##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 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
 PART I. FINANCIAL INFORMATIONItem 1 Financial Statements and Notes (Unaudited)Consolidated Balance Sheets  September 30, 2009 and December 31, 2008
    
    
    3Consolidated Statements of Income  for the three and nine months ended September 30, 2009 and 2008
    
    
    4Consolidated Statements of Cash Flows  for the nine months ended September 30, 2009 and 2008
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4 Controls and Procedures
    
    
    29PART II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    30Item 1A Risk Factors
    
    
    30Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3 Defaults Upon Senior Securities
    
    
    31Item 4 Submission of Matters to a Vote of Security Holders
    
    
    31Item 5 Other Information
    
    
    31Item 6 Exhibits
    
    
    31Signatures
    
    
    33EX-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)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,321
    
    
    $
    13,282Short-term investments
    
    
    37,022
    
    
    
    42,169Total cash, cash equivalents and short-term investments
    
    
    73,343
    
    
    
    55,451Accounts receivable, net of allowance for doubtful accounts of $0 and $62 at
September 30, 2009 and December 31, 2008, respectively
    
    
    10,598
    
    
    
    10,418Inventories, net
    
    
    3,434
    
    
    
    2,459Prepaid income taxes
    
    
    5,256
    
    
    
    3,316Prepaid expenses and other current assets
    
    
    1,240
    
    
    
    1,101Deferred tax assets
    
    
    5,651
    
    
    
    6,252Total current assets
    
    
    99,522
    
    
    
    78,997Property and equipment, net
    
    
    414
    
    
    
    450Purchased technology, net
    
    
    3,446
    
    
    
    3,669Goodwill
    
    
    299
    
    
    
    299Deposits and other assets
    
    
    710
    
    
    
    710Deferred tax assets
    
    
    5,021
    
    
    
    5,021Total assets
    
    $
    109,412
    
    
    $
    89,146LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,695
    
    
    $
    4,302Accrued compensation
    
    
    1,808
    
    
    
    1,896Sales-related reserves
    
    
    13,965
    
    
    
    11,825Other accrued liabilities
    
    
    1,145
    
    
    
    1,702Total current liabilities
    
    
    29,613
    
    
    
    19,725Lease termination and deferred rent liabilities and other non-current liabilities
    
    
    1,307
    
    
    
    1,529Total liabilities
    
    
    30,920
    
    
    
    21,254Shareholders equity:Preferred stock, no par value, 7,500,000 shares authorized; none outstanding
    
    
    
    
    
    
    Common stock, no par value, 105,000,000 shares authorized; 64,162,052 and
65,970,653 shares issued and outstanding at September 30, 2009 and December
31, 2008, respectively
    
    
    76,665
    
    
    
    84,028Retained earnings (accumulated deficit)
    
    
    1,803
    
    
    
    (16,405
    )Accumulated other comprehensive income
    
    
    24
    
    
    
    269Total shareholders equity
    
    
    78,492
    
    
    
    67,892Total liabilities and shareholders equity
    
    $
    109,412
    
    
    $
    89,146
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    13,851
    
    
    $
    24,200
    
    
    $
    62,415
    
    
    $
    68,230Cost of sales (exclusive of amortization of purchased technology)
    
    
    2,006
    
    
    
    1,937
    
    
    
    5,119
    
    
    
    5,446Gross profit
    
    
    11,845
    
    
    
    22,263
    
    
    
    57,296
    
    
    
    62,784Operating expenses:Selling, general and administrative
    
    
    7,676
    
    
    
    4,251
    
    
    
    22,109
    
    
    
    14,172Research and development
    
    
    2,215
    
    
    
    2,577
    
    
    
    6,991
    
    
    
    8,103Depreciation and amortization
    
    
    123
    
    
    
    134
    
    
    
    359
    
    
    
    379Total operating expenses
    
    
    10,014
    
    
    
    6,962
    
    
    
    29,459
    
    
    
