Thanks to patients like Garry Sefcovic, who suffer from a common form of multiple sclerosis punctuated by debilitating “flares,” Questcor (Nasdaq: QCOR) has seen orders for its only major product – an old drug viewed as worthless by its previous owners -- literally explode in recent years.
Yet Sefcovic, for one, wishes that he had never even tried that high-priced drug. Last winter, when he sought treatment for a painful MS flare, Sefcovic assumed that he would receive the same cheap IV steroids that had effectively relieved his condition in the past. He wound up seeing a different neurologist, however, who automatically prescribed Acthar Gel – sold by Questcor for a whopping $27,000 per dose – to address his MS flare instead.
“I have good insurance and a chronic disease fund that will pay my deductible,” Sefcovic noted when speaking with TheStreetSweeper late last year. “They made a lot of money off of me.
“Then they had to give me steroid pills after the Acthar,” he added. “I should have just been put on the IV steroids right away.”
Several giant health insurance companies – such as Aetna (NYSE: AET), Cigna (NYSE: CI) and Blue Cross/Blue Shield (BCBS) – would clearly share that reasoned point of view. In fact, as a matter of policy, they officially mandate IV steroids as a first-line treatment for MS flares and normally refuse to cover Acthar for patients who can rely on that cheaper therapy instead.
Notably, Sefcovic receives health insurance coverage from a company -- Medical Mutual -- that subjects Acthar to a careful pre-authorization process as well. Rather than automatically covering Acthar for the treatment of MS flares, records show, Medical Mutual specifically asks whether the patient “had a FAILURE or INTOLERANCE to treatment with corticosteroids” in the past and whether the patient is “a candidate to receive treatment with corticosteroids” at the present time. At that point, records indicate, the insurer then authorizes coverage of Acthar only for those patients who cannot use traditional steroid therapy to provide them with relief.
In contrast, Questcor has taken a far more liberal stand on those who should qualify for its pricy drug. Reaching beyond the narrow population of outright steroid failures, records indicate, Questcor also markets Acthar for other MS patients who simply fail to achieve the same “baseline function” that they enjoyed before their flare-ups occurred. Since many MS victims fall short of this success (as illustrated by the progressive nature of their disease), critics feel, Questcor has effectively repositioned Acthar as a first-line treatment for many patients who should receive cheaper steroid therapy instead.
Despite the clear restrictions placed on Acthar for the treatment of MS flares – the primary condition addressed by that medication today -- Questcor has achieved remarkably high reimbursement rates for its obscure drug. Even though Questcor has seen its coverage rate for Acthar slip over the past couple of years (declining from between 90% and 95% to “generally above 85%” in the latest quarter), records indicate, health insurers continue to pay the vast majority of those expensive medication claims.
That said, however, Sefcovic clearly feels that his own insurance company wasted a pile of money on an overpriced – and ultimately ineffective -- drug that he should have never even received.
“I actually would have preferred steroid treatments first, as I’ve always done in the past,” he said in a follow-up email to TheStreetSweeper earlier this week. “I lose a lot of faith in doctors this way.”
Some health insurers also portray Acthar as a second-rate therapy for MS flares, records show, by highlighting specific language – authorized by the U.S. Food and Drug Administration – that appears on the “package insert” included with each vial of the premium-priced drug. That insert bluntly states that Acthar “has limited therapeutic value” for conditions responsive to standard corticosteroid therapy, insurers note, and clearly identifies the latter as “the treatment of choice” for those medical problems instead.
While Acthar once ranked as a preferred treatment for MS flares itself, records indicate, the drug rapidly fell out of favor after a head-to-head study – carried out decades ago -- revealed that IV steroids could address this problem just as well. That study, which compared a synthetic version of Acthar (ACTH) with IV steroids in a randomized double-blind trial, found “no difference … in either the rate of recovery or the final outcome” for MS patients treated with those two medications. Both groups enjoyed “marked improvement” after undergoing treatment, the study showed, although those who received IV steroids actually suffered fewer side effects along the way.
With Acthar largely abandoned as a treatment for MS flares after that time, records show, Questcor set out to resurrect the drug as a backup therapy for patients poorly served by cheaper IV steroids. Early on, records show, Questcor even backed a head-to-head study of its own in an effort to prove that Acthar at least outperformed IV steroids among patients who had failed steroid treatment in the past. However, official FDA records show, Questcor suddenly halted that study to “analyze data” at some point in 2010 – with Acthar prescriptions for MS flares soon poised to explode – and has gone on to officially terminate the study since that time.
“There is no data to show that Acthar is any different than steroids,” noted a former Questcor insider who always marveled at the company’s ability to even sell that ancient drug. “My guess is that this study would show parity with steroids, too. And parity was not good enough – not for that price.”
