Fraud Trial May Make Ex-Insys CEO Face of Opioid Crisis
(Bloomberg) -- The first prosecution of a pharmaceutical company chief executive tied to opioid overdoses begins this week, when Insys Therapeutics Inc.’s John Kapoor goes on trial. The fallout may jolt an industry facing steep penalties for its own role in the crisis.
Kapoor, 75, is accused of masterminding illegal marketing tactics that contributed to an epidemic of addiction and death. A onetime billionaire who rose from modest means in India, he’s on trial for using speakers’ fees, dinners and cash to lure doctors into prescribing a highly addictive opioid painkiller meant solely for cancer patients.
The case will be heard in Boston, but the verdict may echo in the boardrooms of the nation’s pharmaceutical companies. More than 1,500 local governments have sued opioid makers and distributors to recoup the billions of dollars spent fighting the crisis. The clash could serve as a test-drive for how jurors weigh claims of industry wrongdoing.
“It’s a real advantage for the local governments’ lawyers to get jury feedback on the Insys marketing evidence,’’ said Richard Ausness, an expert on mass-tort law at the University of Kentucky College of Law. “It will help them build their conspiracy cases against all the companies involved in the opioid litigation.”
A conviction could turn Kapoor into the face of the opioid crisis.
The first person in his family to attend college, he became a health-care entrepreneur after earning a doctorate in medicinal chemistry at the University of Buffalo in 1972. He worked as a drugmaker’s plant manager and later became CEO of a hospital-products company. After forming a venture-capital firm that invested in health-care companies, he merged closely held Insys with NeoPharm Inc. in 2010 to get access to technology to develop pain drugs for cancer patients.
He remains Insys’s majority shareholder, controlling about 60 percent of its shares, according to company filings. They’ve fallen by about one-third since his October 2017 indictment.
A conviction on federal fraud, racketeering and kickback charges could send Kapoor and four other ex-Insys managers to prison for as long as 25 years. They’re accused of bribing doctors to prescribe Subsys, an opioid painkiller approved in 2012 for late-stage cancer patients. Prosecutors say Kapoor oversaw a scheme in which doctors got sham speaker’s fees in return for issuing more prescriptions and subordinates lied to insurers about the type of patients receiving the fentanyl-based drug, they said.
Doctors were allegedly seduced with jobs for relatives, lavish meals and, in one case, a $1,000 private champagne-room session at a strip club. As the bribes generated Subsys sales, Kapoor pumped more money into speakers’ fees, with spending jumping to $10.5 million in 2014 from $550,000 two years earlier, prosecutors say.
“We will have testimony from doctors who said, ‘I would not have prescribed this if I wasn’t being bribed or paid,”’ Assistant U.S. Attorney Fred Wyshak said in court this month.
Also on trial is Sunrise Lee, a former stripper who, as an Insys sales manager, enticed physicians into writing more prescriptions, prosecutors said. “Doctors really enjoyed spending time with her and found Sunrise to be a great listener,” another manager, Alec Burlakoff, told colleagues, according to court filings.
Burlakoff is among at least half-dozen current and former employees who may testify for the government. Former CEO Michael Babich pleaded guilty this month and agreed to cooperate in a bid for leniency.
The other defendants are former vice president Michael Gurry, ex-national sales director Richard Simon and former regional sales director Joseph Rowan. The accused deny wrongdoing.
Wyshak, who helped send Boston gangster James “Whitey” Bulger to prison, will be squaring off in court against defense lawyer Beth Wilkinson, whose clients have included Pfizer Inc. and Microsoft Corp. She may cast blame on Babich and Burlakoff, saying they oversaw the speaker’s program central to the alleged plot, said Robert Mintz, a defense attorney with McCarter & English who’s not involved in the case.
“She could very well argue the wrongdoing was committed by these lower-level executives, who had their own financial interests in pushing sales of the drug,’’ said Mintz, a former prosecutor. “She may tell the jury they are now throwing their former boss under the bus to save themselves.’’
Wilkinson might also blame other Insys directors, said Larry Hamermesh, executive director of the Institute of Law and Economics at the University of Pennsylvania and an expert on corporate law. “The defense may argue that Kapoor’s fellow board members knew about wrongdoing and didn’t make any effort to stop it,’’ he said.
The trial, which could last three months, may be the year’s most dramatic case involving the opioid epidemic, but it won’t be the only one.
In May, the Oklahoma Attorney General’s suit against opioid makers including Purdue Pharma LP and Johnson & Johnson is set for trial. Three dozen other states have also sued the companies.
And in September, a federal judge in Cleveland will hear the first cases brought by U.S. cities and counties, which accuse opioid makers and distributors of conspiring to understate the risks of prescription opioids and overstate their benefits, and of failing to halt suspiciously large shipments to pharmacies.
Lawyers for the municipalities may highlight the marketing tactics revealed at Kapoor’s trial as part of their conspiracy claims, said Carl Tobias, a University of Richmond law professor. Joe Rice, one of the lawyers in the case, declined to comment.
“It’s rare for plaintiffs’ lawyers to get a kind of dress rehearsal for their evidence in a case, but it looks like they may get one here,’’ Tobias said. “It could provide a road map for how to present this material.”
The case is U.S. v. Kapoor, 16-cr-10343, U.S. District Court, District of Massachusetts (Boston).
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