    22,654Income from operations
    
    
    1,831
    
    
    
    15,301
    
    
    
    27,837
    
    
    
    40,130Other income:Interest income
    
    
    119
    
    
    
    209
    
    
    
    583
    
    
    
    817Other income, net
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    11Gain on sale of product rights
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    Total other income
    
    
    120
    
    
    
    209
    
    
    
    810
    
    
    
    828Income before income taxes
    
    
    1,951
    
    
    
    15,510
    
    
    
    28,647
    
    
    
    40,958Income tax expense
    
    
    728
    
    
    
    6,555
    
    
    
    10,439
    
    
    
    16,668Net income
    
    
    1,223
    
    
    
    8,955
    
    
    
    18,208
    
    
    
    24,290Deemed dividend on Series A preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,267Net income applicable to common shareholders
    
    $
    1,223
    
    
    $
    8,955
    
    
    $
    18,208
    
    
    $
    19,023Net income per share applicable to common shareholders:Basic
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    0.28
    
    
    $
    0.28Diluted
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    0.27
    
    
    $
    0.26Shares used in computing net income per share applicable to common
shareholders:Basic
    
    
    64,009
    
    
    
    66,796
    
    
    
    64,570
    
    
    
    68,642Diluted
    
    
    65,993
    
    
    
    70,111
    
    
    
    66,753
    
    
    
    72,360
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
 Nine Months EndedSeptember 30,2009
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    18,208
    
    
    $
    24,290Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation expense
    
    
    2,394
    
    
    
    3,773Deferred income taxes
    
    
    587
    
    
    
    8,504Amortization of investments
    
    
    81
    
    
    
    (421
    )Depreciation and amortization
    
    
    359
    
    
    
    378Gain on sale of product rights
    
    
    (225
    )
    
    
    Income tax benefit from share-based compensation
    
    
    573
    
    
    
    Excess tax benefit from share-based compensation
    
    
    (572
    )
    
    
    (1,424
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (180
    )
    
    
    12,533Inventories
    
    
    (975
    )
    
    
    (72
    )Prepaid income taxes
    
    
    (1,940
    )
    
    
    Prepaid expenses and other current assets
    
    
    (139
    )
    
    
    (489
    )Accounts payable
    
    
    8,393
    
    
    
    2,767Accrued compensation
    
    
    (88
    )
    
    
    (552
    )Sales-related reserves
    
    
    2,140
    
    
    
    5,799Income taxes payable
    
    
    
    
    
    
    (1,330
    )Other accrued liabilities
    
    
    (557
    )
    
    
    251Other non-current liabilities
    
    
    (222
    )
    
    
    (266
    )Net cash flows provided by operating activities
    
    
    27,837
    
    
    
    53,741INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (100
    )
    
    
    (59
    )Purchase of short-term investments
    
    
    (50,300
    )
    
    
    (45,664
    )Proceeds from the sale and maturities of short-term investments
    
    
    55,135
    
    
    
    31,386Net proceeds from sale of product rights
    
    
    225
    
    
    
    Changes in deposits and other assets
    
    
    
    
    
    
    35Net cash flows provided by (used in) investing activities
    
    
    4,960
    
    
    
    (14,302
    )FINANCING ACTIVITIESIssuance of common stock, net
    
    
    859
    
    
    
    1,123Repurchase of common stock
    
    
    (11,189
    )
    
    
    (35,571
    )Repurchase of Series A preferred stock
    
    
    
    
    
    
    (10,348
    )Excess tax benefit from share-based compensation
    
    
    572
    
    
    
    1,424Net cash flows used in financing activities
    
    
    (9,758
    )
    
    
    (43,372
    )Increase (decrease) in cash and cash equivalents
    
    
    23,039
    
    
    
    (3,933
    )Cash and cash equivalents at beginning of period
    
    
    13,282
    
    
    
    15,939Cash and cash equivalents at end of period
    
    $
    36,321
    
    
    $
    12,006
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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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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 current 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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September 30,
    
