Insys Therapeutics: Drug Dealers In Addition To The Feds. Tin The Concern Survive?

Insys Therapeutics (INSY:NASDAQ) is a seller of marijuana based anti-nausea drugs as well as super-strong opiates (Fentanyl) as well as zippo much else. Nothing has anything that resembles strong patent protection as well as their version of sublingual Fentanyl is a relatively novel comer to the opiate scene - having only been on the marketplace set since early on 2013.

Remarkably the marketplace set cap is over $1 billion. Here is a description from the concluding 10K. 

We are a commercial-stage specialty pharmaceutical fellowship that develops as well as commercializes innovative supportive attention products. We own got ii marketed products: Subsys, a proprietary sublingual fentanyl spray for breakthrough cancer pain, or BTCP, inward opioid-tolerant patients as well as Dronabinol SG Capsule, a generic equivalent to Marinol (dronabinol), an approved second-line handling of chemotherapy-induced nausea as well as vomiting, or CINV, as well as anorexia associated alongside weight loss inward patients alongside AIDS. We marketplace set Subsys through an incentive-based sales model.

Drobinol is but marijuana extract. Subsys is a sublingual spray version of fentanyl - an opiate stronger than but shorter acting than heroin whose only legitimate operate is to process hurting as well as hence abrupt the morphine doesn't cutting it.

Subsys - yesteryear far their of import production - is a me-too product. It is - every bit the shape 10K stated - the 4th Transmucosal Immediate Release Fentanyl (TIRF) production released inward recent years. However real apace gained sales - indeed far to a greater extent than apace than whatsoever Fentanyl ever. Again to quote the 10K.

We launched Subsys every bit a commercial production inward March 2012. Subsys is the 4th novel branded production inward the TIRF marketplace set over the concluding 4 years. Within the first of all 4 weeks of production launch, Subsys realized greater marketplace set portion than the previous 3 branded products combined at their respective peak marketplace set penetration levels to engagement according to Source Healthcare Analytics. In Dec 2013, Subsys was the most prescribed branded TIRF production alongside 28.3% marketplace set portion on a prescription footing according to Source Healthcare Analytics. Through our ongoing commercial initiatives, nosotros believe nosotros tin move along to grow our marketplace set portion as well as meshing revenue for Subsys. According to Source Healthcare Analytics, inward 2013, TIRF products generated $421.2 1000000 inward annual USA production sales. The physician prescriber base of operations for TIRF products is concentrated alongside but about 1,850 physicians writing 90% of all TIRF production prescriptions inward 2013, according to Source Healthcare Analytics. As a result, our commercial arrangement is able to promote Subsys using a highly targeted approach designed to maximize affect alongside physicians.

Now given that at that spot is non a huge deviation betwixt TIRF products it is remarkable that Subsys instantly became the dominant TIRF production alongside a greater portion than the 3 previous leaders combined. It is non only obvious how they did that.

But the cardinal was quoted higher upward - as well as I underlined it but to build certain y'all noticed. Insys markets Subsys through "an incentive-based sales model".

Its a niggling difficult to piece of job out what that genuinely agency - but it is the cardinal run a peril inward this business. The 10-K only says this:

We marketplace set Subsys through our U.S.-based, champaign sales forcefulness focused on supportive attention physicians. We utilize an incentive-based sales model that employs a pay construction where a pregnant ingredient of the compensation paid to sales representatives is inward the shape of potential bonuses based on sales performance.

This is non well-described inward the shape 10-K. They state several times that the sales approach is similar to i used at Sciele Pharma - a fellowship that management were previously associated with. Again to quote:

We commercialize Subsys through a cost-efficient commercial arrangement utilizing an incentive-based sales model similar to that employed yesteryear Sciele Pharma as well as other companies previously led yesteryear members of our board of directors, including our founder as well as Executive Chairman. We intend to marketplace set Dronabinol Oral Solution as well as other proprietary supportive attention products, if approved, using the same approach as well as our commercial organization. 

Beyond that - as well as a description of the size of the marketing forcefulness - the marketing scheme is non good described. Here is the description of the size as well as extent of the marketing force. 

As of Dec 31, 2013, nosotros had 145 full-time sales as well as marketing personnel. We await the number of our sales as well as marketing personnel to increment every bit nosotros seek to move along to increment our existing production sales as well as every bit whatsoever afterwards approved products are commercialized. We await our sales as well as marketing expenses, along alongside our question as well as evolution expenses, to last our largest categories of operating expenses for the foreseeable future. In addition, because nosotros operate an incentive-based compensation model for our sales professionals, nosotros await our sales as well as marketing expenses to fluctuate from menses to menses based on changes inward Subsys meshing revenue. Specifically, nosotros await our sales as well as marketing expenses to increment inward 2014 to the extent that expected increases inward Subsys meshing revenue are realized.

So, what own got nosotros got?

H5N1 me-too drug - some other sublingual Fentanyl - but alongside a marketing incentive scheme that plant as well as that encourages people to sign up.

