Whitney Tilson discloses a new short in Questcor Pharmaceuticals Inc (NASDAQ:QCOR) (via email sent to ValueWalk)
Also see The Strange Case Of Lakewood And Opko Health, Whitney Tilson on his new big short, Whitney Tilson on ‘My response to Dear Whitney – Are we having fun yet?’, Whitney Tilson Bullish On Samsung, Backs Up Lakewood On OPK and Whitney Tilson On Why He Loves 3D Systems As a Short
Whitney Tilson on Questcor
I hadn’t gotten around to writing about one of my newest short positions, Questcor Pharmaceuticals Inc (NASDAQ:QCOR), so I owe a debt of gratitude to this article in tomorrow’s NY Times, which does a nice job of laying out key parts of what I believe is a scam of epic proportions (I’ve also included the recent Barron’s and Seeking Alpha articles that the NYT article links to).
You really can’t make this one up. Just over six years ago in Aug. 2007, this stock was at $0.35 – so how did it increase 158x to today’s closing price of $55.18, giving this former penny stock a $3.3 billion market cap? Easy: just increase the price of its one product (H.P. Acthar Gel, a 60+ year old drug acquired for $100,000) from $40 to more than $28,000 a vial (that’s not a typo – a 700x increase!). Believe it or not, our insane healthcare system allows this, as insurers are paying it – which, of course, means that all of us are.
Questcor Pharmaceuticals Inc (NASDAQ:QCOR) has done all sorts of questionable things to juice Acthar sales so various investigators are circling and medical professionals are asking tough questions, so the smart money is betting that this is a house of cards about to collapse (38% of the float is short). But in the meantime, many investors, cheered on by Wall St. “analysts”, are drawn to the company’s rapid growth, sky-high 40% after-tax margins, and modest valuation (12.7x trailing EPS and 7.2x EV/EBITDA).
The bulls have been winning this battle so far – see the three articles below in Barron’s and StreetSweeper and the Citron report from 2011 and 2012, when the stock was much lower – but I think the gig is just about up.
PS—Sometimes it’s better to be lucky than good. Had I learned of this company a couple of years ago and read the articles below and attached, I probably would have shorted it. But instead I came late to the party – so was able to short it last month (my average cost is over $60), which probably makes me one of the few people who’s ever shorted this stock who’s in the money!
Drug Maker’s Donations to Co-Pay Charity Face Scrutiny
Published: December 18, 2013 80 Comments
As drug prices have soared in recent years and insurers have increased co-payments, a new type of charity has blossomed to fill a vital niche — helping patients pay the steep out-of-pocket costs for their medicines.
Too Close for Comfort?
By BILL ALPERT | MORE ARTICLES BY AUTHOR
Drug company Questcor is both a donor and a beneficiary of a fast-growing medical charity. That could give investors aches and pains.
Off-duty cops secured the meeting rooms at the Gaylord Texan Resort last month, as the Chronic Disease Fund held its yearly conference at the Dallas-area hotel. Days before, the medical charity had canceled the registrations of some would-be attendees and refunded their $1,500 donations. The uninvited then got threatening lawyers’ letters from Questcor Pharmaceuticals, a drug company that’s been a backer of the charity and a bug zapper for short sellers.
Questcor’s letters said the barred guests must have bought tickets for the charity’s fundraiser and conference to get nonpublic information and manipulate Questcor stock (ticker: QCOR). Those letters, which several Wall Street recipients showed to Barron’s, told the interlopers to prepare for litigation and to stop contacting the Chronic Disease Fund and its affiliates.
Questcor And The Chronic Disease Fund: Is Free Drug Truly Free?
Disclosure: I am short QCOR. (More…)
In February of this year, we posted an article on Value Investors Club detailing the aggressive accounting used by Linn Energy (LINE). Subsequently, on July 1, LINE announced that the SEC launched an investigation into LINE’s usage of problematic accounting practices that artificially inflate their reported distributable cash flow (DCF). The result was an immediate 32% stock price decline and the real possibility that LINE’s $4 billion acquisition of Berry Petroleum (BRY) will be scuttled. Questcor (QCOR) is another company with some questionable dealings and it is already being investigated by the U.S. Attorney General’s Office in Pennsylvania. In particular, we question the manner in which Questcor conducts its free drug program in conjunction with the Chronic Disease Fund. Given the issues we raise with Questcor detailed below, we wonder what may come next.
Despite the fact that Questcor appears optically cheap, trading at just 13x 2013E EPS, we believe the company’s increasing reliance on its co-pay and free drug programs operated in conjunction with the CDF can potentially put earnings at great risk as these programs are scrutinized.