Insys Therapeutics (INSY, $9.09) “This stock
was sold earlier in the year from the AIM Fund”
By: Joe Mungenast, AIM student at
Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
Insys Therapeutics, Inc. (NASDAQ: INSY) is a commercial-stage specialty
pharmaceutical company, which develops and commercializes supportive care products.
It focuses on utilizing its proprietary formulation technologies to address the
clinical shortcomings of existing commercial pharmaceutical products (Factset).
The company markets
Subsys, a proprietary sublingual fentanyl spray for breakthrough pain in
opioid-tolerant cancer patients; and Dronabinol Oral Solution, a proprietary
orally administered liquid formulation of dronabinol. It offers its Subsys
through its incentive-based commercial sales force (Factset).
A recent lawsuit
involving former executives at the company has been the primary force driving
this stock down in the fourth quarter.
Insys is currently
trading at its 52-week low with seemingly few drivers to help drive this stock move
upwards. Insys does have a drug in pre-registration and two more in Phase I and
II testing respectively, but their primary source of income is generated by
their main drug, Subsys. Subsys contributes nearly 100% of sales by product
segment, and is the drug involved in the lawsuit.
Key Points: Insys has suffered from a gradual
decline in its stock price over the past two quarters, with a brief uptick due
to President-elect Trump. Most recently, however, the company has been
embroiled in a significant ethical debate, aimed at former Insys executives.
According to a WSJ
article,* former CEO Michael Babich and 5 other officers “were charged with
conspiracy to commit racketeering, conspiracy to commit wire and mail fraud,
and conspiracy to violate the anti-kickback law.”
Mr. Babich had been
trying to defraud health insurers and bribe doctors to prescribe Insys’ Subsys,
the sublingual fentanyl spray. Fentanyl, a Scheduled II drug in the United
States, is a synthetic opioid that is 50 to 100 times stronger than morphine.
As a result, this drug is far more addictive than the already very addictive
morphine, and yet is still legal to be prescribed. While doctors would normally
be hesitant to prescribe such a powerful drug, Mr. Babich used his influence as
CEO of Insys to indirectly and unlawfully push his product onto unsuspecting
patients.
What has this stock done lately?
After a brief rise to
$14.53 under the announcement of a Trump presidency in November, Insys has since
declined down to $9.09, primarily due to the antics of Mr. Babich and other
former executives. There are currently few positive catalysts for this stock
aside from their product in pre-registration.
Past-Year Performance: Insys has closed out the past three
quarters at $15.99 for Q1, $12.94 for Q2, and $11.79 for Q3. While the stock
has rallied twice in the past year (up 27% in the first week and a half of
August ($15.20-19.38) and up 45% in the first two weeks of November
($10.02-$14.53)), INSY is down over 69% from the end of last year
($29.38-9.09).
My Takeaway
It is my personal
belief that this stock should not have been held within the portfolio for two
reasons. One, this stock has not given any quantitative reason for AIM to again
hold it. Cash Flow from Operations is expected to decline 15.7% from last year.
EPS is expected to be down to 0.35 from last year’s 1.38, and thusly Insys’ P/E
is up to 26.2x for 2016 estimates from 20.7x in 2015. The relatively high P/E
coupled with poor stock performance in 2016 leaves little room for interest
from a value perspective.
Secondly, this
company’s products succeed on the fact that they are potent and extremely addictive
opioids. Fentanyl has been creeping into the limelight in the United States as
more research shows the possibility of a fentanyl outbreak, especially in areas
of high heroin use. (http://www.wsj.com/articles/former-insys-ceo-arrested-in-opioid-prescription-kickback-case-1481228056)
To conclude, we would be holding a company who sells a highly addictive product.
