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Under Obamacare, Risks Grow for High-Margin Drug Stocks

Reimbursement rates may cut margins dramatically

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Protecting the fund’s operations may cut Acthar out of the picture entirely; given the fact that QCOR has historically written multi-million-dollar checks to support the $250 million entity’s program and alternatives to the drug in its niche indications are virtually unknown.

If a competing generic or proprietary drug was on the market, the fund could continue to cover patient costs and QCOR could keep reaping reimbursements from the insurance companies.

This is where the complex structure that currently gives this company room to keep charging thousands of dollars per dose of a once-humble drug starts to show signs of weakening in the face of federal scrutiny.

Novartis has developed a competing drug that retails in Europe for at most $1,000 per course of treatment. Back in June, QCOR offered $135 million for the therapy in a move that several analysts characterized as an effort to protect the franchise.

The FTC is reviewing the transaction, which would technicallyopen up the U.S. market to competition – with both sides under the QCOR umbrella, of course – and allow the Chronic Disease Fund to start writing copay checks again.

Between the government looking to conserve $200 billion through Obamacare initiatives over the next decade and private insurance carriers equally hungry to cut costs, the risks look balanced against QCOR here.

If the insurers end up absorbing more of the cost of prescribing Acthar, QCOR will face increased pressure to retreat on price on a drug that may cost it at most $7,000 per vial to manufacture.

And in order to get those vials into the hands of Americans who need them, QCOR needs to regain access to the copay charity system or else effectively initiate an across-the-board price decrease on its own.  The latter scenario weakens the franchise, while the former requires a second drug on the market.

QCOR’s stated plans to bring the Novartis drug to the United States tip its strategic hand here. But in that event, the risk that the FTC will reverse the acquisition as anticompetitive is simply too high to ignore.

One way or another, the $28,000 golden goose may prove unsustainable, leaving QCOR exposed all the way down to the $36 level these shares traded at before the Novartis deal was announced.

The short-sellers have been extremely vocal on this company’s future. I am less convinced that QCOR is on the verge of disaster, but at this point upside triggers seem to be in vanishingly short supply – and the risk of some press- or budget-hungry government agency forcing its hand is too high to ignore.

Article printed from InvestorPlace Media,

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