##### 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, 2010
 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. Employer ofof 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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



QUESTCOR PHARMACEUTICALS, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1 Financial Statements and Notes (Unaudited)
    
    
    3Consolidated Balance Sheets  June 30, 2010 and December 31, 2009
    
    
    3Consolidated Statements of Income  for the three and six months ended June 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows  for the six months ended June 30, 2010 and 2009
    
    
    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
    
    
    28Item 4 Controls and Procedures
    
    
    28PART II. OTHER INFORMATION
    
    
    28Item 1 Legal Proceedings
    
    
    28Item 1A Risk Factors
    
    
    28Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6 Exhibits
    
    
    30Signatures
    
    
    31EX-31.1EX-31.2EX-32.1EX-32.2
  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 31,2010
    
    
    2009(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,824
    
    
    $
    45,829Short-term investments
    
    
    68,857
    
    
    
    29,878Total cash, cash equivalents and short-term investments
    
    
    92,681
    
    
    
    75,707Accounts receivable, net of allowance for doubtful accounts of $77 at June
30, 2010 and December 31, 2009
    
    
    11,929
    
    
    
    14,833Inventories, net
    
    
    3,308
    
    
    
    3,378Prepaid expenses and other current assets
    
    
    1,166
    
    
    
    1,162Deferred tax assets
    
    
    8,093
    
    
    
    8,180Total current assets
    
    
    117,177
    
    
    
    103,260Property and equipment, net
    
    
    508
    
    
    
    407Purchased technology, net
    
    
    3,224
    
    
    
    3,372Goodwill
    
    
    299
    
    
    
    299Deposits and other assets
    
    
    710
    
    
    
    710Deferred tax assets
    
    
    3,392
    
    
    
    3,392Total assets
    
    $
    125,310
    
    
    $
    111,440LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,473
    
    
    $
    12,921Accrued compensation
    
    
    2,805
    
    
    
    2,140Sales-related reserves
    
    
    17,159
    
    
    
    14,922Income taxes payable
    
    
    1,067
    
    
    
    477Other accrued liabilities
    
    
    1,486
    
    
    
    1,751Total current liabilities
    
    
    25,990
    
    
    
    32,211Lease termination, deferred rent and other non-current liabilities
    
    
    1,055
    
    
    
    1,226Total liabilities
    
    
    27,045
    
    
    
    33,437Shareholders equity:Preferred stock, no par value, 7,500,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, no par value, 105,000,000 shares authorized; 62,110,585 and
61,726,609 shares issued and outstanding at June 30, 2010 and December 31,
2009, respectively
    
    
    70,844
    
    
    
    67,793Retained earnings
    
    
    27,358
    
    
    
    10,224Accumulated other comprehensive income (loss)
    
    
    63
    
    
    
    (14
    )Total shareholders equity
    
    
    98,265
    
    
    
    78,003Total liabilities and shareholders equity
    
    $
    125,310
    
    
    $
    111,440
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    28,316
    
    
    $
    25,266
    
    
    $
    54,560
    
    
    $
    48,564Cost of sales (exclusive of amortization of purchased technology)
    
    
    2,000
    
    
    
    1,603
    
    
    
    3,998
    
    
    
    3,113Gross profit
    
    
    26,316
    
    
    
    23,663
    
    
    
    50,562
    
    
    
    45,451Operating expenses:Selling, general and administrative
    
    
    8,971
    
    
    
    7,180
    
    
    
    18,347
    
    
    
    14,433Research and development
    
    
    2,943
    
    
    
    2,320
    
    
    
    5,690
    
    
    
    4,776Depreciation and amortization
    
    
    130
    
    
    
    118
    
    
    
    255
    
    
    
    236Total operating expenses
    
    
    12,044
    
    
    
    9,618
    
    
    
    24,292
    
    
    
    19,445Income from operations
    
    
    14,272
    
    
    
    14,045
    
    
    
