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Based in Chandler, AZ, Insys Therapeutics (NASDAQ:INSY) scheduled a $68 million IPO with a market capitalization of $287 million at a price range mid-point of $17, for Thursday, May 2, 2013.

INSY is one of five new IPOs scheduled for the week of April 29. The full IPO calendar is here.

  • S-1 filed April 19, 2013
  • Manager, Joint Managers: Wells Fargo Securities, JMP Securities
  • Co-Managers: Oppenheimer & Co.

SUMMARY
INSY is a generic drug company whose products help reduce chemo and cancer pain. INSY lost $24 million in 2012 but expects to turn a $750,000 profit for the March 2013 quarter on almost $11 million in sales.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Q1 '13 estimate

Cap (NYSE:MM)

Sales

Ernings

BkVlue

TangibleBV

in IPO

Insys Therapeutics

$289

6.6

96.3

5.4

5.3

24%

Glossary

Observations
Annualizing INSY's expected March quarter sales, INSY is running at a sales rate of $44 million per year.

Comparing 2012 with estimated Q1 2013 income results, INSY has swung from a $24 million loss to a $750,000 expected quarterly profit.

CONCLUSION
Weak buy for INSY on the IPO, based on the swing to expected profits in Q1 2013. It may, however, take the market a while to recognize that INSY expects to turn profitable in Q1 2013.

BUSINESS
INSY provides generic products that help reduce chemo and cancer pain. The lead product, Subsys, is a fast-acting oral spray version of cancer pain drug Fentanyl.

The Dronabinol product, Dronabinal SG Capsule, is a generic capsule form of Marinol (a synthetic version of the active chemical in marijuana) for treatment of chemotherapy-induced nausea and vomiting.

The two marketed products, Subsys and the Dronabinol SG Capsule, leverage's INSY's sublingual spray drug delivery technology and dronabinol formulation and manufacturing capabilities, respectively.

MILESTONES
In March 2012, INSY launched Subsys, a proprietary sublingual fentanyl spray for BreakThrough Cancer Pain, or BTCP, in opioid-tolerant patients, through a commercial organization of 50 sales professionals.

In March 2013, INSY increased the size of its commercial organization to 67 sales professionals to enhance Subsys sales and marketing capabilities.

In February 2013, Subsys was the second most prescribed branded Transmucosal Immediate-Release Fentanyl, or TIRF, product with 16.1% market share on a prescription basis according to Source Healthcare Analytics.

In December 2011, INSY launched Dronabinol SG Capsule, a generic equivalent to Marinol (dronabinol), an approved second-line treatment for chemotherapy-induced nausea and vomiting, or CINV, and anorexia associated with weight loss in patients with AIDS, through our exclusive distributor, a leading generic pharmaceutical company.

The lead product candidate is Dronabinol Oral Solution, a proprietary orally administered liquid formulation of dronabinol, which would be INSY's second branded supportive care product, if approved. INSY believes this product candidate may provide increased flexibility in dosing, more convenient delivery and an improved absorption profile in patients, which may ultimately increase patient compliance because of more rapid onset of action and less dose-to-dose variability and allow INSY to further penetrate and potentially expand the market for the use of dronabinol.

INSY intends to market Dronabinol Oral Solution and any other future supportive care products, if approved, through its commercial organization.

In the fourth quarter of 2012, INSY's aggregate sales and marketing expenditures were $3.1 million, and INSYS generated $4.8 million in Subsys net revenue.

MARKET
INSY believes there is a large and underserved market for supportive care products. The National Cancer Institute estimates that, as of January 1, 2009, there were 12.5 million people in the United States who had been diagnosed or were living with cancer.

Cancer and the radiation or chemotherapy treatment regimens intended to eradicate or inhibit the progression of the disease often cause debilitating side effects and symptoms such as pain, nausea and vomiting in cancer patients.

By focusing on supportive care products, INSY believes it can contribute to the improvement of cancer patients' lives and survival rates.

