Recent Arrests Could Impact Insys’s DOJ Investigation
Insys manufactures and markets two main drugs – subsys and syndros. Subsys delivers fentanyl, an opioid analgesic used for the treatment of breakthrough pain caused by cancer (“BTCP”) in opioid-tolerant patients. 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. Subsys makes up about 98% of the company’s total revenue.
In Q4 2017 subsys revenue was about $32 million, down 46% Y/Y. It was up 3% sequentially which implies its revenue could be stabilizing. In 2015 subsys generated annual revenue of $329 million; this equates to a quarterly run-rate of over $80 million. Subsys appears to be right in the middle of the opioid crisis. The government’s attempt to tamp down rising opioid prescriptions likely led to the free fall in the drug’s revenue.
In Q4 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. Insys is also 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 could to pay out pursuant to the investigation. The company estimates it could pay out the $150 million over five years.
Dr. Jerrold Rosenberg Admitted To Taking Kickbacks From Insys
Dr. Jerrold Rosenberg, a doctor from Rhode Island, was sentenced to four years in prison in March after admitting he took over $180,000 in kickbacks from Insys. Dr. Rosenberg’s testimony could potentially be used to strengthen the DOJ’s case against the company. If lawmakers can turn one or two additional doctors against Insys it could potentially further strengthen the DOJ’s case.
That said, the $150 million the company has reserved for claims under the DOJ investigation could be potentially understated. The company currently has $163 million in cash and equivalents. INSY bulls are inherently betting the company’s currently liquidity and future cash flows will be enough to cover potential claims pursuant to the DOJ. That could be a risky bet.
