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Questcor Reports Fourth Quarter and Full Year 2011 Financial Results

February 22, 2012

ANAHEIM, Calif., Feb. 22, 2012 /PRNewswire/ — Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) today reported financial results for the fourth quarter and full year ended December 31, 2011.

Net sales for the fourth quarter were $75.5 million, reflecting continued physician acceptance of H.P. Acthar® Gel (Acthar) for treating serious, difficult-to-treat medical conditions. Net sales in the fourth quarter 2010 were $29.3 million.

GAAP net income for the fourth quarter of 2011 was $31.6 million or $0.48 per diluted common share. GAAP net income for the fourth quarter of 2010 was $6.4 million, or $0.10 per diluted common share. Non-GAAP net income (which excludes non-cash share-based compensation expense, depreciation and amortization expense, tax adjustments and a goodwill impairment charge) for the quarter ended December 31, 2011 was $31.6 million or $0.47 per diluted common share. Non-GAAP net income for the year ago quarter was $8.0 million, or $0.12 per diluted common share.

For the year ended December 31, 2011, net sales totaled $218.2 million, compared to $115.1 million in the prior year. GAAP net income for the year ended December 31, 2011 was $79.6 million or $1.21 per diluted share, compared to GAAP net income of $35.1 million or $0.54 per diluted share for the year ended December 31, 2010. Non-GAAP net income was $84.0 million or $1.27 per diluted share for the year ended December 31, 2011, compared to non-GAAP net income of $39.0 million or $0.60 per diluted share for the year ended December 31, 2010.

“Net sales growth in the fourth quarter was driven by the increasing numbers of physicians who are recognizing the potential for Acthar to help patients with MS and NS,” said Don M. Bailey, President and CEO of Questcor. “We are particularly encouraged by the growing number of physicians who recognize the therapeutic value of Acthar in their practices, especially for those patients who have not adequately responded to other treatments. At the same time, we are continuing to build our understanding of the potential immune-modulating properties of Acthar, and are considering how best to study the broader possible therapeutic applications in other inflammatory and autoimmune diseases, many of which are already in the list of approved indications on the Acthar label.”

“The planned expansion of our nephrology sales force from 28 to 58 representatives is underway and should be completed during the second quarter, ahead of our original schedule,” noted Steve Cartt, Chief Operating Officer. “We are also planning to increase the number of neurology representatives after the nephrology expansion is complete. Furthermore, a possible pilot commercial effort in rheumatology is being carefully considered for the fourth quarter of this year.”

“Paid prescriptions in IS were higher in the fourth quarter, reflecting a growing recognition of the important role of Acthar in treating this devastating condition. As announced yesterday, we were pleased to accept the award from the Child Neurology Foundation (CNF) for outstanding corporate responsibility and leadership, and have further increased our funding to CNF so that they can continue their important research and education efforts related to childhood neurological conditions like IS,” added Mr. Cartt.

“Our scientific research and investments continue to expand. In addition to our ongoing studies in NS and MS, we are planning new efforts in Lupus, Diabetic Nephropathy and other auto-immune and inflammatory conditions with unmet medical need,” commented Dr. David Young, Chief Scientific Officer. “We have also increased our investigation into better understanding how Acthar works and how its biological activity differs from that of corticosteriods such as methylprednisolone and prednisone.”

The Company continues to invest in its management systems and infrastructure, including those related to scientific research, medical affairs, and compliance. Last week, Questcor announced the appointment of Scott Whitcup, M.D., Chief Scientific Officer of Allergan, Inc., to Questcor’s Board of Directors. Also, the Company has recently promoted:

-Steve Cartt to Chief Operating Officer
-Dave Medeiros to Executive Vice President and Chief Technical Officer
-Eldon Mayer to Senior Vice President of Commercial Operations
-Ray Furey to Vice President, Compliance and Chief Compliance Officer
-Gary Hogge, PhD, to Vice President, Medical Affairs.

In addition, Questcor has recently hired Darlene Romine as Vice President, Sales Operations.

“These promotions and additions reflect the expanded needs of Questcor as our sales and headcount have grown and are expected to continue to increase,” noted Don Bailey. “I want to congratulate all of these executives on their well-deserved promotions.”