    26,270
    
    
    
    26,006Other income:Interest and other income, net
    
    
    119
    
    
    
    197
    
    
    
    215
    
    
    
    465Gain on sale of product rights
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    225Total other income
    
    
    119
    
    
    
    397
    
    
    
    215
    
    
    
    690Income before income taxes
    
    
    14,391
    
    
    
    14,442
    
    
    
    26,485
    
    
    
    26,696Income tax expense
    
    
    5,109
    
    
    
    5,131
    
    
    
    9,351
    
    
    
    9,711Net income
    
    $
    9,282
    
    
    $
    9,311
    
    
    $
    17,134
    
    
    $
    16,985Net income per share:Basic
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.26Diluted
    
    $
    0.14
    
    
    $
    0.14
    
    
    $
    0.27
    
    
    $
    0.25Shares used in computing net income per share:Basic
    
    
    62,022
    
    
    
    64,218
    
    
    
    61,957
    
    
    
    64,854Diluted
    
    
    64,543
    
    
    
    66,325
    
    
    
    64,057
    
    
    
    67,140
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 Six Months EndedJune 30,2010
    
    
    2009OPERATING ACTIVITIESNet income
    
    $
    17,134
    
    
    $
    16,985Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation expense
    
    
    1,908
    
    
    
    1,718Deferred income taxes
    
    
    41
    
    
    
    Amortization of investments
    
    
    329
    
    
    
    16Depreciation and amortization
    
    
    255
    
    
    
    236Gain on sale of product rights
    
    
    
    
    
    
    (225
    )Income tax benefit realized from share-based compensation plans
    
    
    320
    
    
    
    Excess tax benefit from share-based compensation plans
    
    
    (316
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    2,904
    
    
    
    (1,626
    )Inventories
    
    
    70
    
    
    
    (27
    )Prepaid income taxes
    
    
    
    
    
    
    3,316Prepaid expenses and other current assets
    
    
    (4
    )
    
    
    55Accounts payable
    
    
    (9,448
    )
    
    
    5,357Accrued compensation
    
    
    665
    
    
    
    (261
    )Sales-related reserves
    
    
    2,237
    
    
    
    (718
    )Income taxes payable
    
    
    590
    
    
    
    526Other accrued liabilities
    
    
    (265
    )
    
    
    (405
    )Other non-current liabilities
    
    
    (171
    )
    
    
    (147
    )Net cash flows provided by operating activities
    
    
    16,249
    
    
    
    24,800INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (208
    )
    
    
    (71
    )Purchase of short-term investments
    
    
    (54,065
    )
    
    
    (34,951
    )Proceeds from maturities of short-term investments
    
    
    14,880
    
    
    
    31,150Net proceeds from sale of product rights
    
    
    
    
    
    
    225Net cash flows used in investing activities
    
    
    (39,393
    )
    
    
    (3,647
    )FINANCING ACTIVITIESIssuance of common stock, net
    
    
    823
    
    
    
    547Repurchase of common stock
    
    
    
    
    
    
    (11,189
    )Excess tax benefit from share-based compensation plans
    
    
    316
    
    
    
    Net cash flows provided by (used in) financing activities
    
    
    1,139
    
    
    
    (10,642
    )Increase (decrease) in cash and cash equivalents
    
    
    (22,005
    )
    
    
    10,511Cash and cash equivalents at beginning of period
    
    
    45,829
    
    
    
    13,282Cash and cash equivalents at end of period
    
    $
    23,824
    
    
    $
    23,793
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QUESTCOR PHARMACEUTICALS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
 Organization
 ® ®
 Basis of Presentation
   2. REVENUE RECOGNITION
   6




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Sales Reserves
  a)
    
    The estimated liability included in sales-related reserves as of the end of a period is
comprised of the estimated rebate units associated with end user demand data during the
period, the estimated rebate units associated with estimated inventory in the distribution
channel as of the end of the period, and the estimated rebate units associated with prior
rebate periods.
 b)
    
