##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 FOR THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER: 001-14758
 QUESTCOR PHARMACEUTICALS, INC.
 (Exact name of Registrant as specified in its charter)
 CALIFORNIA
    
    33-0476164(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 3260 Whipple Road
Union City, CA 94587-1217
(Address of Principal Executive Offices)
 REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 400-0700
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



QUESTCOR PHARMACEUTICALS, INC.
 FORM 10-Q
  
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    3Item 1 Financial Statements and Notes (Unaudited)
    
    
    3Consolidated Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations  for the three and six months ended June 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows  for the six months ended June 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4 Controls and Procedures
    
    
    29PART II. OTHER INFORMATION
    
    
    30Item 1 Legal Proceedings
    
    
    30Item 1A Risk Factors
    
    
    30Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3 Defaults Upon Senior Securities
    
    
    32Item 4 Submission of Matters to a Vote of Security Holders
    
    
    32Item 5 Other Information
    
    
    32Item 6 Exhibits
    
    
    33Signatures
    
    
    34EXHIBIT 31EXHIBIT 32
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,476
    
    
    $
    15,939Short-term investments
    
    
    18,418
    
    
    
    14,273Total cash, cash equivalents and short-term investments
    
    
    38,894
    
    
    
    30,212Accounts receivable, net of allowance for doubtful accounts
of $118 and $57 at June 30, 2008 and December 31, 2007,
respectively
    
    
    21,587
    
    
    
    23,639Inventories, net
    
    
    2,446
    
    
    
    2,365Prepaid expenses and other current assets
    
    
    563
    
    
    
    778Deferred tax assets
    
    
    8,525
    
    
    
    14,879Total current assets
    
    
    72,015
    
    
    
    71,873Property and equipment, net
    
    
    443
    
    
    
    522Purchased technology, net
    
    
    3,819
    
    
    
    3,967Goodwill
    
    
    299
    
    
    
    299Deposits and other assets
    
    
    710
    
    
    
    744Deferred tax assets, net
    
    
    1,043
    
    
    
    1,043Total assets
    
    $
    78,329
    
    
    $
    78,448LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,969
    
    
    $
    1,777Accrued compensation
    
    
    973
    
    
    
    1,945Sales-related reserves
    
    
    12,402
    
    
    
    8,176Income taxes payable
    
    
    
    
    
    
    1,330Other accrued liabilities
    
    
    1,576
    
    
    
    1,492Total current liabilities
    
    
    17,920
    
    
    
    14,720Lease termination and deferred rent liabilities
    
    
    1,675
    
    
    
    1,869Other non-current liabilities
    
    
    3
    
    
    
    7Preferred stock, no par value, 7,500,000 shares authorized; none
and 2,155,715 Series A shares issued and outstanding at June 30,
2008 and December 31, 2007, respectively (aggregate liquidation
preference of $10,000 at December 31, 2007)
    
    
    
    
    
    
    5,081Shareholders equity:Common stock, no par value, 105,000,000 shares authorized;
69,066,449 and 70,118,166 shares issued and outstanding at
June 30, 2008 and December 31, 2007, respectively
    
    
    100,316
    
    
    
    108,387Accumulated deficit
    
    
    (41,602
    )
    
    
    (51,670
    )Accumulated other comprehensive gain
    
    
    17
    
    
    
    54Total shareholders equity
    
    
    58,731
    
    
    
    56,771Total liabilities, preferred stock and shareholders equity
    
    $
    78,329
    
    
    $
    78,448
  3




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##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    24,898
    
    
    $
    4,144
    
    
    $
    44,030
    
    
    $
    7,845Cost of sales (exclusive of amortization of purchased technology)
    
    
    2,190
    
    
    
    914
    
    
    
    3,509
    
    
    
    1,764Gross profit
    
    
    22,708
    
    
    
    3,230
    
    
    
    40,521
    
    
    
    6,081Operating costs and expenses:Selling, general and administrative
    
    
    4,855
    
    
    
    4,747
    
    
    
    9,921
    
    
    
    10,297Research and development
    
    
    3,555
    
    
    
    951
    
    
    
    5,526
    
    
    
    2,091Depreciation and amortization
    
    
    123
    
    
    
    125
    
    
    
    245
    
    
    
    248Total operating costs and expenses
    
    
    8,533
    
    
    
    5,823
    
    
    
    15,692
    
    
    
    12,636Income (loss) from operations
    
    
    14,175
    
    
    
    (2,593
    )
    
    
    24,829
    
    
    
    (6,555
    )Other income (expense):Interest income
    
    
    244
    
    
    
