Tuesday, July 10, 2012

Questor Pharma (QCOR) - Incredible Accusations Explode Vol; Best Possible News Yesterday; the Worst Today

QCOR is trading $48.17, down 16.4% with IV30™ up 55.2%. The LIVEVOL® Pro Summary is below.


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Questcor Pharmaceuticals, Inc. (Questcor) is a biopharmaceutical company. The Company’s primary product is H.P. Acthar Gel (repository corticotropin injection) (Acthar), an injectable drug that is approved by the United States Food and Drug Administration, for the treatment of 19 indications.

This is a stock and vol note in a bio-tech with news out yesterday that pushed the stock up abruptly that couldn't have been better... and then news today that has dropped the stock right back to where it started, on news that couldn't be worse.

Let's start with the Charts Tab (six months), below. Then we'll get right into the news, which to me, at least, is incredible. The top portion of the Charts Tab is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

First, there's the move from yesterday, along with the Livevol®' Pro summary from yesterday as well.


What: Shares of Questcor Pharmaceuticals (Nasdaq: QCOR) jumped as much as 17% today to fresh all-time highs after the company reported upbeat sales of its multiple sclerosis drug Acthar.

So what: The company shipped 1,800 vials of the drug in June, bringing its quarterly total to 4,710. That represents a 15% sequential increase relative to the first quarter. Paid subscriptions also rose to between 400 and 410, up from 339 in April and 365 in May.

Now what: Following up the optimistic figures, Jefferies is increasing its price target from $56 to $60, saying the 1,800 in shipments implies $111 million in sales, notably higher than the $103 million consensus that the market is looking for. The company has repurchased more than 3.7 million shares for $156 million during the quarter and still has about $114.7 million in cash and equivalents.

Source: The Motlly Fool via Yahoo! Finance; Why Questcor Pharmaceuticals Jumped, written by Evan Niu.

OK, so sales figures better than expected and a stock re-purchase program all pushed the stock to an all-time high. This is a bio-tech whose primary product is FDA approved and is selling better than projected. What could go wrong?... Yeah...

Here's the news today, and you better believe it's vol worthy.

Questcor Pharma: Weakness being attributed to negative Citron Research report

Source: Provided by Briefing.com (www.briefing.com)

And the Citron report... It's a doozy and I've included a bug chunk of it, but you're gonna wanna read this. I added the underlining, but the bold font is from the Citron report.

A Citron Prescription for Truth on Questcor — with the Documents and Statistics the Company Doesn’t Want You To See!
Posted in Citron Reports by Stocklemon on the July 10th, 2012

Let's be clear: Citron is not claiming Questcor's sole drug HP Acthar Gel is "snake oil". It is a real drug with a bona fide FDA approval. [...] HP Acthar Gel is injectable corticotropin. It has one active ingredient: a well known, naturally occurring substance in humans called adrenocorticotropic hormone, or corticotropin, or ACTH for short.

The problem with Questcor as an investment thesis is that this same hormone ACTH has also been approved by the FDA as a generic drug numerous times in the last 60 years – by numerous manufacturers – with essentially the same label for the same conditions.<> Through the Freedom of Information Act, Citron has obtained the FDA's approval history on ACTH. If you are a Questcor investor, Citron recommends you read these file, which completely negate the "barrier to entry" claims of Questcor's CEO. Certainly the numerous analysts "covering" the company's stock with generous buy recommendations and lofty price targets have not done so – their projections wouldn't be so optimistic if they did their homework. On the other hand, it's nice to be ahead of the Street when you have the chance.

Then there's the biotech advisory newsletter BioPharmInsight, far from the company-laced propaganda on Wall Street, full of the most eye-popping quotes revealing the realities behind Questcor's claims about its sole drug Acthar … Citron guarantees Questcor Don Bailey does not want you to read this article — including his own quotes.

So why is Questcor's CEO saying these crazy things about Acthar? Because he needs to create the illusion of a barrier-to-entry to justify a purported "multi-billion dollar market opportunity" — when it simply doesn't exist.

If you are a Questcor investor, "Dr. Citron" prescribes a dose of truth about Questcor, easily digested from the attached .PDF file. Warning label: It's strong medicine. It includes:
• a complete workup on the competitive threats that can cause heart seizure for Questcor's earnings at any time
• a diagnosis of the insurance industry's tightening policies on the all-important reimbursement of Acthar Gel, without which Questcor gets no revenue.
• an "X-ray" of Questcor management's indisputable history of printing out and exercising options while the company buys back stock — which might make you want to yell "Clear!"

Source: Citron Research - A Citron Prescription for Truth on Questcor — with the Documents and Statistics the Company Doesn’t Want You To See!

So, just to re-iterate, this research claims that the very drug that QCOR is selling has no barriers to entry, has generics already on the market and could lose reimbursement status.  Further, the report accuses the CEO of lying (which is a crime for CEO's of public companies).  See... couldn't be worse...

I've included the vol chart for the same six month period, but with only the IV30™, below.

The yellow box highlights the vol drop from yesterday's move. When a firm delivers sales figures (good or bad news), there is less unknown information and vol "should" go down.

The blue box highlights the vol gain today of 55.2%. Certainly, the accusations and remarks from Citron increase risk if even a part of the investing public believes even a part of the research. The 52 wk range in IV30™ before today was [35.59%, 81.12%], so the current level is a new annual high. Given the nature of the Citron report, I'd say it's reasonable that the option market reflects more risk in QCOR now than it has since September of 2010.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

Through all of this, the skew has actually maintained a nice (and "normal") shape. We can also see that the front month ATM vol is in-line with Aug ATM, but the OTM puts in the front are more expensive (in terms of vol) than Aug. Keep in mind that the next earnings release for QCOR is probably after Jul expo, but in the Aug cycle (perhaps in late July (the month, not the expiry)). All told, the skew has not shifted from what I can see.

Finally, let's turn to the Options Tab, for completeness.

Across the top we can see that Jul, Aug and Oct vols are priced to 84.51%, 83.92% and 68.99%, respectively. Noting that the annual high in IV30™ was ~81%, we can see that both Jul (without earnings) and Aug (with earnings) are now priced at what would be annual highs. For the record, before these two days of news, QCOR closed at $50.23. I also note that the Aug 30 puts are priced to ~$0.75 mid market (115% vol) and the Jul 35 puts are priced ~$0.35, or 127% vol.

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