Insys: Ahead of Its Peers in Medical Marijuana

10/03/2014 7:00 am EST


Jimmy Mengel

Editor, Outsider Club

We are going to add a medical marijuana position to our portfolio mix. We prefer medical stocks to the recreational ones for one major reason: these companies actually make money right now, explains Jimmy Mengel, investment director of The Crow’s Nest.

Insys Therapeutics (INSY) is an Arizona-based company that is developing multiple marijuana-based drugs.

Insys has been publicly traded for a little over ten years and the company is much farther through the tedious FDA process than some of its peers with licenses in place to manufacture and distribute cannabis-derived products in the US.

Insys has been quietly working with Cannabidiol compounds for years. These compounds produce no high. Unlike some competitors, the Cannabidiol compounds it is using are synthetic, avoiding potential issues with growing marijuana plants.

Insys recently received an FDA orphan drug designation on July 1, 2014 for use of pharmaceutical cannabidiols for a rare form of childhood epilepsy.  It also received the same designation as a potential treatment for glioblastoma multiforme, an aggressive form of brain cancer.

Insys is also investigating uses for adult epilepsy, cancer-related pain, and addiction to heroin and other opiates.

The company already has a marijuana-based drug on the market: Dronabinol SG, a generic version of AbbVie’s Marinol. It is used in second-line treatment for chemotherapy-induced nausea and vomiting and anorexia associated with weight loss in patients with AIDS or other diseases.

Dronabinol Oral Solution—an improved version—has already passed through phase III clinical trials and a New Drug Application has been filed.

Meanwhile, Insys is already making money from a unique drug. Subsys, a fentanyl sublingual spray, is a one-of-a-kind breakthrough pain medication.

Breakthrough pain refers to intense pain that “breaks through” the medicine patients are already taking. The episodes can last for hours and it is often dangerous to increase doses of longer-lasting drugs that take far longer to kick in.

Subsys solves this problem by delivering drug particles via a fine mist across a broad surface under the tongue. This allows a very rapid dose of pain medication, with effects felt in as little as five minutes.

Subsys has been on the market since March 2012. Since then, it has captured 35.8% of the market share for similar products and pulled in $422 million in sales last year.

Insys has a market cap around $1.2 billion and a price-to-earnings ratio of 24.5. The company has $46.14 million in cash and no debt. Revenue grew from $18.82 million to $55.70 million between Q2 2013 and Q2 2014.

The shares reached a peak in March at about $55. With prices well below the 52-week high, we have a window of opportunity to enter a position with great upward potential.

Sales and revenue growth are expected to be strong, profit margins will continue to increase with scale, and any news about the new drugs moving closer to sales will attract new investors.

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