##### 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 SEPTEMBER 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
(State or other jurisdiction 
of incorporation or organization)
    
    33-0476164
(I.R.S. Employer of
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 oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




---



##### 



QUESTCOR PHARMACEUTICALS, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1 Financial Statements and Notes (Unaudited)Consolidated Balance Sheets  September 30, 2008 and December 31, 2007
    
    
    3Consolidated Statements of Operations  for the three and nine months ended September 30,
2008 and 2007
    
    
    4Consolidated Statements of Cash Flows  for the nine months ended September 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 INFORMATIONItem 1 Legal Proceedings
    
    
    29Item 1A Risk Factors
    
    
    29Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3 Defaults Upon Senior Securities
    
    
    31Item 4 Submission of Matters to a Vote of Security Holders
    
    
    31Item 5 Other Information
    
    
    31Item 6 Exhibits
    
    
    31Signatures
    
    
    32EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,006
    
    
    $
    15,939Short-term investments
    
    
    28,913
    
    
    
    14,273Total cash, cash equivalents and short-term investments
    
    
    40,919
    
    
    
    30,212Accounts receivable, net of allowance for doubtful accounts of
$119 and $57 at September 30, 2008
and December 31, 2007, respectively
    
    
    11,106
    
    
    
    23,639Inventories, net
    
    
    2,437
    
    
    
    2,365Prepaid expenses and other current assets
    
    
    1,267
    
    
    
    778Deferred tax assets
    
    
    7,849
    
    
    
    14,879Total current assets
    
    
    63,578
    
    
    
    71,873Property and equipment, net
    
    
    426
    
    
    
    522Purchased technology, net
    
    
    3,744
    
    
    
    3,967Goodwill
    
    
    299
    
    
    
    299Deposits and other assets
    
    
    709
    
    
    
    744Deferred tax assets, net
    
    
    1,043
    
    
    
    1,043Total assets
    
    $
    69,799
    
    
    $
    78,448LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS
EQUITYCurrent liabilities:Accounts payable
    
    $
    4,544
    
    
    $
    1,777Accrued compensation
    
    
    1,393
    
    
    
    1,945Sales-related reserves
    
    
    13,975
    
    
    
    8,176Income taxes payable
    
    
    
    
    
    
    1,330Other accrued liabilities
    
    
    1,743
    
    
    
    1,492Total current liabilities
    
    
    21,655
    
    
    
    14,720Lease termination and deferred rent liabilities and other non-current
liabilities
    
    
    1,610
    
    
    
    1,876Preferred stock, no par value, 7,500,000 shares authorized; none and
2,155,715 Series A shares issued and outstanding at September 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;
64,954,004 and 70,118,166 shares issued and outstanding at September 30, 2008
and December 31, 2007, respectively
    
    
    79,186
    
    
    
    108,387Accumulated deficit
    
    
    (32,647
    )
    
    
    (51,670
    )Accumulated other comprehensive gain (loss)
    
    
    (5
    )
    
    
    54Total shareholders equity
    
    
    46,534
    
    
    
    56,771Total liabilities, preferred stock and shareholders equity
    
    $
    69,799
    
    
    $
    78,448
  3




---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    24,200
    
    
    $
    14,809
    
    
    $
    68,230
    
    
    $
    22,654Cost of sales (exclusive of amortization of purchased technology)
    
    
    1,937
    
    
    
    1,534
    
    
    
    5,446
    
    
    
    3,298Gross profit
    
    
    22,263
    
    
    
    13,275
    
    
    
    62,784
    
    
    
    19,356Operating costs and expenses:Selling, general and administrative
    
    
    4,251
    
    
    
    3,322
    
    
    
    14,172
    
    
    
    13,619Research and development
    
    
    2,577
    
    
    
    1,264
    
    
    
    8,103
    
    
    
    3,355Depreciation and amortization
    
    
    134
    
    
    
    125
    
    
    
    379
    
    
    
    373Total operating costs and expenses
    
    
    6,962
    
    
    
    4,711
    
    
    
    22,654
    
    
    
    17,347Income from operations
    
    
    15,301
    
    
    
    8,564
    
    
    
    40,130
    
    
    
    2,009Other income (expense):Interest income
    
    
    209
    
    
    
    164
    
    
    
    817
    
    
    
    555Other income (expense), net
    
    
    
    
    
    
    (1
    )
    
    
    11
    
    
    
    239Gain on sale of product rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Total other income
    
    
    209
    
    
    
