September 1, 2016

Insys Therapeutics: Who Needs Opioids When You Can Have Cannabinoids?


  • Low market expectations misprice the broadening of INSY’s existing product portfolio into the high-growth medical marijuana industry.
  • At $15.98 per share, INSY’s Adjusted ROA of 46% and Adjusted P/B of 3.2x drive an Adjusted P/E of 15.1x, an interesting undervalued idea given its fundamentals.
  • Investors believe that revenues from the company’s flagship product “Subsys” have peaked, and are concerned about possible negative penalties resulting from lawsuits related to the product.
  • Market expectations ignore the company’s recent pivot to offer cannabis medical solutions – a market projected to be worth $22bn by 2020.
  • Meanwhile, the latest FDA approval of its new product “Syndros” is projected to double INSY’s revenues in the following years.

At $14.86 per share, Insys Therapeutics has embedded expectations of future performance that are reasonable but not forecasting growth

To reach today’s stock price of $14.98, Insys’s Adjusted ROA would have to fall from last year’s 52% levels to 8% over the next five years, with a five-year CAGR (compound annual growth rate) of 28%. To see this in more detail, and have the flexibility to perform your own scenario analysis, click here.


What the market is thinking and why

As of today, Insys Therapeutics generates the majority of its revenues from one product – Subsys. Subsys is a sublingual spray that provides rapid onset pain relief to patients suffering from breakthrough cancer pain (BTCP). Subsys has generated controversy since its release, partly because the drug is accused of being much more potent and addictive than even morphine, and partly because of the firm’s aggressive sales practices, with drug-safety experts troubled by the wide range of medical professionals prescribing it despite the FDA warning that it should only be prescribed by oncologists and pain specialists. Additionally, despite revenue growth of over 50% in 2015, revenues appear to have slowed, declining by 12% year over year in the first quarter, spooking investors.

Further complicating the outlook, the firm is facing a number of lawsuits and investigations, including investigations from the Department of Health and Human Services, as well as Attorney Generals in Massachusetts, New Hampshire, Arizona, Illinois, and New Jersey, regarding the commercialization, marketing, promotion, and sales of Subsys.

Additionally, the firm has received information requests and subpoenas from the USAO of Michigan, Rhode Island, Florida, Connecticut, Kansas, New Hampshire, New York, and Alabama regarding specific physicians the firm has interacted with.

Thus, due to declining revenues from Subsys, as well as ongoing investigations into the product, the market is pricing in expectations for a steeply declining Adjusted ROA.

To find out why the market is wrong, and how high INSY equity can climb, click here to read the article in its entirety at Seeking Alpha.