A Note From Michael: This weekend I’m flying to Baltimore to put together a huge special event – the Pot Stock Briefing. We’re doing it Monday evening. I hope you’re already made your reservation – but if you haven’t signed up yet, there’s still time. Just click here. I’m doing that special event together with Money Morning Executive Editor Bill Patalon. If you don’t Bill, well, he’s one of the best we’ve got here. Over the years, he’s covered finance and investing, economics, manufacturing, the defense sector, biotechnology, and telecom. And he’s been leading the team here at Money Morning for almost a decade now. To help you get to know Bill, we’ve decided to share his column from yesterday. It’s a great one – one of the best he’s ever written… and that’s saying a lot. Normally, reports like these are only available to Bill’s paid-up subscribers. But we’re making an exception today. I hope you enjoy it.
by William Patalon III
It was a spring day back in 1992. My buddy Tim had clambered to the top of an under-construction townhouse – sent by his boss to start sheeting the roof trusses on the four-story structure.
Tim (a pseudonym, since this is a true story) – a fellow muscle-car nut and a guy my best friend, Harry, and I had known since high school – was working as a carpenter. Indeed, he was one of the best you’d find.
Tim’s life was about to change – forever.fLET
Before Tim climbed up into the rafters, his boss – the site foreman – had said that all the trusses had been nailed down a day or two before. Once up on top, trying to reposition himself, my buddy temporarily straddled two of the squat lumber triangles.
Those trusses suddenly started to spread.
They weren’t nailed down.
Tim grabbed at the closest truss – but lost his handhold when it rolled under his weight.
And he fell.
What actually happened was that he plunged through the rectangular floor openings at each story – openings that would hold the staircases needed to climb from the ground-floor doorway all the way to the top.
My friend remembers getting both his arms, at chest level, onto the edge of one of those openings on the third or second floor – a move that slowed his fall and probably saved his life.
But he still slammed into the ground with a force that, even today, makes my skin crawl to think about.
And he was a denizen of an entirely new world.
A world of doctors, operations, physical therapy…
I’m sharing this story here today for a reason.
A bunch of reasons, actually.
I’m going to tell you about a biotech stock that I like a lot that focuses on the very real problem of chronic pain. It’s a company that’s looking at this malady in new ways.
But I also want to show you how to find still more stocks like this one – companies that are establishing whole new paradigms in biotechnology, life sciences and pharmaceuticals. It’s a brand-new business – one that I’m jazzed to tell you all about.
Let’s get started…
A New Healthcare Sector Emerges
In a study a year or so ago, the National Institutes of Health (NIH) found that about 11% of Americans – roughly 50 million people – suffered from debilitating pain.
The pain comes from many sources – accidents, injuries, botched surgeries, limitations in today’s medical technologies, diabetes, cancer, arthritis, the effects of aging… the list of causes is long and varied.
My buddy Tim is a prime example. His four-story fall destroyed his lower back, fracturing vertebrae, bursting discs and crimping nerves. Round after round of surgery followed – including a procedure in which the doctors tried to build a stabilizing “cage” around his spine – but none of them worked.
Tim’s legs went numb, and his pain took on a life of its own – becoming a separate affliction that required its own treatment regimen. In recent years, some of the newer medications have made it possible for my friend to enjoy a more normal life. He’s restoring cars again, and I see him out and about more than in years past.
Millions of Americans share Tim’s plight and suffer from serious pain problems. And that has turned the market for pain medication into a huge business.
According to market researcher VisionGain, the worldwide business for pain drugs is worth about $68 billion right now.
Other studies say it’s even bigger.
Transparency Market Research says demand for pain therapeutics will cause global sales to grow from about $60.2 billion in 2015 to $83 billion by 2024.
But there are also some smaller specialty players that are positioned to capitalize on this big and growing need for pain-management medications.
And there’s one specific small company that I like in particular: Insys Therapeutics Inc. (NASDAQ: INSY).
Insys, based in Phoenix, is a “commercial stage” specialty pharmaceutical company – with a big focus on pain treatment.
One of its key products is a drug called Subsys, a fentanyl spray aimed chiefly at cancer patients experiencing “breakthrough” pain. The product is designed to be sprayed under the tongue, where it’s absorbed through the skin.
As most of you folks know, I covered the biotech sector for a number of years back during my days as a hard-driving business journalist. So I learned how to find and evaluate small, off-the-radar biotech stocks – with lots of upside potential.
What I especially like about Insys is that it’s a very forward-thinking company. With Subsys, it has a drug that’s relevant in the pain market as it stands today.
And with the drugs it has in the pipeline, it’s preparing itself to be relevant in the pain-treatment market still to come.
To show you why, I need to tell you the “backstory” to America’s War on Pain.
A Less-Than-Civil War
Pain treatment is a growing global problem. But here in the United States, that problem has had some unfortunate side effects.
Tragically, the recent surge in the number of sufferers has been accompanied by a backlash against the treatment of pain as a real malady.
A few years back, The New England Journal of Medicine published a commentary by two doctors who argued that pain patients should pursue “coping and acceptance strategies that primarily reduce the suffering associated with pain and only secondarily reduce pain intensity.”
In other words, those doctors say physicians should focus less on providing medicine for pain treatment and look more at how patients “deal” with pain.
