Questcor: A Bold Strategy Threatened by the Fine Print?
by Melissa Davis - 1/24/2012 6:35:34 AM
* Editor’s Note: The following article is the first story in a two-part investigative report on Questcor Pharmaceuticals, with the second installment currently scheduled for release by the end of this week. To receive immediate notification when the second article appears, click on this link to sign up for a free email alert.
As a longtime nephrologist, Dr. Gerald Stephanz felt somewhat surprised when a sales representative suggested that H.P. Acthar Gel – a 60-year-old drug marketed by Questcor Pharmaceuticals (Nasdaq: QCOR) – might help some of the patients he treats for kidney-related disorders.
Stephanz had last used Acthar decades earlier, when caring for a patient suffering from multiple sclerosis during his residency, and had practically forgotten about the ancient medication since that time. He did remember that Acthar had once sold at a relatively cheap price, however, and that it had largely fallen out of favor after powerful IV steroids – embraced as a superior alternative – arrived on the scene. So the new price tag for Acthar (more than $25,000 a dose) and the new focus on nephrology (without solid clinical data) struck him as rather odd, to say the least.
Stephanz, for one, saw no compelling reason to try the expensive drug. He also felt offended by the “aggressive tactics” that led to a follow-up sales pitch at his office.
“They have this package they give you,” he explained. “But the label doesn’t have any specific indication for any treatable kidney disease that I can see … How are they going to market this?”
By capitalizing on its high price (raised 1,300% literally overnight) and its broad label (approved in 1952 based on its perceived safety alone), Questcor hopes to transform Acthar into a true blockbuster drug. Questcor views Acthar as a full-blown pipeline, in fact, relying on that single medication for virtually all of its current revenue and its forecasted growth as well.
Although Questcor reportedly paid just $100,000 for worldwide rights to Acthar – a product abandoned by its previous owners as a hopeless money-loser – the company now charges up to $250,000 for a single course of treatment utilizing that once-neglected drug. All told, Wall Street estimates, Questcor sold more than $210 million worth of Acthar in 2011 and – if recent growth trends prove sustainable – will likely see that total soar past $330 million over the course of the current year.
Questcor originally re-priced Acthar as an orphan drug used for an ultra-rare disease, records show, but the company now derives most of its revenue from soaring prescriptions for more widespread medical problems instead. In recent years, Questcor has dramatically expanded the market for Acthar by promoting it as a second-line treatment for patients who suffer from a common type of multiple sclerosis punctuated by debilitating flares. (TheStreetSweeper focuses primarily on that core market in the second part of this investigative report.) Inspired by that growth – driven in large part, former insiders say, by heavy prescribers who can pocket unlimited “speaker fees” for promoting the drug to others in the field -- Questcor has set out to replicate that success by pitching Acthar for another medical condition as well.
Last week, however, Questcor dropped a potential bombshell about this promising frontier.
Questcor has routinely stated that it can market Acthar as an “on-label” treatment for nephrotic syndrome – including a specific kidney disease related to NS known as idiopathic membranous nephropathy (iMN) – and even announced plans, earlier this month, to double the number of sales reps focused on this profitable arena. That sales team has already generated plenty of new business for the company in the meantime, records show, with Acthar prescriptions for NS rocketing 145% (on a sequential basis) in the fourth quarter of 2011 alone. Less than a year after aggressively breaking into this brand-new market -- where each patient represents a handsome six-figure opportunity -- Questcor now counts NS as its biggest, and its most lucrative, growth driver by far.
While Questcor has long indicated that it can freely market Acthar for this condition (and has funded a minor study, focused on iMN, that serves as a critical sales aid), however, the U.S. Food and Drug Administration has expressed a far more conservative view on this important matter.
“The approval of this product for this particular use predates the modern FDA ‘efficacy’ requirement,” the agency noted in an email to TheStreetSweeper earlier this month. “For that reason, we feel that it is best to stick to the exact wording used in the label (i.e., induce a diuresis or a remission of proteinuria) and not say that they treat the disease.”
Curious, TheStreetSweeper asked Questcor whether it had in fact secured FDA permission to market Acthar for NS and specific diseases (such as iMN) related to that vague syndrome. At that point, Questcor suddenly changed its message by stating that the company “does not promote Acthar for the treatment of nephrotic syndrome” after all. Rather, Questcor now claims that it simply uses that term when “communicating with investors” and sticks to the more restrictive language included on its drug label when pitching Acthar to physicians instead.
If so, critics feel, Questcor has obviously confused the market – which views NS as a powerful growth vehicle – in the process. By denying that it promotes Acthar for the treatment of NS, critics say, Questcor has at least indirectly suggested that it lacks FDA authorization to do so. At the same time, critics add, Questcor has also implied that nephrologists proactively requested any marketing materials that inspired them to start prescribing a drug they had rarely used for NS (or diseases related to it) in the past.