Acthar Label Information

The label for Acthar was modernized in October 2010 and has 19 approved indications. Substantially all of the Company’s net sales result from prescriptions written by physicians for the following on-label indications for Acthar:

  • Multiple Sclerosis (MS): “for the treatment of acute exacerbations of multiple sclerosis in adults. Clinical controlled trials have shown H.P. Acthar Gel to be effective in speeding the resolution of acute exacerbations of multiple sclerosis. However, there is no evidence that it affects the ultimate outcome or natural history of the disease.” Typically Acthar is used as second line treatment for patients with MS exacerbations.
  • Nephrotic Syndrome (NS): “to induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus.” NS can result from several underlying conditions, and prescribing physicians indicate that Acthar is most commonly being used in patients who suffer from NS due to idiopathic membranous nephropathy, focal segmental glomerulosclerosis (FSGS), IgA nephropathy, minimal change disease and lupus.
  • Infantile Spasms (IS): “as monotherapy for the treatment of infantile spasms in infants and children under 2 years of age.”

The Company is currently planning to explore the potential initiation of a commercial effort in rheumatology in late 2012, as Acthar is approved for the following rheumatology-related conditions:

  • Collagen Diseases: “during an exacerbation or as maintenance therapy in selected cases of: systemic lupus erythematosus, systemic dermatomyositis (polymyositis).”
  • Rheumatic Disorders: “as adjunctive therapy for short-term administration (to tide the patient over an acute episode or exacerbation) in: Psoriatic arthritis, Rheumatoid arthritis, including juvenile rheumatoid arthritis (selected cases may require low-dose maintenance therapy), Ankylosing spondylitis.”

Shipped Acthar Vial and Prescription Trend Information

During the fourth quarter of 2011, Questcor shipped 3,360 vials of Acthar, compared to 1,680 vials in the year ago quarter. For the full year of 2011, Questcor shipped 10,710 vials of Acthar compared to 6,696 vials in 2010. The Company’s quarterly vial shipments continue to be subject to significant variation due to the size and timing of individual orders received from Questcor’s distributor, and the timing of when these orders are received and filled can significantly affect net sales and net income in any particular quarter. Fourth quarter-ending inventory levels in the channel appear to have remained relatively unchanged compared to the levels at the end of the third quarter of 2011. The Company believes that investors should consider the Company’s results over several quarters when analyzing the Company’s performance.

Because Acthar prescriptions are filled at specialty pharmacies, the Company does not receive complete information regarding either the number of prescriptions or the number of vials by therapeutic area for all of the patients being treated with Acthar. However, Questcor is able to monitor trends in payer mix and areas of therapeutic use for new Acthar prescriptions based on data it receives from its reimbursement support center. Questcor estimates that over 90% of new Acthar prescriptions are processed by this support center, but believes that very few refill prescriptions are processed there.

In an effort to help investors better understand historical trends in the prescriptions written for Acthar within each of its current three key therapeutic areas, MS, NS, and IS, Questcor has grouped prescriptions processed by its reimbursement center into two groups — “Paid” and “Fully Rebated.” “Paid” prescriptions include those prescriptions for which Questcor retains its full selling price for Acthar, as well as Tricare prescriptions that subject Questcor to a rebate obligation of up to 24% of its selling price. “Fully Rebated” prescriptions are those for which Questcor can identify that it has recorded a rebate liability approximately equal to (or for periods prior to January 1, 2010 greater than) Questcor’s selling price. From time to time during the past several years, the rebate liability for some government insurance programs has shifted between these two categories.

Therefore, the prescriptions that fall into the “Paid” and “Fully Rebated” categories have also shifted over time as follows:

“Paid” prescriptions (Rxs) include all prescriptions in the following payer categories:

  • Commercial–For all time periods.
  • Tricare–For 2010 and 2011, but not 2009.
  • Medicaid Managed Care–For all time periods through March 22, 2010 (see Note 1 below the tables).

“Fully Rebated” prescriptions (Rxs) include:

  • Those reimbursed by fee-for-service Medicaid insurance and other state programs eligible for full rebates as Medicaid Waivers Programs for all time periods.
  • Tricare–For 2009.
  • Medicaid Managed Care–For all time periods beginning March 23, 2010 (see Note 1 below the tables).

