November 27, 2020

Questcor Pays $135 Million to Acquire Rights to a Competitor’s Drug

The company, Questcor Pharmaceuticals, has acquired the rights to Synacthen, a drug from Novartis, that is sold in Europe but not in the United States. Synacthen is similar to Questcor’s drug, which is called H.P. Acthar Gel and used to treat various immune-related ailments.

Questcor’s agreement to pay Novartis at least $135 million trumped a bid from a start-up company called Retrophin that had hoped to sell Synacthen in the United States for a few hundred dollars a vial, sharply undercutting Acthar’s price, according to people briefed on Retrophin’s negotiations.

Questcor’s stock shot up 15 percent on Tuesday, the day its deal to acquire Synacthen was announced. “We believe the acquisition removes a key overhang as a potential competitor to Acthar is removed,” Biren Amin, an analyst at Jefferies Company, wrote in a note.

One antitrust lawyer, not involved in the negotiations, predicted the deal would receive “intense scrutiny” by federal antitrust regulators.

“The type of acquisition that raises the most concern under the antitrust law is when a dominant firm acquires a potential rival,” said the lawyer, David A. Balto, a former policy director of the Federal Trade Commission who now calls himself a public interest antitrust lawyer.

But Steve Cartt, the chief operating officer of Questcor, disagreed. He said Questcor did not have to report the transaction to antitrust regulators because Novartis, the licenser, would retain some manufacturing rights to Synacthen.

The Federal Trade Commission is now proposing new rules to end such exemptions from notification.

A spokesman said the trade commission did not comment on whether it was reviewing particular transactions but said it could even when that was not required.

Questcor, based in Anaheim, Calif., has achieved huge success with Acthar, a hormone purified from pig pituitary glands that was selling for only about $40 a vial when the company acquired the drug in 2001.

Questcor began increasing the price. In 2007, it was raised to about $23,000 a vial from $1,650, provoking howls from some doctors and patients, and has continued to raise the price since then.

The company initially said the high price was necessary because the main use of the drug was to treat a very rare condition that causes spasms in babies. But the company has aggressively marketed the drug for more common immune-related disorders like multiple sclerosis and nephrotic syndrome. Sales reached $509 million in 2012, and the price of the company’s stock has soared since 2007.

But insurers are now making sure that Acthar is used only when far cheaper steroids cannot be. The federal government is investigating Questcor’s marketing practices. And many short-sellers have been betting Questcor’s stock will fall.

The most obvious threat to Questcor’s business was the possibility of someone bringing Synacthen to the United States. Synacthen is a synthetic fragment of the hormone in Acthar.

Questcor eliminated that competitor by licensing the exclusive rights to the drug in the United States and various other countries, excluding 13 in Europe, according to a company regulatory filing.

Its initial payment of $60 million to Novartis greatly exceeded the $16 million Retrophin was offering, according to a summary of the tentative deal terms that Retrophin was circulating to investors in an effort to raise money to buy Synacthen. Retrophin, however, was offering Novartis a 20 percent royalty on sales, which is likely to be far higher than what Questcor agreed to pay.

Retrophin, which went public through a reverse merger with a shell company, is based in New York and is run by Martin Shkreli, a former biotechnology hedge fund manager. He declined to comment for this article.

It is not clear if there were other bidders. Novartis declined to comment.

Novartis can revoke the rights if Questcor does not meet deadlines in terms of testing Synacthen in clinical trials and seeking approval to market it in the United States, according to a regulatory filing by Questcor. The deadlines are not being made public.

Mr. Cartt of Questcor said the company would spend millions of dollars testing Synacthen to see if it could help American patients. “That is the essence of discovery and competition, not their elimination,” he said in an e-mail.

In the past Questcor executives have disparaged Synacthen.

“We believe it is unlikely to be a competitor to Acthar,” David Young, Questcor’s chief scientific officer, said in a call with analysts last July. He said it was not a protein produced by the body like Acthar was and added, “Synacthen contains benzyl alcohol, which is toxic to children and can potentially cause gasping syndrome, which can be fatal.”

But in a news release this week, Dr. Young said that Questcor intended to test the drug “not only in conditions different than Acthar but also in conditions where Synacthen would potentially provide a clinical benefit over Acthar.”