Subsys Sublingual Fentanyl Spray
Subsys is a proprietary, single-use product that delivers fentanyl, an opioid analgesic, for transmucosal absorption underneath the tongue. INSY launched Subsys in March 2012 for the treatment of BTCP. BTCP is characterized by sudden, often unpredictable, episodes of intense pain which can peak in severity at three to five minutes despite background pain medication.

According to Source Healthcare Analytics, TIRF products generated $388.1 million in U.S. sales in 2012. Subsys is the fourth new branded product in the TIRF market over the last four years.

Within the first four weeks of product launch, Subsys realized greater market share than the previous three branded products combined at their respective peak market penetration levels to date according to Source Healthcare Analytics. INSY believes that through ongoing commercial initiatives, it can continue to grow market share and net revenue for Subsys.

Dronabinol Product Family
INSY
has received FDA approval for Dronabinol SG Capsule, a generic equivalent to Marinol, and INSY is developing several innovative dronabinol product candidates for the treatment of CINV and appetite stimulation in patients with AIDS.

Dronabinol, the active ingredient in Marinol, is a synthetic cannabinoid whose chemical name is delta-9-tetrahydrocannabinol, or THC. In 2012, dronabinol products generated $134.7 million in U.S. sales, according to IMS Health.

INSY believes that Marinol and its generic equivalents have limitations in their current formulations. Marinol is characterized by a highly variable bioavailability and an onset of action that ranges from 30 minutes to one hour.

INSY is developing additional proprietary formulations of dronabinol, the most advanced of which is Dronabinol Oral Solution, to address these limitations.

Dronabinol SG Capsule
Dronabinol SG Capsule, the first approved product in the INSY dronabinol family, is a dronabinol soft gelatin capsule which is a generic equivalent to Marinol. INSY launched Dronabinol SG Capsule in the United States through its exclusive distribution partner, Mylan, in December 2011.

Dronabinol Oral Solution.
Dronabinol Oral Solution is a proprietary synthetic THC in an oral liquid formulation, which contains ingredients that enhance absorption. INSY completed a pre-NDA meeting with the FDA and a pivotal bioequivalence study for Dronabinol Oral Solution in 2012 and expect to submit an NDA for Dronabinol Oral Solution in the second half of 2013.

INTELLECTUAL PROPERTY
Fentanyl and dronabinol have been approved for many years and therefore INSY's ability to obtain any patent protection is limited. Composition of matter patents on Active Pharmaceutical Ingredients (APIs) are a particularly effective form of intellectual property protection for pharmaceutical products as they apply without regard to any method of use.

However, INSY will not be able to obtain composition of matter patents or methods of use patents that cover the APIs in any of its products or product candidates.

As a result, competitors who obtain the requisite regulatory approval can offer products with the same active ingredients as INSY's products or product candidates so long as the competitors do not infringe on any formulation patents that INSY may obtain or license, if any.

INSY's patent portfolio is related to its sublingual spray technology that is used in Subsys includes patents and patent applications in the United States, Australia, Brazil, Canada, China, Europe, India Japan, Mexico, New Zealand and Russia. The covered technology and the scope of coverage varies from country to country. For those countries where INSY does not have granted patents, INSY may not have any ability to prevent the unauthorized use of INSY's sublingual spray technology.

COMPETITION
Subsys
Subsys competes against numerous branded and generic products already being marketed and potentially those which are or will be in development.

Subsys is the fourth new product in the TIRF market over the last four years.

In the BTCP (BreakThrough Cancer Painmarket), physicians often treat patients with a variety of short-acting opioid medications, including morphine, morphine and codeine derivatives and fentanyl.

Some currently marketed products against which INSY directly competes include Teva's Fentora and Actiq, Orexo AB's Abstral, Archimedes, Lazanda and BioDelivery Science International, Inc.'s Onsolis.

Some generic fentanyl products against which Subsys competes are marketed by Mallinckrodt, Inc., Par Pharmaceutical Companies and Actavis, Inc.