As a result, that former Questcor insider explained, the company relies heavily on patient testimonials (rather than solid clinical data) to support the use of Acthar as an attractive – and even superior – alternative to steroids for the treatment of MS flares. Armed with those testimonials, that former employee said, “heavy prescribers” – paid by Questcor to promote its expensive drug – have convinced other doctors to try Acthar on their MS patients as well.
In fact, former Questcor insiders have pointed to the hired guns who belong to the so-called “speakers bureau” -- and even join company reps on visits to doctors’ offices -- as a key driver behind the impressive surge in Acthar sales. As a group, those former insiders expressed multiple concerns about that entire program.
While many drug makers operate speakers bureaus, former Questcor employees acknowledged, most of them follow strict guidelines when selecting candidates for their programs (often targeting prominent experts in the field) and then establish “daily caps” that limit the fees those doctors can earn. In contrast, former insiders said, Questcor applies very few restrictions to its own speakers bureau at all. Rather, they said, Questcor effectively uses that program to reward those physicians who write numerous prescriptions for Acthar and to motivate others (who have merely tried the drug) to do the same.
Houston neurologist Staley Brod ranks at or near the top of the first (and most important) group, they said, with Questcor paying him $2,500 – an even higher rate than its other speakers receive – every time he tells another doctor about its forgotten MS drug. Because Questcor sets no caps on the amounts that its speakers can earn (and counts even casual one-on-one discussions as legitimate engagements), they said, Brod has collected more than $6,000 a day – scoring six figures over the course of a single year – as a result of the lucrative side job that the company has given him.
“I’ve been in the pharmaceutical industry for a long time, and I’ve never seen any drug company pay a doctor more than $50,000 or $60,000 a year in speaker fees,” said a former Questcor insider who left due to concerns about the “culture” and the “ethics” of the company. “Normally, the legal department would cap those fees with a flat daily rate. You’re supposed to have caps … But Questcor never did.”
According to the official PhRMA Code – a compliance program widely adopted throughout the pharmaceutical industry – drug makers should carefully select the members of their speakers bureaus, closely monitor the extent of the work that those doctors actually perform and then strictly limit the fees that even their most prominent speakers receive. While Questcor claims that it has achieved “substantial compliance” with the PhRMA Code, however, the company has yet to join other drug makers by formally agreeing to follow the guidelines set forth under that restrictive program. In fact, former insiders say, Questcor has bluntly informed its entire sales team that the company follows only the “spirit” of the PhRMA Code – which prohibits fancy dinners with physicians and nice gifts of any kind – and noted that its sales reps enjoy more latitude as a direct result.
To date, records show, at least 58 different pharmaceutical companies have officially endorsed the PhRMA code. Notably, experts point out, that group includes both industry giants and small drug makers alike. Moreover, they add, it also includes virtually every company – besides Questcor – that markets an MS drug of any kind.
“QCOR can’t survive under the Pharma Code,” an apparent sales rep declared on the company’s CafePharma message board in December of last year. “It would make them honest -- and that’s not how the MS market was built.”
Even now, company records show, Questcor has so far convinced only a modest number of neurologists to actually use its drug.
While an estimated 8,000 U.S. doctors specialize in neurology, Questcor calculates, as few as 5% of those physicians currently prescribe Acthar for the treatment of MS flares. Most doctors in that group tend to use the drug sparingly, records indicate, writing an average of one prescription for Acthar every other month.
Although Questcor last fall boasted a gain in the number of doctors writing 10 prescriptions for Acthar or more, records show, the company recently indicated that only two physicians exceeded that level (with at least a dozen prescriptions each) in the final quarter of last year. Coincidentally enough, former Questcor insiders had by then mentioned that a pair of coveted neurologists generates a substantial amount of business for the company. They cited a busy physician in northeast Florida – where some health plans have yet to police the first-line use of Acthar for MS flares – and none other than Brod himself, the paid speaker down in Houston, as reliable sources of abundant revenue.
“Dr. Brod was so ingrained in Questcor that I think he was crucial to the company taking off in the first place,” one former employee recalled. “They didn’t have any clinical data, so they needed an evangelist for their product. He was that … It soon became very apparent to me that he was the best salesperson that we had.”
Even Jefferies analyst Biren Amin – a tireless cheerleader for the company – has expressed some concern about Questcor’s dependence on a “fairly concentrated group of prescribers” for so much of its Acthar sales. During the third quarter, Amin noted, Questcor relied on fewer than a dozen doctors for up to 25% of the Acthar prescriptions that it recorded for the treatment of MS flares. Moreover, Amin added, Questcor also counted on its leading sales rep – motivated by a generous commission program – for an outsized portion (9%) of that MS business as well.
One veteran biotech consultant, who enjoys strong relationships with healthcare providers and insurers alike, suggested that Questcor would likely face a cool reception if the company reached beyond its normal comfort zone to leading experts in the MS field.
