Intrinsic value of Insys Therapeutics - INSY

Previous Close

$9.17

  Intrinsic Value

$5.54

stock screener

  Rating & Target

sell

-40%

  Value-price divergence*

-80%

Previous close

$9.17

 
Intrinsic value

$5.54

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence*

-80%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of INSY stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -26.67
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  242
  247
  253
  259
  266
  274
  283
  293
  303
  315
  327
  340
  353
  368
  384
  400
  418
  436
  456
  477
  499
  522
  546
  572
  599
  627
  657
  689
  722
  757
  794
Variable operating expenses, $m
 
  36
  37
  38
  39
  40
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
Fixed operating expenses, $m
 
  202
  207
  212
  217
  223
  228
  234
  240
  246
  252
  258
  265
  272
  278
  285
  292
  300
  307
  315
  323
  331
  339
  348
  356
  365
  374
  384
  393
  403
  413
Total operating expenses, $m
  235
  238
  244
  250
  256
  263
  269
  276
  284
  292
  299
  307
  316
  325
  334
  343
  353
  363
  373
  384
  395
  407
  418
  431
  443
  456
  469
  484
  498
  513
  528
Operating income, $m
  7
  9
  9
  9
  10
  12
  14
  16
  19
  23
  27
  32
  37
  43
  50
  57
  65
  73
  83
  93
  103
  115
  128
  141
  156
  171
  188
  205
  224
  244
  266
EBITDA, $m
  13
  11
  11
  11
  12
  14
  16
  19
  22
  25
  30
  35
  40
  46
  53
  60
  68
  77
  86
  96
  107
  119
  132
  146
  160
  176
  193
  211
  230
  250
  272
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
Earnings before tax, $m
  8
  9
  9
  9
  10
  11
  13
  16
  19
  22
  26
  31
  36
  42
  48
  55
  63
  71
  80
  90
  100
  112
  124
  137
  151
  167
  183
  200
  219
  238
  259
Tax expense, $m
  0
  2
  2
  2
  3
  3
  4
  4
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  34
  37
  41
  45
  49
  54
  59
  64
  70
Net income, $m
  8
  7
  6
  7
  7
  8
  10
  11
  14
  16
  19
  22
  26
  30
  35
  40
  46
  52
  58
  66
  73
  82
  91
  100
  111
  122
  133
  146
  160
  174
  189

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  183
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  356
  176
  180
  185
  190
  196
  202
  209
  217
  225
  233
  243
  253
  263
  274
  286
  299
  312
  326
  341
  356
  373
  390
  409
  428
  448
  470
  492
  516
  541
  567
Adjusted assets (=assets-cash), $m
  173
  176
  180
  185
  190
  196
  202
  209
  217
  225
  233
  243
  253
  263
  274
  286
  299
  312
  326
  341
  356
  373
  390
  409
  428
  448
  470
  492
  516
  541
  567
Revenue / Adjusted assets
  1.399
  1.403
  1.406
  1.400
  1.400
  1.398
  1.401
  1.402
  1.396
  1.400
  1.403
  1.399
  1.395
  1.399
  1.401
  1.399
  1.398
  1.397
  1.399
  1.399
  1.402
  1.399
  1.400
  1.399
  1.400
  1.400
  1.398
  1.400
  1.399
  1.399
  1.400
Average production assets, $m
  19
  20
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
Working capital, $m
  151
  -25
  -25
  -26
  -27
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
Total debt, $m
  0
  2
  4
  6
  9
  11
  15
  18
  22
  26
  30
  35
  40
  45
  50
  56
  62
  69
  76
  83
  91
  99
  108
  117
  127
  137
  147
  159
  171
  183
  196
Total liabilities, $m
  87
  88
  90
  92
  95
  97
  101
  104
  108
  112
  116
  121
  126
  131
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  233
  245
  257
  269
  282
Total equity, $m
  270
  89
  91
  93
  96
  99
  102
  105
  109
  113
  117
  122
  127
  132
  138
  144
  150
  157
  164
  171
  179
  188
  196
  206
  215
  226
  236
  248
  260
  272
  285
Total liabilities and equity, $m
  357
  177
  181
  185
  191
  196
  203
  209
  217
  225
  233
  243
  253
  263
  274
  286
  298
  312
  326
  340
  356
  373
  390
  409
  428
  449
  469
  493
  517
  541
  567
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.060
  0.090
  0.120
  0.140
  0.170
  0.200
  0.230
  0.260
  0.280
  0.310
  0.340
  0.360
  0.390
  0.420
  0.440
  0.460
  0.490
  0.510
  0.530
  0.550
  0.570
  0.590
  0.610
  0.620
  0.640
  0.660
  0.670
  0.690
Adjusted equity ratio
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503
  0.503

