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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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