    
    December 31,2009
    
    
    2008Medicaid rebates
    
    $
    12,492
    
    
    $
    11,406Tricare rebates
    
    
    1,400
    
    
    
    Government chargebacks
    
    
    73
    
    
    
    164Product returns
    
    
    
    
    
    
    255$
    13,965
    
    
    $
    11,825
 3. SHARE-BASED COMPENSATION
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Selling, general and administrative
    
    $
    512
    
    
    $
    493
    
    
    $
    1,896
    
    
    $
    2,998Research and development
    
    
    157
    
    
    
    142
    
    
    
    477
    
    
    
    660Total
    
    $
    669
    
    
    $
    635
    
    
    $
    2,373
    
    
    $
    3,658
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4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gain
    
    
    (Loss)
    
    
    Fair ValueSeptember 30, 2009Cash equivalents
    
    $
    30,922
    
    
    $
    
    
    
    $
    
    
    
    $
    30,922Short-term investments:Commercial paper
    
    $
    10,730
    
    
    $
    19
    
    
    $
    
    
    
    $
    10,749Government-sponsored enterprises
    
    
    13,327
    
    
    
    3
    
    
    
    (8
    )
    
    
    13,322Certificates of deposit
    
    
    5,600
    
    
    
    
    
    
    
    (20
    )
    
    
    5,580Municipal bonds
    
    
    7,327
    
    
    
    44
    
    
    
    
    
    
    
    7,371$
    36,984
    
    
    $
    66
    
    
    $
    (28
    )
    
    $
    37,022December 31, 2008Cash equivalents
    
    $
    10,293
    
    
    $
    
    
    
    $
    
    
    
    $
    10,293Short-term investments:Commercial paper
    
    $
    7,830
    
    
    $
    59
    
    
    $
    
    
    
    $
    7,889Government-sponsored enterprises
    
    
    30,309
    
    
    
    210
    
    
    
    
    
    
    
    30,519Municipal bonds
    
    
    3,762
    
    
    
    
    
    
    
    (1
    )
    
    
    3,761$
    41,901
    
    
    $
    269
    
    
    $
    (1
    )
    
    $
    42,169
 9




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##### Table of Contents



Amortized
    
    
    Estimated FairCost
    
    
    ValueDue in one year or less
    
    $
    67,426
    
    
    $
    67,466Due after one through two years
    
    
    480
    
    
    
    478Total available-for-sale securities
    
    $
    67,906
    
    
    $
    67,944
   Less Than 12 Months
    
    12 Months or GreaterGross
    
    Estimated
    
    Gross
    
    EstimatedUnrealized
    
    Fair
    
    Unrealized
    
    FairLosses
    
    Value
    
    Losses
    
    ValueGovernment-sponsored enterprises
    
    $
    (8
    )
    
    $
    6,044
    
    
    $
    
    
    
    $
    Certificates of deposit
    
    
    (20
    )
    
    
    3,580
    
    
    
    
    
    
    
    Total
    
    $
    (28
    )
    
    $
    9,624
    
    
    $
    
    
    
    $
    
  Fair Value
 Fair Value Measurements and Disclosures
   Cash equivalents:
 10




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##### Table of Contents



Short-term available-for-sale investments at fair value
  Basis of Fair Value MeasurementsQuoted prices
    
    
    Significantin active
    
    
    other
    
    
    SignificantBalance at
    
    
    markets for
    
    
    observable
    
    
    unobservableSeptember 30,
    
    
    identical items
    
    
    inputs
    
    
    inputs2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Money market funds
    
    $
    30,922
    
    
    $
    30,922
    
    
    $
    
    
    
    
    Commercial paper
    
    
    10,749
    
    
    
    
    
    
    
    10,749
    
    
    
    Government-sponsored enterprises
    
    
    13,322
    
    
    
    
    
    
    
    13,322
    
    
    