    In order to assess recent and future rates of Medicaid utilization, the Company analyzes
inventory levels received from a third party, CuraScript SD,  patient
prescription and shipment data received from a third party, CuraScript SP,
and claims-level detail received from state Medicaid agencies.
   7




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June 30,
    
    
    December 31,2010
    
    
    2009Medicaid rebates
    
    $
    13,051
    
    
    $
    11,070Tricare rebates
    
    
    4,091
    
    
    
    3,530Government chargebacks
    
    
    17
    
    
    
    322Total
    
    $
    17,159
    
    
    $
    14,922
 3. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Selling, general and administrative
    
    $
    684
    
    
    $
    518
    
    
    $
    1,481
    
    
    $
    1,385Research and development
    
    
    239
    
    
    
    168
    
    
    
    462
    
    
    
    319Total
    
    $
    923
    
    
    $
    686
    
    
    $
    1,943
    
    
    $
    1,704
 4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    (Loss)
    
    
    Fair ValueJune 30, 2010Cash equivalents
    
    $
    5,851
    
    
    $
    
    
    
    $
    
    
    
    $
    5,851Short-term investments:Certificates of deposit
    
    $
    7,880
    
    
    $
    24
    
    
    $
    (1
    )
    
    $
    7,903Government-sponsored enterprises
    
    
    42,268
    
    
    
    50
    
    
    
    
    
    
    
    42,318Municipal bonds
    
    
    8,491
    
    
    
    32
    
    
    
    (4
    )
    
    
    8,519Corporate bonds
    
    
    10,117
    
    
    
    6
    
    
    
    (6
    )
    
    
    10,117$
    68,756
    
    
    $
    112
    
    
    $
    (11
    )
    
    $
    68,857December 31, 2009Cash equivalents
    
    $
    34,445
    
    
    $
    
    
    
    $
    
    
    
    $
    34,445Short-term investments:Certificates of deposit
    
    $
    5,360
    
    
    $
    
    
    
    $
    (7
    )
    
    $
    5,353Government-sponsored enterprises
    
    
    14,066
    
    
    
    3
    
    
    
    (45
    )
    
    
    14,024Municipal bonds
    
    
    10,474
    
    
    
    40
    
    
    
    (13
    )
    
    
    10,501$
    29,900
    
    
    $
    43
    
    
    $
    (65
    )
    
    $
    29,878
  Amortized
    
    
    Estimated FairCost
    
    
    ValueDue in one year or less
    
    $
    18,767
    
    
    $
    18,808Due after one through two years
    
    
    49,989
    
    
    
    50,049Total short-term investments
    
    $
    68,756
    
    
    $
    68,857
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Less Than 12 Months
    
    
    12 Months or GreaterGross
    
    
    Estimated
    
    
    Gross
    
    
    EstimatedUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueCertificates of deposit
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    479Municipal bonds
    
    
    (4
    )
    
    
    772
    
    
    
    
    
    
    
    720Corporate bonds
    
    
    (2
    )
    
    
    1,856
    
    
    
    (4
    )
    
    
    2,162Total
    
    $
    (6
    )
    
    $
    2,628
    
    
    $
    (5
    )
    
    $
    3,361
  Fair Value
   Cash equivalents:
 Short-term available-for-sale investments at fair value
  10




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Basis of Fair Value MeasurementsQuoted prices
    
    
    Significantin active
    
    
    other
    
    
    SignificantBalance at
    
    
    markets for
    
    
    observable
    
    
    unobservableJune 30,
    
    
    identical items
    
    
    inputs
    
    
    inputs2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds
    
    $
    5,851
    
    
    $
    5,851
    
    
    $
    
    
    
    
    Corporate bonds
    
    
    10,117
    
    
    
    
    
    
    
    10,117
    
    
    
    Government-sponsored enterprises
    
    
    42,318
    
    
    