One way is that - like Galena - the company offers costless samples. I own got cutting as well as glue the offering below:

But the primary differentiation for this fellowship is the "incentive-based pay structure" whereby "a pregnant ingredient of the compensation paid to sales representatives is inward the shape of potential bonuses based on sales performance". 

Oh, of course of education the drug is wildly addictive as well as makes y'all massively high.

There is i to a greater extent than matter that makes this drug peculiarly susceptible to rapid but ultimately undesirable growth. I volition larn out that to later inward this post.

This is sort of special - its a concern model almost designed for something to larn incorrect - real wrong.

Very incorrect of course of education is off-label selling as well as diversion to drug addicts. Worse yet is the systematic creation of drug addicts yesteryear your sales forcefulness who are paid yesteryear incentives.

The get-go of the unravelling

On Fri inward the belatedly afternoon Insys stock apace dropped almost 20 percent on no apparent news. Twitter had the story though - a story inward a Michigan local paper about a medico beingness arrested for allegedly defrauding medicare. 

The coin quotes inward the paper:

Medicare paid Awerbuch [the allegedly corrupt doctor] $6.9 1000000 from Jan. 1, 2009, through Feb. 6, 2014, for Subsys he prescribed. The adjacent highest total a USA prescriber received was $1.6 million. 

"Awerbuch is responsible for but about 20.3 percent of the Subsys prescribed to Medicare beneficiaries nationwide during this time," the affidavit stated. 

He wrote 1,283 prescriptions for the drug inward 5 years, spell the adjacent closest prescriber wrote 203 prescriptions, the electrical load stated.

Now at that spot are something incorrect alongside these dates - because Subsys was only marketed from March 2012 - but - if the newspaper is to last believed - a unmarried medico was responsible for over 20 percent of all Medicare Subsys prescriptions. And that medico is non going to last prescribing whatsoever more.

This medico took to prescribing Subsys real freely as well as if the story is to last believed opposite to the black-label warnings. He also allegedly defrauded private wellness attention companies - as well as hence he is responsible for to a greater extent than of the sales. Allegedly the medico also prescribed Subsys to the police delineate officer. To quote:

On i visit, an hole-and-corner officeholder asked for a Vicodin prescription as well as attempted to bribe Awerbuch for the drug alongside $1,000. The officeholder told Awerbuch he would sell the drug to coworkers. 

Awerbuch refused the bribe as well as asked the officeholder non to sell Vidodin again. He also asked if the officeholder was a Drug Enforcement Administration for FBI agent. The officeholder said he was not, as well as Awerbuch issued him the Vicodin prescription. 

During a later visit, Awerbuch proscribed Subsys to the officeholder fifty-fifty though the officeholder had non been diagnosed alongside cancer.

The affidavit also talks almost the medico giving the "free 30 twenty-four hr menses trial" to people who are non cancer patients.

Increasing doses

Just inward passing the affidavit mentions prescriptions to private patients. They larn upward real apace consistent alongside addiction. If y'all desire the bull illustration for the fellowship that is it. Rapid growth based on addiction.

Diversion

It doesn't accept long prowling the cyberspace to piece of job out that at that spot are other issues alongside Subsys. I am non going to Pb y'all through the metro of drug-diversion websites - but it is non difficult on the spider web to let on people who own got taken this drug intravenously as well as some of them written report getting distributors to give them the 30 twenty-four hr menses costless samples. Moreover - as well as this genuinely is an number - this is a sublingual spray - that is a liquid. The other forms of the drug (lollipops, rice-paper tabs etc) are non liquids. [However if y'all desire a guide to extracting Fentanyl from patches look here... Never underestimate the ingenuity of an addict needing hit.]

It is much easier for a narcotics user to ready a sterile liquid for IV operate than a medicated lollipop. I own got a pet suspicion - non proven - that i argue for the real rapid uptake of the spray version is that it is much to a greater extent than suitable for diversion.

Do the Feds closed the company?

I am never fond of short-cases where the curt seller is reliant on the authorities to closed a concern for them (see Herbalife). However this seems every bit skilful a candidate every bit whatsoever for authorities closure.

We have 

(a) easily detectable diversion [indeed nosotros own got the prescription of the drug to a police delineate officeholder without cancer as well as who previously said that he planned to sell narcotics to his piece of job colleagues],
(b) a drug that seems designed for diversion,
(c) an incentive scheme for sales people that encourages them to build sales regardless as well as who - because of their incentives - may last tempted to sell off label,
(d) a unmarried medico who prescribes a double-digit per centum of the Medicare total for the drug as well as who is currently nether indictment.

Finally nosotros own got (e) a drug alongside perfectly skilful substitutes such that the loss of the fellowship marketing the drug volition hateful no existent loss to social club or patients.  

It seems similar an okay curt to me. At the minimum the Feds volition investigate the sales practices as well as their link to the Michigan doctor. After all at that spot was someone who was working alongside patients to larn refund blessing on many of these prescriptions as well as at that spot was a salesperson paid a large incentive bonus for these sales.

Oh, as well as the fellowship is trading at a large multiple of sales as well as of earnings.

John

Disclosure: unsurprisingly I am short. However I worry almost shorting addictive products generally. So accept that alongside a grain of salt.