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Insys Employees Pay For Putting Profits Over People

Jul 12, 2017 • 11:13 AM EDT
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4 MIN READ  •  By Michael Berger
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In 2015, we reported on a doctor who pled guilty to having received $83,000 in kickbacks from Insys Therapeutics (INSY) for prescribing its Subsys product, a fentanyl-based substance. This development proved to just be the tip of the iceberg and two years later, the responsible parties are suffering the consequences of their actions.

For many years, Insys engaged in a well-orchestrated scheme where doctors were paid to promote and over-prescribe Subsys, the subject of federal and state investigations which allege the drug was marketed and sold to patients who did not need it.

Justice Is Served

Today, two former sales representatives, including the wife of ex-CEO Michael Babich, pleaded guilty to charges against them for engaging in schemes to pay kickbacks to medical practitioners to prescribe Subsys. Insys is currently working toward a settlement with the Department of Justice. 

In August 2015, the company agreed to a $1.1 million settlement with Oregon’s attorney general for deceptively marketing and selling Subsys to doctors for off-label uses. The following year, Illinois’ attorney general sued Insys for the same reason and in January, the company agreed to pay $3.4 million to resolve an investigation by New Hampshire’s attorney general.

Last year, 11 former executives and managers (including the ex-CEO Michael Babich) were arrested and charged for their role in the company’s opioid over-prescribing scandal. Prosecutors said that Babich and others led a conspiracy to bribe medical practitioners to unnecessarily prescribe Subsys to non-cancer patients through payments disguised as marketing events and speaker fees. They have pleaded not guilty.

A Trickle-Down Effect

Aside from executive management, several sales representatives and doctors were implicated in this scheme.

Natalie Levine worked for Insys from 2013 to 2014 and she plead guilty to conspiring to violate a federal anti-kickback statute. Prosecutors said she used a sham speaker program to pay a Connecticut nurse, a New Hampshire physician’s assistant and a Rhode Island doctor to prescribe Subsys.

Karen Hill, a sales representative who became the company’s district manager for the Miami region, pleaded guilty to the same charges. Both face a maximum of five years in prison when they are sentenced.

Last year, Dr. Gavin Awerbuch was arrested after federal prosecutors said he defrauded Medicare of $7 million and improperly prescribed Subsys to patients. Another Insys speaker, Dr. Jerrold Rosenberg, was reprimanded last September for inappropriately prescribing Subsys and other painkillers.

Working to Put This Behind Them

While Insys is working tirelessly to put this situation behind them, the stock has been crush and is down more than 50% since December 31, 2015.

Insys has made a lot of changes since then and the new CEO, Saeed Motahari recently added four new executives to the management team.  Motahari has been focused on improving its compliance practices and is focused on resolving a Justice Department probe related to this scheme.

Over the next year, we expect to see Insys acquired by another biotech firm at a significant premium to current levels. As soon as Syndros, the company’s synthetic cannabis product, receives a Scheduling label from the DEA, we expect Insys to start fielding acquisition offers.

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Important Investor Disclosures 

This report was authored by and is property of Mushroomstocks.  All information and data relied upon in drafting this report is publicly available.  The author believes and considers its sources to be reliable, but does not guarantee the accuracy or completeness of any information contained in this report.  Any and all information, data, analyses and opinions are provided for informational purposes only and is not intended, in any manner, as investment advice.  Any projections or other information generated by Mushroomstocks regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.  None of the material contained in this report is intended as a solution or offer to sell or purchase a specific stock or any other investment.  This report is not directed to, or intended for distribution or use by, any person or entity that is a citizen, resident or located in any municipality, state, country or other jurisdiction where the distribution, publication, availability, or use of this report is contrary to any governing law or regulation.  The securities discussed in this report may not be eligible for purchase and/or sale in certain jurisdictions or by particular individuals.  It is important that you check any and all governing laws and/or regulations that may be applicable in your jurisdiction.  Investing in securities of issuers organized outside of the United States, including ADRs, entail certain risks.  The securities of non-United States issuers may not be registered with, nor be subject to the reporting requirements of the United States Securities and Exchange Commission.  Please contact a Financial Advisor for professional advice regarding any and all securities investments.  This report is intended for informational purposes only

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.


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