The following tables show, for each of the three key Acthar therapeutic uses, the number of new prescriptions shipped grouped into “Paid” and “Fully Rebated”:


    Multiple Sclerosis (and related conditions) New Rxs
                                                      Fully
                      Paid       Year-Over-Year      Rebated      Total
                      ----       --------------     --------      -----
                               Growth in Paid Rx
                               -----------------
    2009
    ----
       Q1-09               78                225%            8        86
       -----              ---                ---           ---       ---
       Q2-09              124                254%           17       141
       -----              ---                ---           ---       ---
       Q3-09              141                176%           20       161
       -----              ---                ---           ---       ---
       Q4-09              213                209%           15       228
       -----              ---                ---           ---       ---
       Total 2009         556                211%           60       616
       ----------         ---                ---           ---       ---
    2010
    ----
       Q1-10              231                196%           12       243
       -----              ---                ---           ---       ---
       Q2-10              304                145%           24       328
       -----              ---                ---           ---       ---
       Q3-10              323                129%           19       342
       -----              ---                ---           ---       ---
       Q4-10              354                 66%           24       378
       -----              ---                ---           ---       ---
       Total 2010       1,212                118%           79     1,291
       ----------       -----                ---           ---     -----
    2011
    ----
       Q1-11              508                120%           49       557
       -----              ---                ---           ---       ---
       Q2-11              751                147%           58       809
       -----              ---                ---           ---       ---
       Q3-11              886                174%           46       932
       -----              ---                ---           ---       ---
       Q4-11              945                167%           44       989
       -----              ---                ---           ---       ---
    Total 2011          3,090                155%          197     3,287
    ----------          -----                ---           ---     -----


          Nephrotic Syndrome (and related
               conditions) New Rxs *
                   Paid   Fully Rebated  Total
                   ----   -------------  -----
    2010
    ----
       Q1-10          11              0     11
       -----         ---            ---    ---
       Q2-10           4              1      5
       -----         ---            ---    ---
       Q3-10           8              0      8
       -----         ---            ---    ---
       Q4-10           7              0      7
       -----         ---            ---    ---
       Total 2010     30              1     31
       ----------    ---            ---    ---
    2011
    ----
       Q1-11          18              1     19
       -----         ---            ---    ---
       Q2-11          45              4     49
       -----         ---            ---    ---
       Q3-11          60              2     62
       -----         ---            ---    ---
       Q4-11         146             19    165
       -----         ---            ---    ---
    Total 2011       269             26    295
    ----------       ---            ---    ---

* Questcor commenced commercial efforts in NS in the second quarter of 2011.


         Infantile Spasms (and related
              conditions) New Rxs**
                             Fully
                   Paid     Rebated     Total
                   ----    --------     -----
    2009
    ----
       Q1-09        104            75     179
       -----        ---           ---     ---
       Q2-09         91            68     159
       -----        ---           ---     ---
       Q3-09         60            58     118
       -----        ---           ---     ---
       Q4-09         94            45     139
       -----        ---           ---     ---
       Total 2009   349           246     595
       ----------   ---           ---     ---
    2010
    ----
       Q1-10         89            48     137
       -----        ---           ---     ---
       Q2-10         95            66     161
       -----        ---           ---     ---
       Q3-10         92            78     170
       -----        ---           ---     ---
       Q4-10         91            68     159
       -----        ---           ---     ---
       Total 2010   367           260     627
       ----------   ---           ---     ---
    2011
    ----
       Q1-11         89            71     160
       -----        ---           ---     ---
       Q2-11        106            79     185
       -----        ---           ---     ---
       Q3-11        112            69     181
       -----        ---           ---     ---
       Q4-11        120            51     171
       -----        ---           ---     ---
    Total 2011      427           270     697
    ----------      ---           ---     ---

** Questcor commenced commercial efforts in IS in the fourth quarter of 2010.

Notes:

(1) Because the March 2010 health care legislation made Medicaid Managed Care Organization (MCO) prescriptions rebate eligible effective March 23, 2010, a rebate liability for the MCO prescriptions estimated to be filled on or after March 23, 2010 has been accrued. The Company does not have the ability to accurately identify every Medicaid Managed Care prescription so it is possible that some prescriptions identified as “Paid” in the tables may subsequently be reclassified as “Fully Rebated.”

(2) “Related Conditions” includes diagnoses that are either alternate descriptions of the medical condition or are closely related to the medical condition which is the focus of the table. For example, a prescription for “demyelinating disease of the central nervous system” would be included as an MS-related condition for purpose of this table. About 5% of the prescriptions in the tables are for related conditions.

