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Drug company founder indicted for pushing opioids

Billionaire founder of Insys John Kapoor leaves U.S. District Court Thursday, Oct. 26, in Phoenix. (Ross D. Franklin/AP)

Billionaire founder of Insys John Kapoor leaves U.S. District Court Thursday, Oct. 26, in Phoenix. (Ross D. Franklin/AP)

PHOENIX — A federal grand jury has indicted the founder and chief shareholder of Chandler-based Insys on charges of overly aggressive — and illegal — marketing of its powerful opioid drug which has helped fuel the opioid epidemic.

The criminal case, filed Thursday by federal prosecutors in Massachusetts, claims Scottsdale billionaire John Kapoor, 74, and others at the company conspired to use bribes and kickbacks to get doctors to issue new prescriptions for Subsys. That’s the company’s concentrated form of fentanyl opioid spray designed to be sprayed under the tongue for immediate relief.

It also says illegal methods were used to get doctors to increase both the dosage and volume of the prescriptions they were writing.

“The bribes and kickbacks took different forms, including speaker fees and honoraria for marketing events, food and entertainment, administrative support, and fees paid to co-conspirator pharmacies,” the indictment reads.

Kapoor and six former executives are also accused of defrauding insurers by setting up a scheme to mislead them about why patients needed the drug. The result was insurers and even federal programs like Medicare and Medicaid paying for purchases in cases where Subsys, which the Food and Drug Administration has approved for cancer patients with “breakthrough pain,” was instead being prescribed for patients with less serious conditions.

The charges include racketeering conspiracy and conspiracy to commit mail and wire fraud. Each charge provides for a sentence of up to 20 years in prison and a fine or $250,000 or twice the amount of each their financial gains.

According to the indictment, Kapoor and Michael Babich, who was president and CEO of the company, were dissatisfied with lackluster sales after the drug hit the market in 2012. The result, the legal papers state, was a speaker program where doctors were paid to urge others to prescribe the drug.

But what was really happening, according to the indictment, was a system of bribes and kickbacks to convince doctors “to issue more prescriptions for the fentanyl spray outside the usual course of their practice and to change the dosages and volumes prescribed.”

What also happened, the indictment says, is that if doctors who did not write “an appropriate number of prescriptions” found themselves with fewer speaker fees.

William Weinreb, the acting U.S. Attorney for Massachusetts, acknowledged there is nothing illegal in drug companies paying doctors to speak on behalf of their products. But he told Capitol Media Services what happened here is illegal under federal law.

“It rises to a kickback when there’s a quid pro quo, when a doctor is being paid by a company not simply to provide information to other doctors or others who may benefit from the expertise, but in exchange for their prescribing a particular company’s medication,” he said.

Weinreb said the indictment comes in the midst of a nationwide epidemic of opioid misuse, abuse and overdoses. Just Thursday, President Trump declared a nationwide “public health emergency.”

“We must hold the industry and its leadership accountable, just as we would the cartels or a street-level drug dealer,” Weinreb said.

Attorney Brian Kelly, who appeared with Kapoor in federal court Thursday, suggested there was a political factor in his client’s indictment, coming as it did the day of the president’s announcement.

“Curious coincidence of timing, isn’t it,” he said after the court hearing.

Weinreb said the case stands on its own merits.

“We have the evidence that is alleged in the indictment we believe proves Mr. Kapoor guilty of those crimes,” he said. “And that’s why we brought criminal charges.”

Kapoor, brought into court wearing only a T-shirt and flannel shorts, did not enter a plea at his appearance before U.S. Magistrate Michelle Burns, with his arraignment set for next month in federal court in Boston.

“He’s not guilty of the charges,” Kelly said after the hearing. “And he intends to fight them vigorously.”

In the interim, Burns agreed to his release on posting of a $1 million cash bond and forbidding him from leaving Maricopa County other than to go to court, a condition enforced with an electronic GPS monitoring bracelet.

The link between the opioid epidemic and the indictment was buttressed by a statement from Phillip Coyne, special agent in charge of the Office of Inspector General for the U.S. Department of Health and Human Services. He said the indictment is designed not only to prosecute those charged but also to send a message to the drug industry.

“Corporate executives intent on illegally driving up profits need to be aware they are not squarely in the sights of law enforcement,” he said.

Others named in the indictment include Alec Burlakoff who was the company’s vice president of sales; Richard Simon, national director of sales; Michael Gurry, vice president of managed markets; and Sunrise Lee and Joseph Rowan, who were regional sales directors. Kapoor, Gurry and Babich are all listed in documents from the Department of Justice as Scottsdale residents.

The criminal charges closely parallel a civil lawsuit filed against the company in August by Attorney General Mark Brnovich.

That case, playing out in Maricopa County Superior Court, charges that Insys used unfair and deceptive marketing practices designed to paid company profits at the expense of patient safety. The lawsuit says Insys engaged in a nationwide scheme to deceive patients, doctors and insurers about the safety of Subsys.

“Insys lied to insurers, concealed key facts from doctors and patients, and paid doctors sham ‘speaker fees’ in exchange for writing prescriptions, all in order to increase the sales of Subsys, without regard for the health and safety of patients,’’ Brnovich charged. “Insys made hundreds of millions of dollars from its deceptive scheme, but also put countless patients in harm’s way, exposing them to unacceptable and unnecessary risks of addiction and death.’’

Brnovich is using the state’s Consumer Fraud Act to ask a judge to block Insys and its employees from engaging in unfair, deceptive or misleading acts. That allows him to demand the Chandler-based company to both pay restitution to consumers who should never have been prescribed the drug as well as force the company to surrender all of its profits from what Brnovich says is the company’s illegal practices.

No date has been set for a hearing in that case. An aide to Brnovich said the federal criminal charges should not interfere with the Arizona case.

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