Insys Therapeutics (INSY) was one of the worst marijuana stocks to own in portfolios in 2016 and 2017, but its shares have become a whole lot more interesting over the past couple weeks. After shares hit 52-week lows in November, they've come to life recently because of optimism surrounding the company's emerging medical marijuana research program. Will medical marijuana help Insys Therapeutics turn itself around?

What's gone wrong

Rapidly growing demand for Insys Therapeutics' fentanyl opioid spray, Subsys, led to a quadrupling in its shares between early 2014 and mid-2015. However, allegations of improper off-label marketing and kickbacks have since crushed the share price.

A hand holding a marijuana leaf up.


Subsys is approved for breakthrough cancer pain, but investigations that came to light in 2015 suggest most of Subsys prescriptions were for its use in other pain indications. Michael Babich, Insys Therapeutics' CEO at the time, resigned shortly thereafter, and eventually, Babich was arrested in December 2016 on charges he was involved in "a  nationwide conspiracy to bribe medical practitioners to unnecessarily prescribe a fentanyl-based pain medication and defraud healthcare insurers," according to claims by the Department of Justice.

The allegations of illegal marketing and growing concern over opioid use caused Subsys prescription volume to crash in 2017, but that wasn't the only bad news that weighed down the company's shares last year.

In January 2017, John Kapoor, the company's founder, announced he was stepping down as CEO, and in October 2017, months after handing the reins over to former Purdue Pharma executive Saeed Motahari, Kapoor was arrested as well on charges involving Subsys marketing.

Investors were further frustrated last year by delays to the launch of Syndros, a liquid formulation of the well-worn, anti-nausea marijuana drug, Marinol. Although Syndros won Food and Drug Administration approval in 2016, Insys Therapeutics couldn't launch it until the DEA weighed in with its scheduling of it. Unfortunately, that scheduling wasn't awarded until March 2017, but, even then, Syndros didn't become available until late July.

There's also the matter of multiple lawsuits that got filed against Insys Therapeutics last year by states that want to get back the money they spent on Subsys in the past because of the marketing scheme. Since Subsys sales peaked at an annualized clip of over $300 million, settling those lawsuits could cost a lot of money.

A man in a suit biting his nails.


What's going right

With all the bad news, perhaps it's not too shocking that Insys Therapeutics shares fell below $5 per share in November 2017. What may be surprising, however, is what they've done since then. Over the past six weeks, the stock has doubled on optimism that the company's going to turn a corner in 2018.

That optimism has been fueled by management creating a $150 million reserve it can use to settle lawsuits, FDA acceptance of its application for approval of its buprenorphine formulation, and good news for the company's cannabidiol drug research program.

There's no telling if the $150 million that management's earmarked for settlements will be enough money to put the Subsys matter to bed for good, but the reserve may signal management's closing in on cutting a deal. If so, then that could remove a major headwind that's distracting the company from efforts to stabilize Subsys sales, grow Syndros demand, and potentially launch its third drug, buprenorphine sublingual spray, later this year. The FDA plans to issue its decision on Insys Therapeutics' buprenorphine formulation in the second half of 2018. If it's approved, the company could have three drugs on the market by the end of this year, each of which represents a nine-figure market opportunity.

Perhaps more exciting than that, though, is the company's recent medical marijuana news. On Dec. 19, management announced that it's enrolling a phase 2 study of oral cannabidiol in children with treatment-resistant absence seizures. These seizures cause lapses in awareness and sometimes staring, and they affect 2% to 8% of the roughly 470,000 children with epilepsy in the United States.

On Dec. 26, management followed up that news by reporting that the FDA has granted fast-track status to its research of cannabidiol in Prader-Willi syndrome, a rare genetic disorder characterized by insatiable appetite in children. Prader-Willi syndrome can lead to obesity and type 2 diabetes, and there are currently no approved drugs to treat it. Management expects to begin its Prader-Willi syndrome trials early this year.

Is there still time to buy

Insys Therapeutics is only trading for about one-quarter of its valuation at its peak, but until it settles its lawsuits, Subsys sales stop dropping, and we get more clarity into Syndros sales, this stock remains very risky. In my opinion, the biggest X factor for this company in 2018 is its marijuana research program. However, we're still a long way away from any potential launch, so some pessimism there is warranted.