Questcor (NASDAQ:QCOR)
- Mallinckrodt buying Questcor
- QCOR shareholders get cash plus MNK shares
- Polarized investor sentiment relatively unchanged
On April 7th Questcor announced that they have reached an agreement to be acquired by Mallinckrodt Pharmaceuticals (NYSE:MNK) in a deal worth $5.6 billion (around $86 per share). QCOR shareholders get $30 cash per share and 0.89 shares of MNK. Separately, QCOR announced a 30 cent quarterly cash dividend.
Investor Sentiment
Questcor has always experienced highly polarized sentiment amongst the investment community. On the one hand, the company is a cash machine, generating large free-cash-flow from it's only approved product, HP ACTHAR Gel. On the other hand, the vociferous shorts of QCOR have tried everything from suggesting that insurers were about to stop reimbursing for the drug, to suggesting that there are problems with the manufacturing process of the product leading to a mislabeled drug being marketed.
At the heart of much of the negative sentiment seems to be a sense of incredulousness that the QCOR management team managed to take a 50 year old drug which the company acquired for $100,000 and, over time, get it approved for an orphan indication and raise the price from $50 per vial to ~ $20,000+ per vial. There seems to be a sense of unfairness or an inherent assumption that management must be up to something criminal.
On twitter especially, the critics of QCOR are vociferous, yet this same community cheers and champions other companies that are pursing exactly the same business model. Case in point is Retrophin (NASDAQ:RTRX). Not only is Retrophin pursuing the same indications (infantile spasms for instance), but after recently acquiring Manchester pharmaceuticals, RTRX has taken a 70 year old drug, chenodal, and raised it's price 5-fold from approximately $100,000 per year to approximately $500,000 per year. Somehow the same twitter users denouncing Questcor for price increases in ACTHAR cheer on RTRX as it makes one of it's recently acquired drugs the most expensive drug in the world.
There has been some analyst and general online commentary suggesting that Mallinckrodt did a poor job of due diligence on this acquisition. The jury is still out on this point. Much will depend on the outcomes of federal trade commission investigations as well as investigations by the US attorney's office regarding Questcor's marketing practices. Our view is that MNK likely did deeper due diligence than most of QCOR's critics regardless of how much money those critics have invested in their QCOR short position.
At the end of the day, this acquisition was a big win for QCOR longs who can put behind them once and for all the frustrations of repeated short attacks on their stock. whether the QCOR shorts now become MNK shorts remains to be seen. If one's view is that ACTHAR is fundamentally a flawed medicine that will be pulled from the market, there is little reason for a buyout to change that view.
We have no position in QCOR or MNK.
