Insys Therapeutics Inc. filed for bankruptcy protection after agreeing to pay hundreds of millions of dollars to settle a probe by U.S. prosecutors over the promotion of its highly addictive opioid painkiller.
Court papers filed Monday in Delaware by the drugmaker, whose former executives were convicted of bribing doctors, list at least $175.1 million in assets and $262.5 million in liabilities. Chapter 11 protection will allow the company to keep operating while it devises a plan to pay its obligations, including to the U.S. Justice Department, and to divest its fentanyl painkiller Subsys.
“After conducting a thorough review of available strategic alternatives, we determined that a court-supervised sale process is the best course of action to maximize the value of our assets and address our legacy legal challenges in a fair and transparent manner,” Chief Executive Officer Andrew Long said in a statement.
Shares of the Chandler, Arizona-based company fell as much as 49% to 67 cents in New York, their lowest-ever intraday price.
Insys is the first drugmaker to seek bankruptcy protection from its creditors as a result of legal action related to the U.S. opioid epidemic. Several much larger, more diversified drugmakers have been sued by state and local governments that say drugmakers used misleading marketing tactics and created an addiction crisis.
In May, Insys founder and former Chief Executive Officer John Kapoor, 75, and four former executives were convicted of engaging in a racketeering conspiracy to bribe doctors to boost off-label prescriptions of Subsys, a fentanyl spray originally intended to treat cancer pain. The executives baited doctors with sham speaker fees, lavish dinners and nightclub outings, and then duped insurers into covering the prescriptions, prosecutors said. Kapoor and the others each face a maximum of 20 years in prison and will be sentenced in September.
Insys has separately agreed to pay $225 million to settle U.S. claims that the drugmaker used illegal marketing tactics to lure doctors into ramping up Subsys prescriptions. Under terms of the deal, Insys will pay $195 million to resolve whistle-blower claims, a $2 million criminal fine and forfeit $28 million in cash over a five-year period.
The government will get a $243 million unsecured claim in the bankruptcy case, according to the filing. Such claims are typically worth pennies on the dollar when a company reorganizes under Chapter 11.
“This is a strategic move to get breathing room and hold off the DOJ as they figure out what to do,” said Charles Tatelbaum, a bankruptcy lawyer at Tripp Scott. It’s unlikely the company will have to pay the entire sum, Tatelbaum said.
The company will be able to keep selling Subsys while it seeks to divest the spray and sell off other assets, including a portfolio of experimental cannabis-based drugs. If it can’t shed Subsys within 90 days, it will have to stop promoting it, according to a June 5 agreement with the Office of Inspector General of the U.S. Department of Health and Human Services.
The settlement with federal prosecutors is structured so that a potential Subsys buyer can take over the product without assuming responsibility for the fines, according to the bankruptcy filing.
Legal costs related to the criminal claims aren’t the only liabilities the company faces. Insys has also been named as a defendant in suits filed by state attorneys general and by U.S. cities and counties who are seeking billions from opioid makers. The drugmaker also faces suits from patients who got addicted to Subsys and investors seeking to hold Kapoor and other former executives responsible for the company’s losses.
The bankruptcy filing allows Insys’s current managers to corral all that litigation into one court, before a single judge, who can decide how much each plaintiff should get. Judge Kevin Gross, of the U.S. Bankruptcy Court in Wilmington, Delaware, will oversee the case, according to the filing.
Insys may not be the only opioid maker to seek court protection from creditors. Executives of closely held Purdue Pharma Inc., maker of the opioid-based OxyContin painkiller, have said they may be forced to file for Chapter 11 to deal with more than 1,900 suits blaming it for fueling the opioid crisis.
Insys had 226 full-time workers at the end of 2018. The company hired Lazard Ltd. last year to advise on capital planning and the evaluation of strategic alternatives. Weil, Gotshal & Manges LLP is serving as legal counsel, and FTI Consulting, Inc. is serving as a financial adviser.
The case is In RE Insys Therapeutics, No. 19-11292, U.S. Bankruptcy Court for the District of Delaware (Wilmington).