Could the worst be over for Insys Therapeutics (INSY)? The cannabinoid-focused biotech has been singing the blues for quite a while. Government investigations into its sales and marketing practices, plunging sales for its top product, and a major pipeline setback just a few days ago have caused the stock to sink.
Two recent announcements from Insys, however, just might hint at better days ahead for the beleaguered biotech. On Wednesday morning, Insys announced a significant development with the U.S. Department of Justice (DOJ) investigation into its past promotional practices for opioid drug Syndros. Insys also reported its second-quarter results after the market closed on Wednesday.
Based on these two announcements, there are three reasons that this marijuana stock could be ready to rebound. However, there's also one big reason why Insys could continue to flounder.
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1. A pending settlement with the DOJ
Insys stock soared 17% on Wednesday after the company announced that it had reached an agreement in principle with the DOJ to settle the civil and criminal investigation into past sales and marketing practices for Subsys. A settlement has been a long time coming: The DOJ began investigating Insys in late 2013.
Perhaps the best news about the pending settlement is that Insys agreed to pay $150 million over five years. That's exactly the amount that the company already put aside in the third quarter of 2017. Because Insys has already taken the financial hit, the DOJ deal shouldn't affect the biotech's financial results very much.
There could still be a negative financial impact, though. Insys said that it could also have to make contingency-based payments "associated with certain events" of up to $75 million. If the settlement agreement is finalized, though, the company should be able to move past the issue that has been a major distraction for management.
2. Market share gains for Subsys
The drug at the center of the DOJ investigation, Subsys, continues to drag down Insys' overall revenue. However, there was some good news about Subsys in the company's Q2 results.
Insys CEO Saeed Motahari said that Subsys prescription volume "declined at a slower rate than the overall TIRF [transmucosal immediate-release fentanyl] market in the second quarter." He added that Insys' commercial efforts, including securing managed care reimbursements, educating patients, and sales team changes, "are showing signs of traction." Motahari pointed to Subsys gaining TIRF quarter-over-quarter market share for the first time in seven quarters as evidence of this traction.
In the second quarter of 2018, Subsys' market share among TIRF drugs climbed to 30.1%. That's the highest level for the drug since October 2017. One quarter of increased market share doesn't necessarily mean that sales for Subsys will increase going forward, but stabilization for the drug would be a big step in the right direction for Insys.
3. Momentum picking up for Syndros
In 2017, Insys launched Syndros, the third cannabinoid drug approved by the U.S. Food and Drug Administration (FDA). Motahari has stated that Insys will become "the top cannabinoid company in the U.S." If this goal is to be achieved, the company needs Syndros to be successful.
Second-quarter results at least provided a hint that momentum could be picking up for Syndros. Motahari said that Q2 net revenue for Syndros jumped 56% higher than the first quarter. He attributed the nice gain to successful execution of the company's patient access and educational programs.
Motahari acknowledged, though, that the improvement was built "off a small base." Even with the sequential increase in revenue, sales for Syndros only totaled $1 million in the second quarter. However, it does appear that the biotech's commercialization efforts for its first cannabinoid are making an impact. That could bode well for Insys in the future.
Why a rebound might not happen
So is Insys a marijuana stock that's ready to bounce back in a big way? Not so fast. It's certainly good news that the DOJ investigation could be coming to an end and that there's improvement for Subsys and Syndros. But that doesn't mean that Insys is out of the woods yet.
The company's revenue in the second quarter plunged nearly 35% year over year to $38 million. Even with some positive signs for Subsys and Syndros, it still dropped from the $38.5 million reported in the first quarter of 2018.
Also, Insys' bottom line is worsening rather than getting better. The biotech's net loss in the second quarter of 2018 was nearly $27.4 million compared to a net loss of $8.2 million in the prior-year period and a net loss of $20.4 million in Q1 of 2018.
For the first time in a long time, there are reasons for some optimism about Insys. It's possible that short-sellers could begin covering their positions, helping to drive Insys' share price higher. However, there could still be a long way to go for this biotech to truly regain its footing.
