Insys crashes back to earth as top execs arrested; what were they thinking?

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The former CEO and president of Insys Therapeutics Inc. (Chandler AZ) was among six former company executives who were arrested last Thursday (December 8, 2016) on federal charges of leading a nationwide conspiracy to bribe doctors to unnecessarily prescribe a fentanyl-based pain medication and defraud insurers.

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Michael L. Babich, 40, of Scottsdale, AZ, and the other five ex-Insys executives were accused of conspiring to bribe practitioners–many of them operators of pain clinics–to coax them into prescribing Subsys (fentanyl sublingual spray), a pain medication designed to treat cancer patients, according to Genetic Engineering and Biotechnology News.

In exchange for bribes and kickbacks, the practitioners wrote large numbers of prescriptions for the patients, most of whom were not diagnosed with cancer, the US Attorney’s Office alleges in its indictment.

According to the indictment, Babich and the other former Insys executives conspired to mislead and defraud health insurance providers by setting up a “reimbursement unit” dedicated to obtaining prior authorization directly from insurers and pharmacy benefit managers.

The conspiracy generated substantial profits for the defendants, their company, and for the co-conspirator practitioners, federal prosecutors added.

Charged with Babich were Alec Burlakoff, 42, of Charlotte, NC, former VP of sales; Richard M. Simon, 46, of Seal Beach, CA, former national director of sales; Michael J. Gurry, 53, of Scottsdale, AZ, former VP of managed markets; and two former regional sales directors, Sunrise Lee, 36, of Bryant City, MI, and Joseph A. Rowan, 43, of Panama City, FL.

The defendants were arrested in their respective states and are set to appear in US District Court in Boston at a later date.

Babich was charged with conspiracy to commit racketeering, conspiracy to commit wire and mail fraud, and conspiracy to violate the Anti-Kickback Law. Burlakoff, Simon, Lee, and Rowan were charged with RICO (Racketeer Influenced and Corrupt Organizations Act) conspiracy, mail fraud conspiracy, and conspiracy to violate the Anti-Kickback Law. Gurry was charged with RICO conspiracy and wire fraud conspiracy.

“I hope that today’s charges send a clear message that we will continue to attack the opioid epidemic from all angles, whether it is corporate greed or street level dealing,” Carmen M. Ortiz, US Attorney for the District of Massachusetts, said in a statement.

Babich resigned from Insys last year without explanation, soon after CNBC aired allegations of fraud, kickbacks, and aggressive drug marketing behavior attributed to unnamed sources.

Babich was succeeded by the company’s founder and chairman John N. Kapoor, PhD, a billionaire who placed at No. 335 on this year’s Forbes 400 list of the wealthiest Americans. On September 21, Insys said its board had launched a search for someone to succeed Dr. Kapoor, who will continue as president and CEO until that successor has been appointed.

Subsys is the sole product marketed by Insys, though the company in July received FDA approval to market a second product, SyndrosTM (dronabinol oral solution), a liquid formulation of dronabinol. According to Insys, Syndros has advantages over the current soft gel capsule formulation of dronabinol, marketed as Marinol by AbbVie Inc. (North Chicago).

Insys shares closed down 19% at $9.01 Wednesday after the news broke last week. Shares are down a sickening 80% since their high of $44.92 on July 31, last year.

Steve’s Take:

What a banner year for pharma scandals: Glaxo, Tenet, Mylan, Valeant, and Theranos just to name a few elected to my “Rx Hall of Shame.”

And last week, after arresting a series of lower-level workers, the Justice Department on Thursday rounded up former Insys CEO Michael Babich and a group of other top execs.

Federal authorities alleged that Babich and five other former Insys executives and managers “led a nationwide conspiracy” to bribe doctors to boost up prescriptions for the company’s powerful and addictive painkiller Subsys, approved by the FDA specifically to treat cancer-related pain.

Many of the Subsys prescriptions, written by practitioners in exchange for payments, weren’t for cancer patients, according to the complaint. The other execs arrested were a former VP of sales, a national director of sales, two regional sales directors and a VP of managed markets.

In the indictment, prosecutors detailed a scheme that Babich and the others allegedly set up with 10 healthcare practitioners in Alabama, Michigan, Texas, Arkansas and elsewhere. The Insys execs pushed sales staff to offer hundreds of thousands of dollars in “bribes and kickbacks” to doctors to increase their Subsys prescriptions, the indictment said.

