second and third quarters of 2010.
The Company's sales reserves were positively affected during 2010 by a reduction in the amount of rebate due state Medicaid agencies from 110% to 100% of the price of Acthar, as well as a reduction in the per vial rebate due to Tricare and the Veterans Administration. These two factors increased the Company's net sales by approximately $6.9M in 2010, partially offsetting the negative effect of the expansion of Medicaid rebates to cover Medicaid MCO patients.
"During the past year, we received approval from the FDA for Acthar in treating IS, which resulted in an updated and modernized Acthar label. We also significantly increased MS sales, which drove our decision to again double the size of our sales force. As we have in the past several years, in 2011 we will continue to focus our energies on building awareness of the benefits of Acthar among patients and clinicians, as well as on those activities that we believe have the greatest possibility of increasing shareholder value," concluded Mr. Bailey.
Conference Call Details The Company will host a conference call today, February 23, 2011 at 4:30 p.m. ET/ 1:30 p.m. PT, to discuss fourth quarter and full year 2010 results. Don Bailey, President and Chief Executive Officer; and other members of the management team will host the call.
To participate in the live call by telephone, please dial 877-941-6010 for domestic participants and 480-629-9772 for international participants. Participants are asked to call the above numbers 5-10 minutes prior to the starting time. The call will also be webcast live at www.questcor.com. An audio replay of the call will be available for 7 days following the call. This replay can be accessed by dialing 800-406-7325 for domestic callers and 303-590-3030 for international callers, both using passcode 4408313#. An archived webcast will also be available at www.questcor.com.
About QuestcorQuestcor Pharmaceuticals, Inc. is a biopharmaceutical company whose primary product helps patients with serious, difficult-to-treat medical conditions. Questcor's primary product is H.P. Acthar® Gel (repository corticotropin injection), an injectable drug that is approved by the FDA for the treatment of 19 indications. Of these 19 indications, Questcor currently generates most of its net sales from two indications: the treatment of acute exacerbations of multiple sclerosis in adults and the treatment of infantile spasms in children under two years of age. Questcor is also implementing plans to commercialize Acthar for use in treating nephrotic syndrome, another on-label indication. Specifically with respect to nephrotic syndrome, the FDA has approved Acthar to "induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus." Questcor also markets Doral(R) (quazepam), which is indicated for the treatment of insomnia characterized by difficulty in falling asleep, frequent nocturnal awakenings, and/or early morning awakenings. For more information, please visit www.questcor.com.
Note: Except for the historical information contained herein, this press release contains forward-looking statements that have been made pursuant to the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "believes," "continue," "could," "estimates," "expects," "growth," "may," "plans," "potential," "should," "substantial" or "will" or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the following:
The risk factors and other information contained in these documents should be considered in evaluating Questcor's prospects and future financial performance.
Questcor undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date of this release.
For more information, please visit www.questcor.com or www.acthar.com.
Questcor Pharmaceuticals, Inc.Consolidated Statements of Income
(In thousands, except per share amounts)
(unaudited)Three Months EndedDecember 31,Years EndedDecember 31,2010200920102009Net sales
$ 29,296
$ 25,905
$ 115,131
$ 88,320Cost of sales (exclusive of amortization of purchased technology)
1,723
1,898
8,013
7,017Gross profit
27,573
24,007
107,118
81,303Operating expenses:Selling, general and administrative
13,556
7,841
41,798
29,950Research and development
3,066
2,662
10,934
9,653Depreciation and amortization
154
121
546
480Total operating expenses
16,776
10,624
53,278
40,083Income from operations
10,797
13,383
53,840
41,220Other income:Interest and other income, net
147
101
533
686Gain on sale of product rights
—
—
—
225Total other income
147
101
533
911Income before income taxes
10,944
13,484
54,373
42,131Income tax expense
4,527
5,063
19,302
15,502Net income applicable to common shareholders
$ 6,417
$ 8,421
$ 35,071
$ 26,629Net income per share applicable to common shareholders:Basic
$ 0.10
$ 0.13
$ 0.56
$ 0.41Diluted
$ 0.10
$ 0.13
$ 0.54
$ 0.40Shares used in computing net income per share applicable to common shareholders:Basic
62,252
63,086
62,112
64,196Diluted
65,390
64,783
64,741
66,257Reconciliation of GAAP Net Income to Adjusted Net Income An itemized reconciliation between net income and net income on a non-GAAP basis is as follows: Reconciliation of Non-GAAP Adjusted Financial DisclosureNon-GAAP net income applicable to common shareholders
$ 8,021
$ 8,983
$ 38,988
$ 29,242Tax expense (1)
(916)
—
(916)
—Stock-based compensation expense (2)
(598)
(486)
(2,649)
(2,310)Other (3)
(90)
(76)
(352)
(303)Net income applicable to common shareholders – GAAP
$ 6,417
$ 8,421
$ 35,071
$ 26,629Non-GAAP net income per share applicable to common shareholders - basic
$ 0.13
$ 0.14
$ 0.63
$ 0.46Tax expense (1)
(0.01)
—
(0.01)
—Stock-based compensation expense (2)
(0.01)
(0.01)
(0.04)
(0.04)Other (3)
(0.00)
(0.00)
(0.01)
(0.00)GAAP net income per share applicable to common shareholders – basic
$ 0.10
$ 0.13
$ 0.56
$ 0.41Non-GAAP net income per share applicable to common shareholders – diluted
$ 0.12
$ 0.14
$ 0.60
$ 0.44Tax expense (1)
(0.01)
—
(0.01)
—Stock-based compensation expense (2)
(0.01)
(0.01)
(0.04)
(0.03)Other (3)
(0.00)
(0.00)
(0.01)
(0.00)GAAP net income per share applicable to common shareholders – diluted
$ 0.10
$ 0.13
$ 0.54
$ 0.40Net income per share applicable to common shareholders – basic and diluted may not foot due to rounding.