    181
    
    
    
    608
    
    
    
    391Other income, net
    
    
    
    
    
    
    247
    
    
    
    11
    
    
    
    240Gain on sale of product rights
    
    
    
    
    
    
    448
    
    
    
    
    
    
    
    448Total other income
    
    
    244
    
    
    
    876
    
    
    
    619
    
    
    
    1,079Income (loss) before income taxes
    
    
    14,419
    
    
    
    (1,717
    )
    
    
    25,448
    
    
    
    (5,476
    )Income tax expense
    
    
    5,625
    
    
    
    
    
    
    
    10,113
    
    
    
    Net income (loss)
    
    
    8,794
    
    
    
    (1,717
    )
    
    
    15,335
    
    
    
    (5,476
    )Deemed dividend on Series A preferred stock
    
    
    
    
    
    
    
    
    
    
    5,267
    
    
    
    Net income (loss) applicable to common shareholders
    
    $
    8,794
    
    
    $
    (1,717
    )
    
    $
    10,068
    
    
    $
    (5,476
    )Net income (loss) per share applicable to common shareholders:Basic
    
    $
    0.13
    
    
    $
    (0.02
    )
    
    $
    0.14
    
    
    $
    (0.08
    )Diluted
    
    $
    0.12
    
    
    $
    (0.02
    )
    
    $
    0.14
    
    
    $
    (0.08
    )Shares used in computing net income (loss) per share applicable to
common shareholders:Basic
    
    
    69,205
    
    
    
    68,989
    
    
    
    69,576
    
    
    
    68,882Diluted
    
    
    72,889
    
    
    
    68,989
    
    
    
    73,496
    
    
    
    68,882
  4




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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 Six Months EndedJune 30,2008
    
    
    2007OPERATING ACTIVITIESNet income (loss)
    
    $
    15,335
    
    
    $
    (5,476
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Share-based compensation expense
    
    
    3,088
    
    
    
    792Deferred income taxes
    
    
    6,354
    
    
    
    Amortization of investments
    
    
    (354
    )
    
    
    Depreciation and amortization
    
    
    244
    
    
    
    248Loss on disposal of equipment
    
    
    
    
    
    
    12Gain on sale of product rights
    
    
    
    
    
    
    (448
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    2,052
    
    
    
    568Inventories
    
    
    (81
    )
    
    
    551Prepaid expenses and other current assets
    
    
    215
    
    
    
    256Accounts payable
    
    
    1,192
    
    
    
    (783
    )Accrued compensation
    
    
    (972
    )
    
    
    (190
    )Sales-related reserves
    
    
    4,226
    
    
    
    (319
    )Income taxes payable
    
    
    (1,330
    )
    
    
    Other accrued liabilities
    
    
    84
    
    
    
    (57
    )Other non-current liabilities
    
    
    (198
    )
    
    
    8Net cash flows provided by (used in) operating activities
    
    
    29,855
    
    
    
    (4,838
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (17
    )
    
    
    (65
    )Acquisition of purchased technology
    
    
    
    
    
    
    (300
    )Purchase of short-term investments
    
    
    (31,714
    )
    
    
    (14,897
    )Proceeds from the sale and maturities of short-term investments
    
    
    27,886
    
    
    
    7,250Net proceeds from sale of product rights
    
    
    
    
    
    
    448Changes in deposits and other assets
    
    
    34
    
    
    
    (11
    )Net cash flows used in investing activities
    
    
    (3,811
    )
    
    
    (7,575
    )FINANCING ACTIVITIESIssuance of common stock, net
    
    
    671
    
    
    
    407Repurchase of Series A preferred stock
    
    
    (10,348
    )
    
    
    Repurchase of common stock
    
    
    (11,830
    )
    
    
    Net cash flows provided by (used in) financing activities
    
    
    (21,507
    )
    
    
    407Increase (decrease) in cash and cash equivalents
    
    
    4,537
    
    
    
    (12,006
    )Cash and cash equivalents at beginning of period
    
    
    15,939
    
    
    
    15,937Cash and cash equivalents at end of period
    
    $
    20,476
    
    
    $
    3,931
  5




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QUESTCOR PHARMACEUTICALS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
 Organization
 ® ®
    6




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Basis of Presentation
  2. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    2Selling, general and administrative
    
    
    859
    
    
    
    292
    
    
    
    2,502
    
    
    
    697Research and development
    
    
    286
    
    
    
    62
    
    
    
    520
    
    
    
