Opioid Manufacturer Files for Bankruptcy after Settling with DOJ
V&E Government Investigations Update, June 12, 2019
On June 5, the Department of Justice announced that opioid manufacturer Insys Therapeutics (Insys) agreed to settle the government’s criminal and civil investigations into an illegal marketing scheme for Subsys, an opioid spray used by adult cancer patients. The investigations are part of the DOJ’s escalating efforts to confront the opioid crisis and signal its continued commitment to address the country’s opioid issues.
Just days after DOJ announced the global settlement,
Insys filed for bankruptcy. The company acknowledged this possibility last March in a filing with the Securities and Exchange Commission.1 According to the Washington Post, and other news sources, Insys is the first drugmaker to file for bankruptcy as a consequence of an investigation into its role in the opioid epidemic.2
The government asserts that Insys utilized a “speaker program” — educational lunches and dinners ostensibly for the purpose of increasing awareness of Subsys — as fronts for the payment of bribes and kickbacks to medical professionals to increase usage of Subsys. Insys has entered a five-year deferred prosecution agreement. Its operating subsidiary will plead guilty to five counts of mail fraud, and Insys agreed to pay a criminal fine of $2 million and forfeiture of $28 million. Last month, five former Insys executives were
convicted of a racketeering conspiracy in connection with the marketing of the opioid. Insys’s former CEO and former Vice President of Sales pleaded guilty prior to the start of the trial.
Insys also entered into a Corporate Integrity Agreement and Conditional Exclusion Release with the Office of Inspector General (OIG) of the United States Department of Health and Human Services, providing the OIG the authority to exclude Insys from Federal health programs, including Medicare, Medicaid, and Tricare. The company’s corporate integrity agreement required Insys to divest Subsys, its lead product, to a third party.
In April 2018, the United States intervened in five qui tam lawsuits that accused Insys of violating the False Claims Act (FCA) by paying kickbacks to induce medical professionals to prescribe Subsys. The alleged misconduct included “sham speaker program speeches,” jobs for friends and relatives of the prescribers, and “lavish” meals and entertainment.3 Insys also allegedly lied to representatives of federal healthcare programs about patients’ cancer diagnoses in order to obtain reimbursement for Subsys prescriptions. Insys agreed to pay $195 million to settle the FCA allegations.
Insys’s press release following its bankruptcy filing states that it will “facilitate the sale of substantially all of the Company’s assets and address the Company’s legacy legal liabilities.”4 The company intends to file a motion seeking approval for a stipulation between itself and the government to fix the government’s unsecured claim in the amount of $243 million, capped at a recovery of $195 million.5 Without this cap, the United States has claimed that it may have “claims against the Debtors in amounts in excess of $1 billion on account of the Covered Conduct.”6 If the company survives this restructuring, it will still face challenges in adhering to the corporate integrity agreement, requiring the company to ensure compliance is a major priority.
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1 Insys Therapeutics, Inc., Annual Report (Form 10-K) (Mar. 13, 2019) https://insysrx.gcs-web.com/financial-information/sec-filings?items_per_page=10&page=3.
2 Taylor Telford, Insys becomes first drugmaker to file for bankruptcy to cover opioid penalties, Wash. Post., June 10, 2019, https://www.washingtonpost.com/business/2019/06/10/insys-becomes-first-drugmaker-file-bankruptcy-cover-opioid-penalties/?utm_term=.ece8427f4f2e.
3 U.S. Department of Justice, Office of Public Affairs, “Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigation” https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal.
4 Press Release, Insys Therapeutics, Inc., “INSYS Therapeutics Initiates Court-Supervised Process To Facilitate Asset Sales And Address Legacy Liabilities” https://insysrx.gcs-web.com/news-releases/news-release-details/insys-therapeutics-initiates-court-supervised-process-facilitate.
5 Chapter 11 Voluntary Petition, at 3 n.1, In re Insys Therapeutics, Inc. et al., (No. 19-11292), (Bankr. Del.) (June 10, 2019) https://document.epiq11.com/document/getdocumenstbydocket/?docketId=718244&projectCode=INS&docketNumber=1&source=DM.