Battered by legal expenses, opioid drugmaker Insys files for bankruptcy days after $225M deal to settle government probes
To nobody’s surprise, controversial opioid drugmaker Insys is filing for bankruptcy.
Last week, the company $INSY agreed to pay $225 million to settle the US government’s separate criminal and civil investigations related to its fentanyl spray Subsys, about a month after its founder and former senior executive team were found guilty by a federal jury of racketeering. Founder John Kapoor and his four compatriots’ antics included bribing doctors to prescribe the potent, addictive painkiller and duping insurers into paying for the deadly opioid drug.
The US Department of Justice settlement compounded the stress on a financially strained Insys. Last month, the company indicated it was facing a liquidity crisis triggered by the litany of lawsuits it was subject to, and in April, Insys’ auditor raised doubts on the drugmaker’s ability to continue as a going concern.
“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…” Insys CEO Andrew Long said in a statement on Monday. The company’s shares $INSY sank about 46% into penny stock territory at 71 cents in early morning trading.
The chapter 11 filing will allow for the plethora of litigation against Insys to be presented before a solitary judge who will determine what each plaintiff will receive.
The firm will continue to sell Subsys, while it looks for buyers for the spray and its other assets. If Insys is unable to woo a Subsys suitor in 90 days, the company will be compelled to stop marketing it, according to a June 5 agreement with the HHS. Subsys accounted for a bulk of $82 million in 2018 Insys sales (total loss for that year was about $124 million), down from $141 million in 2017 and a far cry from $242 million in 2016.
After reviewing Insys’ court documents, Eric Snyder of NYC-based law firm Wilk Auslander found that the Insys has 92 patents and 62 patent applications pending, making it difficult to value the company’s assets. “They say that they are seeking to conduct an auction sale of all of their assets on an expedited basis, but they have yet to file a motion seeking this authority,” he said in an emailed statement.
“This case is very unusual, because they (Insys) do not have a secured creditor/lender. So, they are self-funding the bankruptcy. This is very expensive and that is probably the reason they moving for an immediate auction, even though they have no “stalking horse” (parties in contract) bidders,” added Snyder, who serves as chairman of his firm’s bankruptcy department.
Insys is hardly the only opioid drug maker in financial trouble. Purdue Pharma — the maker of one of the most widely abused prescription opioid painkiller Oxycontin — is reportedly considering bankruptcy. Meanwhile, other drug manufacturers, distributors and pharmacies are also facing hundreds of civil lawsuits for their role in propagating the opioid crisis.
“(T)here is little doubt that Purdue, the maker of Oxycontin, will be next. The potential liability and the stigma of its association with the drug overcomes any value of the assets,” Snyder said.
Insys’ Subsys — which is made of fentanyl, the man-made opioid 50 times more potent than heroin and 100 times more potent than morphine — was approved in 2012 by the FDA for breakthrough cancer pain. Prosecutors charged the former Insys executives with inflating Subsys sales by bribing doctors to prescribe the drug to patients without cancer — in an elaborate scheme that included wining and dining physicians, paying them to speak at “educational events” — thereby fueling the raging opioid crisis that kills 130 Americans every day. Jurors at the trial were given a front-row seat to the video engineered to train the company’s sales reps, in which two impeccably suited men — ostensibly Insys employees — rapped about company business strategy: “I love titrations. Yeah, that’s not a problem. I got new patients, and I got a lot of ‘em…If you want to be great, listen to my voice. You can be great — but it’s your choice.”
Founder John Kapoor — and four members of the former senior executive team — face up to 20 years in prison and will be sentenced in September.
Battered by scandal, Insys in recent years sharpened its focus on cannabis-derived drug development, but even in that arena its track record is troubling. In 2016, the Arizona-based company reportedly donated $500,000 to a campaign against the legalization of cannabis in the state, outraging marijuana activists who accused the company of trying to stifle competition. That skepticism was warranted when the following March Insys’ cannabinoid oral solution Syndros was rescheduled by the DEA — at the federal level cannabis is strictly controlled in the same schedule LSD and heroin is, and any derived product must be relegated to lower category before it can be sold — and thus primed for launch.
Image: Insys (Glassdoor)