What happened

Shares of Insys Therapeutics (INSY) closed down 63.6% in 2018, according to data provided by S&P Global Market Intelligence, with all of the decline coming in the last third of the year; as recently as September, shares were up for the year.

Some of the decline can certainly be blamed on a shift away from seemingly riskier drug companies. But that's not all of it; the iShares Nasdaq Biotechnology ETF (IBB -0.45%) was down only 20% in the last quarter of 2018.

The rest of the lower stock price in 2018 is associated with declining sales of its opioid Subsys and the company's decision to sell off the drug and related assets in favor of its pipeline of drugs based on compounds found in marijuana.

Man looking at stock charts on computer screens with his fists holding his head.

Image source: Getty Images.

So what

Given the opioid crisis, doctors have been avoiding off-label prescriptions of Subsys, especially since it's an extremely strong painkiller. Insys' revenue through the first nine months of 2018, which mostly comes from sales of Subsys, was down almost 40% compared to the same period in 2017.

With the writing on the wall -- both the negatives of opioids and the positives for marijuana stocks -- Insys announced plans in June to sell off its opioid business, which includes Subsys and a pair of opioid sprays that are in development. In December, Insys said nine companies were interested enough in potentially acquiring the assets to sign confidential disclosure agreements and that it would update investors on the sales process when fourth-quarter earnings are released a month or so from now.

That's an eternity for many biotech investors in search of the next binary event.

Now what

At a market cap of $330 million, Insys looks cheap. Even using third-quarter sales as the base, it's trading at about 4.5 times the third-quarter annualized run rate. Arguably, Insys' investors are getting the pipeline for free based on the most recent sales figure.

But the trading multiple assumes sales stabilize. If potential acquirers don't want to take on the risk of sales declining further, Insys may not be able to get a decent price for its opioid business, resulting in further declines in its stock price.

Any decently priced sale should result in Insys' valuation increasing, but given the unknowns, investors interested in Insys' pipeline of marijuana-based medications may still want to wait and see what Insys gets for its opioid business and then evaluate the valuation at that point.

Check out the latest Insys Therapeutics earnings call transcript.