    129Total
    
    $
    1,145
    
    
    $
    355
    
    
    $
    3,022
    
    
    $
    828
   7




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    86
    %
    
    
    84
    %
    
    
    86
    %
    
    
    84-86
    %Weighted average volatility
    
    
    86
    %
    
    
    84
    %
    
    
    86
    %
    
    
    86
    %Expected term (in years)
    
    
    4.4
    
    
    
    6.25
    
    
    
    4.4
    
    
    
    6.25Risk-free interest rate
    
    
    3.2
    %
    
    
    4.9
    %
    
    
    2.1-3.2
    %
    
    
    4.6-4.9
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    81
    %
    
    
    70
    %
    
    
    78-81
    %
    
    
    65-70
    %Weighted average volatility
    
    
    81
    %
    
    
    70
    %
    
    
    78-81
    %
    
    
    67
    %Expected term (in years)
    
    
    0.69
    
    
    
    0.71
    
    
    
    0.30-0.69
    
    
    
    0.53-0.71Risk-free interest rate
    
    
    2.8
    %
    
    
    5.0
    %
    
    
    2.4
    %
    
    
    5.0
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  3. REVENUE RECOGNITION
    8




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June 30,
    
    
    December 31,2008
    
    
    2007Product returns  credit memoranda policy
    
    $
    672
    
    
    $
    1,307Product returns  product replacement policy
    
    
    51
    
    
    
    31Medicaid rebates
    
    
    11,506
    
    
    
    6,514Government chargebacks
    
    
    71
    
    
    
    222Other
    
    
    102
    
    
    
    102$
    12,402
    
    
    $
    8,176
 4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
   5. INVENTORIES
  June 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,928
    
    
    $
    1,987Work in process
    
    
    427
    
    
    
    Finished goods
    
    
    107
    
    
    
    387Less allowance for excess and obsolete inventories
    
    
    (16
    )
    
    
    (9
    )$
    2,446
    
    
    $
    2,365
 9




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6. PURCHASED TECHNOLOGY
  7. COMMITMENTS, INDEMNIFICATIONS AND CONTINGENCIES
     10




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8. NET INCOME (LOSS) PER SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss) applicable to common shareholders
    
    $
    8,794
    
    
    $
    (1,717
    )
    
    $
    10,068
    
    
    $
    (5,476
    )Shares used in computing net income (loss) per share
applicable to common shareholders:Basic
    
    
    69,205
    
    
    
    68,989
    
    
    
    69,576
    
    
    
    68,882Effect of dilutive potential common shares:Stock options
    
    
    3,471
    
    
    
    
    
    
    
    3,622
    
    
    
    Warrants
    
    
    194
    
    
    
    
    
    
    
    273
    
    
    
    Restricted stock
    
    
    19
    
    
    
    
    
    
    
    25
    
    
    
    Diluted
    
    
    72,889
    
    
    
    68,989
    
    
    
    73,496
    
    
    
    68,882Net income (loss) per share applicable to common shareholders:Basic
    
    $
    0.13
    
    
    $
    (0.02
    )
    
    $
    0.14
    
    
    $
    (0.08
    )Diluted
    
    $
    0.12
    
    
    $
    (0.02
    )
    
    $
    0.14
    
    
    $
    (0.08
    )
  9. INCOME TAXES
    11




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10. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    8,794
    
    
    $
    (1,717
    )
    
    $
    10,068
    
    
    $
    (5,476
    )Change in unrealized gains on available-for-sale securities
    
    
    (62
    )
    
    
    5
    
    
    
    (37
    )
    
    
    7Comprehensive income (loss)
    
    $
    8,732
    
    
    $
    (1,712
    )
    
    $
    10,031
    
    
    $
    (5,469
    )
 11. EQUITY TRANSACTIONS
     12. RECENTLY ISSUED ACCOUNTING STANDARDS
 Determination of the Useful Life of
Intangible Assets
 12




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Effective Date of FASB
Statement No. 157
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property .
 13. DISTRIBUTION AGREEMENT
  13




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14. SUBSEQUENT EVENTS
   
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    14




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Critical Accounting Policies
  Sales Reserves
   15




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16




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June 30,
    
    
    December 31,2008
    
    
    2007Product returns  credit memoranda policy
    
    $
    672
    
    
    $
    1,307Product returns  product replacement policy
    
    
    51
    
    
    
    31Medicaid rebates
    
    
    11,506
    
    
    
    6,514Government chargebacks
    
    
    71
    
    
    
    222Other
    
    
    102
    
    
    
    102$
    12,402
    
    
    $
    8,176
 Inventories
  Intangible and Long-Lived Assets
 Goodwill and Other Intangible
Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
 Share-Based Compensation Expense
  17




