Why This Marijuana Stock Crashed 18.5% in August

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What happened

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Arizona's attorney general is suing Insys Therapeutics (NASDAQ: INSY) over its marketing of the fentanyl opioid spray, Subsys, and that news caused the company's shares to tumble 18.5% in August, according to S&P Global Market Intelligence.

So what

Insys Therapeutics has launched its marijuana drug Syndros. However, uncertainty over demand for it and ongoing concerns regarding the marketing of Subsys remain major headwinds.

Insys Therapeutics maintains that Syndros is better than Marinol, a THC drug that's been used to treat weight loss in AIDS patients and nausea and vomiting in chemotherapy patients since the 1980s. A liquid formulation of Marinol, Syndros can be more easily dose adjusted and it offers better bioavailability than Marinol.

The company hopes these advantages will allow it to win away some of the roughly $200 million spent on Marinol annually. Syndros, though, isn't included on many insurers' drug formularies yet, so it remains to be seen how quickly its sales will ramp.

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If Syndros launch is slow-going, it will be disappointing. Investors are eager to offset sliding sales of Subsys, Insys Therapeutics' breakthrough pain medicine. Subsys has been under scrutiny since 2015, when news reports called into question its use outside of its approved cancer indication.

The Subsys debacle has led to the revolving door in the company's C-Suite and the arrest of its former CEO. The company installed a new CEO earlier this year who has promised to work toward settling the Subsys investigation, however, there's no telling when that might happen. 

Now what

Insys Therapeutics' shares rallied briefly after management announced a $4.5 million settlement with Illinois' attorney general on Aug. 22. However, Arizona's attorney general filed suit against the company on Aug. 31. 

The company's still generating sales from Subsys, but it's barely breaking even on the drug, and with settlements looming, an uncertain future for Syndros makes owning this stock nerve-racking.

Until Insys Therapeutics proves it has put its Subsys woes behind it and that there's demand for Syndros, this is a risky stock that all but the most aggressive investors ought to avoid buying.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.