    Certificates of deposit
    
    
    5,580
    
    
    
    
    
    
    
    5,580
    
    
    
    Municipal bonds
    
    
    7,371
    
    
    
    
    
    
    
    7,371
    
    
    
    $
    67,944
    
    
    $
    30,922
    
    
    $
    37,022
    
    
    
    
  5. INVENTORIES
   September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    3,104
    
    
    $
    2,056Work-in-process
    
    
    565
    
    
    
    Finished goods
    
    
    319
    
    
    
    432Less allowance for excess and obsolete inventories
    
    
    (554
    )
    
    
    (29
    )$
    3,434
    
    
    $
    2,459
 6. PURCHASED TECHNOLOGY
  11




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##### Table of Contents



7. COMMITMENTS, INDEMNIFICATIONS AND CONTINGENCIES
      8. NET INCOME PER SHARE
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income applicable to common shareholders
    
    $
    1,223
    
    
    $
    8,955
    
    
    $
    18,208
    
    
    $
    19,023Shares used in computing net income per share
applicable to common shareholders:Basic
    
    
    64,009
    
    
    
    66,796
    
    
    
    64,570
    
    
    
    68,642Effect of dilutive potential common shares:Stock options
    
    
    1,977
    
    
    
    3,303
    
    
    
    2,171
    
    
    
    3,516Restricted stock
    
    
    7
    
    
    
    12
    
    
    
    12
    
    
    
    21Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Diluted
    
    
    65,993
    
    
    
    70,111
    
    
    
    66,753
    
    
    
    72,360Net income per share applicable to common shareholders:Basic
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    0.28
    
    
    $
    0.28Diluted
    
    $
    0.02
    
    
    $
    0.13
    
    
    $
    0.27
    
    
    $
    0.26
 12




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2009
    
    2008
    
    2009
    
    2008Stock options
    
    
    2,413
    
    
    
    1,600
    
    
    
    2,397
    
    
    
    1,338Restricted stock
    
    
    
    
    
    
    233
    
    
    
    
    
    
    
    233Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    393
 13




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##### Table of Contents



9. INCOME TAXES
  10. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    1,223
    
    
    $
    8,955
    
    
    $
    18,208
    
    
    $
    24,290Change in
unrealized gains on
available-for-sale
securities, net of
related tax effects
    
    
    (58
    )
    
    
    (22
    )
    
    
    (245
    )
    
    
    (59
    )Comprehensive income
    
    $
    1,165
    
    
    $
    8,933
    
    
    $
    17,963
    
    
    $
    24,231
 11. EQUITY TRANSACTIONS
     12. RECENTLY ISSUED ACCOUNTING STANDARDS
 The FASB Accounting Standards Codification
 14




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Subsequent Events
 Investments-Debt
and Equity Securities
 Fair Value
Measurements and Disclosures
 Financial
Instruments
 Business
Combinations
 Collaborative
Arrangements
 15




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##### Table of Contents



13. RELATED PARTY TRANSACTIONS
  
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
    16




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##### Table of Contents



Critical Accounting Policies
  Sales Reserves
   17




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##### Table of Contents



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 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 current 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.
  Government Chargebacks
   18




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##### Table of Contents



Tricare Rebates
  Co-Pay Assistance Programs
  Product Returns
  Shelf-Stock Adjustment Credit
   September 30,
    
    
    December 31,2009
    
    
    2008Medicaid rebates
    
    $
    12,492
    
    
    $
    11,406Tricare rebates
    
    
    1,400
    
    
    
    Government chargebacks
    
    
    73
    
    
    
    164Product returns
    
    
    
    
    
    
    255$
    13,965
    
    
    $
    11,825
 Inventories
  Intangible and Long-Lived Assets
  19




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Intangibles-Goodwill and Other Property Plant and Equipment
 Share-Based Compensation Expense
 Compensation-Stock Compensation
  Lease Termination Liability
  Leases .
 20