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18




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Lease Termination Liability
  Accounting for a
Loss on a Sublease, an interpretation of FASB 13 and APB Opinion No. 30 Accounting
for the Loss on a Sublease Not Involving the Disposal of a Segment.
  Income Taxes
    19




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Results of Operations
 Three months ended June 30, 2008 compared to the three months ended June 30, 2007:
 Total Net Sales
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net sales
    
    $
    24,898
    
    
    $
    4,144
    
    
    $
    20,754
    
    
    
    501
    %
    20




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Cost of Sales and Gross Profit
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Cost of sales
    
    $
    2,190
    
    
    $
    914
    
    
    $
    1,276
    
    
    
    140
    %Gross profit
    
    
    22,708
    
    
    
    3,230
    
    
    
    19,478
    
    
    
    603
    %Gross margin
    
    
    91
    %
    
    
    78
    %
  Selling, General and Administrative
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    4,855
    
    
    $
    4,747
    
    
    $
    108
    
    
    
    2
    %
   21




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Research and Development
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Research and development
    
    $
    3,555
    
    
    $
    951
    
    
    $
    2,604
    
    
    
    274
    %
   Depreciation and Amortization
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Depreciation and amortization
    
    $
    123
    
    
    $
    125
    
    
    $
    (2
    )
    
    
    (2
    )%
 22




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##### Table of Contents



Other Income, net
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Other income, net
    
    $
    244
    
    
    $
    876
    
    
    $
    (632
    )
    
    
    (72
    )%
  Income Tax Expense
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Income tax expense
    
    $
    5,625
    
    
    $
    
    
    
    $
    5,625
    
    
    
    
  Net Income (Loss)
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income (loss)
    
    $
    8,794
    
    
    $
    (1,717
    )
    
    $
    10,511
    
    
    
    612
    %
  Net Income (Loss) Applicable to Common Shareholders
 Three Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income (loss) applicable to common shareholders
    
    $
    8,794
    
    
    $
    (1,717
    )
    
    $
    10,511
    
    
    
    612
    %
 23




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Six months ended June 30, 2008 compared to the six months ended June 30, 2007:
 Total Net Sales
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net sales
    
    $
    44,030
    
    
    $
    7,845
    
    
    $
    36,185
    
    
    
    461
    %
     24




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##### Table of Contents



Cost of Sales and Gross Profit
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Cost of sales
    
    $
    3,509
    
    
    $
    1,764
    
    
    $
    1,745
    
    
    
    99
    %Gross profit
    
    
    40,521
    
    
    
    6,081
    
    
    
    34,440
    
    
    
    566
    %Gross margin
    
    
    92
    %
    
    
    78
    %
  Selling, General and Administrative
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    9,921
    
    
    $
    10,297
    
    
    $
    (376
    )
    
    
    (4
    )%
      25




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##### Table of Contents



Research and Development
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Research and development
    
    $
    5,526
    
    
    $
    2,091
    
    
    $
    3,435
    
    
    
    164
    %
   Depreciation and Amortization
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Depreciation and amortization
    
    $
    245
    
    
    $
    248
    
    
    $
    (3
    )
    
    
    (1
    )%
  Other Income, net
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Other income, net
    
    $
    619
    
    
    $
    1,079
    
    
    $
    (460
    )
    
    
    (43
    )%
  26




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##### Table of Contents



Income Tax Expense
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Income tax expense
    
    $
    10,113
    
    
    $
    
    
    
    $
    10,113
    
    
    
    
  Net Income (Loss)
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income (loss)
    
    $
    15,335
    
    
    $
    (5,476
    )
    
    $
    20,811
    
    
    
    380
    %
  Deemed Dividend on Series A Preferred Stock
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Deemed dividend on Series A Preferred Stock
    
    $
    5,267
    
    
    $
    
    
    
    $
    5,267
    
    
    
    
  Net Income (Loss) Applicable to Common Shareholders
 Six Months EndedJune 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income (loss) applicable to common shareholders
    
    $
    10,068
    
    
    $
    (5,476
    )
    
    $
    15,544
    
    
    
    284
    %
  27




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##### Table of Contents



Liquidity and Capital Resources
         Recently Issued Accounting Standards
 Determination of the Useful Life of
Intangible Assets
 28




