Insys Founder’s Protege Was ‘Fall Guy’ When Opioid Plan Faltered

(Bloomberg) -- Working for opioid maker Insys Therapeutics Inc. had its perks for Michael Babich. Hired at 25 years old by founder John Kapoor in 2001, Babich was the chief executive officer a decade later and earning tens of millions of dollars.

But by November 2015, when federal authorities began investigating Insys for allegedly bribing doctors to prescribe its highly addictive drug, Subsys, and the company’s shares were plunging, Kapoor unloaded his protege, Babich said Thursday during the second week of his former boss’s racketeering trial in Boston.

“He said every company goes through its struggles, and when things like that happen, there’s always a fall guy,” said Babich, 42, as he recalled a conversation with Kapoor over drinks at one of the billionaire’s restaurants. “And you’re gonna be the fall guy.”

Babich, who has pleaded guilty to conspiracy and faces up to 20 years in prison, has become the star witness in the first prosecution of a pharmaceutical company chief tied to the U.S. opioid epidemic. Kapoor and four other top executives are accused of bribing doctors and lying to insurers to boost sales of Subsys in a nationwide racketeering scheme.

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The government contends Insys ran a sham speaker’s program that provided its top prescribing doctors with hundreds of thousands of dollars in kickbacks. At least five doctors have pleaded guilty to taking kickbacks and have been sentenced to prison time.

On Thursday, Babich’s third day on the stand, Kapoor’s chief defense lawyer, Beth Wilkinson, grilled the former executive about his cooperation agreement with the government, which requires him to forfeit $3.5 million and does not include an admission to racketeering.

Babich testified he that he made tens of millions doing Kapoor’s bidding, “just like everyone else” in the Phoenix-based pharmaceutical company.

“But you were paid a lot more than anyone else in the company, weren’t you?” Wilkinson asked.

“I took a lot more crap than anyone else, too,” Babich said.

Wilkinson insisted Babich walked away from Insys with $45 million in severance and stock options. She sparred with him over the stocks he began selling in March of 2015, a few months after the first federal subpoena arrived at the company.

“This isn’t about money to me,” Babich said. “It’s about the truth.”

“But you lied to earn that money didn’t you?” Wilkinson asked.

“I followed the direction of my boss,” Babich replied.

Babich said Kapoor was quick to shut down anyone who challenged him, including an Insys board member who questioned his sales practices. Kapoor told the board member to "shut the F up," Babich testified. The man quickly backed down, Babich said.

Trusted Subordinates

Kapoor’s defense sought to portray Babich and Alec Burlakoff, the company’s hard-charging vice president of sales and marketing, as buddies who are now lining up against the man who trusted them to run the company’s launch of Subsys. Burlakoff pleaded guilty to conspiracy and is expected to testify later in the trial.

During cross examination Friday, Wilkinson led Babich through a series of emails with Burlakoff, who had complained about others in the company he considered impediments to Insys boosting sales. Burlakoff sought and won bigger budgets to sign up doctors for the speakers’ program, but he got resistance from the company’s marketing head, Matthew Napoletano, emails show.

The conflict came to a head in August 2015, when Napoletano was in his office screaming, “We’re all going to go to jail,” Babich said. “At that point, we decided Matt was incompetent to continue his job.” Babich fired Napoletano, who has testified at the trial that Insys executives ran a kickback scheme.

On Thursday, Babich admitted under cross examination that he went to a strip club with Burlakoff while they were wooing doctors to write more prescriptions. He also received a text from his friend relaying how Burlakoff had just smoked marijuana with a doctor in the doctor’s car. Babich said he never shared that information with Kapoor.

Wife Guilty

Babich’s wife, Natalie Levine, who worked as an Insys sales rep in Boston from in 2013 and 2014, pleaded guilty to paying kickbacks to doctors and is awaiting sentencing.

Wilkinson pressed Babich on whether he hoped his testimony against Kapoor might help his wife. At first, Babich resisted answering, and then said, “Of course I care more about my wife than myself.”

Wilkinson also brought up Babich’s love of golf and his membership at Silverleaf Club course in Scottsdale, Arizona. Babich appeared annoyed when she implied he played a lot of golf and posted his scores on a public web site.

“I’m a stay-at-home father and I golf on average one and a half times per week,” Babich said.

The trial is scheduled to resume on Feb. 21.

To contact the reporter on this story: Janelle Lawrence in Boston at jlawrence62@bloomberg.net

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net;David Glovin at dglovin@bloomberg.net

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