Top Executives of Insys, an Opioid Company, Are Found Guilty of Racketeering

By | May 3, 2019

BOSTON — A federal jury on Thursday found the top executives of Insys Therapeutics, a company that sold a fentanyl-based painkiller, guilty of racketeering charges in a rare criminal prosecution that blamed corporate officials for contributing to the nation’s opioid epidemic.

The jury, after deliberating for 15 days, issued guilty verdicts against the company’s founder, the onetime billionaire John Kapoor, and four former executives, finding they had conspired to fuel sales of its highly potent drug, Subsys, by not only bribing doctors to prescribe their product but also by misleading insurers about patients’ need for the drug.

The verdict against Insys executives is a sign of the accelerating effort to hold pharmaceutical and drug distribution companies and their executives and owners accountable in ways commensurate with the devastation wrought by the prescription opioid crisis. More than 200,000 people have overdosed on such drugs in the past two decades.

Federal authorities last month for the first time filed felony drug trafficking charges against a major pharmaceutical distributor, Rochester Drug Cooperative, and two former executives, accusing them of shipping tens of millions of oxycodone pills and fentanyl products to pharmacies that were distributing drugs illegally.

And the state attorneys general of Massachusetts and New York have recently sued not just Purdue Pharma, the maker of OxyContin, but also members of the Sackler family who own the company — and who have largely escaped personal legal penalties for the company’s role in the epidemic, culpability they deny.

Also on Thursday, the state of West Virginia reached a $ 37 million settlement in a lawsuit against the McKesson Corporation, one of the nation’s leading drug distributors, which was accused of shipping nearly 100 million doses of opioids to residents over a six-year period.

Experts said the Insys verdict could encourage other corporate prosecutions and said it demonstrated that the public was willing to mete out penalties for high-level executives at companies profiting from the sales of highly addictive painkillers.

“Just as we would street-level drug dealers, we will hold pharmaceutical executives responsible for fueling the opioid epidemic by recklessly and illegally distributing these drugs, especially while conspiring to commit racketeering along the way,” said Andrew E. Lelling, the United States attorney in Massachusetts who pursued the case.

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Abbe Gluck, a Yale law professor, said “the case paints a picture of the kind of troubling industry practices that helped fuel the opioid epidemic.” And the verdict “shows that a jury is willing to punish for them.”

The federal government had previously brought civil racketeering charges against drug companies for promoting their drugs for unapproved uses, said Richard C. Ausness, a law professor at the University of Kentucky who has been tracking opioid cases. Bringing criminal racketeering charges, he said, “raises the stakes by a lot.”

Michael Babich, former chief executive of Insys Therapeutics, pleaded guilty to conspiracy and mail fraud charges.CreditBrian Snyder/Reuters

“This could be the tip of the iceberg as far as drug company misconduct is concerned,” he said.

During the 10-week trial, federal prosecutors had detailed Insys’s audacious marketing plan — which included paying doctors for sham educational talks and luring others with lap dances — to spur sales of Subsys, an under-the-tongue spray approved to treat patients with cancer.

Company executives were accused of paying doctors to write prescriptions for a much wider pool of patients than the drug was approved for, and of misleading insurance companies so they would cover the potent and pricey medication. With the drug’s sales soaring, Insys became a darling of Wall Street, generating annual sales at one point of more than $ 300 million.

In addition to Mr. Kapoor, the other executives found guilty were Richard M. Simon, the former national director of sales; Sunrise Lee and Joseph A. Rowan, both former regional sales directors; and Michael J. Gurry, former vice president of managed markets. Lawyers for the defendants either did not comment or said they planned to appeal.

The former chief executive, Michael L. Babich, had pleaded guilty to conspiracy and mail fraud charges.

Beth Wilkinson, a lawyer for Dr. Kapoor, said she and her client were disappointed in the verdict. “Four weeks of jury deliberations confirm that this was far from an open-and-shut case,” she said in a statement. “We will continue the fight to clear Dr. Kapoor’s name.”