(3) A prescription may or may not represent a new patient or a new therapy for the patient receiving the prescription. This can more frequently be the case for NS prescriptions due to the longer treatment regimen for NS. Questcor uses business rules to determine whether a prescription should be included in this table. From time to time the Company may modify these rules which could cause some changes to the historic numbers in the tables above.

(4) Historical trend information is not necessarily indicative of future results. Additionally, paid prescriptions should not be viewed as predictive of Questcor’s net sales due to a variety of factors, including changes in the number of vials used in connection with each prescription.

Cash and Share Repurchase Program

As of February 15, 2012, Questcor’s cash, cash equivalents and short-term investments totaled $226 million, and its accounts receivable totaled $44 million.

The Company did not repurchase any shares during the fourth quarter. As of December 31, 2011, Questcor had 63.6 million shares of common stock outstanding, with 4.3 million shares remaining under its common stock repurchase program.

Sales Reserves

Questcor’s sales reserves during the quarter ended December 31, 2011, including the Company’s reserves for Medicaid rebates, represented 12% of gross sales of $86.1 million.

As required by federal regulations, Questcor provides rebates to state Medicaid programs for Acthar dispensed to Medicaid patients covered under Medicaid rebate-eligible insurance plans. Since the Company does not receive rebate claims from the various state Medicaid agencies until well after the close of the quarter in which the underlying sales of vials to its distributor took place, the Company establishes reserves for expected rebate claims on a quarterly basis. As a result of the adoption of health care reform, for periods after March 23, 2010, the Company has also included in this reserve an estimate for the liability due to states related to prescriptions of Acthar for patients covered under state Medicaid Managed Care Organizations (Medicaid MCO), which prescriptions were not previously rebate eligible.

Questcor experienced a decrease in sales reserves as a percentage of gross sales during each of the four quarters of 2011. The principal reasons for these decreases have been (1) an increase in the percentage of total Acthar prescriptions written to treat adults suffering from MS and NS relative to the percentage used to treat infants suffering from IS, as there is a very high percentage of infants enrolled in Medicaid, and (2) an increase in the number of IS prescriptions being fulfilled through the Acthar free drug program administered by the National Organization for Rare Disorders. Since September 2007, Questcor has provided $124 million in value through this free drug program.

Conference Call Details

The Company will host a conference call and slide presentation via webcast today, February 22, 2012, at 4:30 p.m. ET/ 1:30 p.m. PT, to discuss fourth quarter and full year 2011 results. Don Bailey, President and Chief Executive Officer, and other members of the management team will host the call.

To participate in the live call by telephone, please dial (877) 941-0844 for domestic participants and (480) 629-9835 for international participants. Participants are asked to call the above numbers 5-10 minutes prior to the start time. A listen-only webcast of the conference call including the presentation slides will be accessible in the “Investor Relations” section under “Events & Presentations” at http://ir.questcor.com/events.cfm. If listening via telephone, to view the accompanying presentation slides, navigate to the live webcast as noted above and choose the “No Audio — Slides Only” option to view the slides in conjunction with the live conference call. Listeners should go to the website at least 15 minutes prior to the live conference call to install any necessary software.

An audio replay of the call will be available for 7 days following the call. This replay can be accessed by dialing (800) 406-7325 for domestic callers and (303) 590-3030 for international callers, both using passcode 4509827#. An archived webcast will also be available at http://ir.questcor.com/events.cfm.

Use of Non-GAAP Net Income

The Company believes it is important to share non-GAAP financial metrics with shareholders as these metrics may better represent the ongoing economics of the business and reflect how we manage the business. Accordingly, management believes investors’ understanding of the Company’s financial performance is enhanced as a result of our disclosing these non-GAAP financial metrics. Non-GAAP net income should not be viewed in isolation, or as a substitute for, or as superior to, reported GAAP net income. The reconciliation between GAAP and Non-GAAP net income is provided with the financial tables included with this release.

About Questcor

Questcor Pharmaceuticals, Inc. is a biopharmaceutical company whose primary product helps patients with serious, difficult-to-treat medical conditions. Questcor’s primary product is H.P. Acthar® Gel (repository corticotropin injection), an injectable drug that is approved by the FDA for the treatment of 19 indications. Questcor currently generates substantially all of its net sales from: the treatment of patients with acute exacerbations of multiple sclerosis in adults, the treatment of patients with nephrotic syndrome, and the treatment of patients with infantile spasms in children under two years of age. With respect to nephrotic syndrome, the FDA has approved Acthar to “induce a diuresis or a remission of proteinuria in the nephrotic syndrome without uremia of the idiopathic type or that due to lupus erythematosus.” Questcor is also currently planning to explore the potential initiation of a commercial effort in rheumatology, as Acthar is approved for several rheumatology-related conditions including Lupus, and Dermatomyositis (Polymyositis). Questcor is also exploring the possibility of developing markets for other on-label indications and the possibility of pursuing FDA approval of additional indications not currently on the Acthar label where there is high unmet medical need. In October 2011, Forbes magazine ranked Questcor number one in its annual rankings of America’s Best Small Companies. For more information about Questcor, please visit www.questcor.com.

