Q1 Earnings
Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is trading with losses of 9% immediately following its Q1 earnings report. For the quarter, Questcor grew 41% and posted revenue of $135 million and an EPS of $0.76. The problem is that both numbers were far below the consensus, as revenue missed by $22 million and EPS was short by $0.20.
According to the company, earnings were negatively impacted by several transitional events, including: distribution channel disruptions due to the Medicaid rebate change; the timing of Acthar orders that were received and filled; and the introduction of a new reimbursement support center. The company also saw a reduction in the number of Acthar prescriptions to treat MS exacerbations.
Questcor Thoughts
There are some cases when 41% growth is considered “bad” but it’s not often that this occurs when a biotechnology stock is trading at 9.5 times earnings, with a price/sales of 3.35, and pays an annual yield of 3.25%. In fact, this never happens. Yet Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), because of its past growth, has very high expectations. In theory, if a stock drops 40% in less than a year then its expectations are also expected to fall, but not for Questcor — it continues to trade dirt cheap while those in the analyst community expect growth of 60%.
For those of you who are unfamiliar with Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR), it is a stock that has fallen drastically due to an investigation into its “practices” and insurance restrictions on its only marketable drug, Acthar. The company has done virtually everything possible to regain sentiment including dividends and buybacks, yet has remained unsuccessful. And while many can somehow rationalize that Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR) is a bad stock or that somehow it trades at a fair value price, I can’t help but to look at the earnings report, ignore the expectations, and see an undervalued stock.
Example of Value
In biotechnology, revenue is not created equally, which means that the market places larger valuations on the revenue and growth of certain companies over others. This can be for various reasons, including Orphan statuses, pipelines, or peak sales potential. However, as I look at Questor’s quarter, I can’t help but to think of Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) .
Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is a $19 billion company with one marketed drug that has returned sales of $1.23 billion over the last 12 months and saw growth of 38.5% during its last quarter. Granted Alexion’s drug does produce higher sales than Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR)’s Acthar, yet in terms of logic, is it more reasonable to suggest that Questcor presents greater upside with its $535 million in sales over the last 12 months and its $1.60 billion market cap or that Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) presents more upside with its $1.23 billion in sales and its $19 billion market cap?
Now, before you answer the question above, be sure to remember that both companies have one product and that both companies are seeing near equal growth. However, only one company pays a dividend yield over 3% and has a forward P/E ratio of 6.0, and that one company is Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR).
Hence without painting the picture for you I will allow you to soak in those numbers, think about it, and then explain how in the world is Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) worth $19 billion if Questcor is only worth $1.75 billion? My opinion, the market has this wrong, there is a clear distinction in value, and Questcor Pharmaceuticals is presenting value with its current market capitalization.
The article The Market’s Got This Biotech All Wrong originally appeared on Fool.com.
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