Jackie Marcus, a spokeswoman for Insys, said the verdict was not representative of the company’s mission, but only reflected the “actions of a select few former employees of the company.”

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One of the few other criminal cases against drug company executives involved another opioid manufacturer, Purdue Pharma, whose executives pleaded guilty in 2007 to criminal charges that they misled regulators, doctors and patients about the addiction potential of the painkiller OxyContin.

At the Insys trial, the government suggested that executives at the Arizona-based company often operated like drug dealers and that Mr. Kapoor was the ringleader.

“The decisions, the money, the strategy came from the top,” K. Nathaniel Yeager, a federal prosecutor, said during closing arguments.

Details of Insys’s strategy from 2012 to 2015 to target doctors and allegedly bribe them have been revealed in lawsuits and news reports for about five years. The trial of Mr. Kapoor and his four co-defendants has brought to light the extent to which the schemes permeated the entire company and its national sales team.

Former Insys sales representatives, testifying for the prosecution, said their bonuses were tied to the dosages of Subsys prescribed by the doctors they recruited. The higher the dose, the higher the bonus. Evidence presented in court showed that sales representatives had to justify low doses to their boss within 24 hours.


A box of the fentanyl-based drug Subsys, made by Insys Therapeutics.CreditReuters

Not only did Subsys cost more at higher doses, but patients were also more likely to become dependent on the highly addictive medication. Subsys is up to 100 times more potent than morphine. Abuse of fentanyl, especially black-market versions imported from overseas, have increasingly contributed to the opioid epidemic.

Alec Burlakoff, the former vice president of sales at Insys, pleaded guilty to one count of racketeering conspiracy. He wrote in an email read at trial that patients on high doses would be desirable because they “will continuously refill their monthly prescriptions indefinitely.” Court filings in a separate case suggest Purdue Pharma, the maker of OxyContin, pursued a similar strategy.

Two Insys sales representatives made a rap video in 2015 about titration, the technique used to increase a patient’s dose. The main lyric: “I love titrations, and it’s not a problem. I got new patients, and I got a lot of them.” The video, in which the salesmen dance alongside a person in a Subsys dispenser costume, was shown at a national Insys sales staff meeting where Mr. Kapoor was present.

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Testimony from government witnesses suggested there were few limits to what the Insys sales team was willing to do. Mr. Burlakoff, who testified for the prosecution as part of a plea deal, said the company purposefully targeted doctors with a history of liberally prescribing opioids. “Pill mills, for us, meant dollar signs,” he told the jury. “It was not run the other way. It was run to the pill mills.”

Holly Brown, a former Insys sales representative in the Chicago area, testified that she saw her boss, Ms. Lee, a former exotic dancer, give a doctor a lap dance hoping it would encourage him to prescribe Subsys.

After doctors had prescribed Subsys, the company focused on persuading insurance companies to cover the drug, which can cost thousands of dollars a month. Jurors heard recorded calls from the Insys Reimbursement Center in which employees posed as doctors’ assistants and invented diagnoses that would smooth the approval process.

“Insurers were told about medical things that never happened,” Mr. Yeager told the jury. “They told deception after deception after deception on recorded lines.”

While the legal strategy may be noteworthy, evidence has emerged that aggressive marketing of opioids is far from unique to Insys.

In a similar effort to hold individuals accountable, the attorneys general in New York and Massachusetts have recently turned their attention to the Sacklers, the family that controls Purdue, filing lawsuits that allege members of the family pushed their company to aggressively sell opioids like OxyContin, despite the high risk for addiction.

There have been nearly 218,000 overdose deaths related to prescription opioids since OxyContin was introduced in 1996, according to the Centers for Disease Control and Prevention.

Insys has struggled to move past its legal troubles. The company’s stock currently trades at around $ 4 per share, down from a high in 2015 of nearly $ 45, and it has disclosed to investors that it is at risk of going out of business. Last month, the company — which also sells a liquid form of an anti-nausea drug derived from cannabis — announced it was replacing its president and chief executive, Saeed Motahari, who had joined the company in 2017.

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