Insys Therapeutics (
) went public less than a year ago, but it has already seen the
good, bad and ugly of Wall Street.
The company develops supportive care products for breakthrough
Its stock has rallied 37% this year, recovering from negative
publicity surrounding its Subsys sublingual spray, which is the
target of an investigation by federal regulators.
Before news of the investigation hit, Insys was riding
high. It posted triple-digit sales growth during each of its
first three quarters in 2013. It also turned its first profit
last year and watched its stock rise nearly 600% from its May 2
initial public offering price.
Insys' success is due almost exclusively to Subsys, one of the
firm's two marketed products and its main revenue generator.
Subsys treats pain in opioid-tolerate cancer patients. It had
third-quarter sales of $28.4 million, helping boost total revenue
more than 500% from a year earlier to $29.2 million.
"We exceeded our own expectations prior to going public," CEO
Michael Babich told IBD in December. "We've come a long way to
being able to achieve profitability. As a Specialty Pharma
company, showing profitability was an important goal for us."
Subsys' rapid growth is partly the result of an aggressive
marketing strategy, which has helped it grab market share from
competing products such asTeva Pharmaceuticals ' (
) Actiq and Fentora.
However, on Dec. 12, Insys announced that it received a
subpoena from the inspector general's office of the Department of
Health and Human Services over Insys' sales and marketing
practices for Subsys.
Insys has said in statements that it intends to cooperate with
the investigation. The company has made no further statements,
and the investigation is ongoing.
Management would not discuss the subpoena with IBD. The
inspector general has not provided further details on the matter
either. Neither the inspector general nor Insys has said exactly
what types of sales and marketing practices are being
However, financial news outlets have pointed out that Teva's
Cephalon unit was investigated for promoting Actiq for off-label
use after the drug was launched in 2008.
Cephalon wound up paying $425 million in fines and pleading
guilty to a misdemeanor violation of the Food, Drug and Cosmetic
In addition to the subpoena, Insys was hit with class-action
lawsuits from law firms alleging that the company made false and
misleading statements regarding its business and operations.
The suits were filed on behalf of investors who bought Insys
stock from May 1 to Dec. 12.
Those suits are still pending even as Insys' shares have
bounced back in a big way. News of the subpoena was reported
after the close on Dec. 12. The next day, Insys shares sank 16%
Since then, the stock has moved much higher. It reached a
record high of 59.99 on Feb. 3 and currently trades near 52.
Investors may have grown more comfortable with Insys' growth
prospects even as it faces scrutiny from regulators.
The company's business model combines the sales and marketing
prowess of Big Pharma firms with the research and development
focus of smaller biotechs.
The current incarnation of Insys was formed in 2010, when it
merged with NeoPharm (not to be confused with Israel's Neopharm
Group). Since then, Insys has put its focus on profitability as
well as drug development.
"We run our company with very specific goals on an annual
basis," CEO Babich said. "We view profitability as goal number
This strategy starts "all the way at the top with senior
management," he said. "We keep a low cost structure and make sure
all employees are doing multiple jobs. We continue to keep our
lean and mean philosophy going forward."
During its third quarter, Insys reported earnings of 51 cents
a share, reversing a year-earlier loss. Results easily topped
consensus estimates for 31 cents a share. Q3 revenue rose 515% to
$29.2 million, above views for $27 million.
In a report last year initiating coverage on Insys,
Oppenheimer analyst Rohit Vanjani said Subsys has certain
advantages over competing products.
"With its faster onset of action and more convenient
administration, we believe Subsys can continue to take share from
the competitive products in the breakthrough cancer pain market,
Actiq and Fentora," Vanjani noted.
Among the products Insys is developing is Dronabinol oral
solution. It is an updated version of its Dronabinol SG capsule,
a generic version of the Marinol drug used to treat nausea and
vomiting caused by cancer chemotherapy.
Insys is also completing preclinical work on three products
that utilize its proprietary sublingual spray technology to
expand its supportive care franchise.
"When we launch our next product we would anticipate 200-plus
sales staff," Babich said. "We also look to triple our research
and development staff and put out as many products as can moving
Insys has not announced a date for its fourth-quarter earnings
report. Analysts polled by Thomson Reuters expect EPS of 55 cents
a share, up from a loss of 33 cents a year earlier, when the
company was still privately held.