Insys attempting “Phoenix” impersonation as key Q1 earnings slated for Tuesday. Analysts say Buy, but is now the time?

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The News:

A former Insys Therapeutics Inc. (Chandler AZ) sales representative was recently sentenced to six months of home confinement after admitting that she participated in a scheme to pay kickbacks to two Alabama doctors to prescribe a fentanyl-based medication, according to Reuters.

Natalie Perhacs, 32, was sentenced by US District Judge Callie Granade in Mobile, Alabama, after pleading guilty to conspiring to pay kickbacks to the doctors to prescribe Insys’s product Subsys, according to court records.

The home confinement is part of a five-year period of probation imposed by Granade, who also ordered Perhacs to participate in 300 hours of community service. Her lawyer did not respond to a request for comment.

Perhacs is one of at least 14 former Insys employees or executives to face charges related to what prosecutors say was a scheme to pay kickbacks to medical practitioners who prescribed Subsys and to defraud insurers into paying for it. Among those charged were billionaire Insys founder John N. Kapoor, and CEO Michael L. Babich, both of whom have plead not guilty to racketeering conspiracy and other charges.

Insys has said it has taken steps to prevent past mistakes from happening again. It has said it may need to pay at least $150 million to resolve the US Justice Department’s probe. Subsys is an under-the-tongue spray containing fentanyl, a synthetic opioid 50 times as potent as heroin. The US Food and Drug Administration has approved Subsys only for treating pain in cancer patients.

Prosecutors say executives and employees at Insys used sham speaker programs ostensibly meant to educate healthcare professionals about Subsys to funnel kickbacks to medical practitioners.

Perhacs, who pleaded guilty in 2016 to conspiring to violate the federal Anti-Kickback Statute, testified at trial against the two Alabama doctors, Xiulu Ruan and John Couch. Prosecutors said the two regularly wrote prescriptions for large quantities of addictive medications including fentanyl without a legitimate medical purpose and regularly prescribed Subsys for off-label purposes to non-cancer patients.

Prosecutors said Insys paid hundreds of thousands of dollars in speaker fees to Couch and Ruan, who for a time were the top prescribers of Subsys nationally. Prosecutors also said Perhacs–after being hired by Insys in 2013 as a sales representative–was tasked with increasing the volume of Subsys that Ruan and Couch prescribed and setting up paid speaker programs for the two doctors.

Ruan and Couch were convicted of racketeering conspiracy and other felonies and were sentenced in May 2017 to prison terms of 21 years and 20 years, respectively.

Steve’s Take:

The above report of the ex-Insys employee sentenced to home confinement came just days before The New York Times magazine ran a 24-page report earlier this week on the history of the company’s successes and failures.

The report was called “The Pain Hustlers,” and I heartily recommend it for those still interested in the fate of founder John Kapoor and eventual CEO Michael Babich, both of whom–along with other former senior Insys executives–are awaiting trial for conspiracy to illegally distribute an addictive prescription painkiller.

Naturally, all defendants are pleading not guilty as there are potentially lengthy prison terms awaiting any found guilty in this high-profile, opiod-laced saga essentially about greed and a complete indifference to harming people.

But despite the magnitude of the corruption and the destruction of human lives, and the fact that the company has lost its top executives, its trustworthiness and a big slab of its market cap, it hasn’t lost all of its backing from analysts.

The company has lost more than 80% of its market cap since its peak price in 2015 amid declining sales and multiple lawsuits from states over how it marketed Subsys, a mouth-spray version of the potent opioid painkiller fentanyl that is approved by the Food and Drug Administration to treat cancer-related pain.

But Insys hasn’t lost all of its following on Wall Street.

Four of the six analysts who cover Insys still recommend buying the stock. Despite the threat of looming litigation, they note the possibilities in the company’s pipeline and the potential stabilization of Subsys sales, among other things, says Allison Prang for the Wall Street Journal.

Ken Trbovich, a managing director for Janney Montgomery Scott who rates Insys as a Buy, said his rating is “entirely predicated” on the company’s drug pipeline. Insys is developing two different cannabinoid drugs that patients can take orally or inhale, along with different spray treatments, which aim to treat problems including children’s epilepsy and opioid dependence.

“The shorts have been right on the stock,” Mr. Trbovich said. “I still think I’m right on the pipeline.”

The other firms whose analysts have a buy rating on Insys–RBC Capital Markets, Jefferies and JMP Securities–didn’t respond to requests for comment.

“What we believe sets Insys apart, and remains underappreciated, is the depth and diversity of our product pipeline,” Insys said in a statement. “Our new management team is firmly committed to fostering an organizational culture of high ethical standards.”

Analysts who still recommend buying Insys stock cite the potential stabilization of Subsys sales and the possibilities in the company’s pipeline, among other things.

Newly minted CEO Saeed Motahari, who joined the company last April, said on a November earnings call that the company continues to “work closely and cooperate with all legal authorities.”

To pay for a possible settlement with the Justice Department, Insys set aside $150 million last year. It has acknowledged it might have to set aside more. Revenue for Insys peaked in 2015 at $330.3 million. For the first nine months of the 2017 fiscal year, net revenue was down 42% from the same period a year earlier, to $109.2 million. The company cited a drop in Subsys prescriptions.

Insys has said its goal is to file one new drug application every year through 2021. Of the five treatments in Insys’ pipeline, the furthest along is a buprenorphine painkiller spray for which the FDA accepted a new drug application late last year.

Insys has launched one cannabinoid, called Syndros, that helps AIDS patients who experience appetite loss or people experiencing sickness from chemotherapy. Its sales numbers so far fall short of making up for the losses from Subsys. In the company’s third quarter, Syndros brought in $684,000.

Bottom Line.

After markets closed on Tuesday (May 8, 2018) Insys reported a loss of $20.4 million in its first quarter ended March 2018. The company said it had a loss of 28 cents per share. Losses, adjusted for non-recurring costs and stock option expense, came to 19 cents per share.

Steve's Take: For the “out-of-the-ashes” #investment lovers, long-term, #Insys fits the bill. Click To Tweet

The results matched Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was also for a loss of 19 cents per share. Insys posted revenue of $23.9 million in the period, falling just short of Street forecasts. Three analysts surveyed by Zacks expected $24.7 million.

Insys Therapeutics shares have dropped 30% since the beginning of the year. In the final minutes of trading on Tuesday, shares hit $6.78, a drop of 37% in the last 12 months. They were trading up 0.15% in aftermarket trading.

For the high-risk tolerant portfolio only, this stock is a Buy after the Q1 earnings report Tuesday. It’s not a classic gamble, but neither is it a rational bet right now. It may resemble one more pothole for the short-termers. But for the “out-of-the-ashes” lovers, long-term, Insys fits the bill.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. has a disclosure policy.

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