From the start, however, Questcor has readily admitted that the company would need to supply nephrologists with clinical data on NS in order to convince them to prescribe its high-priced drug. Last March, in fact, Questcor unequivocally stated that the first of those NS studies would provide “the sales force (with) something to hand out to physicians in order to sell Acthar to nephrologists in nephrotic syndrome.”
As a rule, experts say, a drug maker should always wait for a physician to request clinical data supporting any indication outside those clearly listed on its label.
“Most companies, as a matter of good compliance, will not push that information,” said Jason Sapsin, who served as an associate chief counsel for the FDA (until mid-2010) before going on to represent biotech companies in private practice. “It will be pulled by the doctors from them. That way, the doctor is the one who is driving the decision … It starts to look funny if a company is pushing that information at doctors instead.”
‘Wild, Wild West’
For its part, Questcor says that it honors “regulatory requirements and industry standard practices” when marketing its flagship drug. Moreover, Questcor claims that it has implemented a “standard compliance program” – overseen by two experienced compliance officers – because the company takes its “marketing and business practices very seriously.”
But former Questcor insiders, who resigned from the company over ethical concerns, tell a radically different story. As recently as last summer, they say, Questcor operated no compliance program – and offered no compliance training for its employees – at all. Rather, they say, Questcor allowed its hard-driving sales division to call the shots instead.
“It was ‘anything for a referral.’ I heard that multiple times,” says an industry veteran who resigned from the company last year. “The attitude there was: ‘We’re small. We’re under the radar. And until we get caught, we’re going to do anything we want.’
“That’s why I left. They’ve got this cavalier attitude about one of the most highly regulated industries in the country.”
Former Questcor insiders point to Chief Business Officer Steve Cartt as the driving force behind that attitude. If nothing else, records indicate, Cartt has certainly raised some eyebrows with his lucrative stock sales. Last year, with Questcor celebrating the NS market as a powerful new source of revenue, Cartt struck it rich by dumping more than $15 million worth of the company’s highflying shares. While other Questcor leaders rushed to capitalize on that amazing rally as well, records show, Cartt walked away with one of the biggest fortunes of them all.
A veteran Questcor executive, records show, Cartt previously served as the senior director of strategic marketing at another pharmaceutical company that wound up pleading guilty to criminal misconduct for illegally promoting one of its core drugs. That company -- Elan Pharmaceuticals (NYSE: ELN) – paid more than $200 million in criminal and civil penalties to resolve the case, records show, and no longer employs a sales force to market its products at all.
Although government authorities targeted only the company itself (rather than singling out suspected culprits within the organization), records indicate, Elan clearly blamed its aggressive marketing department – where Cartt once held an influential position -- for the risky strategy that landed it in trouble.
Cartt joined Elan in March of 2000, records indicate, shortly before the company launched Zonegran as a new epilepsy treatment that followed two competing drugs (with much broader labels) onto the marketplace. While the FDA had approved Zonegran merely as “an adjunctive therapy” for partial epileptic seizures suffered by adults, government authorities claim, Elan intentionally designed a marketing program that would target patients well outside that narrow group. Sales of Zonegran exploded as a result, records show, with more than half of all prescriptions for the drug used to address conditions outside of epilepsy itself.
Elan created at least three different off-label promotion campaigns for Zonegran, records indicate, developing and implementing the first when Cartt still held a high-ranking position in the marketing department. In fact, his own corporate bio states, Cartt actually “led a team responsible for developing and optimizing Elan’s CNS (central nervous system) product portfolio” – a collection that should include any epilepsy drugs – at the very time when the company devised its illegal marketing plan.
According to an official courtroom transcript, that original campaign – known as “Expect More, Expect Zonegran” – encouraged physicians to “think beyond just partial seizures” and consider Zonegran for “psychiatry, pain and headache,” plus other medical conditions, as well. Thanks to that promotion, government officials calculate, Elan saw prescriptions for Zonegran skyrocket by more than 80% over the course of a single year.
Cartt departed from Elan in the summer of 2002, with the company rushing to “streamline” its operations after a big plunge in its share price, and spent the next few years working as a “private consultant” before finally landing a new job at Questcor itself.
In late 2010, records show, Questcor actually welcomed yet another Elan veteran to its senior management team as well. Questcor Vice President of Portfolio Strategy James Knight served as vice president of global strategic marketing at Elan from 2001 to 2008 – remaining with the company throughout its entire off-label marketing campaign – and even followed in Cartt’s footsteps by working as a “consultant” before emerging as his colleague once again.
