Is Insys Therapeutics a Good Marijuana Stock to Buy?


Biotech Insys Therapeutics (NASDAQ:INSY) has run the gamut, from hottest pot stock to most reviled, in a short period of time. The stock skyrocketed in value upwards of 160% between the beginning of November last year and the beginning of January 2018, only to come crashing down. Presently, Insys stock is down roughly 25% from its value last year to date.

Unfortunately, the bad news intensified last week at the company’s announcement of its operating results for fourth quarter and the entire 2017 year. Insys stock plunged 10% as this news hit the market, eventually recovering some ground. The question now on investors’ minds is whether the beaten-down Insys Therapeutics is a “bad-news buy” among marijuana stocks.

Let’s take a closer look.

Unfortunately for marijuana stock investors, bad news abounds with Insys Therapeutics.

The bad news does not merely stem from the company’s end of 2017 performance; more noteworthy is what lies behind Insys’ performance thus far in 2018. And it’s performance ushers in a great deal of bad news.

Let’s begin with a look at Insys’ revenue, which only continues to drop. The company’s fourth quarter net revenue was reported as $31.5 million, a 43% drop from the same period the prior year. Additionally, Insys’ bottom line continues to deteriorate. In Q4 of 2016, the company reported a net loss of $3.7 million, whereas in Q4 of 2017 that loss was $47 million. An alarming difference.

The company’s lead product, a TIRF (transmucosal immediate-release fentanyl) drug called Subsys, faces significant hurdles as the market for TIRFs are experiencing an overall decline.

In conjunction with the opioid epidemic in the U.S., the use of TIRF drugs is decreasing as patients and prescribers alike seek safer alternatives. Insys does have a new cannabinoid product on the market, Syndros, but its sales have not shown the growth the company had hoped for. From third to fourth quarter sales, Syndros has only jumped $100,000, to total sales of $800,000.

The company also has to deal with an ongoing U.S. Department of Justice investigation regarding marketing practices Insys employed in the past.

Both Insys’ founder and former executives were accused of offering bribes to medical practitioners, though they have all plead not guilty to the indictment. For liability purposes, the company set $150 million aside in Q3 if it becomes necessary during the DOJ investigation.

Insys marijuana stock can turn around given three key changes take place. 

The first of these keys to changing Insys’ direction is a stabilization of Subsys sales. In November, the company’s CEO Saeed Motahari expressed his belief that Insys would accomplish this. Some of his confidence stemmed from changes involving Subsys that came into effect in January, when one of the leading insurers and two of the leading pharmacy benefits managers picked up Subsys as their preferred TIRF product.

But Motahari’s optimism was recalibrated in the Q4 conference call upon noting the continued trend of decline in the TIRF market overall. Based on 2018 numbers, the CEO had to concede that the decline in the TIRF market appears more substantial than the company expected.

Therefore, the second key to Insys’ marijuana stock comeback is to diversify its product revenue, apart from Subsys.

In other words, Syndros. The company is keeping expectations realistic, with huge gains not expected in the first quarter; but with the help of managed care wins, hopefully sales growth will see significant gains in Q2 and Q3.

Insys is awaiting FDA approval for a buprenorphine sublingual spray, with a decision expected by July 28. While launching this new product could help boost revenue, in reality 2018 would not likely see a big gain from the spray sales.

The remaining third key to Insys’ comeback, then, would be a resolution of the DOJ investigation.

The company aims to settle and move beyond this issue, but so far no deal has been offered. One of Insys’ successes in the midst of this investigation has been its decision to separate the current company from the mistakes of its founder, Mitch Kapoor, through the formation of an independently controlled trust where Kapoor’s stake in the company is now managed.

Will Insys be one of the year’s biggest marijuana stock comeback stories, or will it remain beaten down?

Back in October, one analyst stated that in 2018 Insys could have the industry’s biggest comeback story. This analysis was based on several factors at the time: Subsys’ stabilization, Syndros’ sales climbing and the company’s short squeeze potential. But the question now is if these factors hold the same potential for a rebound.

In Q4, Insys did see a short squeeze when the stock experienced its big jump. However, over these last several months, short-sellers have returned to the stock. It’s possible that future positive announcements from the company could spur another short squeeze further on in the year.

But there’s no getting around the grim downward trend of the TIRF market and its impact on Subsys stabilization and sales. Subsys still appears critical to meeting the company’s goal of achieving “top-line stability in 2018,” yet it remains a looming question mark.

There is potential and hope for Syndros sales to gain momentum; but how much momentum can be achieved this year remains unknown.

If investors are looking at long-term prospects, Insys’ outlook may still be pretty good. At some point, Subsys sales will stabilize. The company’s newer products, like Syndros and others, will inevitably generate further revenue. Eventually, the DOJ investigation will be a thing of the past.

All things considered, Insys may be best viewed as a “bad-news buy” among marijuana stocks, holding potential for patient investors looking for long-term gains.

(For more investor recommendations, read The Number One Marijuana Stock in 2018)



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