Few industries, if any, offer the type of growth that legal cannabis can bring to the table, which is a big reason why investors have flocked to marijuana stocks in droves. Many of the largest pot stocks have gained 100% or more over the trailing year.
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The reason investors are so excited about marijuana stocks, aside from the fact that cannabis research firm ArcView believes the legal weed market can grow by 26% annually in North America through 2021, is the support pot is now receiving from the public.
Back in the late 1960s, when Gallup first began polling the public on their views of marijuana, just 12% favored the idea of legalizing the drug across the country. In the mid-1990s, during the war on drugs, favorability still stood at just 25%. However, as of October 2016, Gallup found that support for countrywide recreational legalization had vaulted to 60%, an all-time record. The higher this approval rating goes, the more likely it is that Congress will act to change marijuana's current Schedule I status at the federal level (Schedule I drugs are entirely illegal and have no recognized medical benefits).
Of course, the federal government keeping cannabis wholly illegal also means that marijuana stock investors are in for some serious volatility. Last week, one pot stock managed to shoot 16% higher from its closing price on Friday, Sept. 29, 2017 to its opening price on Tuesday, Oct. 3, 2017. Unfortunately, when the final bell tolled this past Friday, Oct. 6, poor Insys Therapeutics (NASDAQ: INSY) had given back every red cent it had gained during the week and ended less than 1% lower.
Why Insys Therapeutics surged as much as 16% early in the week
What sent Insys Therapeutics shooting for the stars initially, you ask? Look no further than a press release announcing that it had filed a new drug application (NDA) with the Food and Drug Administration for a novel formulation of buprenorphine as a sublingual spray for the management of moderate to severe acute pain.
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Back in September 2016, Insys reported that its buprenorphine sublingual spray met its primary endpoint in patients with moderate to severe postoperative pain after bunionectomy in a 322-patient randomized trial. Three doses of buprenorphine sublingual spray were tested (0.5 mg three times daily (tid), 0.25 mg tid, or 0.125 mg tid) and all three doses met the definition of statistical significance, which was defined as a reduction in the Summed Pain Intensity Difference from baseline over 48 hours.
Even though a buprenorphine sublingual spray would be entering a very crowded acute pain market if approved, another stream of revenue would be welcomed by Insys' shareholders. "Our NDA for buprenorphine sublingual spray marks another major milestone for the company's R&D pipeline. The submission to the FDA supports our goal of filing on NDA every year for the next five years as we execute on our collective vision and expand our product portfolio," said Insys Therapeutics' president and CEO, Saeed Motahari.
And why it gave it all back (and some)
Unfortunately, the gains would prove to be short-lived for Insys' shareholders, who've been taken to the woodshed over the past two years.
The big issue for Insys continues to be its top-selling drug, Subsys, a sublingual spray approved by the FDA to treat breakthrough cancer pain. Allegations and lawsuits have suggested that Insys' team wasn't properly marketing Subsys. Instead of focusing solely on its approved indication, some have suggested that up to 80% of Subsys' more than $300 million in annual sales at one point were being targeted at off-label indications -- more specifically, physicians who commonly prescribe opioids for pain treatment. The uncertainty created by these allegations and lawsuits has already halved Subsys' sales and pushed Insys from regular quarterly profits to recurring quarterly losses.
This past Thursday, Oct. 5, New Jersey Attorney General Christopher Porrino became the latest to accuse Insys' marketing team of directing its sales force to push Subsys on off-label patients. The lawsuit filed by Porrino alleges that Insys paid kickbacks, including faux speaker fees, to medical practitioners to prescribe Subsys. This was also a means to defraud insurers into covering Subsys, per the lawsuit.
The same day New Jersey filed its lawsuit against Insys, Massachusetts Attorney General Maura Healey announced that it and Insys had agreed to a $500,000 settlement to resolve a similar lawsuit. In other words, not only are Subsys sales still somewhat in free fall, but the legal ramifications of selling Subsys off-label could continue to hit Insys in its pocketbook.
Insys' saving grace
However, despite its Subsys woes, Insys' August launch of Syndros, an oral dronabinol solution (a synthetic form of tetrahydrocannabinol, which you know best as THC), could get this company back on the right track.
Syndros is approved to treat chemotherapy-induced nausea and vomiting (CINV), as well as anorexia associated with AIDS. It was given the green light by the FDA all the way back in June 2016, but scheduling the drug with the Drug Enforcement Agency took until early 2017, with the FDA not giving its final OK on Syndros' marketing label until May.
Now that it's finally been launched and has made it to pharmacy shelves, Syndros has an opportunity to pull in beyond $200 million in peak annual sales, according to Insys' management team. If properly priced and marketed, even in a crowded CINV space, Syndros has the opportunity to completely replace the lost revenue from Subsys by perhaps 2020. It would also suggest that Insys could be healthfully profitable again by the turn of the decade, especially if it receives approval for its buprenorphine sublingual spray.
To be clear, Insys' Subsys issues aren't going away anytime soon, which would be expected to weigh on its results in the near term. However, if the company can eventually stabilize its Subsys sales and launch Syndros without a hitch, it could very well represent a solid bargain here.
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