Insys: Earnings Preview
Summary
- INSY reports quarterly earnings after hours.
- The company's revenue from opioid drug subsys has been in free fall. It is also bleeding cash.
- Its $122 million in cash and equivalents can only last so long.
- Do its burgeoning legal exposures outweigh its current franchise and drug pipeline? That's the question facing investors.
- I rate INSY a hold into earnings.
Insys Pharmaceuticals (INSY) reports quarterly earnings after hours. Analysts expect revenue of $29 million and EPS of -$0.14. The revenue estimate is slightly below the $31 million the company reported last quarter. Investors should focus on the following key items:
Revenue Is In Free Fall
Insys is a specialty pharmaceutical company that manufactures and markets two main drugs - subsys and syndros. Subsys delivers fentanyl, an opioid analgesic offered in mcg doses ranging from 100 to 1,600. Fentanyl is offered for the treatment of breakthrough pain caused by cancer ("BTCP") in opioid-tolerant patients. The company received FDA approval for the drug in 2012.
Syndros oral solution is approved for the second-line treatment of chemotherapy-induced nausea and vomiting ("CINV") and anorexia associated with weight loss in patients with AIDS. The company received FDA approval for the drug in 2016.
Insys's main product, subsys, has been in free fall. Q3 revenue from the drug was $30 million, down 48% Y/Y. Annual sales peaked at $329 million in 2015, which equates to a quarterly run rate of about $82 million.
The U.S. is suffering from an opioid crisis and subsys is in the middle of it. Drug overdoses have surpassed car accidents as the No. 1 cause of accidental deaths in America. Many also believe the spike in drug overdoses has been driven by a proliferation of prescription opioids. In turn, the government has attempted to tamp down the number of opioid prescriptions. The hit to subsys has been two-fold. The number of opioid prescriptions has been cut. Secondly, there have been complaints that subsys - designed to treat critical care cancer patients - has been used to treat non-cancer patients. To the extent subsys becomes limited to only treat critically care cancer patients, I expect its revenue to continue to decline.
Liquidity
Insys's fall in revenue has reduced its critical mass. Q3 EBITDA was -$23 million, down from about $4 million in the year-earlier period. Through the first nine months of 2017, Insys experienced cash burn from operations of $49 million. It could worsen if the company cannot generate enough revenue to cover operating expenses. At the end of Q3 2017, the company had cash and equivalents of $122 million, down from $182 million in the year-earlier period. A major question is, "Is Insys in danger of running out of cash?"
In October 2017, John Kapoor, the founder and majority owner of Insys, was arrested and charged with conspiracy to profit off the illegal distribution of Fentanyl spray intended for cancer patients. The company also is under investigation by the Department of Justice ("DOJ") pursuant to its commercialization of subsys. Insys has set up a reserve of $150 million which it expects to pay out pursuant to the investigation. The company expects to pay out the $150 million over five years.
State attorneys general and other lawmakers are investigating the role Insys and other opioid distributors played in the opioid crisis. Who is to say the company's total penalties and fines will not exceed $150 million?
Conclusion
Insys's revenue could stabilize this quarter, which is a good thing. However, until it grows its revenue base the company could continue to experience cash burn. The company has invested in its pipeline. In Q3 2017, Insys submitted an NDA for buprenorphine sublingual spray, designed to treat dependence/addition to opioids. Treating opioid addiction appears to be a major growth industry, given the current proliferation of opioids in the U.S.
The play for investors is to determine whether Insys's burgeoning legal liabilities will outweigh its current franchise and drug pipeline. For now, I rate INSY a hold into earnings.
This article was written by
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Comments (8)
You also mixed up the NDA they filed for Buprenorphine. It is for severe to moderate pain. Their opioid overdose drug is expecting an NDA filing this year.But i think the gist of your argument is correct at this point. Its the pipeline versus settlements at this point. I think any settlement around where they have accrued would be a huge boost to the stock as it would remove uncertainty. I also like their new management team and the way they are facing their challenges head-on. Any revenue above $30 million for the quarter would be a positive in my books. More interesting will be to see the Syndros revenue. Hopefully, it is greater than the $700K from last month.