Insys is the first drugmaker to seek bankruptcy protection from
its creditors as a result of legal action related to the U.S. opioid epidemic.
By Riley Griffin
and Jef Feeley | June 10, 2019 at 10:47 AM
Insys Therapeutics Inc. filed for bankruptcy
protection after agreeing to pay hundreds of millions of dollars to
settle a probe by U.S. prosecutors over the promotion of its highly addictive
opioid painkiller.
Court papers filed Monday in Delaware by the
drugmaker, whose former executives were convicted of bribing doctors, list at least $175.1 million in assets
and $262.5 million in liabilities. Chapter 11 protection will allow the company
to keep operating while it devises a plan to pay its obligations, including to
the U.S. Justice Department, and to divest its fentanyl painkiller Subsys.
“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,” Chief Executive Officer Andrew Long said in a statement.
Shares of the Chandler, Arizona-based company
fell as much as 49 percent to 67 cents in New York, their lowest-ever
intraday price.
Insys is the first drugmaker to seek
bankruptcy protection from its creditors as a result of legal action related to
the U.S. opioid epidemic. Several much larger, more diversified drugmakers have
been sued by state and local governments that say drugmakers used misleading
marketing tactics and created an addiction crisis.
Executives convicted
In May, Insys founder and former Chief
Executive Officer John Kapoor, 75, and four former executives were convicted of
engaging in a racketeering conspiracy to bribe doctors to boost off-label
prescriptions of Subsys, a fentanyl spray originally intended to treat cancer
pain. The executives baited doctors with sham speaker fees, lavish dinners and
nightclub outings, and then duped insurers into covering the prescriptions,
prosecutors said. Kapoor and the others each face a maximum of 20 years in
prison and will be sentenced in September.
Insys has separately agreed to pay $225
million to settle U.S. claims that the drugmaker used illegal marketing tactics
to lure doctors into ramping up Subsys prescriptions. Under terms of the deal,
Insys will pay $195 million to resolve whistle-blower claims, a $2 million
criminal fine and forfeit $28 million in cash over a five-year period.
The government will get a $243 million
unsecured claim in the bankruptcy case, according to the filing. Such claims
are typically worth pennies on the dollar when a company reorganizes under
Chapter 11.
“This is a strategic move to get breathing
room and hold off the DOJ as they figure out what to do,” said Charles
Tatelbaum, a bankruptcy lawyer at Tripp Scott. It’s unlikely the company will
have to pay the entire sum, Tatelbaum said.
The company will be able to keep selling
Subsys while it seeks to divest the spray and sell off other assets, including
a portfolio of experimental cannabis-based drugs. If it can’t shed Subsys
within 90 days, it will have to stop promoting it, according to a June 5
agreement with the Office of Inspector General of the U.S. Department of Health
and Human Services.
The settlement with federal prosecutors is
structured so that a potential Subsys buyer can take over the product without
assuming responsibility for the fines, according to the bankruptcy filing.
Opioid lawsuits
Legal costs related to the criminal claims
aren’t the only liabilities the company faces. Insys has also been named as a
defendant in suits filed by state attorneys general and by U.S. cities and
counties who are seeking billions from opioid makers. The drugmaker also faces
suits from patients who got addicted to Subsys and investors seeking to hold
Kapoor and other former executives responsible for the company’s losses.
The bankruptcy filing allows Insys’s current
managers to corral all that litigation into one court, before a single judge,
who can decide how much each plaintiff should get. Judge Kevin Gross, of the
U.S. Bankruptcy Court in Wilmington, Delaware, will oversee the case, according
to the filing.
Insys may not be the only opioid maker to seek
court protection from creditors. Executives of closely held Purdue Pharma Inc.,
maker of the opioid-based OxyContin painkiller, have said they may be forced to
file for Chapter 11 to deal with more than 1,900 suits blaming it for fueling
the opioid crisis.
Insys had 226 full-time workers at the end of
2018. The company hired Lazard Ltd. last year to advise on capital planning and
the evaluation of strategic alternatives. Weil, Gotshal & Manges LLP is
serving as legal counsel, and FTI Consulting, Inc. is serving as a financial
adviser.
The case is In RE Insys Therapeutics, No.
19-11292, U.S. Bankruptcy Court for the District of Delaware (Wilmington).
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