What happened
Shares of Insys Therapeutics, Inc. (INSY) were 20.5% higher as of 11:26 a.m. EDT on Thursday. The big jump came after Insys announced that the U.S. Food and Drug Administration (FDA) had granted Fast Track designation to the company's epinephrine nasal spray as an investigational treatment for anaphylaxis -- a severe allergic reaction that requires immediate treatment.
So what
FDA Fast Track designation means that Insys will be able to have more access to the FDA than normal to determine the best approach to navigate the approval process. It also provides other benefits, including allowing Insys to submit its New Drug Application (NDA) section by section on a rolling basis rather than having to wait until the full application package is complete.
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There could be a significant market potential for Insys's epinephrine nasal spray. In an early clinical study, the drug compared favorably with Mylan's EpiPen, which is administered through intramuscular injection. A needleless alternative could be very popular with patients and especially with parents of children who have severe allergies.
But while receiving Fast Track designation is certainly good news, this kind of announcement ordinarily wouldn't cause a stock to soar like Insys did. I suspect we're seeing a short-squeeze scenario unfold. Nearly 35% of Insys stock's float was sold short as of Aug. 14, 2018. Good news can spur short-sellers to begin covering their positions, which leads to a chain reaction that drives share prices even higher.
Now what
If Insys is experiencing a short squeeze, we could see the stock continue to move significantly higher for a while. However, there's no way to know exactly how long a surge might last.
Investors are better off focusing on the fundamentals of Insys's business rather than its stock fluctuations. In some respects, the future looks brighter for Insys. The biotech recently announced an agreement in principle to settle with the U.S. Department of Justice over a civil and criminal investigation into past sales and marketing practices related to opioid drug Subsys.
Insys continues to experience declining sales for Subsys, though. Its cannabinoid drug, Syndros, hasn't picked up tremendous momentum since its launch last year. My view is to watch Insys from the sidelines despite its latest good news.
