2012-10-05 21:21:57 -

By David Moskowitz

Breaking news that health insurer, Oxford Health, will cover HP Acthar Gel
(Acthar), looks like a major win for Questcor Pharmaceuticals (NASDAQ:QCOR), and
the stock should rally once the news is properly interpreted by investors. In
our prior article, we stated that with no Acthar growth off of the current base
of sales, QCOR could trade in the mid-$20 range. Today's news suggests that the
base of sales is much more stable that previously thought, and that once
physicians become accustomed to the new authorizations proposed by Oxford, use
of the product may begin to show strong growth again. While Aetna's final Policy
Update is expected next week, the Oxford Policy Change suggests that not all
health insurers will move to block patients from getting Acthar, and that   Aetna
could be one of the only health insurers that maintains a highly restrictive
policy. In fact, it is possible that Aetna loosens its restrictions, and like
Oxford, acknowledges that FDA-approved indications should be reimbursed,
especially if patients are not getting relief from alternative treatments (if
alternatives even exist). Importantly, Oxford is part of UnitedHealth Group
(NYSE:UNH), which reimburses for the largest percentage of Acthar prescriptions.
 The link to the Oxford Policy Update can be seen here, and importantly, the
insurance company deems Acthar MEDICALLY NECESSARY for several conditions
including key indications like infantile spasm (IS), multiple sclerosis (MS),
and nephrotic syndrome (NS). Essentially, the major changes are for initial
approvals of the multiple sclerosis (MS) and infantile spasms (IS) indications,
with doctors needing to review therapy for IS and MS patients in 4 weeks and 3
weeks, respectively, rather than the prior 3 month initial approval "without an
MD review".  While the shorter intervals required for initial authorization and
reauthorizations will create more steps in the process, we note that most
patients are only on Acthar for a 2-3 week period anyway. Additionally, given
that patients have already failed other therapies, physicians are likely to
continue to be aggressive in making sure their patients have access to the drug.
Meanwhile, these changes are not very meaningful, given the way Acthar has been
prescribed, reimbursed, and used in the past. The real positive in the Oxford
update is that prescriptions for NS have almost no restrictions once a patient
has failed steroids, and we note that use in NS currently represents 40% of
Acthar prescriptions, is growing at very high rates, and could become the
biggest indication given that each prescription has the highest dollar value, on
average, relative to other indications like MS and NS.

We view the Oxford Policy Update has highly favorable to the QCOR story,
particularly given the Oxford's use of the term "medically necessary" and that
it acknowledges the various FDA approved indications for the product.
Additionally, we believe the Oxford Policy lends credibility to the company's
case in defending its marketing practices, as the change evidences that
insurance reimbursement remains tricky, and company sales reps must work closely
with doctors to make sure that the medicine is paid for when patients need the
drug in on-label indications. We continue to believe that the new Medicaid
reimbursement policy for Acthar also supports that the drug is now being broadly
accepted as a critical therapy in certain conditions. Expect QCOR to strengthen
on this news and continue to climb into the Aetna Policy Update on Oct. 13, and
into Questcor's next release of Acthar's prescription growth trends.
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