“When I contacted large MS clinics in the Northeast (where the disease afflicts especially large crowds), they initially didn’t even know what Acthar was,” the consultant said. “When I reminded them that Acthar had been used years ago to treat MS flares, they just scratched their heads and said, ‘Why would anyone do that now?’
“These are huge clinics – and I’ve spoken to doctor after doctor – and none of them will write prescriptions for Acthar.”
Still, thanks to the small but growing crowd of doctors who have proven oddly receptive to the expensive drug, Acthar has staged a dramatic comeback in recent years. All told, Questcor has seen Acthar prescriptions for MS flares jump from just 24 to roughly 950 a quarter – skyrocketing more than 3,850% -- since the company first set out to resurrect the drug in this long-dormant marketplace.
For now, at least, Questcor continues to report favorable insurance coverage trends for Acthar despite the swelling population that the company targets with its high-priced drug. Many health insurance companies require preapproval for most indications on the Acthar drug label, however, with BCBS adopting special guidelines designed to restrict growing use of the drug for MS flares in particular. When contacted by TheStreetSweeper last month, BCBS reported that its current medical policy classifies Acthar as “not medically necessary” for MS flares without evidence of “contraindications or intolerance to corticosteroids.”
Cigna, another major health insurer, has taken a somewhat tougher stand. Under its latest guidelines, issued in mid-June, Cigna specifies that only those MS patients who fail corticosteroid therapy – and currently use some type of drug, such as Copaxone, designed to control the progression of their underlying disease – can receive coverage for Acthar if they happen to relapse.
As Questcor further expands beyond the tiny niche market that it originally served when first hiking the price of its obscure drug, experts feel, the company will likely face mounting backlash from insurers and could see its bold growth strategy backfire in the end.
“If you fly under the radar, you can be successful with a low-volume, high-price pharmaceutical,” said Rob Seidman, an industry veteran who spent six years as the chief pharmacy officer for giant WellPoint (NYSE: WLP). “But once you move into the mainstream and the glare of the Broadway lights, those days are over.
“Sooner or later, the health plans will see that the utilization of Acthar Gel has the potential to threaten the affordability of care,” Seidman added. “From my perspective, the clock is ticking. I think that we’re going to see a significant application of ‘adult supervision’ to the utilization of this product.”
When Questcor originally gained control of Acthar in 2001, reportedly paying just $100,000 for worldwide rights to the drug (barely enough to cover a few vials of that product today), doctors rarely used the medication for any of the 50-plus indications actually featured on its label. They had instead embraced Acthar as the “gold-standard” therapy for an off-label disorder (added in 2010) known as infantile spasms (IS), a serious – but extremely rare – disease afflicting just 2,000 to 3,000 babies across the country each year.
On the brink of bankruptcy when it purchased Acthar, a drug discarded because of its limited potential, Questcor continued to lose money in the years that followed. When current CEO Don Bailey took over as its new leader in mid-2007, however, Questcor adopted a new “pricing strategy” – increasing the cost of Acthar from $1,650 to $23,000 a vial – that would transform the bleeding drug maker into a profitable enterprise almost overnight.
At the time, Questcor justified that controversial rate hike as an essential move taken to ensure the continued production (and economic viability) of a critical drug for the tiny niche market that needed it. With Questcor facing little pushback from health insurers over expensive claims for its obscure drug, however, the company soon began eyeballing broader markets that – unlike even the heftiest price increase – promised the opportunity for ongoing growth.
Still, early on, Wall Street expressed little hope that this strategy would actually work.
“I take it you think that the label expansion will help you grow more volume,” one analyst mused during a conference call in early 2008, just months after Questcor raised the price of Acthar and finally closed its books on a profitable year. “I just wondered, because it’s been around for so long and the doctors all seem to know about it very well … It’s hard to imagine that people are looking for new uses at the higher price.”
After all, The Philadelphia Inquirer reported following that controversial price increase, Questcor had already tried – but failed -- to exploit the crowded Acthar label by marketing the drug as a treatment of MS flares. Bailey himself dismantled the sales force built for that effort upon taking charge of Questcor, in fact, but nevertheless soon embraced that same strategy once again. This time, despite the added challenge of a 1,300% increase in the price of Acthar, Questor somehow found doctors remarkably willing to prescribe the abandoned MS drug.
Questcor officially launched its new MS marketing strategy in mid-2008, just one year after re-pricing Acthar as an orphan drug serving a tiny niche market, and saw prescriptions for this indication surpass those written for IS by early 2010. Even during the midst of this big push, however, Questcor continued to justify the sky-high price of its flagship drug by emphasizing the microscopic market that it once almost exclusively served.
