Between Nov. 1, 2017 and Jan. 3, 2018, Insys Therapeutics (INSY) stock soared more than 160%. The biotech ranked as one of the hottest marijuana stocks on the market -- temporarily. The huge run quickly came to a grinding halt, though. Insys stock is now down nearly 25% year to date.
Things got even worse last week for Insys when the company announced its fourth-quarter and full-year 2017 results. Those results caused Insys stock to plunge more than 10% before regaining some ground. But is this beaten-down marijuana stock now a "bad-news buy?"
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Lots of bad news
It's important to first understand the bad news behind Insys' poor performance in 2018. And there's a lot of bad news.
First, the company's revenue continues to sink. In the fourth quarter, Insys reported net revenue of $31.5 million, down nearly 43% from the prior-year period. The company's bottom line also deteriorated, with a Q4 net loss of $47 million compared to a loss of $3.7 million in the same quarter of 2016.
Insys' lead product Subsys still faces significant headwinds from an overall decline in the market for TIRF (transmucosal immediate-release fentanyl) drugs. The U.S. opioid epidemic has led to prescribers and patients seeking to minimize use of TIRF drugs.
The biotech does have a new product on the market with Syndros. However, the cannabinoid drug contributed only around $800,000 in sales in Q4. That wasn't a huge jump from the $700,000 in sales for Syndros in the third quarter.
On top of these issues, there's also an ongoing investigation by the U.S. Department of Justice (DOJ) into Insys' past marketing practices. Company founder Mitch Kapoor and other former executives have been indicted for bribing medical practitioners, but they have plead not guilty to the charges. Insys set aside $150 million in the third quarter as a minimum liability in connection with the DOJ investigation.
Turning things around
There are three key ways that Insys can turn things around. First, the company needs sales for Subsys to stabilize. Insys CEO Saeed Motahari expressed confidence in November that this would happen. Subsys became the preferred TIRF product on the formularies of two of the largest pharmacy benefits managers and one of the largest insurers effective January 2018, changes that provided some reason for Motahari's confidence.
However, the continued rate of decline in the overall TIRF market appeared to reduce his optimism based on his comments in the biotech's Q4 conference call. So far in 2018, Motahari said that the TIRF market decline is greater than Insys anticipated.
The second key for Insys to come back is to get increased revenue from products other than Subsys. Don't expect huge gains for Syndros just yet, though. Motahari expects some managed care wins will help fuel sales growth in Q2 and Q3 -- but not in the first quarter.
Insys could obtain approval for its buprenorphine sublingual spray later this year, with the FDA expecting to announce a decision by July 28. A launch of the product could help improve revenue, but probably not by a big amount in 2018.
That leaves the third aspect of an Insys turnaround: resolving the DOJ investigation. Insys wants to reach a settlement and move past this issue, but there's no deal yet. The biotech did, however, achieve one milestone in separating the current company from past mistakes by forming an independently controlled trust to manage founder Mitch Kapoor's stake in Insys.
Is Insys a buy?
I stated in October that Insys could be the biggest comeback story of 2018. My view was based on the potential for a short squeeze, stabilization for Subsys, and climbing sales for Syndros. Are these potential factors for a rebound still in place?
We saw a short squeeze occur in Q4 with Insys' big jump. But short-sellers have jumped back into the stock over the past few months. I think that good news from Insys could cause yet another short squeeze later this year.
However, Motahari's comments about worse-than-expected TIRF market declines so far in 2018 aren't encouraging for the stabilization of Subsys sales. I think this is the biggest question mark for Insys. The company still says that it expects to "achieve top-line stability in 2018." Subsys is crucial to meeting this goal. I'm pessimistic about stabilization happening in Q1, but I do think sales will level off at some point this year.
I also continue to think that sales for Syndros will pick up some steam. Just how much momentum will be gained during 2018 remains to be seen, though.
My general opinion of Insys is that its long-term prospects are pretty good. Sales for Subsys will stabilize. Newer products, including Syndros and some currently in the pipeline, will generate more revenue. The biotech will eventually move past the DOJ investigation.
Based on all of this, I think Insys is a "bad-news buy" for investors with a long-term perspective. But I also suspect that there will be more bad news for the biotech before good news arrives.
