Insys Therapeutics shares plunged 74% in early market trading this morning after the company warned it may file for Chapter 11 bankruptcy protection as its year-over-year legal expenses have ballooned and revenues have shriveled.
More than a week after Insys founder John N. Kapoor, PhD, and four former executives were convicted of racketeering charges for which they face up to 20 years each in prison, the company’s share price plummeted as of 10:25 a.m. to 95 cents from a closing price of $3.60 the previous trading day Friday.
On Friday following the close of trading, Insys reported first-quarter results that it said reflected the rising cost of defending the company from its legal troubles, as well as shrinking sales of its opioid products.
Insys’ legal expenses more than doubled during the first quarter to $25.7 million compared with $10.3 million in the year-ago quarter. Most of that legal expense—$18.1 million—reflected costs associated with indemnification of Kapoor in connection with his trial, Insys said.
While Insys said it has no outstanding debt, it has only $87.6 million in cash and cash equivalents and investments as of March 31, 2019—far less than the approximately $240.3 million it has estimated in liabilities for proposed settlements of various legal matters.
Even worse, Insys said, it is not certain whether it can iron out a settlement with the U.S. Department of Justice (DOJ) since it cannot fulfill agency demands that according to the company include execution of a security agreement related to the assets of the company to collateralize payments under such a 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,” Insys acknowledged Friday in a statement, repeating the “going concern” warning raised in March by auditor BDO USA in the company’s Form 10-K annual report for 2018, filed March 12.
In November, Insys announced it was reviewing strategic alternatives for its portfolio of opioid-related assets, including Subsys®, as well as formulations of buprenorphine and the combination of buprenorphine/naloxone.
Insys said Friday that it “furthered discussions on capital planning and the evaluation of strategic alternatives with Lazard,” during the first quarter, but that its board had made no decisions related to strategic alternatives.
“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,” Insys warned.
Insys finished Q1 2019 with a net loss of $123.8 million, about six times the $20.4 million net loss reported by the company in the first quarter of 2018. Net revenues fell 68% to $7.630 million from $23.911 million in the first quarter of last year.
Nearly all the company’s revenues were generated from Subsys® (fentanyl sublingual spray), indicated for patients with cancer pain. Subsys’ revenues fell 69% to $7.233 million from $23.274 million.
“The continuing sensitivity by some health care professionals to prescribe, and pharmacies to dispense, opioids, scrutiny by third-party payers and governmental agencies, ongoing state and federal investigations, and media reports related thereto, will likely result in our inability to grow full-year Subsys revenue for the remainder of 2019 when compared to 2018,” Insys stated in its Form 10-Q quarterly regulatory filing.
The marketing of Subsys was at the heart of the federal case against Kapoor and the four former executives. On May 2, a federal jury in Boston convicted the five 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.
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.
Insys has responded to its legal trouble in part by shifting pipeline away from opioids, toward proprietary spray technology and pharmaceutical cannabinoids. During Q1, Insys:
- Submitted an NDA for naloxone nasal spray.
- Said it received guidance from the FDA following an end-of-Phase II meeting for its epinephrine nasal spray.
- Completed enrollment of a second cohort in its Phase II trial assessing its cannabidiol oral solution for childhood absence epilepsy.
- Continued to enroll patients in a Phase II trial for its CBD Prader-Willi syndrome candidate.
However, Insys’ marketed cannabinoid-based product Syndros® (dronabinol) oral solution saw a 53% year-over-year decline in net revenue in the first quarter, to $297,000 from $637,000 in Q1 2018. Syndros is indicated in adults for anorexia associated with weight loss in patients with AIDS; and for nausea and vomiting associated with cancer chemotherapy in patients who have failed to respond adequately to conventional antiemetic treatments.
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.