    163
    
    
    
    828
    
    
    
    1,242Income before income taxes
    
    
    15,510
    
    
    
    8,727
    
    
    
    40,958
    
    
    
    3,251Income tax expense
    
    
    6,555
    
    
    
    102
    
    
    
    16,668
    
    
    
    102Net income
    
    
    8,955
    
    
    
    8,625
    
    
    
    24,290
    
    
    
    3,149Deemed dividend on Series A preferred stock
    
    
    
    
    
    
    
    
    
    
    5,267
    
    
    
    Allocation of undistributed earnings to Series A preferred stock
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    95Net income applicable to common shareholders
    
    $
    8,955
    
    
    $
    8,364
    
    
    $
    19,023
    
    
    $
    3,054Net income per share applicable to common shareholders:Basic
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.28
    
    
    $
    0.04Diluted
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.26
    
    
    $
    0.04Shares used in computing net income per share applicable to common
shareholders:Basic
    
    
    66,796
    
    
    
    69,192
    
    
    
    68,642
    
    
    
    68,986Diluted
    
    
    70,111
    
    
    
    69,224
    
    
    
    72,360
    
    
    
    69,985
  4




---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 Nine Months EndedSeptember 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    24,290
    
    
    $
    3,149Adjustments to reconcile net income to net cash provided by (used in) operating activities:Share-based compensation expense
    
    
    3,773
    
    
    
    1,025Deferred income taxes
    
    
    8,504
    
    
    
    Amortization of investments
    
    
    (421
    )
    
    
    Depreciation and amortization
    
    
    368
    
    
    
    373Loss on disposal of equipment
    
    
    10
    
    
    
    12Gain on sale of product rights
    
    
    
    
    
    
    (448
    )Excess tax benefit from share-based compensation
    
    
    (1,424
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    12,533
    
    
    
    (12,366
    )Inventories
    
    
    (72
    )
    
    
    397Prepaid expenses and other current assets
    
    
    (489
    )
    
    
    183Accounts payable
    
    
    2,767
    
    
    
    (228
    )Accrued compensation
    
    
    (552
    )
    
    
    (303
    )Sales-related reserves
    
    
    5,799
    
    
    
    (643
    )Income taxes payable
    
    
    (1,330
    )
    
    
    102Other accrued liabilities
    
    
    251
    
    
    
    325Other non-current liabilities
    
    
    (266
    )
    
    
    58Net cash flows provided by (used in) operating activities
    
    
    53,741
    
    
    
    (8,364
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (59
    )
    
    
    (67
    )Acquisition of purchased technology
    
    
    
    
    
    
    (300
    )Purchase of short-term investments
    
    
    (45,664
    )
    
    
    (17,188
    )Proceeds from the sale and maturities of short-term investments
    
    
    31,386
    
    
    
    12,250Net proceeds from sale of product rights
    
    
    
    
    
    
    448Changes in deposits and other assets
    
    
    35
    
    
    
    (16
    )Net cash flows used in investing activities
    
    
    (14,302
    )
    
    
    (4,873
    )FINANCING ACTIVITIESIssuance of common stock, net
    
    
    1,123
    
    
    
    449Repurchase of Series A preferred stock
    
    
    (10,348
    )
    
    
    Repurchase of common stock
    
    
    (35,571
    )
    
    
    Excess tax benefit from share-based compensation
    
    
    1,424
    
    
    
    Net cash flows provided by (used in) financing activities
    
    
    (43,372
    )
    
    
    449Decrease in cash and cash equivalents
    
    
    (3,933
    )
    
    
    (12,788
    )Cash and cash equivalents at beginning of period
    
    
    15,939
    
    
    
    15,937Cash and cash equivalents at end of period
    
    $
    12,006
    
    
    $
    3,149
  5




---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. ORGANIZATION AND BASIS OF PRESENTATION
 Organization
   Basis of Presentation
  2. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation
 6




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Cost of sales
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    3Selling, general and administrative
    
    
    493
    
    
    
    162
    
    
    
    2,998
    
    
    
    859Research and development
    
    
    142
    
    
    
    60
    
    
    
    660
    
    
    
    189Total
    
    $
    635
    
    
    $
    223
    
    
    $
    3,658
    
    
    $
    1,051
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    86
    %
    
    
    82
    %
    
    
    86
    %
    
    
    82-86
    %Weighted average volatility
    
    
    86
    %
    
    
    82
    %
    
    
    86
    %
    
    
    85
    %Expected term (in years)
    