“We have this drug at a very high price right now because, really, our principal market is infantile spasms,” the CEO professed the year after Questcor began aggressively expanding into the MS arena. “And we only have about 800 patients a year. It’s a very, very small – tiny – market …
“So I just want to make sure the people on the call understand that some of these numbers sound pretty high for the course of treatment,” Bailey continued. “But it’s really driven by the very, very small population of patients that need the drug.”
Since then, of course, Questcor has gone on to embrace the broader MS market as its primary target instead. Today, records indicate, Questcor supplies more than 75% of its Acthar for the treatment of MS flares alone.
Armed with a larger sales force, records show, Questcor kicked 2011 off with a bang by reporting a massive jump in Acthar prescriptions for MS during the first half of the year. After delivering huge sequential gains – of more than 40% -- in those prescriptions for the first and second quarters, however, Questcor finally saw that powerful growth engine start to lose some of its heady steam. Acthar prescriptions for MS flares increased by just 18% on a sequential basis during the third quarter, records show, with this important metric deteriorating even further since that time.
While Jefferies expected Questcor to report 986 new paid MS prescriptions for the fourth quarter, records show, the company itself now estimates that it generated just 935 to 950 MS prescriptions during that period instead. Notably, those preliminary numbers suggest that MS prescriptions inched up just 5.5% to 7.2% during the final three months of the year, with Questcor set to report one of the smallest – if not the smallest – sequential gains in those prescriptions that the company has ever seen.
Dr. Harold “Hal” Gutstein, a neurologist affiliated with New York University who has prescribed Acthar in the recent past, sees the market actually shrinking for that expensive drug going forward. Although Gutstein initially relied on Acthar to address his own steroid failures, he has since found another effective – but much cheaper -- alternative that he now favors for those rare situations instead.
Faced with treating an MS patient who could not use IV steroids, but lacked health insurance to cover the steep price of Acthar, Gutstein decided to give oral prednisone a chance. Much to his delight, Gutstein discovered that those oral steroids – sold for just $30 a bottle – produced the same results that Acthar had achieved but did so at a fraction of the price. Intrigued, he tried the same experiment on other patients and kept repeating that original success.
Meanwhile, Gutstein had decided to take a closer look at Acthar and the science behind that long-forgotten drug. He found “very limited data” supporting the use of Acthar for MS flares and felt that even that evidence – predating decades of important medical breakthroughs -- read like “ancient history.”
“I really stopped using it for those reasons,” Gutstein recently explained. “There are alternatives available at a fraction of the cost. (And) a good number of patients get better without anything.”
While Questcor insists that MS patients still suffer frequent relapses, with flares erupting every 18 months or less, Gutstein paints a much brighter picture of the situation. Thanks to advances in medications designed to treat the underlying disease, he estimates, MS patient now average just one relapse every four years.
Moreover, with powerful new oral medications hitting the market, those relapses promise to decline even further still. Take “BG-12,” for example, a widely anticipated MS pill developed by Biogen (Nasdaq: BIIB) that is rapidly headed toward an official FDA review. Last fall, Biogen reported that BG-12 had slashed the relapse rate for MS patients by 44% to 51% (depending on the dose) in late-stage clinical trials. Notably, that same study found, the current gold-standard treatment for MS (Copaxone) – a longtime blockbuster with billions of dollars in annual sales – cut the relapse rate by just 29% instead.
With BG-12 achieving far greater reductions than that in two high-profile studies, Biogen has seen its stock rocket by more than 80% over the course of last year (an enormous gain that, amazingly enough, still falls short of that posted by Questcor itself) ahead of the expected introduction of a new MS drug with huge blockbuster potential.
“It looks like BG-12 is the best drug,” one biotech analyst told Reuters after news of the latest test results. “I think it’s possible BG-12 will be the biggest MS treatment in the future.”
Within days of that announcement, records show, Questcor executives had dumped more than $18 million worth of stock in their own company. While already flush from those transactions, they went on to sell another $24 million worth of Questcor stock in the weeks that followed.
Notably, Questcor insiders executed all of those lucrative trades in the fourth quarter of 2011, with the company later forecasting unusually weak sequential gains in Acthar prescriptions for MS flares during that period. With Acthar competing against much cheaper alternatives in a narrow (and shrinking) MS market, some feel, the drug could soon see its glory days come to an end.
“I don’t have any horse in the race; I’m not affiliated with any drug companies,” Gutstein emphasized. “And this is just my personal opinion. But I don’t see a legitimate, significant role for this particular product” in the future.
* Important Disclosure: Prior to the publication of this article, TheStreetSweeper (through its members) established a short position in QCOR with the intention of profiting on future declines in the company’s share price. While TheStreetSweeper has reduced the size of the short position that it held in QCOR when the first article in this series appeared, it continues to maintain a short position of 22,142 shares sold at an average price of $41.06 a share at the present time. 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 that they cover. To contact Melissa Davis, the author of this story, please send an email to firstname.lastname@example.org.