Prosecutors have worked their way to the top of Insys Therapeutics. After arresting a series of lower-level workers, the Justice Department on Thursday hauled in former CEO Michael Babich and a group of other execs.
Federal authorities alleged that Babich and five other former Insys executives and managers “led a nationwide conspiracy” to bribe doctors to boost scripts for the company’s powerful and addictive painkiller Subsys, approved by the FDA specifically to treat cancer-related pain.
Many of the Subsys scripts, 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 (PDF), 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 scripts, 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 scripts from that practitioner.
In another instance, prosecutors said Insys execs hosted a Floridian practitioner in their Arizona headquarters to foster that relationship.
The charges didn't stop there. 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, Babich faces charges of conspiracy to commit racketeering, conspiracy to commit wire and mail fraud and conspiracy to violate the Anti-Kickback Law. 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 scripts. 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 feds said.
Subsys, approved in 2012 to treat cancer pain, brought in $329 million in sales for the company last year. Its quick takeoff prompted attention into Insys’ sales techniques.
Insys shares were down about 16% on Thursday afternoon.
Editor's note: This story was updated with information from the indictment and analysts.