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Income Taxes
      21




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Results of Operations
 Three months ended September 30, 2009 compared to the three months ended September 30, 2008:
 Net Sales
 Three Months EndedSeptember 30,
    
    
    Increase/
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(in $000s)Gross sales
    
    $
    31,337
    
    
    $
    34,762
    
    
    $
    (3,425
    )
    
    
    (10
    )%Deductions from gross sales:Provision for Medicaid rebates
    
    
    14,107
    
    
    
    10,002
    
    
    
    4,105
    
    
    
    41
    %Provision for chargebacks
    
    
    1,807
    
    
    
    623
    
    
    
    1,184
    
    
    
    190
    %Provision for Tricare rebates
    
    
    1,400
    
    
    
    
    
    
    
    1,400
    
    
    
    Co-payment assistance and other
    
    
    172
    
    
    
    (63
    )
    
    
    235
    
    
    
    373
    %Total deductions
    
    
    17,486
    
    
    
    10,562
    
    
    
    6,924
    
    
    
    66
    %Net sales
    
    $
    13,851
    
    
    $
    24,200
    
    
    $
    (10,349
    )
    
    
    (43
    )%
       22




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##### Table of Contents



Cost of Sales and Gross Profit
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Cost of sales
    
    $
    2,006
    
    
    $
    1,937
    
    
    $
    69
    
    
    
    4
    %Gross profit
    
    $
    11,845
    
    
    $
    22,263
    
    
    $
    (10,418
    )
    
    
    (47
    )%Gross margin
    
    
    86
    %
    
    
    92
    %
  Selling, General and Administrative
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    7,676
    
    
    $
    4,251
    
    
    $
    3,425
    
    
    
    81
    %
   23




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##### Table of Contents



Research and Development
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Research and development
    
    $
    2,215
    
    
    $
    2,577
    
    
    $
    (362
    )
    
    
    (14
    )%
    Depreciation and Amortization
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Depreciation and amortization
    
    $
    123
    
    
    $
    134
    
    
    $
    (11
    )
    
    
    (8
    )%
  Total Other Income
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Total other income
    
    $
    120
    
    
    $
    209
    
    
    $
    (89
    )
    
    
    (43
    )%
  24




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##### Table of Contents



Income Before Income Taxes and Income Tax Expense
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Income before income taxes
    
    $
    1,951
    
    
    $
    15,510
    
    
    $
    (13,559
    )
    
    
    (87
    )%Income tax expense
    
    $
    728
    
    
    $
    6,555
    
    
    $
    (5,827
    )
    
    
    (89
    )%
  Net Income and Net Income Applicable to Common Shareholders
 Three Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Net income and net income applicable to common shareholders
    
    $
    1,223
    
    
    $
    8,955
    
    
    $
    (7,732
    )
    
    
    (86
    )%
  Nine months ended September 30, 2009 compared to the nine months ended September 30, 2008:
 Net Sales
 Nine Months EndedSeptember 30,
    
    
    Increase/
    
    
    %2009
    
    
    2008
    
    
    (Decrease)
    
    
    Change(in $000s)Gross sales
    
    $
    100,630
    
    
    $
    98,318
    
    
    $
    2,312
    
    
    
    2
    %Deductions from gross sales:Provision for Medicaid rebates
    
    
    32,435
    
    
    
    26,835
    
    
    
    5,600
    
    
    
    21
    %Provision for chargebacks
    
    
    4,157
    
    
    
    2,790
    
    
    
    1,367
    
    
    
    49
    %Provision for Tricare rebates
    
    
    1,400
    
    
    
    
    
    
    
    1,400
    
    
    
    Co-payment assistance and other
    
    
    223
    
    
    
    463
    
    
    
    (240
    )
    
    
    (52
    )%Total deductions
    
    
    38,215
    
    
    
    30,088
    
    
    
    8,127
    
    
    
    27
    %Net sales
    
    $
    62,415
    
    
    $
    68,230
    
    
    $
    (5,815
    )
    
