Insys Therapeutics Inc., grappling with the prospect of bankruptcy after its founder was convicted on racketeering charges, agreed to pay $225 million to settle U.S. claims that the drug maker illegally sold opioid-based painkillers.
Under terms of the deal, Insys will pay $195 million to resolve whistle-blower claims tied to a scheme that involved bribing doctors to over-prescribe the company’s powerful painkiller, Subsys, federal prosecutors said. The company also will pay a $2 million criminal fine and forfeit $28 million in cash.
“For years, Insys engaged in prolonged, illegal conduct that prioritized its profits over the health of the thousands of patients who relied on it,” U.S. Attorney Andrew Lelling in Boston said in a statement Wednesday. “Today, the company is being held responsible for that and for its role in fueling the opioid epidemic.”
The company’s payments will be stretched over five years, the Justice Department said in the statement. Insys entered into a deferred-prosecution agreement with the government, and a company unit will plead guilty to five counts of mail fraud.
It’s unclear whether the accord will keep Chandler, Arizona-based Insys out of bankruptcy court. Last month, the company said it only had $87.6 million in cash at the end of the first quarter and $240.3 million in liabilities. It has warned investors a Chapter 11 filing may be likely.
Jackie Marcus, a spokeswoman for Insys, said the company believes the settlement is in the best interest of the drugmaker and its shareholders.
In a securities filing on Thursday, Insys said that Chairman Steven Meyer and a director, Pierre Lapalme, plan to resign from the board upon execution of agreements related to the settlement.
Insys’ founder, John Kapoor, awaits sentencing on a criminal conviction for overseeing the scheme to use bribes and other perks for doctors to boost sales of Subsys. Four other ex-Insys managers also were convicted in the racketeering conspiracy and also will be sentenced in September.
Kapoor and the others face a maximum of 20 years in prison each after jurors found them guilty of using speaker’s fees, lap dances and other enticements on doctors to boost prescriptions, and then duping insurance companies into covering the shady scripts.
With his conviction, the former billionaire becomes the first drug-company CEO to face significant jail time in connection with allegations that he helped fuel a U.S. epidemic of abuse and addiction related to powerful opioid drugs.
Prosecutors said they convicted four other managers along with Kapoor, including Michael Gurry, Richard Simon, Joseph Rowan and Sunrise Lee, a former stripper who became an Insys sales executive. Four other former Insys executives, including ex-CEO Michael Babich and Alec Burlakoff, the former head of sales, pleaded guilty to crimes tied to the illegal sales campaign.
Insys said in March it hired Lazard Ltd. to advise on capital planning and evaluation of strategic alternatives. Last month, the company added John A. McKenna Jr., a restructuring expert formerly with advisory firm Miller Buckfire & Co., to its board.
Its not the first time Insys sought to settle the government’s claims against the company over Kapoor’s reign. Last year, the company announced it negotiated a $150 million settlement of the DOJ’s civil and criminal probes.
But in the wake of its financial problems, Insys officials said earlier this year they couldn’t guarantee they could meet all the terms of that settlement, including financial guarantees built into the deal.
In the latest accord, Insys agreed to a five-year corporate integrity agreement that requires the drug maker to insure compliance with all federal laws governing drug sales and marketing. Because it agreed to the restrictions and cooperated with prosecutors, Insys avoided being banned from selling its products for a period of time, prosecutors said.
Prosecutors also said former Insys sales reps who filed whistle-blower suits detailing the illegal campaign will receive portions of the $195 million settlement of the false-claims allegations. The specific whistle-blower awards haven’t yet been set, they added.
The criminal case is U.S. v. Kapoor, 16-cr-10343, U.S. District Court, District of Massachusetts (Boston).
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