    
    4.4
    
    
    
    6.25
    
    
    
    4.4
    
    
    
    6.25Risk-free interest rate
    
    
    2.6
    %
    
    
    4.3
    %
    
    
    2.1-3.2
    %
    
    
    4.3-4.9
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    79
    %
    
    
    76
    %
    
    
    78-81
    %
    
    
    65-76
    %Weighted average volatility
    
    
    79
    %
    
    
    76
    %
    
    
    79
    %
    
    
    68
    %Expected term (in years)
    
    
    0.74
    
    
    
    1.00
    
    
    
    0.30-0.74
    
    
    
    0.53-1.00Risk-free interest rate
    
    
    2.5
    %
    
    
    4.9
    %
    
    
    2.4
    %
    
    
    5.0
    %Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  7




---



##### Table of Contents



3. REVENUE RECOGNITION
     a)
    
    The estimated historic 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 current and future rates of Medicaid
utilization, the Company analyzes inventory levels and patient prescription data received from a
third party, CuraScript.
   8




---



##### Table of Contents



September 30,
    
    
    December 31,2008
    
    
    2007Medicaid rebates
    
    $
    13,478
    
    
    $
    6,514Government chargebacks
    
    
    58
    
    
    
    222Product returns  credit memoranda policy
    
    
    391
    
    
    
    1,307Product returns  product replacement policy
    
    
    48
    
    
    
    31Other
    
    
    
    
    
    
    102$
    13,975
    
    
    $
    8,176
 4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  Fair Value Measurements
  Basis of Fair Value MeasurementsQuoted prices
    
    
    Significantin active
    
    
    other
    
    
    SignificantBalance at
    
    
    markets for
    
    
    observable
    
    
    unobservableSeptember 30,
    
    
    identical items
    
    
    inputs
    
    
    inputs2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds
    
    $
    8,408
    
    
    $
    8,408
    
    
    $
    
    
    
    
    Commercial paper
    
    
    6,482
    
    
    
    
    
    
    
    6,482
    
    
    
    Government-sponsored enterprises
    
    
    22,431
    
    
    
    
    
    
    
    22,431
    
    
    
    Total
    
    $
    37,321
    
    
    $
    8,408
    
    
    $
    28,913
    
    
    
    
 9




---



##### Table of Contents



5. INVENTORIES
  September 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    1,996
    
    
    $
    1,987Finished goods
    
    
    457
    
    
    
    387Less allowance for excess and obsolete inventories
    
    
    (16
    )
    
    
    (9
    )$
    2,437
    
    
    $
    2,365
 6. PURCHASED TECHNOLOGY
  7. COMMITMENTS, INDEMNIFICATIONS AND CONTINGENCIES
     10




---



##### Table of Contents



8. NET INCOME PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income applicable to common shareholders
    
    $
    8,955
    
    
    $
    8,364
    
    
    $
    19,023
    
    
    $
    3,054Shares used in computing net income per share applicable to common
shareholders:Basic
    
    
    66,796
    
    
    
    69,192
    
    
    
    68,642
    
    
    
    68,986Effect of dilutive potential common shares:Stock options
    
    
    3,303
    
    
    
    32
    
    
    
    3,516
    
    
    
    968Restricted stock
    
    
    12
    
    
    
    
    
    
    
    21
    
    
    
    Warrants and placement unit options
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    31Diluted
    
    
    70,111
    
    
    
    69,224
    
    
    
    72,360
    
    
    
    69,985Net income per share applicable to common shareholders:Basic
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.28
    
    
    $
    0.04Diluted
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.26
    
    
    $
    0.04
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Stock options
    
    
    1,600
    
    
    
    6,200
    
    
    
    1,338
    
    
    
    5,127Restricted stock
    
    
    233
    
    
    
    43
    
    
    
    233
    
    
    
    71Series A Preferred Stock
    
    
    
    
    
    
    2,156
    
    
    
    393
    
    
    
    2,156Warrants and placement unit options
    
    
    
    
    
    
    603
    
    
    
    
    
    
    
    362
 9. INCOME TAXES
   11




---



##### Table of Contents



10. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    8,955
    
    
    $
    8,625
    
    
    $
    24,290
    
    
    $
    3,149Change in unrealized gains on available-for-sale securities
    
    
    (22
    )
    
    
    10
    
    
    
    (59
    )
    
