UNION CITY, Calif. ( TheStreet) -- At the beginning of 2009, biotechnology niche player Questcor Pharmaceuticals ( QCOR) was trading above $9.

Is Questcor headed back to its former share price heights after an almost 27% rise during Tuesday and Wednesday's trading sessions?

Questcor posted earnings after the close on Monday that beat the Street -- albeit a "Street" comprised of only two analysts -- estimates.

Questcor finished Tuesday up 19.2%, or a daily gain of 92 cents, to $5.71. Tuesday's trading level in Questcor shares -- 3.7 million shares in play -- was well above its average daily volume of trading of less than 500,000 shares.

On Wednesday, Questcor was up another 6.5% in afternoon trading, or 37 cents, to $6.08. Questcor had trading of close to 2 million shares by 2 p.m. on Wednesday.

One of the two analysts who cover Questcor reiterated his $9 price target and buy rating after the fourth quarter earnings.

The analyst -- and Questcor's CEO -- say the earnings answered important questions about potential competition in Questcor's niche, and questions about the payoff from its recent sales-force expansion, as well as its effort to focus on the market for treatment of multiple sclerosis.

It is a small niche for Questcor, arguably befitting coverage from two analysts.

Questcor markets one drug, Acthar -- which has a history dating back to the 1940s, is derived from pig pituitary glands, and has been used historically to treat infantile spasms (IS). The one-drug approach came into question in the past quarter when a rival drug, Sabril -- the U.S. version of a drug marketed in other countries under the brand name Vigabatrin -- became available at the end of September.

Yale Jen, the Maxim Group analyst who covers Questcor, said that Maxim Group's expectation was that Sabril would, at worst, change the status quo, but it would not make a major dent in sales of Acthar.

Indeed, the fourth-quarter performance of Questcor indicates that Sabril is not disrupting the 40-year-old history of Acthar.

Questcor reported fourth quarter earnings of $8.4 million, or 13 cents per share, beating the Maxim Group analyst's estimate of $6.7 million and 10 cent per share.

"People were worried about the whole health care overhaul and the focus on managed care to lower costs, but the overall number of patients for whom this drug is being prescribed has not changed drastically," Maxim Group's Jen said.

Questcor's overall prescription levels also showed stabilization in the quarter -- a quarter in which it was supposed to face the increased pressure from Sabril.

"We increased our business 50% in the quarter that Sabril debuted, so clearly it did not have a negative impact. Investors didn't understand the nature of this disease. Infantile spasms is not a monolithic disease. Babies with IS have a number of problems and not all drugs are created equally to treat every stage of IS," Don Bailey, CEO of Questcor said.

Total prescriptions in the IS market increased to 140 in the fourth quarter, versus 119 in the previous quarter.

What's more, Questcor's success in selling Acthar for the treatment of MS showed significant gains relative to its historical strength as a treatment for infantile spasms (IS).

Acthar showed 200% quarter-over-quarter growth in MS prescriptions, and revenues from these prescriptions of $12 million, equal to the IS revenue stream.

"The most important trend in the short term is the MS trend. That was our major focus in 2009, as we increased our sales force to 38 people, and our managers focused on ramping up the MS sales effort," Bailey said, adding that Questcor is now running at more than $40 million in annual sales. "This is a niche that is underserved and has no competition."

MS sales now represent 40% to 45% of Questcor's earnings per share, roughly equal with IS, the market that has been Questcor's backbone in the past, Bailey said.

With the revenue streams from IS and MS now virtually equal, Questcor is aiming for a third revenue stream from the sales of Acthar into the Nephrotic Syndrome (NS) market. NS is a devastating kidney condition, and while Acthar has been approved for the treatment of NS for years, Questcor had never pursued the market.

"There are no good therapies for treating NS, and the average prescription for Acthar in this market would be $200,000, versus $40,000 for MS, and $100,000 for IS," Questcor's Bailey said.

Questcor plans to use the same sales approach that led to the increase in its MS sales effort for the push into the NS market. Bailey explained that five of the 38 salespeople on the Questcor team will spend one day a week on a pilot sales effort for the NS market, exactly how Questcor began its expansion into MS sales two years ago.

Bailey noted that the original prescription numbers in MS were small, and these NS prescriptions would be worth five times as much. Approximately 14 paid prescriptions in the NS market is like 70 paid prescriptions in the MS market, and the market for NS is much larger than the market for treatment of infantile spasms, Bailey noted.

"If we are successful with the NS sales effort, it is all anyone will talk about," Bailey said. However, he cautioned that at this point all Questcor has is a lot of potential. As NS can be caused by a variety of underlying diseases, there are no guarantees about the effectiveness of Acthar.

Questcor does already have limited sales in the NS market.

Maxim Group's Jen said that existing Acthar sales from nephrotic syndrome in 2009 were encouraging, and not only is revenue higher with these sales, but there is a low percentage of Medicaid patients.

The Maxim Group analyst said with the outlook of Acthar revenue expansion from three markets encouraging, he believes the shares are undervalued.

A few other encouraging signs for Questcor: the FDA accepted Acthar's IS sNDA application in December 2009, and Questcor has also been able to renegotiate more favorable prescription terms with the Veterans Administration and the Department of Defense's insurance organization, Tricare.

While the Maxim Group analyst said he was somewhat frustrated by delays in this application process, an FDA decision is expected in June. The new approval would allow Questcor to actively market Acthar for the treatment of infantile spasms in the U.S., and could also lead to a seven-year exclusivity agreement for the Acthar, if no other drug is introduced that performs better in treating IS.

Bailey also said that the FDA application process has been particularly cumbersome for Questcor because the drug is treating an infant disease, and it is not possible to run typical drug trials using infants. "We were relegated to having to obtain safety data from actual history from a children's hospital; this was not an FDA trial done as academic research. We had to pull lots of records, which is not the typical FDA approach," Bailey said.

The renegotiated terms with the VA and DoD -- which receive rebates of Questcor sales -- went into effect on Jan. 1, 2010. Bailey said the renegotiation opportunity comes up once every three to four years, and it will impact Questcor's earnings per share at the rate of 1 cent of earnings per every million dollars of sales. Bailey estimates this change will impact Questcor's 2010 annual earnings by three to four cents.

If an investor were to take all these indications as a sign to buy Questcor shares -- it seems this has been the case over the past two days -- they wouldn't be alone in making the move: Questcor has been an aggressive re-purchaser of its shares. As of the end of 2009, Questcor had 61.7 million common shares outstanding, with 5.1 million shares remaining under its common-share repurchase program.

-- Reported by Eric Rosenbaum in New York.

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