Insys Therapeutics (INSY) likes to pretend it's a cannabis stock -- but it really isn't. Instead, this biotech company has tried to ride the coattails of biotech company GW Pharmaceuticals (GWPH) and its cannabinoid-based epileptics drug Epidiolex. Insys continues to suck in investors who think the company is ripe for a good study result or positive nod from the U.S. Food & Drug Administration (FDA) -- and that its cheap.
The latest rejection came on Friday when the FDA decided not to approve Insys' drug buprenorphine sublingual spray to treat pain as an alternative to opioids. The stock got slapped down almost 9% at one point as a result.
"Given the attributes of our proprietary buprenorphine formulation for sublingual delivery, we continue to believe that this drug-device combination could bring value to the management of pain and will assess the next steps in the context of the company's overall mission," said Steve Sherman, senior vice president of regulatory affairs for Insys Therapeutics.
The company said that the FDA's Complete Response Letter "indicates that, although the clinical development program demonstrated all three proposed doses of the product candidate were statistically significantly different than placebo in providing pain relief, some of the data suggested potential safety concerns." In other words, the FDA ruled that it isn't safe to take this drug in its present form.
At the beginning of May, in its first quarter earnings announcement, Insys said it provided additional safety data to the FDA on this drug. So, the company knew it had issues with the drug but continued to push it forward. Then two weeks later, Insys said that the expert panel convened by the FDA had voted not to recommend the drug and the stock was trading around $7.07. Still, it moved higher as news came out that GW Pharmaceutical's Epidiolex got FDA approval. It went to $8.41 at the end of June and then jumped back up to $8.29 in mid-July.
Some traders also jumped back into the stock after a judge questioned the racketeering charges against the Insys founder John Kapoor. He's accused of bribing doctors to prescribe its opioid pain killer Subsys -- the source of most of the company's revenue. That news seemed to suggest to some investors that maybe the negative headlines and scandal could be diminishing. The company is desperate to move past the alleged kickback scheme charges and focus on CBD as its future.
Insys has two cannabinoid (CBD) drugs. One is a CBD oral solution called Syndros and the other is a Donabinol inhalation product. Syndros is on the market and is considered to be a liquid form of Marinol, the synthetic cannabis drug. The problem here is that patients don't like Marinol and often quit taking it, so a liquid version isn't going to be much more successful than the pill option. Dronabinol is a synthetic form of THC, the psychoactive part of the cannabis plant, and is mostly used for patients that need help eating.
Also, patients can now get real medical marijuana in over half of the states in the U.S., and many say that they prefer the real plant over a synthetic version with numerous side effects. Marinol was once a big deal because it was considered legal marijuana, but since so many states have legalized medical marijuana, the lure of Marinol has worn off.
Indeed, one of the big positives for GW Pharma's drug is that it is real, not synthetic cannabis. Yet, it never fails that when analysts talk about GW Pharma's positive moves, they typically lump Insys in along with it. Moody's wrote in May, "A Food and Drug Administration (FDA) advisory panel recently recommended that the FDA approve the drug (Epidiolex) in those uses. Other development-stage companies working on CBD-based pharmaceutical products include INSYS Therapeutics, Corbus Pharmaceuticals (CRPB) and Zynerba Pharmaceuticals (ZYNE) -- all unrated." (Corbus is another fake cannabis drug company -- but that's a column for another day.)
JP Morgan Chase has increased its stake in Insys from 19,273 shares to 25,624 shares. Other firms have done the same, including Stone Ridge Asset Management, Raymond James, Deutsche Bank and Wells Fargo. But why?
"While some may consider GW Pharma and Insys within the same peer group of investible stocks in the cannabis space, we think GW Pharma is in a class of its own, with the first FDA approval of a non-synthetic CBD based drug (Epidiolex) to hit the market," said Matt Karnes, Founder of GreenWave Advisors, a firm that analyzes cannabis companies. Karnes agreed that the two companies are frequently considered to be similar by people outside of the cannabis industry.
Insys is scheduled to report its second-quarter earnings on August 8 after the market closes. Three analysts give the company an average estimate of a -$0.16 per share for earnings. The average revenue estimate from five analysts is at $25.9 million. The average price target is $9.20. The growth estimates are -633%. And 14% of outstanding shares have been shorted, or 37% of the float.
Lazy investors will continue to lump Insys Therapeutics in the same category as GW Pharmaceuticals, even though the companies' drugs are very different. Patients deserve the best possible medical marijuana -- and if they can get it from the real plant, why buy a synthetic version? Investors also deserve the best possible biotech investment, so why settle for a fake one?
