Insys founder and former executive chairman John N. Kapoor, PhD

The founder of Insys Therapeutics and four former executives of the company face up to 20 years each in prison following their convictions yesterday on racketeering charges tied to the marketing of Subsys® (fentanyl sublingual spray), indicated for patients with cancer pain.

A federal jury in Boston convicted Insys founder and former executive chairman John N. Kapoor, PhD, 76, of Phoenix, of conspiracy under the Racketeer Influenced and Corrupt Organizations Act (RICO) for bribing medical practitioners to prescribe Subsys, as well as defrauding Medicare and private insurance carriers.

Also convicted with Kapoor were:

  • Richard M. Simon, 48, of Seal Beach, CA, former national director of sales.
  • Sunrise Lee, 38, of Bryant City, MI, a former regional sales director;
  • Joseph A. Rowan, 45, of Panama City, FL, a former regional sales director; and
  • Michael J. Gurry, 55, of Scottsdale, Ariz., former vice president of managed markets.

The five each face up to 20 years in prison, three years of supervised release, and a fine of $250,000, or twice the amount of pecuniary gain or loss. Sentencing dates have yet to be set.

“[Thursday’s] convictions mark the first successful prosecution of top pharmaceutical executives for crimes related to the illicit marketing and prescribing of opioids,” U.S. Attorney Andrew E. Lelling said in a statement. “This is a landmark prosecution that vindicated the public’s interest in staunching the flow of opioids into our homes and streets.”

Kapoor was arrested in October 2017, and was free on $1 million bail and conditions that included orders to wear an electronic monitoring bracelet and surrender his passport. The indictment came the same day President Donald Trump declared the nation’s opioid epidemic a “public health emergency.”

Yesterday, Kapoor’s lawyer, Beth Wilkinson, vowed her client would appeal his conviction in a statement to news organizations. “We will continue the fight to clear Dr. Kapoor’s name,” she stated, adding: “Four weeks of jury deliberations confirm that this was far from an open-and-shut case.”

Lawyers for the other co-defendants either declined comment or are planning appeals, The New York Times reported.

$150M settlement, “substantial doubt”

In August 2018, Insys agreed in principle with the U.S. Department of Justice to pay $150 million over five years, with the possibility of up to $75 million in potential additional contingency-based payments, to settle DoJ’s “civil and criminal investigation into inappropriate sales and commercial practices by some former company employees.”

But following rising legal fees and growing losses, Insys auditor BDO USA issued a note to the company’s Form 10-K annual report for 2018, filed March 12, stating that the company “expects uncertainty in generating sufficient cash to meet its legal obligations and settlements and sustain its operations. These factors raise substantial doubt about the company’s ability to continue as a going concern.”

Insys finished 2018 with a net loss of $124.507 million, improved from $226.835 million a year earlier—but net revenue plunged nearly 42% year-over-year, to $82.020 million last year from $140.693 million in 2017.

On April 15, Insys announced the appointment of CFO Andrew G. Long as CEO, succeeding Saeed Motahari, who according to a company press release “mutually agreed with the Insys Board of Directors to resign as president and CEO.” Long has been succeeded as CFO by Andrece Housley, previously Insys’ corporate controller. Insys also promoted Venkat Goskonda, PhD, to CSO, overseeing the company’s R&D and manufacturing activities.

The federal case against the five defendants was bolstered by testimony from two other high-level Insys executives who had earlier pleaded guilty: Michael Babich, of Scottsdale AZ, the company’s former CEO and president; and Alec Burlakoff, of Charlotte, NC, the former vice president of sales.

From May 2012 to December 2015, according to federal prosecutors, the defendants conspired to bribe practitioners—many of whom operated pain clinics—in order to induce them to prescribe Subsys to patients often when medically unnecessary.

Subsys is indicated for the management of breakthrough pain in cancer patients 18 years old and older who are already receiving, and are tolerant to, around-the-clock opioid therapy for their underlying persistent cancer pain. Subsys ranked number 19 on GEN’s most-recent A-List of Top 20 Abused Prescription Drugs, published in 2017.

Federal prosecutors asserted that the defendants used pharmacy data to identify practitioners who either prescribed unusually high volumes of rapid-onset opioids, or had demonstrated a capacity to do so, then bribed and provided kickbacks to the practitioners to increase the number of new Subsys prescriptions, and to increase the dosage and number of units of Subsys.

“I love titrations…”

One tool used by the defendants, according to the charges, was a rap video produced by two Insys sales representatives in 2015. The salesmen danced alongside a person in a Subsys dispenser costume in the video, as a rapper exclaimed: “I love titrations, and it’s not a problem. I got new patients, and I got a lot of them,” as well as “If you want to be great, listen to my voice. You can be great—but it’s your choice.”

The video was shown at a national Insys sales staff meeting where Kapoor was present, federal prosecutors alleged. They also accused the defendants of measuring their success by comparing the net revenue earned from targeted practitioners with the total value of bribes and kickbacks paid.

The defendants used that information to reduce or eliminate bribes paid to practitioners who failed to meet satisfactory prescribing requirements, which they determined to be the net revenue equal to at least twice the amount of bribes paid to the practitioner, the prosecutors added.

The bribes and kickbacks took multiple forms. In March 2012, Insys launched “speaker programs” incorporating peer-to-peer educational lunches and dinners that were designed to increase brand awareness of Subsys. The programs were used as a vehicle to pay bribes and kickbacks to targeted practitioners in exchange for increased Subsys prescriptions and increased dosage, authorities alleged, adding in a statement: “In most instances, the programs were shams.”

The defendants also conspired to mislead and defraud health insurance providers when they showed reluctance to approve payment for the drug when it was prescribed for non-cancer patients, by setting up an “Insys Reimbursement Center” (IRC) that worked to obtain prior authorization for payment directly from insurers and pharmacy benefit managers.

Beginning in October 2012, according to federal prosecutors, IRC employees posed as employees of the practitioner and used a “spiel” or script of false and misleading representations about patient diagnoses in order to secure approval for the drug by the insurance provider.

Since insurers were more likely to authorize payment for Subsys if a patient was being treated for cancer-related pain, IRC employees were instructed to mislead insurers regarding the true diagnosis of the patient, the prosecutors argued.

“These executives exploited vulnerable patients and cashed in on dishonest doctors by bribing them to prescribe one of the most powerful, addictive opioid painkillers to patients who should never have received it. Motivated by sheer greed, they lied to insurance companies and are no better than street level drug dealers,” said Joseph R. Bonavolonta, special agent in charge of the FBI Boston Division.

Bonavolonta added that Thursday’s verdict “marks an important step in holding pharmaceutical company executives responsible for their role in fueling the opioid epidemic.”

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