Shares of INSYS dipped more than 50 percent on Monday following the announcement that it is filing for bankruptcy protection.
Just days after INSYS Therapeutics (NASDAQ:INSY) agreed on paying US$225 million to settle claims that it fraudulently sold its opioid-based painkiller, Subsys — and bribed doctors to overprescribe the drug — the company has now filed for bankruptcy.
According to a press release on Monday (June 10), the company voluntarily filed under Chapter 11 of the US Bankruptcy Code, which marks the first time a drugmaker caught up in lawsuits related to the opioid epidemic has filed for bankruptcy protection.
INSYS said the company will still operate its business while complying with its payment obligations —which includes one to the US Department of Justice — and it will offload its lead product, Subsys.
Subsys was approved by the US Food and Drug Administration (FDA) back in 2012 to treat breakthrough cancer pain, which is described as sudden or unpredictable episodes of intense pain.
“After conducting a thorough review of available strategic alternatives, we determined that a court-supervised sale process is the best course of action to maximize the value of our assets and address our legacy legal challenges in a fair and transparent manner,” INSYS Therapeutics CEO Andrew G. Long said in Monday’s announcement.
As part of INSYS’ settlement, revealed last Wednesday (June 5), its subsidiary will plead guilty to five charges of mail fraud. This will have the company pay a US$2 million fine and forfeit US$28 million, according to US Department of Justice documents. US$195 million will be paid to settle the allegations that it violated the federal False Claims Act.
The US Department of Justice claims that between 2012 and 2015, the company started using “speaker programs” to raise brand awareness of Subsys through lunches and dinners. These programs, however, were used to pay bribes and kickbacks and targeted doctors in exchange for increased Subsys prescriptions and dosages to patients.
The documents give the example of an instance in which a doctor’s assistant joined the company’s program fully aware of the intention of receiving kickbacks for giving Subsys prescriptions. The assistant wrote more than 670 prescriptions for the doctor’s patients — which were mostly unnecessary — and received US$44,000 in kickbacks from INSYS as a result.
Last year, the US stepped in for five qui tam lawsuits, claiming that INSYS violated the Civil False Claims Act. Qui tam is a type of lawsuit brought against a person or an organization on behalf of a government body that alleges the accused violated a statute, particularly against a government, through false claims. The US Department of Justice claims that these kickbacks also “took the form of jobs for the prescribers’ relatives and friends,” as well as meals and entertainment.
It is also claims that INSYS knowingly advised doctors to prescribe Subsys to patients that did not have cancer, and lied to insurers about diagnoses in order get reimbursement for Subsys prescriptions.
“Illegal conduct by pharmaceutical manufacturers, especially in the midst of the opioid crisis, will not be tolerated,” Principal Deputy Associate and Attorney General Claire Murray said in the US Department of Justice’s statement. “We will continue to investigate and vigorously prosecute these types of allegations and hold opioid manufacturers accountable under the law.”
In May, INSYS founder John Kapoor, along with four other executives of the company, were found guilty of racketeering charges, which blamed them for contributing to the opioid epidemic with sales of Subsys. All corporate executives face a maximum of 20 years of jail time and will be sentenced in September.
Shares of INSYS tumbled by more than 50 percent in Monday’s trading session to close at US$0.64, which is close to a record low. Last year the company reported a net loss of US$124.3 million, which translates to a loss of US$1.68 per share.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any of the companies mentioned in this article.