In addition, INSY is aware of numerous companies developing other treatments and technologies for rapid delivery of opioids to treat BTCP, including transmucosal, transdermal, nasal spray, inhaled delivery systems and sublingual delivery systems, among others.

Dronabinol Product Family
Generic products generally face greater price competition than branded products.

With respect to Dronabinol SG Capsule and any of the dronabinol product candidates, if approved, the competition from generic products which INSY encounters, or will encounter with respect to the dronabinol product candidates, may have an effect on product prices, market share, revenues and profitability.

Dronabinol SG Capsule and, if approved, INSY's dronabinol product candidates, will compete against therapies and products such as AbbVie, Inc.'s Marinol and Marinol generics. Par Pharmaceutical Companies markets an approved generic version of Marinol, and Actavis, Inc. markets an authorized generic version of Marinol.

Moreover, INSY's dronabinol products may compete with non-synthetic cannabinoid drugs, including therapies such as GW Pharmaceuticals plc's Sativex, especially in many countries outside of the United States where non-synthetic cannabinoids are legal.

In addition, literature has been published arguing the benefits of natural cannabis, or marijuana, over dronabinol, and there are a number of states that have already enacted laws legalizing medicinal and recreational marijuana.

There is some support in the United States for further legalization of marijuana.

Furthermore, in the treatment of CINV, physicians typically offer conventional anti-nausea agents prior to initiating chemotherapy, such as Sanofi's Anzemet, Eisai Inc./Helsinn Group's Aloxi, Roche Holding AG's Kytril, Par Pharmaceutical Companies's Zuplenz and GlaxoSmithKline plc's Zofran, as well as Neurokinin 1 receptor antagonists on the market including Kyowa Hakko Kirin Co., Ltd.'s Sancuso and Merck & Co., Inc.'s Emend.

To the extent that Dronabinol SG Capsule and INSY's dronabinol product candidates compete in a broader segment of the CINV (Chemotherapy-Induced Nausea and Vomiting) market, INSY will also face competition from these products.

Additionally, INSY is aware of companies in late stage development for CINV product candidates, including A.P. Pharma, Inc.'s APF530, which is in Phase 3 development, Aphios Corp.'s Zindol, which is in Phase 2/3 development, Tesaro, Inc.'s rolapitant, which is in Phase 3 development and Roche Holding/Helsinn Group's netupitant, which is in Phase 3 development.

If these products are successfully developed and approved over the next few years, they could represent significant competition for Dronabinol SG Capsule and, if approved, INSY's dronabinol product candidates.

LEGAL PROCEEDINGS
In September 2009, Insys Pharma, Inc. and certain of its officers and directors, as well as their spouses, were named as defendants in a lawsuit in Arizona Superior Court brought by Santosh Kottayil, Ph.D., certain of his family members and a trust of which Dr. Kottayil is the trustee. Dr. Kottayil formerly served as President, Chief Scientific Officer and a director of Insys Pharma, among other positions.

The complaint brought a cause of action for statutory and common law appraisal of Dr. Kottayil's Insys Pharma common stock. The cause of action for appraisal relates to a one-for-1,500,000 reverse stock split that Insys Pharma effected in June 2009, which resulted in Dr. Kottayil's ownership position becoming a fractional share of Insys Pharma common stock.

5% STOCKHOLDERS PRE-IPO
The John N. Kapoor Trust. 81%
The Kapoor Children's 1992 Trust, 10%

USE OF PROCEEDS
INSY expects to net $60 million from its IPO.

Proceeds are allocated as follows:

$11.0 million to $13.0 million to fund the establishment of a second dronabinol manufacturing facility, including the purchase of related equipment;

$11.4 million to repay debt all outstanding principal and accrued interest under the revolving credit facility with Bank of America;

$2.7 million to support the submission of a planned NDA (new drug application) for Dronabinol Oral Solution; and the remainder to fund working capital and other general corporate purposes.

Disclaimer: This INSY IPO report is based on a reading and analysis of INSY's S-11A filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: Insys Therapeutics