Insys Therapeutics (INSY) Collapses Following DOJ Charges

Jay Lauren

Is this the start of a longer slide for INSY stock? We think so.

From the Dow Jones Newswire: “Insys Therapeutics Inc. (INSY) shares dropped as much as 16% in Thursday afternoon trade after the Department of Justice said several former employees, including its former chief executive offer and president, had been arrested and charged with bribing doctors to push a highly addictive opioid pain medication and defrauding health insurers. Six former executives and managers allegedly used bribes and kickbacks to push prescriptions of “Subsys” — a fentanyl-based pain medication intended for cancer patients with intense pain — with doctors prescribing the drug to a good deal of patients not diagnosed with cancer. The DOJ said that the former employees made big profits off the alleged scheme, for which they could face prison time and large fines.
The former Chief Executive Michael Babich, who resigned from the company in November 2015, was charged with conspiracy to commit racketeering, conspiracy to commit wire and mail fraud, and conspiracy to violate the anti-kickback law. Also charged on Thursday were Alec Burlakoff, the company’s former vice president of sales; former national sales director Richard Simon; former vice president of managed markets Michael Gurry; and former regional sales directors Sunrise Lee and Joseph Rowan.
Bribes cited in indictment
Mr. Babich and the other defendants disguised the company’s bribes to doctors and other health-care practitioners as legitimate fees paid for promoting Subsys to colleagues at speaking events, the government alleges in a criminal indictment filed in U.S. District Court in Massachusetts. The goal of the speaker’s program was to reward large prescribers of Subsys, the indictment alleges. Mr. Burlakoff allegedly told an Insys sales representative in a text message that prescribers “do not need to be good speakers, they need to write a lot of” Subsys, the indictment alleges. Speaking events were “were often just social gatherings at high-price restaurants that involved no education and no presentation,” the indictment alleges.
Insurance Fraud cited in indictment
Many insurers refused to pay for Subsys unless prescriptions met certain criteria, such as being prescribed for cancer pain or for patients who had already tried cheaper alternatives, the Journal reported in November. To help address the problem, Messrs. Babich and Gurry in January 2013 created and operated a reimbursement unit that worked on behalf of doctors to obtain payment authorization directly from insurers, the indictment alleges.
Mr. Gurry and other unnamed conspirators taught reimbursement unit employees “how to mislead and deceive insurers regarding their employment, patient diagnoses, and tried and failed medications,” the indictment alleges. The reimbursement unit’s methods were effective: Roughly a year after the unit was launched, about 85% of prescriptions were approved for payment by insurers, up from roughly one-third of prescriptions in November 2012, the indictment alleges.”
What you need to know about INSY:
  • Insys Therapeutics shares were valued at $9.10 per share Thursday afternoon, down 16%, following the announcement of the DOJ’s criminal charges. The stock has now dropped 68.0% in the past year, from a high of $31.22.
  • Much of the speculative boom in INSY has been driven by their efforts to develop a pharmaceutical derivative of marijuana, Dronabinol, which is still in drug-development stage.
  • The recent stock collapse in the wake of these criminal allegations may trigger class-action lawsuits launched on behalf of institutional and individual investors who bought the stock during the speculative boom.
  • Following Thursday’s (12/8) stock decline, we discovered some paid/sponsored PR by INSY during searches that re-iterated BUY ratings for the stock, providing (some unlikely) stock recommendations:
What we think about INSY
Insys Therapeutics’ stock bubble has been fueled by the speculative premise that regulators, patients, and the medical community will prefer a pharmaceutical alternative to marijuana. They’ve spent millions in R&D to achieve this end; they also spent $500K during the last election to help defeat the marijuana legalization ballot measure in AZ.
The real question is whether we really need a pharmaceutical alternative to a natural medicine. INSY and its investors think so. We disagree: the millions they’ve spent on R&D would have been better served conducting studies on the medical benefits of marijuana.
INSY may look tempting at current price vs. the 52-week high, but don’t buy this stock on the dip. Buyer beware.