    
    
    
    
    42,318
    
    
    
    Certificates of deposit
    
    
    7,903
    
    
    
    
    
    
    
    7,903
    
    
    
    Municipal bonds
    
    
    8,519
    
    
    
    
    
    
    
    8,519
    
    
    
    $
    74,708
    
    
    $
    5,851
    
    
    $
    68,857
    
    
    
    
  5. INVENTORIES
  June 30,
    
    
    December 31,2010
    
    
    2009Raw materials
    
    $
    3,079
    
    
    $
    2,921Work-in-process
    
    
    4
    
    
    
    Finished goods
    
    
    225
    
    
    
    457$
    3,308
    
    
    $
    3,378
 6. PURCHASED TECHNOLOGY
  7. COMMITMENTS, INDEMNIFICATIONS AND CONTINGENCIES
     11




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8. NET INCOME PER SHARE
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    9,282
    
    
    $
    9,311
    
    
    $
    17,134
    
    
    $
    16,985Shares used in computing net income per share:Basic
    
    
    62,022
    
    
    
    64,218
    
    
    
    61,957
    
    
    
    64,854Effect of dilutive potential common shares:Stock options
    
    
    2,504
    
    
    
    2,093
    
    
    
    2,086
    
    
    
    2,271Restricted stock
    
    
    17
    
    
    
    14
    
    
    
    14
    
    
    
    15Diluted
    
    
    64,543
    
    
    
    66,325
    
    
    
    64,057
    
    
    
    67,140Net income per share:Basic
    
    $
    0.15
    
    
    $
    0.14
    
    
    $
    0.28
    
    
    $
    0.26Diluted
    
    $
    0.14
    
    
    $
    0.14
    
    
    $
    0.27
    
    
    $
    0.25
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock options
    
    
    180
    
    
    
    2,391
    
    
    
    2,029
    
    
    
    2,369Restricted stock
    
    
    
    
    
    
    39
    
    
    
    
    
    
    
    20
 9. INCOME TAXES
  10. COMPREHENSIVE INCOME
 12




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income
    
    $
    9,282
    
    
    $
    9,311
    
    
    $
    17,134
    
    
    $
    16,985Change in
unrealized gains or
losses on
available-for-sale
securities, net of
related tax effects
    
    
    54
    
    
    
    (81
    )
    
    
    77
    
    
    
    (187
    )Comprehensive income
    
    $
    9,336
    
    
    $
    9,230
    
    
    $
    17,211
    
    
    $
    16,798
 11. EQUITY TRANSACTIONS
  12. RECENTLY ISSUED ACCOUNTING STANDARDS
 Subsequent Events
   13. RELATED PARTY TRANSACTIONS
  14. SUBSEQUENT EVENT
 13




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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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Medicaid Rebates
  a)
    
    The estimated liability included in sales-related reserves as of the end of a period is
comprised of the estimated rebate units associated with estimated end user demand during the
period, the estimated rebate units associated with estimated inventory in the distribution
channel as of the end of the period, and the estimated rebate units, if any, associated with
prior rebate periods.
 b)
    
    In order to assess recent and future rates of Medicaid utilization, we analyze inventory
levels received from a third party, CuraScript SD, patient prescription and shipment data
received from a third party, CuraScript SP, and claims-level detail received from state
Medicaid agencies.
     16




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Tricare Rebates
  Government Chargebacks
   Co-Pay Assistance Programs
  Product Returns
  Shelf-Stock Adjustment Credit
  17




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June 30,
    
    
    December 31,2010
    
    
    2009Medicaid rebates
    
    $
    13,051
    
    
    $
    11,070Tricare rebates
    
    
    4,091
    
    
    
    3,530Government chargebacks
    
    
    17
    
    
    
    322$
    17,159
    
    
    $
    14,922
 Inventories
  Intangible and Long-Lived Assets
 Intangibles-Goodwill and Other Property Plant and
Equipment
 Share-Based Compensation
 Stock Compensation
  18