Note: Except for the historical information contained herein, this press release contains forward-looking statements that have been made pursuant to the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “believes,” “continue,” “could,” “estimates,” “expects,” “growth,” “may,” “plans,” “potential,” “should,” “substantial” or “will” or the negative of such terms and other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the following:

  • Our reliance on Acthar for substantially all of our net sales and profits;
  • Reductions in vials used per prescription resulting from changes in treatment regimens by physicians or patient compliance with physician recommendations;
  • The complex nature of our manufacturing process and the potential for supply disruptions or other business disruptions;
  • The lack of patent protection for Acthar; and the possible FDA approval and market introduction of competitive products;
  • Our ability to continue to generate revenue from sales of Acthar to treat on-label indications associated with NS, and our ability to develop other therapeutic uses for Acthar;
  • Research and development risks, including risks associated with Questcor’s work in the area of NS and potential work in the area of Lupus, and our reliance on third-parties to conduct research and development and the ability of research and development to generate successful results;
  • Our ability to comply with federal and state regulations, including regulations relating to pharmaceutical sales and marketing practices;
  • Regulatory changes or other policy actions by governmental authorities and other third parties in connection with U.S. health care reform or efforts to reduce federal and state government deficits;
  • Our ability to receive high reimbursement levels from third party payers;
  • An increase in the proportion of our Acthar unit sales comprised of Medicaid-eligible patients and government entities;
  • Our ability to estimate reserves required for Acthar used by government entities and Medicaid-eligible patients and the impact that unforeseen invoicing of historical Medicaid prescriptions may have upon our results;
  • Our ability to effectively manage our growth, including the expansion of our NS selling effort, and our reliance on key personnel;
  • The impact to our business caused by economic conditions;
  • Our ability to protect our proprietary rights;
  • The risk of product liability lawsuits;
  • Unforeseen business interruptions and security breaches;
  • Volatility in Questcor’s monthly and quarterly Acthar shipments and end-user demand, as well as volatility in our stock price; and
  • Other risks discussed in Questcor’s annual report on Form 10-K for the year ended December 31, 2011 as filed with the Securities and Exchange Commission, or SEC, on February 22, 2012, and other documents filed with the SEC.

The risk factors and other information contained in these documents should be considered in evaluating Questcor’s prospects and future financial performance.

Questcor undertakes no obligation to publicly release the result of any revisions to these forward-looking statements, which may be made to reflect events or circumstances after the date of this release.

For more information, please visit www.questcor.com or www.acthar.com.


                                    Questcor Pharmaceuticals, Inc.

                                  Consolidated Statements of Income
                               (In thousands, except per share amounts)
                                                                                 Twelve Months
                                                      Three Months Ended                        Ended
                                                        December 31,            December 31,
                                                         2011        2010      2011       2010
                                                           --          --        --         --
    Revenue
    -------
        Net
         sales                                        $75,535     $29,296  $218,169   $115,131
             Cost of
              sales
              (exclusive
              of
              amortization
              of
              purchased
              technology)                               4,013       1,723    12,459      8,013
                                                        -----       -----    ------      -----

        Gross
         profit                                        71,522      27,573   205,710    107,118
         Operating
         expenses:
                  Selling
                   and
                   marketing                           16,998      11,163    56,728     31,519
                  General
                   and
                   administrative                       5,766       2,393    17,743     10,279
                  Research
                   and
                   development                          5,730       3,066    16,778     10,934
                   Depreciation
                   and
                   amortization                           292         154     1,044        546
                   Impairment
                   of
                   goodwill                                 -           -       299          -
                                                          ---         ---       ---        ---
                    Total
                     operating
                     expenses                          28,786      16,776    92,592     53,278
                                                       ------      ------    ------     ------
    Income
     from
     operations                                        42,736      10,797   113,118     53,840
    Interest
     and
     other
     income,
     net                                                  145         147       627        533
                                                          ---
    Income
     before
     income
     taxes                                             42,881      10,944   113,745     54,373
    Income
     tax
     expense                                           11,240       4,527    34,154     19,302
    Net
     income                                           $31,641      $6,417   $79,591    $35,071
                                                      =======      ======   =======    =======