This op-ed ignited a war on the NEJM website: One group lauded the doctors for focusing on public health and opioid abuse, while another flamed the authors for lacking compassion and being unrealistic about the very real problem of chronic pain.
The upshot: “There’s a civil war in the pain community,” Dr. Daniel B. Carr, president of the American Academy of Pain Medicine, told STAT back in January. “One group believes the primary goal of pain treatment is curtailing opioid prescribing. The other group looks at the disability, the human suffering, the expense of chronic pain.”
The “casualties” in this war are folks like my buddy Tim, who had to endure scores of operations, physical and alternative therapies, and all sorts of medications. This backlash is now making it tougher to get conventional pain medications, even as the pain issue grows.
It took years for pain to achieve front-and-center status as a real medical malady – one that warranted treatment. That finally happened during the 1990s and 2000s. But now, this snapback against the prescription of opioid drugs has triggered an entirely area of focus in pain treatment.
I’m talking about cannabinoids – medical marijuana and all its derivatives.
This, too, is a huge potential market.
As recently as 2013, legally sanctioned medical marijuana was worth only about $1.5 billion in sales. But this year – when more than half the states have some form of legal medical or recreational use laws – the cannabis sector will be worth $6.7 billion.
And it will be worth $35 billion by 2020… and $100 billion by 2029.
In the area of pain treatment, one of those derivatives is a drug called Marinol.
Marinol is a synthetic form of Delta-9-THC, a compound that occurs naturally in marijuana. The U.S. Food and Drug Administration (FDA) has approved Marinol to treat nausea in chemotherapy patients who’ve failed to adequately respond to conventional treatments.
Though not widely known, Marinol has also shown itself to be effective in the treatment of pain.
And Insys is becoming a player in the Marinol market.
I’m broadening my definition of “pain” here a bit – taking it beyond the traditional “it hurts” definition to include forms of discomfort that impinge upon our desire to live active, full lives.
A synthetic THC drug just cleared a federal regulatory hurdle to commercialization.
Insys has a version of Marinol, known as Syndros, which could launch later this year after the FDA said it was okay for doctors to prescribe Marinol-based drugs. Insys is looking at other configurations and uses for Syndros in preclinical studies.
That’s key to note. As I know from my years as a business journalist covering biotech, even after getting an approval, drugmakers look to add new “indications” (treatments) for its drugs. That broadens the market – and the revenue potential.
That’s just one of the reasons to like Insys.
The stock has been beat up for several reasons – all of them temporary. Insys is currently trading at about $11.50 – down from its high of $19.96 a share.
And it has a new CEO – a visionary – to help it capitalize.
Saeed Motahari, who just came on board last month, has had senior roles at Abbott Laboratories (NYSE: ABT), Bristol-Myers Squibb Co. (NYSE: BMY) and Roche Holding AG (OTC ADR: RHHBY) – all successful, big-cap firms.
And Motahari just brought on board a new head of medical affairs – an executive named Dr. Steven James, who’s logged stints at Merck, Shire PLC (Nasdaq ADR: SHPG), and Eli Lilly and Co. (NYSE: LLY). He also served as head of medical affairs at Allergan PLC (NYSE: AGN).
Legal Weed, Legal Profits
I’m not the only guru here at Money Map Press who likes Insys. So, too, does Strategic Tech Investor Editor Michael Robinson, who’s emerged as a national guru on cannabinoids and medical marijuana.
“Bill, this is a firm with two products on the market right now,” Michael told me. “One is a form of fentanyl, and the other one is Syndros, which contains THC. Syndros is an oral product used to treat nausea in cancer patients taking chemotherapy. It also can be used to treat anorexia in AIDS patients. Insys also looks great over the long haul. It has six products in clinical trials. Two of those are in Phase III, with the rest in Phase II.”
So if all it had was a 50% success rate, which is very conservative, we’re still talking three new products that could come to market in the next 18 to 36 months.
That could make this a $20 stock in that same time frame. Buy the stock here by using a staggered-entry strategy. Buy 60% of your intended position here, and split the remaining portion into two equal tranches one at 12% below your purchase price and the other at 20%. Look to hold it for three years.
And the medical-marijuana boom is one of the biggest technology waves sweeping North America right now. Twenty-nine states, plus Canada and Mexico, have approved cannabis for medical use. And recreational marijuana is legal in eight states – and will be soon in Canada.
“Bill, the cannabinoids market is fascinating… it’s a true ‘frontier market’ opportunity – one fueled by very real needs, changes in legislation and public policy, a more conducive voter sentiment, and innovation. As I see it that makes medical marijuana one of the single-biggest investment opportunities I’m following.”
In fact, it’s such a bit opportunity that Michael and I have scheduled a special event – for an hour, we explore all these legislative changes, as well as some of his favorite, specific medical-marijuana stocks. Our talk is scheduled for Monday, May 15, at 6 p.m. (ET).
Note From Michael: I’ll see you back here next week. Have a great weekend.
- The New England Journal of Medicine: Intensity of Chronic Pain – The Wrong Metric?
- STAT: A “Civil War” Over Painkillers Rips Apart the Medical Community – and Leaves Patients in Fear.
- WebMD: Marijuana to Treat Pain: A Pill May Outlast a Puff.
- The Cannabist: Synthetic THC Drug Syndros Poised for Schedule II Classification.