    
    (9
    )%
   25




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##### Table of Contents



Cost of Sales and Gross Profit
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Cost of sales
    
    $
    5,119
    
    
    $
    5,446
    
    
    $
    (327
    )
    
    
    (6
    )%Gross profit
    
    $
    57,296
    
    
    $
    62,784
    
    
    $
    (5,488
    )
    
    
    (9
    )%Gross margin
    
    
    92
    %
    
    
    92
    %
    
    
    
    
    
    
    
  Selling, General and Administrative
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    22,109
    
    
    $
    14,172
    
    
    $
    7,937
    
    
    
    56
    %
  26




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##### Table of Contents



Research and Development
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Research and development
    
    $
    6,991
    
    
    $
    8,103
    
    
    $
    (1,112
    )
    
    
    (14
    )%
   Depreciation and Amortization
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Depreciation and amortization
    
    $
    359
    
    
    $
    379
    
    
    $
    (20
    )
    
    
    (5
    )%
  Total Other Income
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Total other income
    
    $
    810
    
    
    $
    828
    
    
    $
    (18
    )
    
    
    (2
    )%
  27




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##### Table of Contents



Income Before Income Taxes and Income Tax Expense
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Income before income taxes
    
    $
    28,647
    
    
    $
    40,958
    
    
    $
    (12,311
    )
    
    
    (30
    )%Income tax expense
    
    $
    10,439
    
    
    $
    16,668
    
    
    $
    (6,229
    )
    
    
    (37
    )%
  Net Income
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Net income
    
    $
    18,208
    
    
    $
    24,290
    
    
    $
    (6,082
    )
    
    
    (25
    )%
  Series A Preferred Stock Dividend
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Deemed dividend on Series A Preferred Stock
    
    $
    
    
    
    $
    5,267
    
    
    $
    (5,267
    )
    
    
    (100
    )%
  Net Income Applicable to Common Shareholders
 Nine Months EndedSeptember 30,
    
    Increase/
    
    %2009
    
    2008
    
    (Decrease)
    
    Change(in $000s)Net income applicable to common shareholders
    
    $
    18,208
    
    
    $
    19,023
    
    
    $
    (815
    )
    
    
    (4
    )%
  28




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##### Table of Contents



Liquidity and Capital Resources
    Recently Issued Accounting Standards
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
     29




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 
 Problems obtaining finished goods from contract manufacturers may cause inventory shortages and
unanticipated costs.
   
    
    the Companys ability to continue to successfully implement its Acthar-centric business
strategy, including its expansion in the MS marketplace;
    
    the Companys ability to manage its sales force expansion;
    
    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 Companys ability to operate within an industry that is highly regulated at both the
Federal and state level;
    
    regulatory changes or actions including Federal or State health care reform initiatives;
    
    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;
    
    the actual amount of rebates and chargebacks related to the use of Acthar by
government-supported 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 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;
 30




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##### Table of Contents




    
    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 attract and 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
and its preliminary work in the area of nephrotic syndrome;
    
    uncertainties regarding the Companys intellectual property;
    
    the uncertainty of receiving required regulatory approvals in a timely way, or at all;
and
    
    uncertainties in the credit and capital markets and the impact a further deterioration of
these markets could have on the Companys investment portfolio.
  
 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, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,630,500August 1  August 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,630,500September 1  September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,630,500Total
    
    
    
    
    
    
    
    
    
    
    
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 ITEM 5. OTHER INFORMATION
  31




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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. 32




---



##### Table of Contents



SIGNATURES
  QUESTCOR
    
    PHARMACEUTICALS, INC.Date: November 9, 2009
    
    By:
    
    /s/ Don M. BaileyDon M. BaileyPresident and Chief Executive OfficerBy:
    
    /s/ Gary SawkaGary SawkaSenior Vice President, Finance and
Chief Financial Officer
 33




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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. 34