A federal government investigation into Questcor Pharmaceuticals Inc. could deal another blow to sales for its only product and main revenue source, H.P. Acthar gel, according to analysts who cover the company.
The Anaheim, Calif., drugmaker said Monday the U.S. government is investigating its promotional practices. The company's announcement comes after health insurer Aetna Inc. recently said it will stop reimbursement for most uses of Acthar. Company shares plummeted last week after a research website reported Aetna's decision.
The stock sank again Monday after Questcor's brief investigation announcement.
Questcor markets the gel as a treatment for multiple sclerosis, infantile spasms, and a kidney condition called nephrotic syndrome, among other approved uses. The company is completing an expansion of its sales force behind the gel and has said second-quarter revenue more than doubled to about $112 million, as more doctors used it.
Analysts say these investigations can take years to play out. Oppenheimer analyst Christopher Holterhoff said sales may be hurt if the company has to change its marketing.
"We believe investors may be hesitant to put new money to work on (Questcor) given the increased risks/uncertainties associated with the government investigation," Holterhoff wrote in a Monday morning research note. He lowered his rating on the stock to "perform" from "outperform."
But Roth Capital Partners analyst Yale Jen said government investigations into promotional practices are common, and most lead to minor or no penalties. He also said he believes the company has been careful in complying with government regulations.
Jefferies analyst Biren Amin lowered his price target on the stock to $24 from $30. He said in a note the investigation creates a "murkier outlook" for Questcor, and it may create a risk that more insurers will follow Aetna's example and decide to limit their reimbursement for Acthar gel.