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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Questcor: Pile on!

C. HUYGENS - Tuesday, October 02, 2012
From time to time, we quote a line we found in the Financial Times some years ago describing the sequence of events following an adverse event that heralds the onset of a reputational value crisis. When you are Questcor Pharmaceuticals and have been accused of unethical marketing practices, "the pile on of litigators, regulators and mommy bloggers" over a ten day window looks like this:

  • Law Firm of Wohl & Fruchter LLP Announces Investigation of Questcor Pharmaceuticals Inc 
  • Harwood Feffer LLP Announces Investigation of Questcor Pharmaceuticals Inc
  • Bronstein, Gewirtz & Grossman, LLC Announces Investigation Of Questcor Pharmaceuticals Inc
  • Holzer Holzer & Fistel, LLC Announces Investigation Into Questcor Pharmaceuticals, Inc.
  • Robbins Umeda LLP Announces Investigation Of Questcor Pharmaceuticals Inc
  • Goldfarb LLP Investigation Against Questcor Pharmaceuticals Inc
  • Robbins Geller Rudman & Dowd LLP Files Class Action Suit Against Questcor Pharmaceuticals Inc
  • Glancy Binkow & Goldberg LLP Announces Investigation Of Questcor Pharmaceuticals Inc
  • Federman & Sherwood Announces Securities Class Action Lawsuit Has Been Filed Against Questcor Pharmaceuticals, Inc.
  • Ryan & Maniskas, LLP Announces Class Action Lawsuit Against Questcor Pharmaceuticals Inc
  • Faruqi & Faruqi, LLP Encourages Investors Who Suffered Substantial Losses in Excess of $100,000 Investing In Questcor Pharmaceuticals, Inc. to Contact the Firm
And yet the reputational value metrics from Steel City Re show a drop of less than a 0.5 standard deviation of the two year historic mean. Are equity investors over-reacting?

Questcor: Wait, there's more!

C. HUYGENS - Tuesday, September 25, 2012
Last week, Questcor Pharmaceuticals (QCOR) appeared to be the victim of the shorts. Monday, analysts at Leerink Swann downgraded Questcor to "market perform" after the company revealed that is it under investigation by the U.S. government regarding its promotional practices. Last week's surprise shaved less than one standard deviation from Questcor's reputational value. Bloomberg reports that "Questcor said it intends to cooperate with the investigation and that the company doesn’t plan further comment except for regulatory-compliant disclosures." The reputational value effects of yesterday's news -- a failure in ethical controls -- will be revealed at week's end when we receive the next installment of Steel City Re reputational value metrics. Below are the effects from last week's news supplementing the charts posted Saturday.   Loss Gate markers below Questcor's Reputational Value metric (GU) are set at 0.5, 1.0, 1.5, 2.0 and 2.5 standard deviations of the two year historic average value, adjusted for elevated ratios of the CBOE VIX.

Questcor: Shortsighted

C. HUYGENS - Saturday, September 22, 2012
Earlier this week, Questcor's (QCOR) return on equity dropped to the bottom 10% of the RepuStars® Variety Corporate Reputation Index calculated by Dow Jones Indexes after shares plunged when insurer Aetna Inc.'s announced that it would limit reimbursement for the pharmaceutical company's only drug, Acthar. Well, that's not exactly what happened.  Fox Business reported this past Thursday that Wednesday's stock crash was precipitated by a report from "short-seller Citron Research (that) highlighted a policy bulletin on Aetna's website ... that called Acthar medically necessary for West syndrome, a relatively rare neurological disorder that causes infantile spasms, but described its use for several other conditions as medically unnecessary, or investigational and experimental." Aetna said it will review its policy in light of any new clinical data on 13 October.

In the spirit of social activists who use the threat of bad news as a tool to influence management, short sellers find value in bad news. Only firms like Citron Research are less interested in social action, and more interested in the value. It's what the US Navy calls "battle of the narrative."

Questcor responded saying, "Currently, the Company does not believe that the bulletin represents a material change in insurance coverage for Acthar by Aetna. During 2012, Aetna has accounted for approximately 5% of the Company's shipped prescriptions for Acthar. Based on its current assessment of the Clinical Policy Bulletin, the Company does not believe that the bulletin will have a material impact on the Company's results of operations."

If the loss of revenue is material, it could be a revenue crisis. The company acknowledges that it relies "...on Acthar for substantially all of ...(its) net sales and profits." If the loss of revenue is not material, but Questcor is unable to restore investor confidence, then it will at least be a reputational crisis. The Steel City Re reputational value metrics reflected minor downward changes in Questcor's reputation in the past few weeks, but there do not appear at this time to have been indications of major changes that would have anticipated either Aetna's policy changes nor Citron Research's plans to short the stock. As we currently review the data, all spot, time series, trend and benchmarking indicators shown below appear to have been reporting stability or subtle reputational rises up to the Wednesday pounce. Our interpretation at this time is that Questcor is the victim of a shorting opportunity that will, in due course, rebuild its value by better communicating its product development and market indications process to its equity stakeholders.

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