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Houston Is Booming, Pushed by, Surprise, Its Energy Industry

HOUSTON — Even first-time visitors here can tell that the city is growing rapidly. Construction cranes overhang office and apartment sites all along the Katy Freeway, a stretch of Interstate 10 that connects a string of booming submarkets west of the 610 Loop. This expanse includes the Westchase neighborhood and the Energy Corridor, home to an expanding cluster of energy companies.

The energy sector drives job growth and all manner of business activity here, with the greatest demand for office space concentrated in the west side where oil and gas companies are clustered, in the medical center just south of the central business district and in the Woodlands, a master-planned community 27 miles north of downtown.

“Houston is clearly a growth leader,” said Walter Page, director of office research at Property and Portfolio Research in Boston. “It was the first major economy in the U.S. to register more jobs than it lost in the recession.” Employment here is up 3.7 percent since August 2008, when it peaked before declining during the recession. That compares with New York’s gain of just 0.7 percent from its peak in April 2008 before declining, Mr. Page said.

The city’s office vacancy rate was 11.9 percent in the third quarter, down from 13.4 percent a year earlier, according to the CoStar Group, a real estate research firm in Washington. Developers are creating new space to meet that strong demand, completing 15 major office buildings in the first three quarters of this year alone. Of the 3.9 million square feet of office space under construction, more than 90 percent is in the western submarkets or in the Woodlands, Mr. Page said.

The energy sector accounts for 3.4 percent of the city’s employment, more than five times the national average of 0.6 percent, Mr. Page said. Despite that heavy concentration, the rest of the city’s economy is diverse and helps spread the wealth that energy brings into the community to other sectors.

Brisk commercial real estate sales reflect investor interest in the market. This year, an affiliate of the Houston-based Enterprise Products Company bought the Shell Plaza, a 1.8 million-square-foot office complex in the central business district, for $550 million, CoStar reported. The seller was a fund operated by Hines, a Houston-based developer that built the property in the 1970s. Last year, Shell renewed its leases for nearly 1.3 million square feet at Shell Plaza.

Hines developed much of the city’s commercial real estate. Today the company’s projects here include multifamily construction in the shadow of office buildings that it developed in the Galleria, a group of office towers, hotels and retail on the southwestern rim of Loop 610, with a skyline that rivals downtown’s.

Mark Cover, Hines’s chief executive for the southwest region, said that energy, the medical center and the Port of Houston are the three largest engines driving the economy here. “The global energy industry is headquartered here,” he said. “It’s not just oil and gas, it’s alternatives, too. Intellectual capital in the energy field is heavily concentrated here.”

In the only major city in the United States without zoning laws, developers can, in theory, build virtually anything, anywhere in the city. In practice, however, understanding and catering to local industries is a critical element in site selection, Mr. Cover says. “When you really get down to it, the city is market-zoned, because land prices are not based on zoning rights, they’re based on purely capitalistic, highest and best use value,” he said. “If you build the wrong product or build in the wrong place, the market is going to severely punish you.”

Market forces shape the city’s development in hubs, says Jim Knight, who heads land development in Texas for Bury Partners, an Austin-based engineering firm.

Refineries and distribution centers cluster near the port, while energy companies and other major employers tend to establish a presence, either downtown or in a submarket, and stick to that area indefinitely.

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High & Low Finance: Learning to Live With Debt

Seldom have those twin realities been as stark as they are now. It was excessive debt brought on by too-easy credit that brought down the American economy and allowed some European countries to borrow money they will never be able to pay back. It is fear of debt that threatens to keep the United States from doing much to prevent a double dip recession.

A considerable part of the current economic strain stems from the fact that the credit overhang continues to haunt borrowers around the world. The lenders may have been bailed out, but the borrowers were not — or at least not enough to return them to health. Millions of Americans remain underwater on mortgage loans. Countries that lack printing presses for their own currency find themselves unable to borrow from private lenders.

In the long run, inflation may be a significant part of the solution, enabling borrowers to pay back dollars and euros that are worth a lot less than the ones they borrowed. The soaring price of gold, now around $1,650 an ounce, makes sense only if you assume something like that is going to happen.

But for now, such inflation is not on the horizon. To get by, the sad reality is that those who can raise capital may need to do so for the benefit of others. Germany has grudgingly moved toward that with the latest bailout of Greece, but the United States — which now pays 2.4 percent to borrow money for 10 years, more than a percentage point less than it paid six months ago — seemingly has no desire to try to save its own economy, let alone anyone else’s.

