Medical marijuana stocks have been the rage this past year as people warm up to the idea of using the herb as a treatment for everything from cancer pain to schizophrenia. As a result, marijuana stocks such as GW Pharmaceuticals have been pushed higher to arguably untenable valuations.

However, despite sky-high expectations for companies such as GW Pharma, there's another company that's been running considerably more under the radar: Insys Therapeutics (INSY). And that may mean that now is a good time to consider the medical-marijuana drugmaker ahead of a key drug approval. Here's why.

Source: Insys Therapeutics.

First, some background
Medicine developed from marijuana isn't a new concept. In fact, the most successful marijuana based drug has been Marinol, a drug designed to treat anorexia for AIDS patients and nausea and vomiting for cancer patients.

Marinol broke onto the scene in the 1980s, and before losing patent expiration, sales of Marinol totaled more than $100 million per year. Even after losing patent protection, the market for Marinol is still growing about 4% a year and remains worth over nine figures. That's great news for Insys shareholders, given that Insys has filed for approval of oral dronabinol, a newly improved formulation of Marinol that promises to work more quickly and evenly in the bloodstream while also allowing for greater dosing flexibility.

Copycatting success
Insys won't have to look too far and wide for a blueprint for launching dronabinol. It only needs to look at its own successful launch of Subsys, an oral under-the-tongue spray formulation of the widely used pain opiate fentanyl.

Although the fentanyl market is mature and was previously dominated by drugs such as Teva Pharmaceuticals' Actiq and Fentora, Insys is carving out tens of millions of dollars in quarterly sales for Subsys. In fact, since launching in 2012, Subsys has become the most prescribed fentanyl therapy for breakthrough cancer pain, and that's no small feat, given that Subsys carries a price tag that's north of its competition.

Insys thinks that oral dronabinol may have a similar opportunity to reinvigorate the Marinol market and, as a result, thinks it could capture a big chunk of the $150 million spent on Marinol treatment last year. CEO Michael Babich had this to say about the opportunity in the company's second quarter earnings release: "[T]he approval of this novel formulation would create an opportunity to satisfy a growing unmet medical need. Once launched, we believe we have the potential to capture a significant share in a manner similar with what we've been able to achieve with Subsys."

Source: GW Pharma.

More in the works
GW Pharma may get the best press relating to its research into synthetic CBD, a chemical cannabinoid found in marijuana that isn't responsible for the "high" felt by marijuana users, but Insys is working on similar programs, too.

Insys has announced that it's studying CBD in a variety of indications, including the same Dravet and Lennox-Gastaut syndromes that GW Pharma is targeting in epilepsy. Insys also reported in August that the FDA had granted it orphan designation to study CBD as a treatment alongside chemotherapy for glioblastoma multiforme, the most common form of brain tumor.

Enviable balance sheet
While competitors such as GW Pharma are burning through cash paying for their medical-marijuana R&D, Subsys sales success puts Insys in a coveted position.

Sales of Subsys bounded 195% from a year ago in the second quarter, reaching nearly $55 million, and that sales performance led Insys to post $9.5 million in net income for the quarter, which helped lift Insys' cash position from $57 million exiting the first quarter to more than $75 million coming out of June.

That suggests that Insys, which is debt free, has the firepower necessary to support the launch of dronabinol and to fund the CBD programs it's pursuing.

Proving a model
Marinol has already demonstrated that there is a market for synthetic THC, and if Insys can duplicate the success it's enjoying with Subsys, the company could find that it soon has two drugs that combine to generate between $200 million and $300 million in annual sales. If that proves correct, Insys would look like a relative value given its current $1.1 billion market cap, especially if the company lands some victories down the line for its CBD program.