Source: Insys Therapeutics.

Insys Therapeutics (NASDAQ:INSY) has been the subject of controversy since the Department of Health and Human Services contacted it in 2013 requesting insight into commercialization efforts tied to Subsys, its fast-acting opioid pain reliever.

The HHS request has since been followed up by inquiries from up to six state attorneys general questioning off-label prescribing of the highly addictive medicine, and in August, Insys Therapeutics settled with Oregon to the tune of $1.1 million -- a move that casts further doubt on Insys' marketing practices.

The backstory
Subsys, a spray formulation of fentanyl, won FDA approval in 2012 as an alternative pain-relief option for the treatment of breakthrough pain in cancer patients who are already receiving and are are tolerant of around-the-clock opioid therapy.

At the time, Subsys' sublingual delivery, quick onset, and easy dose adjustments were heralded as an advance from prior fentanyl therapies that were taken by tablet or lozenge, especially for late-stage cancer patients who can suffer from excruciating cancer pain.

However, according to a CNBC report, it may not be only cancer patients who are being prescribed Subsys. According to its sources, Insys' marketing efforts often focused on doctors who treat patients outside Subsys' approved indication.

Insys has stayed mum about its sales and marketing practices, refusing to comment on CNBC's story, but demand for Subsys has grown tremendously in the past few years, in spite of these investigations.

In 2013, Subsys sales increased 87% to $95.8 million, and in 2014, Subsys revenue increased by another 124% to $219.5 million. This year, Subsys' momentum has continued, with sales through first nine months jumping to $239.6 million from $155.6 million last year.

Troubling times
Investigations into Insys' sales practices may not be unexpected, given that regulators have increasingly been targeting opioid addiction.

In 2011, the FDA established a risk evaluation and mitigation strategy, or REMS, for TIRF opioids, and as a result, every patient prescribed Subsys must be enrolled in this program, which helps to educate doctors and patients while making sure that only appropriate patients get the drug.

In 2013, the FDA detailed its own efforts to balance the need for effective pain relief and opioid abuse by announcing a task force to spark the development of abuse-deterrent opioid formulations, boost opioid education, and encourage new medicines combating addiction.

The FDA also issued its final guidance on abuse-deterrent opioids earlier this year, which says the agency "is eager to engage with manufacturers to help make these medications available to patients who need them" and that "development of abuse-deterrent products is a priority."

The FDA's ongoing efforts to curb the abuse of painkillers stems from what the Centers for Disease Control refers to as an opioid epidemic. According to the CDC, 44 Americans die every day from an overdose of prescription painkillers and 7,000 people are treated in emergency rooms for abusing them.

Cleaning house
Scrutiny surrounding Subsys calls into question whether Subsys' rapid sales growth is due to rising demand in the approved cancer-pain indication, and if it isn't, then investors are left to wonder if Subsys sales could falter in the wake of investigations and if Insys will be forced to pay millions of dollars more in settlements to put these allegations behind it.

It will be a while before we know the answer to those questions, but Insys' board of directors could be willing to act and put concerns to rest.

After the CNBC story broke, Insys announced that its CEO, a former venture capitalist, has stepped down and has been replaced by Chairman of the Board (and controlling interest shareholder) John Kapoor.

As a shareholder, Kapoor, who owns 21 million shares of Insys, has a vested interest in moving the company forward, especially since Insys could have a second drug, a reformulation of the cancer nausea drug Marinol, on the market soon.

Insys filed for approval of its oral Marinol, which it intends to market under the brand name Syndros, earlier this year, and the FDA is expected to issue a decision on Syndros on April 1. If approved, then Syndros will compete against generic marinol formulations in a market that Insys says could be worth as much as $200 million annually to it.

Looking ahead
There's a lot for investors to dislike about Insys Therapeutics, but there are a few things investors can like about the company, too. For instance, the company remains debt-free, and it sports $187 million in cash on its balance sheet. The company's solid financial footing suggests that, assuming Subsys can maintain its current sales pace, it should have plenty of financial firepower to commercialize Syndros and develop additional therapies such as its CBD formulations for epilepsy and its spray formulations of buprenorphine and naloxone, which are used to treat opioid addiction and opioid overdose, respectively. If so, then Insys' $1.8 billion market cap and forward P/E ratio of 21 may make it a good buy; however, that's admittedly a lot of "ifs," and that means bargain hunters should approach this one cautiously.