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Lease Termination Liability
  Leases.
  Income Taxes
     19




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Results of Operations
 Three months ended June 30, 2010 compared to the three months ended June 30, 2009:
 Net Sales
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Gross sales
    
    $
    38,837
    
    
    $
    36,198
    
    
    $
    2,639
    
    
    
    7
    %Less sales reserves:Provision for Medicaid rebates
    
    
    9,749
    
    
    
    9,889
    
    
    
    (140
    )
    
    
    (1
    )%Provision for chargebacks
    
    
    
    
    
    
    998
    
    
    
    (998
    )
    
    
    (100
    )%Provision for Tricare rebates
    
    
    369
    
    
    
    
    
    
    
    369
    
    
    
    Co-payment assistance and other
    
    
    403
    
    
    
    45
    
    
    
    358
    
    
    
    796
    %Total sales reserves
    
    
    10,521
    
    
    
    10,932
    
    
    
    (411
    )
    
    
    (4
    )%Net sales
    
    $
    28,316
    
    
    $
    25,266
    
    
    $
    3,050
    
    
    
    12
    %
      20




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Cost of Sales and Gross Profit
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Cost of sales
    
    $
    2,000
    
    
    $
    1,603
    
    
    $
    397
    
    
    
    25
    %Gross profit
    
    $
    26,316
    
    
    $
    23,663
    
    
    $
    2,653
    
    
    
    11
    %Gross margin
    
    
    93
    %
    
    
    94
    %
 21




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Selling, General and Administrative
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    8,971
    
    
    $
    7,180
    
    
    $
    1,791
    
    
    
    25
    %
     Research and Development
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Research and development
    
    $
    2,943
    
    
    $
    2,320
    
    
    $
    623
    
    
    
    27
    %
   22




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##### Table of Contents



Depreciation and Amortization
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Depreciation and amortization
    
    $
    130
    
    
    $
    118
    
    
    $
    12
    
    
    
    10
    %
  Total Other Income
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Total other income
    
    $
    119
    
    
    $
    397
    
    
    $
    (278
    )
    
    
    (70
    )%
  Income Before Income Taxes and Income Tax Expense
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Income before income taxes
    
    $
    14,391
    
    
    $
    14,442
    
    
    $
    (51
    )
    
    
    
    %Income tax expense
    
    $
    5,109
    
    
    $
    5,131
    
    
    $
    (22
    )
    
    
    
    %
 23




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##### Table of Contents



Net Income
 Three Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Net income
    
    $
    9,282
    
    
    $
    9,311
    
    
    $
    (29
    )
    
    
    
    %
  Six months ended June 30, 2010 compared to the six months ended June 30, 2009:
 Net Sales
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Gross sales
    
    $
    72,298
    
    
    $
    69,293
    
    
    $
    3,005
    
    
    
    4
    %Less sales reserves:Provision for Medicaid rebates
    
    
    16,350
    
    
    
    18,327
    
    
    
    (1,977
    )
    
    
    (11
    )%Provision for chargebacks
    
    
    
    
    
    
    2,350
    
    
    
    (2,350
    )
    
    
    (100
    )%Provision for Tricare rebates
    
    
    561
    
    
    
    
    
    
    
    561
    
    
    
    Co-payment assistance and other
    
    
    827
    
    
    
    52
    
    
    
    775
    
    
    
    1,490
    %Total sales reserves
    
    
    17,738
    
    
    
    20,729
    
    
    
    (2,991
    )
    
    
    (14
    )%Net sales
    
    $
    54,560
    
    
    $
    48,564
    
    
    $
    5,996
    
    
    
    12
    %
     24




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##### Table of Contents



Cost of Sales and Gross Profit
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Cost of sales
    
    $
    3,998
    
    
    $
    3,113
    
    
    $
    885
    
    
    
