Questcor - Cerium Pharmaceuticals - a Connection?

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Rajesh Patel, Ph.D.'s picture

 

Shares of Questcor Pharmaceutical (#QCOR) are trading down as much as 8% on heavy volume this morning based on reports that a newly formed and unknown company, Cerium Pharmaceuticals, has obtained orphan drug status for Synacthen Depot for infantile spasms. Synacthen is a synthetic analog of QCOR's drug Acthar, and the orphan drug designation has investors worried about wider generic competition for QCOR whose business depends on Acthar for substantially all of it's revenues.

Investors are scrambling to find out whether or not Cerium, a relatively new company, is a real threat to Questcor. Looking at the incorpation documents for Cerium Pharmaceuticals proves helpful in this regard. Cerium was formed, or registered with the State of Maryland, on March 12, 2012. The registered agent for the company is listed as Gregg LaPointe. A google search on this name reveals that Gregg LaPointe is a pharmaceutical industry veteran with a connection to QCOR. According to this profile, Mr. Lapointe was the CEO of Sigma Tau pharmaceuticals. Interestingly, Sigma Tau Pharmaceuticals, a privately held firm, is  focused on developing therapies for rare diseases. According to this press release, Sigma Tau appointed a new Chief Operating Officer "following the resignation of his predecessor, Gregg Lapointe...".  The press release is dated March 9, 2012, just three days before Cerium's incorporation paperwork was filed. Even more interesting than the position at Sigma Tau is the fact that Gregg Lapointe was formerly a board member of Questcor Pharmaceuticals.

While Cerium is certainly a start-up, investors should not discount the company simply because of the fact that a residential address was used in its formation. Clearly, Mr. LaPointe has prior experience with pharmaceutical companies in general, and with QCOR specifically (assuming that the Gregg LaPointe listed as the registered agent for Cerium Pharmaceuticals is the same as the googled results). Many retail longs' first reaction is to discount new developments that go against their investment thesis as tactics from "the shorts" or "the Hedge Funds". In the present case, the bio of the company founder seems to lend some legitimacy to Cerium.

Does Cerium's Orphan Drug Status Pose a Real Threat

More important than the details of who founded Cerium is whether or not there is any practical implication from the FDA's granting of Orphan Drug Designation. Orphan drug designation in and of istelf does nothing to pose a commercial threat to Acthar. In order to market a drug, even with orphan drug designation, the drug sponsor has to conduct clinical trials in the population indicated. Synacthen Depot is NOT FDA approved. This means that Cerium will have to conduct phase 1, 2, and 3 clinical trials in order to gain approval before being able to market Synacthen Depot for infantile spasms. Some of this process might be expedited if Cerium has access to previous clinical trial data (Synacthen Depot is approved in Europe, Australia and Canada). Should Cerium be required to run clinical trials in infantile spasms, and then file an NDA, this process is likely to take, at a minimum, three years (assuming 2 years for trial completion and 12 months for NDA review). By this time, QCOR would only have 1 year left on it's orphan drug designation for Acthar.

As pointed out in this article, there may be challenges to getting Synacthen approved for use in infants because the drug has benzyl alcohol as an excipient. Furthermore, approval in infantile spasms may not necessarily lead to approved use in other indications as is the case for Acthar. Recall that QCOR only gets about 6% of its revenue from the infantile spasms indication. The majority of QCOR's revenue comes from MS exacerbation and Nephrotic Syndrome indications, with Rheumatology as a new area of focus as of this year.

Our view is that, while Cerium Pharmaceuticals appears to have an experienced founder, Synacthen Depot is likely several years away from being FDA approved for any indication and thus poses no immediate threat to Acthar. Quesctor management will have to address Acthar's expiring orphan drug exclusivity with concrete plans for further protection or pipeline expansion long before competition from Cerium becomes a threat. QCOR is generating strong revenue and profits in the meantime, and as long as management utilizes these profits to prudently invest for future success, the company has strong prospects going forward. The drop in QCOR share price due to this latest development appears to be a buying opportunity as market sentiment should correct itself once realization of the lack of immediate threat sinks in.

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