    
    17Comprehensive income
    
    $
    8,933
    
    
    $
    8,635
    
    
    $
    24,231
    
    
    $
    3,166
 11. EQUITY TRANSACTIONS
    12




---



##### Table of Contents



12. RECENTLY ISSUED ACCOUNTING STANDARDS
 Determining the Fair Value
of a Financial Asset When the Market for That Asset Is Not Active
 Determination of the Useful Life of
Intangible Assets
 Effective Date of FASB
Statement No. 157
 Business Combinations
 Accounting for Collaborative
Arrangements Related to the Development and Commercialization of Intellectual Property .
 13




---



##### Table of Contents



13. DISTRIBUTION AGREEMENT
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    14




---



##### Table of Contents



Critical Accounting Policies
  15




---



##### Table of Contents



Sales Reserves
     16




---



##### Table of Contents



a)
    
    The estimated historic 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 current and future rates of Medicaid utilization, we analyze inventory
levels and patient prescription data received from a third party, CuraScript.
     September 30,
    
    
    December 31,2008
    
    
    2007Medicaid rebates
    
    $
    13,478
    
    
    $
    6,514Government chargebacks
    
    
    58
    
    
    
    222Product returns  credit memoranda policy
    
    
    391
    
    
    
    1,307Product returns  product replacement policy
    
    
    48
    
    
    
    31Other
    
    
    
    
    
    
    102$
    13,975
    
    
    $
    8,176
 Inventories
  17




---



##### Table of Contents



Intangible and Long-Lived Assets
 Goodwill and Other Intangible
Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
 Share-Based Compensation Expense
    18




---



##### Table of Contents



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




---



##### Table of Contents



Results of Operations
 Three months ended September 30, 2008 compared to the three months ended September 30, 2007:
 Total Net Sales
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net sales
    
    $
    24,200
    
    
    $
    14,809
    
    
    $
    9,391
    
    
    
    63
    %
    20




---



##### Table of Contents



Cost of Sales and Gross Profit
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Cost of sales
    
    $
    1,937
    
    
    $
    1,534
    
    
    $
    403
    
    
    
    26
    %Gross profit
    
    $
    22,263
    
    
    $
    13,275
    
    
    $
    8,988
    
    
    
    68
    %Gross margin
    
    
    92
    %
    
    
    90
    %
  Selling, General and Administrative
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    4,251
    
    
    $
    3,322
    
    
    $
    929
    
    
    
    28
    %
    21




---



##### Table of Contents



Research and Development
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Research and development
    
    $
    2,577
    
    
    $
    1,264
    
    
    $
    1,313
    
    
    
    104
    %
  Depreciation and Amortization
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Depreciation and amortization
    
    $
    134
    
    
    $
    125
    
    
    $
    9
    
    
    
    7
    %
  Other Income, net
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Other income, net
    
    $
    209
    
    
    $
    163
    
    
    $
    46
    
    
    
    28
    %
  22




---



##### Table of Contents



Income Before Income Taxes and Income Tax Expense
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Income before income taxes
    
    $
    15,510
    
    
    $
    8,727
    
    
    $
    6,783
    
    
    
    78
    %Income tax expense
    
    $
    6,555
    
    
    $
    102
    
    
    $
    6,453
    
    
    
    6,326
    %
  Net Income
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income
    
    $
    8,955
    
    
    $
    8,625
    
    
    $
    330
    
    
    
    4
    %
  Preferred Stock Distribution
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Allocation of undistributed earnings to Series A Preferred Stock
    
    $
    
    
    
    $
    261
    
    
    $
    (261
    )
    
    
    (100
    )%
  Net Income Applicable to Common Shareholders
 Three Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income applicable to common shareholders
    
    $
    8,955
    
    
    $
    8,364
    
    
    $
    591
    
    
    
    7
    %
 23




---



##### Table of Contents



Nine months ended September 30, 2008 compared to the nine months ended September 30, 2007:
 Total Net Sales
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net sales
    
    $
    68,230
    
    
    $
    22,654
    
    
    $
    45,576
    
    
    
    201
    %
    Cost of Sales and Gross Profit
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Cost of sales
    
    $
    5,446
    
    
    $
    3,298
    
    
    $
    2,148
    
    
    
    65
    %Gross profit
    
    $
    62,784
    
    
    $
    19,356
    
    
    $
    43,428
    
    
    
    224
    %Gross margin
    
    
    92
    %
    
    
    85
    %
 24




---



##### Table of Contents



Selling, General and Administrative
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    14,172
    