Use of Non-GAAP Financial Measures Our "non-GAAP net income" excludes the following items from GAAP net income: 1. The valuation allowance we established in the fourth quarter of 2010 relating to our single sales factor apportionment election to be made in 2011 for California. 2. Stock-based compensation expense.3. Other non-cash expense includes depreciation and amortization expense, particularly expense related to the amortization of our purchased technology associated with the acquisition of Doral. Questcor Pharmaceuticals, Inc.Consolidated Balance Sheets
(In thousands, except share amounts)
(unaudited)December 31,20102009(In thousands, except share amounts)ASSETSCurrent assets:Cash and cash equivalents
$ 41,508
$ 45,829Short-term investments
73,324
29,878Total cash, cash equivalents and short-term investments
114,832
75,707Accounts receivable, net of allowance for doubtful accounts of $25 and $77 at December 31, 2010 and 2009, respectively
11,128
14,833Inventories, net
3,726
3,378Prepaid income taxes
3,532
—Prepaid expenses and other current assets
1,864
1,162Deferred tax assets
8,417
8,180Total current assets
143,499
103,260Property and equipment, net
872
407Purchased technology, net
3,074
3,372Goodwill
299
299Deposits and other assets
65
710Deferred tax assets
4,184
3,392Total assets
$ 151,993
$ 111,440LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Accounts payable
$ 3,869
$ 12,921Accrued compensation
4,158
2,140Sales-related reserves
21,511
14,922Other accrued liabilities
1,973
2,228Total current liabilities
31,511
32,211Lease termination, deferred rent and other non-current liabilities
355
1,226Total liabilities
31,866
33,437Commitments and contingenciesShareholders' equity:Preferred stock, no par value, 7,500,000 shares authorized; none outstanding
—
—Common stock, no par value, 105,000,000 shares authorized; 62,418,464 and 61,726,609 shares issued and outstanding at December 31, 2010 and 2009, respectively
74,809
67,793Retained earnings
45,295
10,224Accumulated other comprehensive income (loss)
23
(14)Total shareholders' equity
120,127
78,003Total liabilities and shareholders' equity
$ 151,993
$ 111,440Questcor Pharmaceuticals, Inc.Consolidated Statements of Cash Flows
(In thousands)
(unaudited) Years Ended December 3120102009(In thousands)Cash Flows From Operating ActivitiesNet income
$ 35,071
$ 26,629Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation expense
3,739
3,066Deferred income taxes
(1,029)
(290)Amortization of investments
678
181Depreciation and amortization
546
480Gain on sale of product rights
—
(225)Income tax benefit realized from share-based compensation plans
1,335
783Excess tax benefit from share-based compensation plans
(934)
(743)Changes in operating assets and liabilities:Accounts receivable
3,705
(4,415)Inventories
(348)
(919)Prepaid income taxes
(3,532)
3,316Prepaid expenses and other current assets
(702)
(61)Accounts payable
(9,052)
8,619Accrued compensation
2,018
244Sales-related reserves
6,589
3,097Other accrued liabilities
(255)
526Other non-current liabilities
(871)
(303)Net cash provided by operating activities
36,958
39,985Cash Flows From Investing ActivitiesPurchase of short-term investments
(106,647)
(61,557)Proceeds from the sale and maturities of short-term investments
62,560
73,375Purchase of property, equipment and leasehold improvements
(713)
(140)Net proceeds from sale of product rights
—
225Changes in deposits and other assets
645
—Net cash (used in) provided by investing activities
(44,155)
11,903Cash Flows From Financing ActivitiesIssuance of common stock and warrants
1,942
1,002Repurchase of Series A preferred stock
—
—Repurchase of common stock
—
(21,086)Excess tax benefit from share-based compensation plans
934
743Net cash provided by (used in) financing activities
2,876
(19,341)(Decrease) increase in cash and cash equivalents
(4,321)
32,547Cash and cash equivalents at beginning of year
45,829
13,282Cash and cash equivalents at end of year
$ 41,508
$ 45,829Supplemental Disclosures of Cash Flow Information:Cash paid for interest
$ 7
$ 5Cash paid for income taxes
$ 23,185
$ 11,317
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