INSYS Therapeutics Settles Opioid Case for US$150 Million

INSYS Therapeutics (NASDAQ:INSY) announced on Wednesday (August 8) that it has reached an agreement to pay US$150 million — and possibly more — over five years to settle a civil and criminal investigation with the US Department of Justice.

The investigation was regarding inappropriate sales and commercial practises by former employees at INSYS. The agreement is subject to the negotiation of final settlement documents with the government, and the company may also have to make contingency-based payments associated with certain events. Management estimates these would require additional payments of up to US$75 million.

“This is a very important step for our company to move forward and continue our transformative efforts to foster a compliant and ethical culture,” Saeed Mothari, CEO of INSYS Therapeutics, said in a press release. “And to execute against our well-differentiated product pipeline, which we believe can bring value to patients globally.”

There are half a dozen claims regarding illegal practises to promote Subsys (fentanyl sublingual spray) by former INSYS executives. Those practises include taking doctors to strip clubs and paying them with illegal kickbacks to promote the drug.

In its Q4 2013 results, INSYS reported that sales of Subsys were up 719 percent year-on-year, resulting in a high return for investors. It was investors, along with Kessler Topaz & Check, that launched the first lawsuit on the company in 2016. INSYS’ share price has been dwindling since then.

The discussion of opioids goes back further than INSYS and Subsys. Back in the 1990s, when OxyContin quickly began to spiral into illicit drug use, it was apparent the companies weren’t aware or being as clear as needed about the feasibility of addiction and overdose with the drug.

OxyContin maker Purdue Pharma recently laid off its remaining sales force with a 350-employee cut in late June. This news came after a wave of lawsuits blaming Purdue for fueling the US opioid epidemic.

The growing number of cities and states fighting the opioid epidemic by holding manufacturers and developers to blame resembles the Big Tobacco lawsuits.

Investor takeaway

As this and other opioid lawsuits reach settlements, it is important to take note of how investors respond. In the case of INSYS, the company’s share price rose 17.14 percent throughout the trading day.

Within the past five months, three analysts have released notes to investors on the company, all with different valuations. Piper Jaffray analyst David Amsellem downgraded the company to a “sell,” while Oppenheimer analyst Derek Archila reiterated a “hold.” Meanwhile, Jefferies analyst David Steinberg reiterated a “buy” position for the company with a US$9 price target.

The US Food and Drug Administration made an announcement Monday (August 6) to encourage more companies to help treat opioid addiction, as set out by new recommendations.

News about the opioid epidemic can be unsettling for those invested in INSYS and other companies with outstanding lawsuits involving opioids. However, it also gives pharmaceutical companies an opportunity to create opioid alternatives along with drugs to help with opioid addiction.

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Securities Disclosure: I, Gabrielle Lakusta, hold no investment interest in any of the companies mentioned.