On May 10, 2019 INSYS Therapeutics, Inc. (NASDAQ: INSY), a leader in the development, manufacture and commercialization of pharmaceutical cannabinoids and spray technology, reported financial results for its first quarter ended Mar. 31, 2019 (Press release, Insys Therapeutics, MAY 10, 2019, View Source [SID1234536195]).
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RECENT HIGHLIGHTS
Appointed Andy Long as chief executive officer; in parallel promoted Andrece Housley as chief financial officer; and Dr. Venkat Goskonda as chief scientific officer
Continued advancement of strategic alternatives for opioid-related assets
Furthered discussions on capital planning and the evaluation of strategic alternatives with Lazard (See Liquidity Update below)
Progressed R&D programs with a $10.5 million investment in the first quarter of 2019:
Submitted NDA for naloxone nasal spray
Received guidance from FDA following end of Phase 2 meeting for epinephrine nasal spray
Completed enrollment of second cohort in childhood absence epilepsy Phase 2 study
Active enrollment in the Company-sponsored CBD Prader-Willi syndrome (Phase 2) trial
Company-sponsored CBD Infantile Spasms Phase 3 study terminated; the closure of this trial is unrelated to efficacy or safety but was due to challenges related to recruitment of patientsPresented poster on proprietary epinephrine nasal spray at American Academy of Allergy, Asthma & Immunology Annual Meeting
Awarded National Institute on Drug Abuse (NIDA) grant for a series of clinical studies designed to evaluate the effects of pharmaceutical-grade cannabidiol on craving and relapse prevention in opioid use disorder
Financial Highlights
Net revenue for the first quarter of 2019 was $7.6 million, compared to $23.9 million for the first quarter of 2018, driven primarily by declines in the TIRF market and a $3.9 million reduction of inventory in the channel
Gross margin was 40.0 percent for the first quarter of 2019, compared to 90.8 percent in the same period of 2018 due to write-off of excess inventory
Sales and marketing investment was $4.1 million for the first quarter of 2019, compared to $9.1 million for the first quarter of 2018 as a result of managing commercial resources in line with market conditions
Research and development investment decreased to $10.5 million for the first quarter of 2019, compared to $12.3 million for the first quarter of 2018 due to fluctuations in the timing of clinical trials
General and administrative expense of $11.0 million for the first quarter of 2019 increased as compared to $9.6 million in the first quarter of 2018 as a result of professional advisory fees
Legal expense increased to $25.7 million for the first quarter of 2019, compared to $10.3 million in the first quarter of 2018, as a result of the company’s legal proceedings, including expenses associated with indemnification of John Kapoor in connection with his trial, which represented $18.1 million of the first quarter 2019 expense. Management is disputing the reasonableness of certain indemnification-related expenses for this quarter and prior periodsThe company accrued $73.9 million for potential contingent losses related to outstanding legal matters in the first quarter of 2019 compared to $0.7 million in the first quarter of 2018
Income tax expense of $1.2 million for the first quarter of 2019 compared to an expense of $0.2 million during the first quarter of 2018
Net loss for the first quarter of 2019 was ($123.8 million), or ($1.66) per basic and diluted share, compared to a net loss of ($20.4 million), or ($0.28) per basic and diluted share, for the first quarter of 2018. Adjusted net loss for the first quarter of 2019 was ($0.55) per basic and diluted shareAdjusted EBITDA loss for the first quarter of 2019 was ($44.1 million), compared to Adjusted EBITDA loss of ($14.9 million) in the prior-year quarter. The reconciliation of net income to Adjusted EBITDA is included at the end of this news release
The company had $87.6 million in cash, cash equivalents and short-term and long-term investments with no debt outstanding as of Mar. 31, 2019
Liquidity Update
As further discussed in our Form 10-Q for the period ended Mar. 31, 2019 (the "Form 10-Q"), while the company has no outstanding debt, available liquidity is limited to $87.6 million in cash and cash equivalents and investments as of Mar. 31, 2019, and the company expects to have continued negative cash flows from operating activities. The company has experienced recurring and increasing losses from operations over the previous 18 months due to significant declines in the TIRF market and significant legal expenses resulting from the investigation by the U.S. Department of Justice ("DOJ") and other significant litigation matters to which we are subject. As reported in the Form 10-Q, we have estimated liabilities of approximately $240.3 million as of Mar. 31, 2019 for proposed settlements of our various litigation matters, and there are other matters for which we have not been able to determine a reasonable estimated loss. Furthermore, we are uncertain if we will be able to complete a final settlement with the DOJ because of the Company’s inability to fulfill demands made by the DOJ, including the execution of a security agreement related to the assets of the company to collateralize payments under the settlement. These factors raise substantial doubt about the company’s ability to continue as a going concern within one year of the issuance date of the unaudited condensed consolidated financial statements.
If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited consolidated financial statements, and it is likely that investors will lose all or a part of their investment.
Management’s plans, in order to meet our operating cash flow requirements, include the pursuit of strategic alternatives related to the sale or licensing of the Company’s assets. As previously disclosed, on November 5, 2018, the company announced a process to review strategic alternatives for its portfolio of opioid-related assets, including SUBSYS, as well as formulations of buprenorphine and the combination of buprenorphine/naloxone. There are no assurances that the company will be successful in implementing a strategic plan for the sale of its assets in order to address its impending liquidity constraints. If the company cannot successfully implement its strategic plan for the sale of its assets, and/or reach an agreement with the DOJ, its liquidity, financial condition and business prospects will be materially and adversely affected. Accordingly, it may be necessary for the company to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring. Therefore, trading in our securities is highly speculative. Our Board of Directors has not made any decisions related to any strategic alternatives at this time.