Alec Burlakoff, who served as a regional sales manager and VP of Sales, faces charges of RICO conspiracy, mail fraud conspiracy and conspiracy to violate the Anti-Kickback Law. Among other things, he’s alleged to have met with a Michigan doctor in an effort to boost prescriptions from that practitioner. From the indictment:

“BURLAKOFF was not satisfied with the number of Practitioner #3’s Fentanyl Spray prescriptions. In or about the first week in October 2012, BURLAKOFF traveled to Michigan and took Practitioner #3 to dinner. The next day BURLAKOFF sent an email to BABICH, LEE and another, telling them, “expect a nice ‘bump’ fellas….”

In another instance, prosecutors said Insys execs hosted a Florida practitioner in their Arizona headquarters to foster that relationship. Again, from the indictment:

“On or about January 18, 2013, BABICH, BURLAKOFF, and ROWAN invited Practitioner #4 to corporate headquarters in Arizona. During the trip BURLAKOFF and ROWAN took Practitioner #4 to a club. The next morning BURLAKOFF sent the sales representative a text stating, “went fantastic last night…. [Practitioner #4] and I got back around 4AM. He had to have had one of the best nights of his life.”

The charges didn’t stop there, says FiercePharma. The Insys team allegedly set up a “reimbursement unit” designed to attain coverage from payers reluctant to approve the off-label uses. Together, the violations generated “substantial profits” for the company, the feds said Thursday.

Babich stepped down from the CEO job at Insys late last year. He was replaced by founder and billionaire John Kapoor, who’s also on the way out, Insys recently said. The company itself is under Justice Department investigation for its Subsys marketing.

RBC Capital Markets analysts on Friday said the arrests highlighted the importance of a potential settlement for Insys, adding that the company could afford to pay for one if it’s “reasonable.” Jefferies previously concluded that the company could see a fine of about $150 million or less “based on historical precedent.”

“Hence, given a cash balance of $217 million such a result could be considered a net positive if no other onerous conditions are attached,” Jefferies analysts wrote.

According to the DOJ, among other groups, the FBI, HHS, FDA Office of Criminal Investigations and DEA contributed to the investigation.

These arrests come shortly after authorities charged Insys ex-sales manager Jeffrey Pearlman for setting up fake educational events to induce doctors to boost Subsys prescriptions. That complaint alleged that the events–usually held at high-end restaurants–were not educational, but social, and sign-in sheets were forged. Docs could bring in $1,000 or more for attending, the government said.

Subsys, approved just recently in 2012 to treat cancer pain, brought in $329 million in sales for the company last year. Its quick sales growth prompted attention into Insys’s sales techniques. Talk about blind greed.

Let’s boil this complicated case down to its essence and ask ourselves what these highly educated individuals were thinking.

Insys had just one product, Subsys, a spray version of one of the most addictive narcotics on the planet, and they had just one business plan–bribe doctors to prescribe it, and never mind that the drug was only FDA-approved for cancer patients in need of continuous pain medication.

Insys found that by bribing doctors with cash, strippers, and fancy meals, they could multiply their few legitimate sales in order to make hundreds of millions of dollars a year, according to the TAF (Taxpayers Against Fraud Education Fund).

In the end, more than 95% of Subsys prescriptions were written for patients who did not have cancer.

Patrick Burns of the TAF Education Fund applauded the arrests. He told The New York Times that people pushing powerfully addictive drugs from corporate offices have been given the “Big Wink” for far too long.

“It’s just like bank fraud and mortgage fraud–no one in the big companies ever seems to go to jail. If this is the start of a real change in how we deal with corporate crooks, it’s a very big deal,” Burns added.

Apparently, the Insys executives also (allegedly) believed that if caught bribing physicians to write dodgy prescriptions, perhaps they’d be fined but they wouldn’t do hard time.

That was then; this is now. The question now is will the arrival of a new administration in the Department of Justice shift the focus away from individuals involved in corporate crimes? The answer appears to be “no” if one takes seriously a statement by Senator Jeff Sessions of Alabama, who is President-elect Donald J. Trump’s nominee for attorney general.

Back in 2002 at a hearing, Sessions described the benefits of prosecuting bank officers during the savings-and-loan crisis:

“They lost everything they had, their families were embarrassed, and a lot of people started checking to make sure they were doing their banking correctly.”

The New York Times points out that Mr. Sessions had made it clear during his 20 years in the Senate that he supported mandatory minimum sentences and tough enforcement of federal criminal law. That may portend an even tougher crackdown on executives linked to corporate crimes with the potential for substantial prison terms.

Steve's Take: My 'RX Hall of Shame' list gets longer with Insys Therapeutics piling on Click To Tweet

So, watch out pharma execs. Things may not be quite as rosy as they first appeared with the Trump team taking shape. And about time–IF a concerted crackdown actually occurs. Here’s hoping the 2017 Rx Hall of Shame goes begging for new members.