Opioid Maker Insys Plunges on Warning of Possible Bankruptcy
(Bloomberg) -- Insys Therapeutics Inc. shares sank after the company warned that it may seek bankruptcy protection after bleeding tens of millions of dollars on legal settlements and defending former executives convicted of bribing doctors to prescribe a powerful opioid.
Insys said late Friday that it had $87.6 million in cash and equivalents at the end of the first quarter and $240.3 million in liabilities. It said it also may not be able to complete a $150 million settlement with the U.S. Justice Department over illegal marketing of its Subsys drug.
“These factors raise substantial doubt about the company’s ability to continue as a going concern,” Insys said in a statement. The company said it may have to file for Chapter 11 protection, could liquidate its assets and that investors could lose all or part of their investments in the company.
The shares were down 74% to 94 cents at 10:55 a.m. in New York, a fraction of their peak of about $45 in 2015, when questions began to arise about the company’s aggressive promotion of Subsys, a powerful opioid painkiller that’s administered with a mouth spray.
The company didn’t say when it might file for Chapter 11, and there is no guarantee that it will. Jackie Marcus, an Insys spokeswoman, didn’t respond to requests for comment.
The announcement could mark the beginning of the end for the Chandler, Arizona-based drugmaker. Earlier this month, Insys founder John Kapoor and four ex-executives were convicted of engaging in a racketeering conspiracy to use a sham speaker’s program to bribe doctors into ramping up off-label Subsys prescriptions and then duping insurers into covering the shady scripts.
Kapoor and the others face a maximum of 20 years in prison each on the charges. 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 the U.S.’s opioid epidemic.
Insys said in March that it had hired Lazard Ltd. to advise it on capital planning and the evaluation of strategic alternatives. The company said Friday that it will continue to look at strategic alternatives or selling assets.
In the filing, Insys warned investors that “there are no assurances that the company will be successful in implementing a strategic plan for the sale of its assets in order to address its impending liquidity constraints.”
Insys agreed last year to pay $150 million to resolve the government’s civil and criminal probes into illegal marketing tactics used to lure doctors into writing more Subsys prescriptions. Under the deal, Insys was slated to pay over five years and meet other requirements.
The company’s dwindling cash reserves, however, have raised doubt about whether Insys can complete the settlement. If a final settlement agreement cannot be reached, it is likely the company will be indicted, according to the quarterly filing.
“The writing is on the wall,” said Piper Jaffray & Co analyst David Amsellem in an interview. ``This is a particularly ugly case where there are criminal convictions, but this is not just about John Kapoor and other executives. There’s much more pressure to punish companies that have played a role in perpetuating the opioid crisis.”
Insys is also paying legal-defense costs under an indemnity agreement, common at many large companies, requiring it to cover any investigation, defense, settlement or appeal-related expense for Kapoor and other former managers. Insys said last year Kapoor’s defense alone had cost the company $28 million so far.
In Friday’s release, Insys officials said indemnity defense costs “increased to $25.7 million for the first quarter of 2019, compared to $10.3 million in the first quarter of 2018.” That figure included more than $18 million Kapoor’s defense lawyers racked up preparing and putting on his defense during a two-month trial in Boston, the company said.
“Management is disputing the reasonableness of certain indemnification-related expenses for this quarter and prior periods,” Insys said in the statement. Beth Wilkinson, Kapoor’s lead defense attorney in the Boston case, didn’t immediately respond to phone and email messages seeking comment on the company’s challenges to her client’s legal bills.
Overall, Insys reported an accumulated deficit of $459.9 million through March 31, according to the filing. The company has eliminated 139 jobs over the past year in an effort to cut costs.
The criminal case is U.S. v. Kapoor, 16-cr-10343, U.S. District Court, District of Massachusetts (Boston).
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