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  7
  6
  7
  7
  8
  10
  11
  14
  16
  19
  22
  26
  30
  35
  40
  46
  52
  58
  66
  73
  82
  91
  100
  111
  122
  133
  146
  160
  174
  189
Depreciation, amort., depletion, $m
  6
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
Funds from operations, $m
  80
  9
  8
  9
  9
  10
  12
  14
  16
  19
  22
  25
  29
  33
  38
  43
  49
  55
  62
  69
  77
  86
  95
  105
  115
  127
  139
  151
  165
  180
  195
Change in working capital, $m
  21
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
Cash from operations, $m
  59
  9
  9
  9
  10
  11
  13
  15
  17
  20
  23
  26
  30
  35
  40
  45
  51
  57
  64
  71
  79
  88
  97
  107
  118
  129
  142
  155
  169
  183
  199
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
New CAPEX, $m
  -11
  -1
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
Cash from investing activities, $m
  -22
  -3
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -9
  -9
Free cash flow, $m
  37
  7
  7
  7
  8
  9
  10
  12
  14
  17
  19
  23
  27
  31
  36
  41
  46
  52
  59
  66
  74
  82
  91
  101
  111
  122
  134
  147
  160
  175
  190
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Issuance/(repurchase) of shares, $m
  -10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -12
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Total cash flow (excl. dividends), $m
  25
  8
  9
  9
  10
  11
  13
  15
  18
  20
  24
  27
  32
  36
  41
  47
  53
  59
  66
  74
  82
  91
  100
  110
  121
  133
  145
  158
  172
  187
  203
Retained Cash Flow (-), $m
  -18
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
Prev. year cash balance distribution, $m
 
  183
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  190
  7
  7
  7
  9
  10
  12
  14
  16
  19
  23
  27
  31
  35
  41
  46
  52
  59
  66
  74
  82
  91
  101
  111
  122
  134
  147
  160
  175
  190
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  182
  6
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  12
  12
  12
  11
  11
  10
  9
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Insys Therapeutics, Inc., a specialty pharmaceutical company, develops and commercializes supportive care products. The company markets Subsys, a sublingual fentanyl spray for breakthrough cancer pain in opioid-tolerant cancer patients in the United States. Its lead product candidate is Syndros, an orally administered liquid formulation of dronabinol. The company is also developing Cannabidiol Oral Solution, a synthetic cannabidiol for childhood catastrophic epilepsy syndromes; and other product candidates, including other dronabinol line extensions and sublingual spray product candidates. Insys Therapeutics, Inc. is headquartered in Chandler, Arizona.

FINANCIAL RATIOS  of  Insys Therapeutics (INSY)

Valuation Ratios
P/E Ratio 82.4
Price to Sales 2.7
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 11.2
Price to Free Cash Flow 13.7
Growth Rates
Sales Growth Rate -26.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.4%
Cap. Spend. - 3 Yr. Gr. Rate 17.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 15.2%
Return On Total Capital 3.1%
Ret/ On T. Cap. - 3 Yr. Avg. 20.1%
Return On Equity 3.1%
Return On Equity - 3 Yr. Avg. 20.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 89.7%
Gross Margin - 3 Yr. Avg. 90.3%
EBITDA Margin 5.8%
EBITDA Margin - 3 Yr. Avg. 21.4%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 19.3%
Pre-Tax Margin 3.3%
Pre-Tax Margin - 3 Yr. Avg. 19.6%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 12.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 25.7%
Payout Ratio 0%

INSY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the INSY stock intrinsic value calculation we used $242 million for the last fiscal year's total revenue generated by Insys Therapeutics. The default revenue input number comes from 2016 income statement of Insys Therapeutics. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our INSY stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for INSY is calculated based on our internal credit rating of Insys Therapeutics, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Insys Therapeutics.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of INSY stock the variable cost ratio is equal to 14.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $197 million in the base year in the intrinsic value calculation for INSY stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Insys Therapeutics.

Corporate tax rate of 27% is the nominal tax rate for Insys Therapeutics. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the INSY stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for INSY are equal to 7.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Insys Therapeutics operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for INSY is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $270 million for Insys Therapeutics - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 74.153 million for Insys Therapeutics is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Insys Therapeutics at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ 3 Top Biotech Stocks Under $10   [Aug-19-17 12:03PM  Motley Fool]
▶ Insys Therapeutics reports 2Q loss   [Aug-03-17 11:53PM  Associated Press]
▶ Company News for July 17, 2017   [10:00AM  Zacks]
▶ Cannabis Industry Weekly Recap 7/14/2017   [Jul-14-17 03:51PM  Forbes]
▶ [$$] Anthem Files Civil Suit Against Insys Therapeutics   [12:34AM  The Wall Street Journal]
▶ Anthem files lawsuit against Insys Therapeutics   [Jul-13-17 07:21PM  Reuters]
▶ [$$] Anthem Files Civil Suit Against Insys Therapeutics   [06:39PM  The Wall Street Journal]
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Stock chart of INSY Financial statements of INSY
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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