    Net
     income
     per
     share:
            Basic                                       $0.50       $0.10     $1.27      $0.56
            Diluted                                     $0.48       $0.10     $1.21      $0.54
                                                        =====       =====     =====      =====

    Shares
     used in
     computing
     net
     income
     per
     share:
            Basic                                      63,236      62,252    62,498     62,112
            Diluted                                    66,565      65,390    66,010     64,741
                                                         ====        ====      ====       ====

     Reconciliation
     of Non-
     GAAP
     Adjusted
     Financial
     Disclosure
    Adjusted
     net
     income                                           $31,584      $8,021   $83,956    $38,988
    Share-
     based
     compensation
     expense
     (1)                                               (1,416)       (598)   (5,128)    (2,649)
     Depreciation
     and
     amortization
     expense
     (2)                                                 (216)        (90)     (731)      (352)
    Tax
     adjustments
     (3)                                                1,689        (916)    1,703       (916)
     Impairment
     of
     goodwill
     (4)                                                    -           -      (209)         -
                                                          ---         ---      ----        ---
    Net
     income
     - GAAP                                           $31,641      $6,417   $79,591    $35,071
                                                      =======      ======   =======    =======
    Adjusted
     net
     income
     per
     share -
     basic                                              $0.50       $0.13     $1.34      $0.63
    Share-
     based
     compensation
     expense
     (1)                                                (0.02)      (0.01)    (0.08)     (0.04)
     Depreciation
     and
     amortization
     expense
     (2)                                                (0.00)      (0.00)    (0.01)     (0.01)
    Tax
     adjustments
     (3)                                                 0.03       (0.01)     0.03      (0.01)
     Impairment
     of
     goodwill
     (4)                                                (0.00)      (0.00)    (0.00)     (0.00)
                                                        -----       -----     -----      -----
    Net
     income
     per
     share -
     basic                                              $0.50       $0.10     $1.27      $0.56
                                                        =====       =====     =====      =====

    Adjusted
     net
     income
     per
     share -
     diluted                                            $0.47       $0.12     $1.27      $0.60
    Share-
     based
     compensation
     expense
     (1)                                                (0.02)      (0.01)    (0.08)     (0.04)
     Depreciation
     and
     amortization
     expense
     (2)                                                (0.00)      (0.00)    (0.01)     (0.01)
    Tax
     adjustments
     (3)                                                 0.03       (0.01)     0.03      (0.01)
     Impairment
     of
     goodwill
     (4)                                                (0.00)      (0.00)    (0.00)     (0.00)
                                                        -----       -----     -----      -----
    Net
     income
     per
     share -
     diluted                                            $0.48       $0.10     $1.21      $0.54
                                                        =====       =====     =====      =====

Net income per share – basic and diluted may not foot due to rounding.

Use of Non-GAAP Financial Measures

Our “non-GAAP adjusted net income” excludes the following items from GAAP net income:


    (1) Share-based compensation expense.
    (2) Depreciation and amortization expense
         Tax adjustments include: (1) the valuation allowance we established
         in the fourth quarter of 2010 relating to our single sales factor
         apportionment election which was made in 2011 for California; (2)
         the recording of a one-time tax credit in 2011 for the orphan drug
         designation; and (3) the reserve for the liability associated with
         the Ohio Commercial Activity Tax for the period 2007 - 2010 (the
         expense associated with this reserve is included in operating
    (3)  expenses).
         Impairment of goodwill related to the write-off of goodwill
    (4)  associated with an acquisition transaction completed in 1999.


                              Questcor Pharmaceuticals, Inc.

