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Insys becomes first drugmaker to file for bankruptcy to cover opioid penalties

Insys Therapeutics founder John Kapoor leaves federal court in Boston earlier this year. The Arizona company filed for Chapter 11 bankruptcy protection on Monday. (Steven Senne/AP)

Insys Therapeutics filed for Chapter 11 protection on Monday, one week after agreeing to pay $225 million to resolve a federal investigation into a bribery scheme designed to induce doctors to overprescribe its highly addictive fentanyl spray.

This marks the first time a drugmaker has turned to bankruptcy court to contend with legal expenses incurred by its role in the nation’s deadly opioid epidemic.

"For years, Insys engaged in prolonged, illegal conduct that prioritized its profits over the health of the thousands of patients who relied on it,” U.S. Attorney Andrew Lelling in Boston said in a statement after the settlement was announced last week. “Today, the company is being held responsible for that and for its role in fueling the opioid epidemic.”

The painkiller in question, Subsys, is an under-the-tongue spray the Food and Drug Administration approved in 2012 to treat cancer patients. Fentanyl is a synthetic opioid 50 to 100 times more powerful than morphine. In 2017, the United States experienced more than 28,000 synthetic opioid-involved deaths, according to the Centers for Disease Control and Prevention, more than any other type of opioid.

In early May, a federal jury in Boston found Insys’s billionaire founder, John Kapoor, and four ex-executives guilty of racketeering, after the 10-week trial revealed they had used speaker’s fees and lap dances to lure doctors into prescribing Subsys for far more patients than the drug was approved for and cheated insurers into covering prescriptions for the costly medication.

In a news release, the U.S. Department of Justice outlined how the scheme worked. A physician assistant at a New Hampshire pain clinic joined Insys’s program the second year the drug was on the market. The PA, who was not named, went from writing zero prescriptions the first year the painkiller was on the market to issuing 672 the second year. He received $44,000 in kickbacks, prosecutors said.

The strategy sent sales skyrocketing, from $8.6 million in 2012 to $329 million in 2015. The windfall helped Insys go public in 2013, in what became the best-performing IPO of the year.

The former executives have yet to be sentenced, but each faces up to 20 years in prison. Kapoor’s conviction also marks the first time the head of a drug company will face serious jail time for furthering the opioid crisis.

The Chandler, Ariz.-based company said it will continue operating while it considers selling its assets to cover the settlement. It will use its cash to stay afloat, including payment of employee wages and benefits, and will seek court approval to pay its suppliers and vendors in full.

“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,” said Andrew G. Long, Insys’s chief executive, in a news release. “We believe this process will provide us with a forum to negotiate an equitable resolution with our creditors and represents the best opportunity for our people and our business.”

An onslaught of legal cases has left Insys with millions in fines and fees while sales of Subsys, which generated most of the company’s revenue, have plummeted. Insys’s assets and liabilities were blacked out in the bankruptcy filing, but at the end of the first quarter, the company said it had just $86 million in cash and more than $240 million in liabilities. Last year, Insys posted nearly $125 million in losses.

The government will be an unsecured creditor in the bankruptcy case, and Insys will ask the court to cap the federal settlement at $190 million. How much it actually collects will be contingent on how much Insys raises from selling its assets, and how much it will have to compete with other creditors for the money.

Other drugmakers face similar legal worries. Purdue Pharma, maker of OxyContin, is reportedly mulling bankruptcy as it fends off lawsuits from several states tied to the opioid epidemic. The billionaire owners of Purdue Pharma, the Sackler family, also face widespread litigation.