    28
    %Gross profit
    
    $
    50,562
    
    
    $
    45,451
    
    
    $
    5,111
    
    
    
    11
    %Gross margin
    
    
    93
    %
    
    
    94
    %
  Selling, General and Administrative
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    18,347
    
    
    $
    14,433
    
    
    $
    3,914
    
    
    
    27
    %
     Research and Development
 25




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##### Table of Contents



Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Research and development
    
    $
    5,690
    
    
    $
    4,776
    
    
    $
    914
    
    
    
    19
    %
    Depreciation and Amortization
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Depreciation and amortization
    
    $
    255
    
    
    $
    236
    
    
    $
    19
    
    
    
    8
    %
  Total Other Income
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Total other income
    
    $
    215
    
    
    $
    690
    
    
    $
    (475
    )
    
    
    (69
    )%
  26




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##### Table of Contents



Income Before Income Taxes and Income Tax Expense
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Income before income taxes
    
    $
    26,485
    
    
    $
    26,696
    
    
    $
    (211
    )
    
    
    (1
    )%Income tax expense
    
    $
    9,351
    
    
    $
    9,711
    
    
    $
    (360
    )
    
    
    (4
    )%
  Net Income
 Six Months EndedJune 30,
    
    
    Increase/
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in $000s)Net income
    
    $
    17,134
    
    
    $
    16,985
    
    
    $
    149
    
    
    
    1
    %
  Liquidity and Capital Resources
    Recently Issued Accounting Standards
  27




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
     
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
    
 ITEM 1A. RISK FACTORS
  Forward Looking Statements
 28




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##### Table of Contents




    
    the Companys ability to continue to successfully implement its Acthar-centric business
strategy, including its expansion in the MS marketplace and other therapeutic areas;
 
    
    FDA approval of and the market introduction of competitive products and the Companys
inability to market Acthar in IS prior to approval of IS as a labeled indication;
 
    
    the uncertainty of receiving approval of IS as a labeled indication and risks associated
with potential label modifications and other actions required by the FDA either prior to or
following any such approval;
 
    
    the Companys ability to operate within an industry that is highly regulated at both the
Federal and state level;
 
    
    regulatory changes or other legislative or policy actions by governmental authorities and
other third parties as recently adopted U.S. healthcare reform legislation is implemented or
new healthcare-related legislation is enacted;
 
    
    the Companys ability to accurately forecast the demand for its products;
 
    
    the Companys ability to receive high reimbursement levels from third party payers;
 
    
    the Companys ability to estimate the quantity of Acthar used by government entities and
Medicaid-eligible patients;
 
    
    the actual amount of rebates and chargebacks related to the use of Acthar by government
entities, including the Department of Defense Tricare network, and Medicaid-eligible
patients may differ materially from the Companys estimates;
 
    
    the Companys expenses and other capital 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 complex nature of the Companys manufacturing process and the potential for supply
disruptions or other business disruptions;
 
    
    the Companys ability to attract and retain key management personnel;
 
    
    research and development risks, including risks associated with the Companys sNDA for IS
and its preliminary work in the area of nephrotic syndrome;
 
    
    uncertainties regarding the Companys intellectual property;
 
    
    the impact to the Companys business caused by economic conditions; and
 
    
    the Companys limited pipeline for new products and its ability to identify product
acquisition candidates and consummate transactions on terms acceptable to the Company.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 29




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##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit No
    
    Description31.1
    
    Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification 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. 30




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##### Table of Contents



SIGNATURES
  QUESTCOR PHARMACEUTICALS, INC.Date:  August 9, 2010
    By:
    /s/ Don M. BaileyDon M. BaileyPresident and Chief Executive OfficerBy:
    /s/ Gary SawkaGary SawkaSenior Vice President, Finance 
and Chief Financial Officer 31




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##### Table of Contents



Exhibit Index
 Exhibit No
    
    Description31.1
    
    Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification pursuant to Rule 13a-14 under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification 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. 32