By then, records indicate, Elan had dumped Zonegran – its returns severely limited without the help of off-label sales -- and set out to completely reinvent itself. Under the direction of a brand-new leadership team, court documents reveal, Elan decided to stop marketing drugs altogether so that the company could focus on developing new breakthrough medications that actually sell themselves instead.
“This has been a huge lesson for the company,” Elan stated when pleading guilty to criminal charges stemming from that off-label marketing case early last year. “Elan of 2011, pursuant to the sentencing memo, is a very different company than the Elan that was involved in this conduct … A lot of lessons have been learned” since that time.
In contrast, a local newspaper article clearly reveals, Questcor continues to embrace a marketing-driven growth strategy – readily describing itself as “more of a sales company” – to the present date. Despite the inherent risks linked to that approach, critics believe, Questcor has taken some reckless chances with both leaders of its official compliance team.
According to his LinkedIn bio, Raymond Furey recently became a compliance officer at Questcor after filling similar roles at two larger pharmaceutical companies. Furey spent most of his career at Genentech, records show, a giant biotech company slapped with a damaging whistleblower lawsuit when he served as its senior compliance manager. Genentech ultimately paid $20 million to settle civil charges stemming from that case, records show, which accused the company of bribing doctors and violating off-label marketing laws in order to boost its sales.
Furey had long since moved on by the time that Genentech paid that eight-figure penalty, records show, relocating from the West Coast to the East Coast and then back again for the offers that later came his way. While Furey had spent the better part of two decades at Genentech (scoring at least two major promotions along the way), records indicate, he lasted less than four years as the chief compliance officer at smaller OSI Pharmaceutical and actually vacated that post months before he secured his current job. Furey quietly resurfaced last October in the compliance department at Questcor, records show, where he accepted a lesser title – working beneath the actual compliance chief this time – at a company far smaller than either one that had employed him in the past.
For some reason, Questcor never formally introduced Furey to the public and even declined to identify him when TheStreetSweeper specifically asked for his name. Instead, Questcor simply mentioned that the company employs “another compliance officer” (beyond the compliance chief) “whose sole job is to design and execute our ongoing compliance efforts.” But Questcor has saddled his boss, attorney Michael Mulroy, with a far more challenging schedule.
All told, Questcor has asked Mulroy to wear three different hats at the company. While many companies favor using a dedicated compliance chief, particularly those operating in the highly regulated healthcare arena, Questcor relies on Mulroy to serve as its general counsel – plus its CFO – as well.
Richard Shupack, a former FDA attorney who went on to supervise regulatory affairs for several big pharmaceutical companies, sees clear problems with that arrangement.
“The government doesn’t even want company lawyers to be in charge of compliance,” Shupack stressed. “This lawyer is the CFO, too? That’s a real conflict.
“It sounds like the wild, wild West. (And) it goes against everything most of the industry is trying to do.”
Questcor has also detoured away from another cautious industry practice, former insiders say, by establishing no clear “firewall” between its marketing and its medical divisions. In fact, corporate filings indicate, Questcor has essentially combined those two important – but inherently conflicted -- programs by placing Cartt in charge of both of them. While Cartt primarily serves as chief business officer, records show, he now oversees medical affairs for the company as well.
When Questcor first decided to aggressively explore new uses for its flagship drug, records indicate, the company expected a bona physician to carefully supervise its research activities. Questcor even created a new officer-level position for that incoming expert to fill, records show, and ultimately hired an accomplished industry veteran – who had previously led clinical research activities at the likes of Pfizer (NYSE: PFE) and Bristol-Myers Squibb (NYSE: BMY) – for that important post. In February of 2010, Questcor officially appointed Dr. Jason Zielonka – by then a senior medical director for Johnson & Johnson (NYSE: JNJ) – to serve as its chief medical officer and charged him with evaluating Acthar as a possible treatment for NS and other indications as well.
At the time, Questcor loudly celebrated the arrival of Zielonka and confidently predicted that he would play an “integral role” in shaping the future direction of the company. Just five months after assuming oversight of medical affairs at Questcor, however, Zielonka abruptly resigned from the company instead.
Zielonka sacrificed 130,000 stock options – which had already soared in value during his brief tenure at the company – when he suddenly walked out the door. Even with Questcor fetching just $10 a share at the time, more than double the price that it commanded upon his arrival, those options (once vested) promised about $725,000 in easy gains for the physician. Zielonka nevertheless settled for a severance package equal to just half of his $270,000 annual salary instead, a payout promised under his original contract if he resigned “for good reason” from the company.
That agreement also included restrictions against making negative statements about Questcor and/or its leaders that, if violated, would require Zielonka to return his severance payments and reclassify his voluntary resignation to an outright termination instead. While TheStreetSweeper tried to contact Zieloka about his experience at Questcor, anyway, it neither expected nor received any response to those inquiries.
