Questcor, short sellers trade attacks

Drugmaker Questcor ($QCOR) has run into questions--sometimes from regulators--about sales and marketing for its high-priced drug for autoimmune disorders, H.P. Acthar Gel. And every step of the way, short seller Citron Research has been there to trumpet those mishaps. Now Citron says it has lab results showing the product does not contain all of the active ingredient it requires and that the FDA is taking a look.

"Each Acthar lot meets FDA-mandated specifications which have not changed over several decades," Questor Chief Operating Officer Steve Cartt told Bloomberg. "Acthar is a naturally-derived, complex peptide formulation that is not yet fully understood." But FDA spokeswoman Sandy Walsh acknowledged in an email to the news outlet that the agency is reviewing the lab results. Citron claims the results from two labs it would not identify found the tested samples had "little to no" corticotropin API and claimed the medicine faced a "severe risk of being pulled off the market by the FDA."

The announcement had the intended effect, and Questcor shares fell 7.7% Friday after falling 9.1% the day before. Bloomberg says Bank of America analyst Steve Byrne dismissed the claims as insignificant in a note to investors saying the "alleged risk is remote." Shares had recovered more than 8% in early trading today after Questcor made a lengthy 8-K filing with the Securities and Exchange Commission (SEC) accusing short sellers of a "bear raid'" on its price and defending the product. "The key point often overlooked in all of this background noise, however, is something that Questcor employees hear regularly from doctors--that Acthar often helps patients with serious medical conditions who are in need of an alternative treatment option," it reads.

Citron and Questcor have tangled before. Acthar, used to treat multiple sclerosis and other autoimmune disorders, is Questcor's primary product, racking up 95% of the company's nearly $790 million in revenues in 2013, Bloomberg pointed out. The Anaheim, CA-based company has come under scrutiny for its marketing of the product, and Citron has been there to make sure investors knew.

The drug--a hormone purified from pig pituitary glands--sold for about $40 per vial when Questcor bought it in 2001. But the company quickly jumped that up to $700 per vial and then to $23,000, and now it runs about $28,000. The company has aggressively protected that pricing, last year buying the licensing rights to the Novartis ($NVS) drug, Synacthen, that could have challenged it, and at a much lower price. That move prompted U.S. Senator Amy Klobuchar (D-MN), chair of the subcommittee on antitrust, competition policy and consumer rights, to request that the Federal Trade Commission scrutinize the deal. Citron posted her letter to its site.

Citron also accused the company of questionable marketing tactics in 2012. The drugmaker reported that year that it was being investigated by the Department of Justice for its marketing, then last fall acknowledged that other jurisdictions and the SEC had joined in. In its SEC filing today Questcor said it figures efforts by short sellers will continue, "though it is unclear what future attempts will be made in an effort to reduce the price of the Company's stock."

- here's the Bloomberg story
- here's the 8-K filing
- here's Sen. Klobuchar's letter (PDF)