The effort to slash spending with the possibility of a new recession looming may be foolish. Larry Summers, the economist and former Treasury secretary, pointed out in The Financial Times this week that tax receipts over the next decade would be about $1 trillion lower — and debt that much larger — if economic growth were shaved by half a percentage point a year. That is about the same amount that the bill passed this week claims it will save.

It appears that not much of that saving will be in the next couple of years, although the further cuts promised late this year could change that.

What is needed now is both a willingness to spend to offset the impact of the last debt debacle and a determined effort to ensure it does not happen again. But those efforts are stalling. Banks are lobbying with some success in both the United States and Europe to delay and weaken capital requirements.

And the American government shows no interest in doing anything about the incentives in current law that favor borrowing over equity. If you buy a house with the largest mortgage possible, you will pay lower taxes than if you borrowed less. Companies pay interest on loans out of pretax income, so the more they owe, the less they pay in taxes. But dividends are paid out of after-tax money.

“The U.S. tax system encourages household leverage and bank leverage, even though both are potentially destabilizing,” is the way Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, put it in a recent speech. He offered a rather modest suggestion: lower the proportion of interest payments that are deductible.

There are, of course, claims that both tax policies produce greater good for the society, by encouraging homeownership and corporate investment. He suggested “replacing the mortgage interest deduction with a tax credit that offsets part of a buyer’s down payment toward a home purchase. Such a tax credit would encourage homeownership without simultaneously providing more incentives for households to accumulate more debt.” And lower corporate income tax rates, he said, could offset reductions in the deductibility of interest “without simultaneously providing incentives for corporations to acquire leverage.”

The fact that those suggestions have virtually no political support reflects one of the great political and economic challenges of this era: Governments now feel a need to encourage economic growth, but don’t want to spend money. Encouraging leverage seems like a good idea.

But it does have major risks. “A financial system with dangerously low capital levels — hence prone to major collapses — creates a nontransparent contingent liability for the federal budget in the United States,” said Simon Johnson, an M.I.T. economist and former chief economist of the International Monetary Fund, in Congressional testimony last week. “This can only lead to further instability, deep recessions, and damage to our fiscal balance sheet, in a version of what the Bank of England refers to as a ‘doom loop.’ ”

In plain English, he means Uncle Sam will get stuck with the debt when banks blow up. The fact that happened in the recent cycle is a major cause of the rising debt that seems so alarming to those who demand immediate cuts in spending totally unrelated to the financial crisis.

To hear banks tell it, every extra dollar of capital that they are forced to hold is one dollar less they can lend, and one dollar less of economic growth that the world desperately needs.

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Sales of New Single-Family Homes Rose in April

The Commerce Department said sales increased 7.3 percent to a seasonally adjusted annual rate of 323,000 units, the highest level since December, while prices also rose. Economists had expected a 300,000-unit rate.

All four regions recorded gains in sales, with the West reporting a 15.1 percent rise. Compared with April last year, however, sales were down 23.1 percent.

“Although the headline figure has moved sharply on a month-to-month basis, reflecting in part the impact of harsh weather in earlier months, the bottom line is that the new-home market continues to bounce along the bottom,” said Omair Sharif, an economist at RBS in Stamford, Conn.

An oversupply of used houses and a relentless wave of foreclosed properties are curbing the market for new homes, even as builders are keeping lean inventories.

A record low 175,000 new homes were available for sale last month, down 2.8 percent from the previous month.

Data last week showed a steep drop in new home construction in April and a decline in sales of previously owned homes.

“There’s still a tremendous overhang in the housing market, and while new-home sales are starting to percolate, that doesn’t change the fact that we still have such huge inventory,” said Michael Yoshikami, chief investment strategist at Ycmnet Advisors in Walnut Creek, Calif.

While the report cast a positive light on the housing market, it did little to change perceptions that the economy remained mired in a soft patch.

That view was reinforced by a Richmond Federal Reserve survey showing that manufacturing activity in the central Atlantic region stalled in May, after expanding during the previous seven months.

The Richmond Fed’s manufacturing index came in at minus 6, a contraction from the reading of plus 10 in April, dragged down by declines in shipments and new orders. A negative number indicates contraction.

The Commerce Department report also showed that the median sales price for a new home rose 1.6 percent last month to $217,900. Compared with April last year, the median price increased 4.6 percent.

At April’s sales pace, the supply of new homes on the market dropped to 6.5 months’ worth, the lowest since April last year, from 7.2 months’ worth in March.

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