With the Nasdaq Biotechnology Index up 65% since the start of the year, it's clear that the biotech sector performed extraordinarily well in 2013 - but which stocks were the biggest winners? Several small-cap and mid-cap biotech companies posted returns of 200% or more this year, and, in this series, I'll review the 15 biggest movers of 2013. Let's continue this review with number 3 on the list, Insys Therapeutics Inc. (INSY).

High-flying Insys Therapeutics got some good news in December when competitors Tesaro (NASDAQ: TSRO) and Opko Health (OPK -1.63%) reported their pain-killing drug rolapitant stumbled in meeting secondary endpoints in a phase 3 trial. However whether that potentially good news offsets a recent subpoena received by Insys from the Department of Health and Human Services remains to be seen.

Rapidly growing market
The market for pain killing drugs for patients fighting cancer is currently valued at more than $3 billion and is expected to grow to over $5 billion by 2018, according to Worldwide Marketing Research.

In addition to benefiting patients, that market opportunity meant there was considerable interest when Insys launched Subsys, a breakthrough treatment for pain, in 2012. Subsys has since won over 30% of the $388 million market for transmucosal immediate-release fentanyl, or TIRF, pain killers in just a little more than a year.A lot of that share has come at the expense of market leader Teva Pharmaceuticals (TEVA -1.06%) Actiq and Fentora. Fentora, acquired by Teva in when it bought out Cephalon for $7 billion in 2011, produced sales of $180 million for Teva in 2010.

Subsys market share is translating into significant revenue growth at Insys. Subsys accounts for virtually all the company's revenue, which climbed more than 1000% from a year ago to $28.4 million in the third quarter. Higher Subsys sales are also boosting Insys bottom line, providing leverage that boosted the company's gross margin to 89% in the third quarter from 59% a year ago. Those margins translated into net income of $11.6 million or $0.51 per share in earnings in the third quarter -- far better than the $0.46 loss posted a year ago.

Rough rapids ahead
The Department of Health and Human Services may be calling into question how Insys went about capturing that market share from leader Teva's Actiq and Fentora.

The Government similarly investigated Teva's Cephalon unit for promoting Actiq for off-label use when the drug launched in 2008. Cephalon settled that suit, paying $425 million in fines and pleading guilty to a misdemeanor violation of the Food, Drug, and Cosmetic Act. Teva still faces shareholder lawsuits tied to those alleged marketing violations and Teva's Fentora has been a subject of inquiry too. Teva received a subpoena looking into Fentora in 2011.

The news of Insys' subpoena has sparked a class action lawsuit, which alleges Insys made materially false and misleading statements regarding the Company's business and operations. Regardless of whether the lawsuit's allegations regarding unethical marketing of Subsys prove true, it's likely Insys legal costs will climb in 2014, and those costs could stretch further into the future.

Fool-worthy final thoughts
The growing demand for cancer patient pain care has sparked a number of trials for new, pain-relieving compounds. One of those compounds is rolapitant, which Tesaro licensed from Opko Health back in 2010. Tesaro reported phase 3 trial data in December showing rolapitant succeeded in reducing vomiting in chemotherapy patients. However, rolapitant didn't achieve secondary goals of statistical significance in reducing nausea.

That could help Insys, which is developing an oral version of its generic Marinol capsules. That drug, which is based on THC, the psychoactive compound found in marijuana, is used to treat nausea caused by chemotherapy, and to restore appetite in AIDS patients -- a market worth $135 million according to IMS Health. The company may apply for FDA approval for that oral formulation in 2014.

If Subsys is the most effective solution, it's unlikely doctors and patients will forego its use because of a subpoena.  But it could mean less off-label use. That suggests investors should keep an eye on sales over the coming quarters to see if they slow.  Given the potential for higher legal costs, you should also watch closely for updates on the subpoena, as any fines or settling of suits could reduce its healthy margins and earnings.

The Motley Fool's Top Stock for 2014