                               Consolidated Balance Sheets
                           (In thousands, except share amounts)
                                                       December 31,   December 31,
                                                       ------------   ------------
                                                                2011           2010
                                                                ----           ----
                          ASSETS
    Current assets:
        Cash and cash equivalents                            $88,469        $41,508
        Short-term investments                               121,680         73,324
                                                               -----           ----
            Total cash, cash equivalents and
             short-term investments                          210,149        114,832
        Accounts receivable, net of
         allowances of $0 and $25 at
         December 31, 2011 and 2010,
         respectively                                         27,801         11,128
        Inventories, net of allowances of $0
         and $158 at December 31, 2011 and
         2010, respectively                                    5,226          3,726
        Prepaid income taxes                                   6,940          3,532
        Prepaid expenses and other current
         assets                                                3,391          1,864
        Deferred tax assets                                   12,093          8,417
            Total current assets                             265,600        143,499
    Property and equipment, net                                1,970            872
    Purchased technology, net                                  2,778          3,074
    Goodwill                                                       -            299
    Deposits and other assets                                     56             65
    Deferred tax assets                                        5,404          4,184
                                                                 ---            ---
            Total assets                                    $275,808       $151,993
                                                            ========       ========

           LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
        Accounts payable                                      $5,503         $3,869
        Accrued compensation                                  11,590          4,158
        Sales-related reserves                                34,119         21,511
        Other accrued liabilities                              4,509          1,973
            Total current liabilities                         55,721         31,511
    Lease termination, deferred rent and
     other non-current liabilities                               261            355
            Total liabilities                                 55,982         31,866
                                                                ----           ----

    Shareholders' equity:
        Preferred stock, no par value,
         7,500,000 shares authorized; none
         outstanding                                               -              -
        Common stock, no par value,
         105,000,000 shares authorized,
         63,645,781 and 62,418,464 shares
         issued and outstanding at December
         31, 2011 and 2010, respectively                      94,976         74,809
        Retained earnings                                    124,886         45,295
        Accumulated other comprehensive
         income                                                  (36)            23
                                                                 ---            ---
            Total shareholders' equity                       219,826        120,127
                                                               -----          -----
            Total liabilities and shareholders'
             equity                                         $275,808       $151,993
                                                            ========       ========


                      Questcor Pharmaceuticals, Inc.

                  Consolidated Statements of Cash Flows
                              (In thousands)
                                                       Year Ended
                                                      December 31,
                                                      2011        2010
                                                        --          --
    OPERATING ACTIVITIES
    Net income                                     $79,591     $35,071
    Adjustments to reconcile net
     income to net cash provided
     by operating activities:
            Share-based compensation
             expense                                 7,326       3,739
            Deferred income taxes                   (4,896)     (1,029)
            Amortization of investments              1,250         678
            Depreciation and amortization            1,044         546
            Impairment of goodwill                     299           -
            Loss on disposal of property
             and equipment                              11           -
            Changes in operating assets
             and liabilities:
                Accounts receivable                (16,673)      3,705
                Inventories                         (1,500)       (348)
                Prepaid income taxes                (3,408)     (3,532)
                Prepaid expenses and other
                 current assets                     (1,527)       (702)
                Accounts payable                     1,634      (9,052)
                Accrued compensation                 7,432       2,018
                Sales-related reserves              12,608       6,589
                Other accrued liabilities            2,526        (255)
                Other non-current
                 liabilities                          (118)       (871)
                    Net cash flows provided by
                     operating activities           85,599      36,557

    INVESTING ACTIVITIES
    Purchase of property and                                      (713
     equipment                                      (1,823)          )
    Purchase of short-term
     investments                                  (162,301)   (106,647)
    Proceeds from maturities of
     short-term investments                        112,636      62,560
    Deposits and other assets                            9         645
                    Net cash flows used in
                     investing activities          (51,479)    (44,155)

    FINANCING ACTIVITIES
    Income tax benefit realized
     from share-based
     compensation plans                             17,712       1,335
    Issuance of common stock, net                    6,582       1,942
    Repurchase of common stock                     (11,453)          -
                    Net cash flows provided by
                     financing activities           12,841       3,277
                                                    ------       -----

    Increase (decrease) in cash
     and cash equivalents                           46,961      (4,321)
    Cash and cash equivalents at
     beginning of period                            41,508      45,829
    Cash and cash equivalents at
     end of period                                 $88,469     $41,508
                                                   =======     =======

        Supplemental Disclosures of
         Cash Flow Information:
        Cash paid for interest                         $16          $7
        Cash paid for income taxes                 $25,278     $23,185
                                                   =======     =======

        Supplemental Disclosures of
         Non-Cash Investing and
         Financing Activities:
        Capital lease obligation                       $34          $-
                                                       ===         ===

SOURCE Questcor Pharmaceuticals, Inc.


Source: PR Newswire