(Bloomberg) -- More than a decade after opioid painkillers first exploded across the U.S., John Kapoor found an aggressive way to sell even more, according to prosecutors: He began bribing doctors to prescribe them.
Speakers’ fees, dinners, entertainment, cash -- federal charges unsealed Thursday claim Kapoor’s striving company, Insys Therapeutics Inc., employed all of that and more to spur prescriptions of a highly addictive fentanyl-based drug intended only for cancer patients.
As President Donald Trump declared at a White House event that opioid abuse represents a public-health emergency, authorities arrested Kapoor in Arizona and painted a stark portrait of how Insys allegedly worked hand in glove with doctors to expand the market for the powerful agents.
“Selling a highly addictive opioid-cancer pain drug to patients who did not have cancer makes them no better than street-level drug dealers,” Harold Shaw, the top FBI agent in Boston, said of Kapoor and other Insys executives charged earlier in the case.
The story of the 74-year-old billionaire and the company he founded traces the arc of a crisis that claims 175 lives each day. What began with the over-prescription of painkillers in the late 1990s soon became a race by manufacturers to dispense more and more pills.
Charged with racketeering conspiracy and other felonies, Kapoor became the highest-ranking pharma executive to be accused of an opioid-related crime, and his arrest may portend charges against companies far larger than Insys, which has a modest $417 million market capitalization.
In Connecticut, prosecutors have begun a criminal probe of Purdue Pharmaceutical Inc.’s marketing of OxyContin. Scores of states, cities and counties have sued companies including Purdue, Endo International Plc, and Johnson & Johnson’s Janssen Pharmaceuticals, alleging they triggered the opioid epidemic by minimizing the addiction and overdose risks of painkillers such as Percocet.
But so far, no recent case has been so sweeping as the one against the executives including Kapoor, who made his initial court appearance late Thursday in Phoenix. A U.S. magistrate judge set bail at $1 million and ordered Kapoor to surrender his passport and submit to electronic monitoring. His lawyer, Brian Kelly, said Kapoor posted bail after the hearing.
This week, a Rhode Island doctor admitted accepting kickbacks from Insys in exchange for writing prescriptions. Earlier this year, two doctors were sentenced to more than 20 years behind bars for accepting bribes from companies including Insys to sell fentanyl-based medications.
The Kapoor indictment pinpoints the start of the alleged scheme.
It was early 2012, and Insys’s new oral spray of the opioid fentanyl wasn’t selling well. Because it was so addictive, the pain-relief drug was subject to a tightly controlled distribution system, and regulators demanded to be notified about suspicious orders by manufacturers, wholesalers and pharmacies. And the drug wasn’t cheap, so insurers set up barriers for patients seeking it.
That was when Kapoor and others at Insys went to extremes to dramatically boost sales of the painkiller, prosecutors said. Doling out speaker fees, marketing payments and food and entertainment perks, they allegedly began bribing doctors to prescribe the drug, and then tricked insurers into paying for it.
One Insys sales executive told subordinates that it didn’t matter whether doctors were entertaining, according to the indictment: “They do not need to be good speakers, they need to write a lot of” Subsys prescriptions, the official said, referring to the brand name of the painkiller.
Over a two-year period starting in 2013, Chandler, Arizona-based Insys set aside more than $12.2 million for doctors’ speaking fees, prosecutors said. One doctor received as much as $229,640 in speaker fees for appearing at what amounted to “sham events that were mere social gatherings also attended by friends and office staff,” according to the indictment.
The company encouraged doctors to write more prescriptions by hiring their friends and family members to serve as “business liaisons’’ and “business-relation managers,’’ prosecutors said. These support-staff employees worked in the doctors’ offices but were paid by Insys in what the indictment called bribes and kickbacks.
Insys even made a video featuring a sales rep dressed as a giant fentanyl spray bottle, rapping and dancing to a song that pushed the idea of getting doctors to prescribe higher doses, prosecutors said.
Others previously charged include Michael Babich, Insys’s former CEO, Alec Burlakoff, the ex-vice president of sales, and Richard Simon, once the company’s national sales director. They all deny wrongdoing.
Joe McGrath, an Insys spokesman, declined to comment on Kapoor’s indictment in Boston federal court. The company, which wasn’t charged, has reportedly been in settlement talks with the U.S. Justice Department to resolve a probe into its Subsys marketing. The company’s shares fell more than 22 percent to $5.74 in Nasdaq trading.
The first person in his family to attend college, Kapoor rose from modest means in India to become a wealthy health-care entrepreneur, after earning a doctorate in medicinal chemistry at the University of Buffalo in 1972, according to a work-history the school posted.
In 2010, he merged privately held Insys with NeoPharm Inc. to get access to technology to develop pain drugs for cancer patients. Even though he has stepped down as Insys’s chairman and chief executive officer, he still holds more than 60 percent of its stock.
Kapoor and Babich are also accused of misleading insurers about patients’ diagnoses and the types of pain they suffered that were covered by the Subsys prescriptions tied to the payment scheme, prosecutors said.
The company’s agents allegedly told insurers that patients were receiving Subsys for “breakthrough pain’’ to secure coverage. They also misled insurers about what other pain drugs patients had tried before being proscribed Subsys, according to the indictment.
Some lower-level Insys employees have pleaded guilty and are cooperating with prosecutors, according to court papers. Elizabeth Gurrieri, a former manager who oversaw insurance reimbursements, pleaded guilty to one count of conspiring to commit wire fraud in June.
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