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##### Table of Contents



Effective Date of FASB
Statement No. 157
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51
 Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property .
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
    
    the Companys ability to continue to successfully implement its strategy and business
model for Acthar,
    
    the failure to maintain an adequate level of reimbursement for Acthar from third
party payors,
    
    that regulatory changes, including possible outcomes relating
to a recent Congressional hearing on orphan drug pricing, could negatively affect the implementation of the Companys
strategy,
    
    the introduction of competitive products,
    
    the Companys ability to accurately forecast the demand for its products,
    
    the gross margin achieved from the sale of the Companys products,
 30




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##### Table of Contents




    
    the Companys ability to enforce its product returns policy,
    
    the Companys ability to estimate the quantity of Acthar used by government entities and
Medicaid-eligible patients,
    
    that the actual amount of rebates and discounts related to the use of Acthar by
government entities and Medicaid-eligible patients may differ materially from the Companys
estimates,
    
    the outsourcing of the Companys Acthar distribution functions to CuraScript,
    
    the sell-through by the Companys distributors,
    
    the expenses and other cash needs for upcoming periods,
    
    the inventories carried by the Companys distributors, specialty pharmacies and
hospitals,
    
    volatility in the Companys monthly and quarterly Acthar shipments and end-user demand,
    
    the Companys ability to obtain finished goods from its sole source contract
manufacturers on a timely basis if at all,
    
    the Companys ability to retain key management personnel,
    
    the Companys ability to utilize its net operating loss carry forwards to reduce income
taxes on taxable income,
    
    the Companys ability to maintain an effective system of internal controls,
    
    that product liability lawsuits could be successfully brought against the Company or the
Company becomes subject to other forms of litigation,
    
    research and development risks,
    
    uncertainties regarding the Companys intellectual property,
    
    the uncertainty of receiving required regulatory approvals in a timely way, or at
all, and
    
    other research, development, and regulatory risks.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number
    
    Maximum NumberAverage
    
    Of Shares Purchased
    
    Of Shares That MayTotal Number
    
    Price
    
    as Part of
    
    Yet be Purchasedof Shares
    
    Paid per
    
    Publicly Announced
    
    Under the Plans orPeriod
    
    Purchased
    
    Share
    
    Plans or Programs
    
    ProgramsApril 1  April 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,472,300May 1  May 31, 2008
    
    
    286,600
    
    
    $
    4.52
    
    
    
    286,600
    
    
    
    5,185,700June 1  June 30, 2008
    
    
    926,600
    
    
    $
    4.68
    
    
    
    926,600
    
    
    
    4,259,100Total
    
    
    1,213,200
    
    
    $
    4.64
    
    
    
    1,213,200
  31




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##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    Election of Directors to hold office until the 2009 Annual Meeting of Shareholders and
until their successors are duly elected and qualified.
 Votes For
    
    Votes WithheldDon M. Bailey
    
    
    50,706,800
    
    
    
    1,233,360Neal C. Bradsher
    
    
    50,710,156
    
    
    
    1,230,004Stephen C. Farrell
    
    
    50,707,204
    
    
    
    1,232,956Virgil D. Thompson
    
    
    50,702,741
    
    
    
    1,237,419David Young
    
    
    50,709,546
    
    
    
    1,230,614
 2.
    
    Approval of the amendment to the Companys 2003 Employee Stock Purchase Plan to add
500,000 additional shares to the Plan, remove the ability of Plan participants to increase
their contributions during an offering period and to permanently reduce the maximum offering
period from 27 months to 6 months.
 For:
    
    
    30,992,961Against:
    
    
    674,215Abstain:
    
    
    13,388
 3.
    
    Ratification of Odenberg Ullakko Muranishi & Co. LLP as the Companys independent
auditors for the fiscal year ending December 31, 2008.
 For:
    
    
    51,511,283Against:
    
    
    338,634Abstain:
    
    
    90,243
 
 ITEM 5. OTHER INFORMATION
  32




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit No
    
    Description31
    
    Certifications pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32*
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    These certifications are being furnished solely to accompany this quarterly report pursuant
to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Questcor Pharmaceuticals, Inc., whether made before or after the date hereof, regardless of
any general incorporation language in such filing. 33




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##### Table of Contents



SIGNATURES
  QUESTCOR PHARMACEUTICALS, INC.Date: August 13, 2008
    By:
    /s/ Don M. BaileyDon M. BaileyPresident and Chief Executive OfficerBy:
    /s/ George StuartGeorge StuartSenior Vice President, Finance and
Chief Financial Officer 34




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##### Table of Contents



Exhibit Index
 Exhibit No
    
    Description31
    
    Certifications pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32*
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    These certifications are being furnished solely to accompany this quarterly report pursuant
to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Questcor Pharmaceuticals, Inc., whether made before or after the date hereof, regardless of
any general incorporation language in such filing. 35