Shortly before Questcor hired Zielonka, records indicate, it retained another medical expert who would make a stronger impact on the company. In January of 2010, The New York Times has since revealed, Questcor appointed Dr. Andrew Bomback – a nephrologist who had begun testing Acthar on some of his kidney patients -- to serve as a paid consultant to the company. Questcor offered Bomback $50,000 a year (a fee later slashed by 80% to comply with university limits) for his consulting services, the newspaper explained, with the physician doubling as lead investigator of a small -- but important -- study of Acthar as a possible treatment for nephrotic syndrome.
Notably, court records proclaim, Questcor actually encouraged Bomback to share privileged information – including details about his crucial Acthar study – with investors who expressed an interest in the company. James Silverman, an obscure hedge fund manager now under fire by securities regulators, allegedly “established a significant position” in Questcor after meeting with Bomback and learning that his patients were responding well to Acthar in his ongoing study of the drug. Silverman portrayed that information as immaterial, however, by suggesting that Questcor – with the full blessing of its CEO – had actually facilitated those revealing conversations. He also downplayed the study as irrelevant because of its narrow scope (with Bomback himself apparently treating eight of the nine patients later celebrated by Questcor as outstanding successes) and its perceived lack of the “original, novel or statistically validated research” normally required to influence the medical community.
For its part, however, Questcor loudly hailed that study as “the first modern clinical evaluation” of Acthar for the treatment of NS and trumpeted the success reported for patients with iMN – an indication absent from its label – in particular. While Questcor now claims that it does not market Acthar for NS (or any condition beyond those included on its label), the company has clearly supplied the Bomback study to even unreceptive doctors in the field.
“Everyone cites the Bomback study,” Stephanz declared after obviously receiving a copy of that study himself. “It’s a case report on 21 patients with all different diagnoses, and it’s not even in a mainstream nephrology journal … I would have never even seen it” otherwise.
Before that study, records indicate, nephrologists rarely prescribed Acthar for the narrow kidney-related indication long included on its label. Once that study (and other minor studies like it) surfaced, however, some nephrologists obviously took a fresh look at Achtar as a possible treatment for NS – the very focus of those studies – and suddenly decided to give that forgotten medication a chance.
Yet Stephanz himself remains focused on the Acthar label, and he sees nothing there that indicates the drug has been approved for the treatment of any specific kidney-related disease. Rather, he feels that the label actually features an altogether different indication – present all along – that can easily be addressed with steroids that cost a tiny fraction of the price.
Despite those limitations, noted by other medical experts as well, Questcor has so far achieved remarkable success in this arena. As noted above, Questcor recently announced a huge surge in Acthar prescriptions for NS – far outpacing the sequential growth reported for its primary MS market – and has revealed plans to dramatically expand its NS sales force as a result.
Questcor has clearly dazzled Wall Street in the process, with analysts who follow the stock universally pushing investors to purchase the sizzling-hot shares. A true Nasdaq darling, Questcor has racked up massive gains – soaring more than 125% over the course of the past year – and easily ranks as one of the best performers in the biotech sector and the broader market overall.
But Taxpayers Against Fraud, a nonprofit organization focused on exposing corporate misconduct, sees possible reason for alarm. TAF finds the sudden popularity of Acthar downright inexplicable, especially given the old age and high price of the drug, unless off-label marketing has fueled the recent explosion in demand.
“There is no new drug. There is no new need. And there is no new science,” stated TAF Director of Communications Patrick Burns. “So there should be no new appreciable growth at this company …
“Then the obvious (driver) often becomes off-label marketing,” he said. “It becomes fraud.”
TAF has witnessed plenty of fraud throughout the healthcare industry, with drug companies literally shelling out billions of dollars for violations of off-label marketing laws. This year, TAF expects to see another $9 billion worth of fraud settlements – led by record-breaking penalties against giant drug makers – as government officials crack down on companies suspected of gaming the system. Going forward, TAF expects to watch some high-flying drug stocks crash back down to earth as well.
“When people on Wall Street see a drug stock go up like that, they assume it’s genius,” Burns said. “We assume it’s fraud. And we’re often right …
“With a company like Questcor, which is selling a 60-year-old drug,” he concluded, “I doubt that genius will be found.”
* Important Disclosure: Prior to the publication of this investigative report, TheStreetSweeper (through its members) established a short position in QCOR with the intention of profiting on any future declines in the stock price. Currently, TheStreetSweeper has sold a total of 44,466 shares of QCOR short at an average price of $41.06 a share. Going forward, TheStreetSweeper may choose to adjust the size of this investment – by increasing, decreasing or covering its short position in the stock – and will fully disclose the details of any future transactions as those trades occur.
As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies they cover. To contact Melissa Davis, the author of this story, please send an email to email@example.com.