Why Insys Theraputics Inc. Shares Are Imploding

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Insys Therapeutics  (NASDAQ: INSY  ) have fallen 14% today, after dropping nearly 17% at the end of Friday's trading, in response to allegations that a Michigan doctor fraudulently prescribed Insys' drug Subsys.

So what: It took some time for Insys shareholders and curious onlookers to suss out the problem on Friday, but details have emerged regarding one Dr. Gavin Awerbuch of Kochville Township, Michigan. Awerbuch is purportedly under federal investigation writing 1,283 prescriptions for Subsys -- over five times as many as any other prescriber in the country -- while billing Medicare $6.9 million for the prescriptions over the past few years. Awerbuch alone was responsible for a fifth of all Subsys prescriptions written to Medicare beneficiaries over this time frame.

Subsequent commentary from John Hempton of Bronte Capital has further damaged Insys' credibility with investors. Hempton's scathing indictment of Insys as a "remarkably" overvalued company and of Subsys -- Insys' most important product -- as a "me-too product," being the fourth sublingual spray form of fentanyl to hit the market, has many points that are difficult to overlook. Hempton also argues that Insys promotes Subsys through an "incentive-based sales model," which could certainly encourage the alleged behavior of Dr. Awerbuch, and potentially of other doctors as well, since fentanyl is a powerful opioid painkiller that, in Hempton's evocative phrasing, "is wildly addictive and makes you massively high."

Now what: Insys had enjoyed monstrous share-price growth over the past year, as its shares had grown by roughly 1,000% in value from the start of 2013 to early 2014. Even after its recent drops, Insys' stock is nearly six times as pricey today as it was at the start of 2013. The company's metrics had skyrocketed since the release of Subsys in 2012, so this growth was seen as justified. But if it's going to come out that Subsys is wildly overprescribed and heavily marketed despite high risks of addiction, it's quite likely that Insys' sales will nosedive. It's too early to tell whether or not this investigation will lead to a broader crackdown and a plunge in sales, but I'd be very wary of trying to "buy the dips" on something of this nature.

If you're interested in reading the full Bronte Capital write-up, click here (link opens in new window).

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  • Report this Comment On May 12, 2014, at 3:40 PM, BioMark wrote:

    Why INSY is down today:

    - The doc that got arrested was responsible for 20% of the Medicare scripts for INSY's only product Subsys. There is uncertainty how much of all Subsys scripts he is responsible for.

    - A physician is not financially incentivized to write scripts, but to do procedures. While it is understandable, from a dinancial interest perspective, why the arrested physician charged for procedures he did not perform, the bigger question is what was his financial incentive to write scripts for controlled opiates, mainly Subsys.

    - The doc wrote 6x more Subsys scripts than the next highest prescriber. INSY should have taken some interest in this, since Subsys is a DEA controlled opiate, commonly abused by drug addicts.

    - INSY's Subsys was used off-label, and there is uncertainty if the company promoted off-label use of their drug, Another fentanyl-containing product, Actiq, when it was promoted off-label by Cephalon resulted in over $500M in fines to the company.

    - There are several forms of fentanyl on the market, like INSY's Subsys, yet Subsys took a huge share since approval. This raises the question whether the sales force was aggressively marketing the drug, such as promoting off-label use, or incentivising doctors to switch from other fentanyls to Subsys.

    - INSY was already under investigation for its marketing practices. The recent developments are a second red flag.

    - Basically, there are better stocks to buy, no need to take this level of uncertainty and downside. No reason for anyone to won this much risk. That's why the stock is down.

  • Report this Comment On May 12, 2014, at 8:13 PM, BrandtLake wrote:

    SUBSYS is a superior drug in the class due to method of administration resulting in a better pharmacokinetic profile rendering patient pain relief as early as 5 mins post administration. By Dec 2013 SUBSYS captured 28% of the TIRF market, which in 2013, TIRF products generated $421.2 million in annual U.S. product sales. This info from Insy Therapeutics Form 10-K Annual Report to SEC for 2013. According to the report, through Feb 2014 there were 39,000 Subsys prescriptions, so 1283 prescriptions by Dr. Gavin Awerbuch represents 3.3%; Insys Therapeutics reported 5% earlier today.

    These allegations of fraud are serious and do cast a cloud of risk over the company but the drug is profitable and will continue to be prescribed and I would anticipate it holding its market share through 2014.

    See link to find SEC 10K report:

    http://www.sec.gov/Archives/edgar/data/0001516479/0001437749...

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