    
    $
    13,619
    
    
    $
    553
    
    
    
    4
    %
      25




---



##### Table of Contents



Research and Development
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Research and development
    
    $
    8,103
    
    
    $
    3,355
    
    
    $
    4,748
    
    
    
    142
    %
  Depreciation and Amortization
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Depreciation and amortization
    
    $
    379
    
    
    $
    373
    
    
    $
    6
    
    
    
    2
    %
  Other Income, net
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Decrease
    
    Change(in $000s)Other income, net
    
    $
    828
    
    
    $
    1,242
    
    
    $
    (414
    )
    
    
    (33
    )%
  Income Before Income Taxes and Income Tax Expense
 Nine Months EndedSeptember 30,2008
    
    2007
    
    Increase(in $000s)Income before income taxes
    
    $
    40,958
    
    
    $
    3,251
    
    
    $
    37,707Income tax expense
    
    $
    16,668
    
    
    $
    102
    
    
    $
    16,566
 26




---



##### Table of Contents



Net Income
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income
    
    $
    24,290
    
    
    $
    3,149
    
    
    $
    21,141
    
    
    
    671
    %
  Series A Preferred Stock Dividend and Distribution
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2008
    
    2007
    
    (Decrease)
    
    Change(in $000s)Deemed dividend on Series A Preferred Stock
    
    $
    5,267
    
    
    $
    
    
    
    $
    5,267
    
    
    
    Allocation of undistributed earnings to Series A Preferred Stock
    
    $
    
    
    
    $
    95
    
    
    $
    (95
    )
    
    
    (100
    )%
   27




---



##### Table of Contents



Net Income Applicable to Common Shareholders
 Nine Months EndedSeptember 30,
    
    
    
    
    
    %2008
    
    2007
    
    Increase
    
    Change(in $000s)Net income applicable to common shareholders
    
    $
    19,023
    
    
    $
    3,054
    
    
    $
    15,969
    
    
    
    523
    %
  Liquidity and Capital Resources
       Recently Issued Accounting Standards
  28




---



##### 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
  
    
    the Companys ability to continue to successfully implement its business strategy for Acthar;
    
    the introduction of competitive products;
    
    regulatory changes, including possible outcomes relating to a July 2008 Congressional
hearing regarding orphan drug pricing;
    
    the Companys ability to accurately forecast the
demand for its products;
    
    the gross margin achieved from the sale of the Companys products;
    
    the Companys ability to estimate the quantity of Acthar used by government-supported
entities and Medicaid-eligible patients;
 29




---



##### Table of Contents




    
    that the actual amount of rebates and discounts related to the use of Acthar by
government-supported entities and Medicaid-eligible patients may differ materially from the
Companys estimates;
    
    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 carryforwards to reduce income taxes on
taxable income;
    
    research and development risks, including risks associated with the Companys sNDA for IS, its
preliminary work in the area of Nephrotic Syndrome and QSC-001;
    
    uncertainties regarding the Companys intellectual property;
    
    the uncertainty of receiving required regulatory approvals in a timely way, or at all;
    
    uncertainties in the credit and capital markets and the impact a further deterioration of
these markets could have on the Companys investment portfolio;
    
    the failure to maintain an adequate level of reimbursement for Acthar from third
party payors;
    
    the Companys ability to enforce its product returns policy;
    
    the
outsourcing of the Companys Acthar distribution functions to CuraScript;
    
    the
sell-through by the Companys distributors;
    
    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; 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
    
    ProgramsJuly 1  July 31, 2008
    
    
    587,000
    
    
    $
    4.96
    
    
    
    587,000
    
    
    
    3,672,100August 1  August 31, 2008
    
    
    2,351,700
    
    
    $
    4.96
    
    
    
    151,700
    
    
    
    3,520,400September 1  September 30, 2008
    
    
    1,811,300
    
    
    $
    5.06
    
    
    
    11,300
    
    
    
    3,509,100Total
    
    
    4,750,000
    
    
    $
    5.00
    
    
    
    750,000
 30




---



##### Table of Contents



ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 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. 31




---



##### Table of Contents



SIGNATURES
  QUESTCOR PHARMACEUTICALS, INC.Date: November 12, 2008
    By:
    /s/ Don M. BaileyDon M. BaileyPresident and Chief Executive OfficerBy:
    /s/ Gary SawkaGary SawkaSenior Vice President, Finance and
Chief Financial Officer 32




---



##### 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.