NEW YORK (
TheStreet) -- Shares of
(INSY)are tumbling for a second straight session following a report of a Michigan doctor being charged with allegedly prescribing the company's Subsys painkiller to people who did not need it.
WHAT'S NOTABLE: Dr. Gavin Awerbuch is alleged to have prescribed Subsys, a painkiller that is supposed to be used only by cancer patients, to individuals who did not need the drug, a website on Michigan area news, mlive.com, reported last Thursday. The doctor then allegedly billed Medicare for the prescriptions, the site quoted federal authorizes as alleging. Awerbuch, who was arraigned in federal court on May 6 on charges of health care fraud and distribution of controlled substances, was said to have prescribed about 20% of the Subsys given to Medicare beneficiaries from January 2009 through February 2014, mlive.com added, citing a court affidavit.
ANALYST REACTION: Although Subsys is very similar to three other painkillers that are also on the market, it obtained greater market share than the other three competing drugs at their peak levels, Bronte Capital analyst John Hempton wrote on his blog, citing a regulatory filing by the company. Additionally, Insys has noted that it incentivizes its sales force with bonuses as a means of increasing Subsys' market share, the analyst said. Reporting that Subsys is highly addictive and gets users "massively high," Hempton alleged that the drug seems to be designed to be used for inappropriate purposes.
Given the diversion of the drug to those who are not supposed to be using it and its design, as well as the company's incentive system, Insys "seems as good a candidate as any" to be closed by the government and "an okay short," Hempton contended. The blog notes that the opinions expressed are those of Hempton, who may hold long or short positions in stocks he analyzes. Conversely, Wells Fargo analyst Michael Faerm defended the stock in a note to investors earlier today.
Awerbuch's prescriptions accounted for less than 4% of the sales of Subsys from April 2012 through February 2014 and less than 2% of the drug's sales so far in 2014, mitigating the loss of future prescription volumes, Faerm contended. Moreover, the analyst added that he has no knowledge of the government making any allegations against the company. He believes that the sell-off in the stock on Friday appeared overdone, and kept an Outperform rating on the stock.
PRICE ACTION: In mid-morning trading, Insys tumbled $5.69, or 17.4%, to $27 after having declined nearly 17% on Friday. On Thursday, the stock closed at $39.31.
Reporting by Larry Ramer