Derek Archila Worries Insys Therapeutics Inc (INSY) Faces a Poor Set-Up Amid Legal Scandal

INSY's whopper of a lawsuit has Oppenheimer sounding off with a note of caution.


Insys Therapeutics Inc (NASDAQ:INSY) is swamped in negative publicity after its once billionaire chairman, CEO, and founder Dr. John Kapoor faced arrest Thursday culminating in his resignation from the board of directors. Investors are anxiously running for the hills, with shares now diving close to 10% in the aftermath of Kapoor’s domestic charges that the man is guilty of trying to bribe doctors to prescribe the biotech’s opioid cancer pain drug.

Before shares started taking a hit, INSY stock had been halted all of Friday through yesterday, with the biotech firm suffering at least a $150 million liability for a Department of Justice (DOJ) settlement.

To Oppenheimer analyst Derek Archila, this suggests the legal contention will be far from just a mere ‘slap on the wrist.’

In a nutshell, the situation does not look promising for INSY now that the minimum has been established for the settlement liability. Archila surmises: “From a negotiating stand point, we still don’t know what the DOJ’s settlement number is, though clearly it must be higher than this. In the press release, INSY notes ‘the ultimate amount of potential liability may materially exceed the $150M accrual we have established.’ Further, based on our communication with a former federal prosecutor last week, the arrest of former chairman/CEO/founder Dr. John Kapoor only increases the severity of the crimes committed and likely increases the size of the potential settlement, in his view. Since there is no guarantee the DOJ will accept INSY’s offer (settlement size and/or 5-year payment term), it still remains tough to predict the ultimate size, timing and terms of a potential settlement. We continue to remain cautious on the shares (when INSY begins trading again) as we believe the setup remains poor and see the potential for INSY to require additional capital to manage through the DOJ settlement, fund its pipeline and litigate payer/patient lawsuits.”

If INSY can make a comeback to profitability, the analyst believes that with approximately $200 million in cash on hand, this could come to fruition by 2022- but not at the the cash burn cost of roughly $135 million within the passing of these next five years.

Therefore, the analyst continues to survey apprehensively from the sidelines, reiterating a Perform rating on INSY stock without suggesting a price target. (To watch Archila’s track record, click here)

A flickering yellow caution light seems to flash over this biotech player, as according to TipRanks, based on 4 analysts polled in the last 3 months, half rate a Buy on Insys stock while half maintain a Hold. The 12-month average price target stands at $10.67, marking a nearly 104% upside from where the stock is currently trading.