On May 2, 2019, a federal jury convicted the founder and four former executives of Insys Therapeutics, Inc. (Insys) of a racketeering conspiracy. It was a conspiracy that lasted three years (May 2012 through December 2015) that involved bribing and providing kickbacks to practitioners in order to increase sales of Subsys, a Schedule II opioid. The United States Attorney’s Office for the District of Massachusetts announced in its press release that it was the “[f]irst successful prosecution of top pharmaceutical executives for crimes related to the prescribing of opioids.”
Those convicted of RICO conspiracy were: (1) John Kapoor (founder and former Executive Chairman); (2) Michael Gurry (former Vice President of Managed Markets); (3) Richard Simon (the former National Director of Sales); (4) Sunrise Lee (former Regional Sales Director); and (5) Joseph Rowan (former Regional Sales Director). According to Reuters, defense lawyers have signaled they plan to appeal.
Why RICO?
The Racketeer Influenced and Corrupt Organizations (RICO) Act is a complex criminal and civil law that makes it “unlawful for anyone employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity” (18 U.S.C. 1962(c)). According to the Department of Justice’s (DOJ) Justice Manual, bringing a RICO charge requires prosecutors to obtain prior approval from the DOJ’s Criminal Division, including civil cases, and the Criminal Division will not approve the charge “unless it serves some special RICO purpose.”
While the government believed it had a solid case against the founder and former executives of Insys, U.S. District Judge Allison Burroughs called into question the RICO charge. Based on the exchanges between the prosecution and Judge Burroughs, Judge Burroughs believed the first superseding indictment could have been written better.
Two months later, the government filed a second superseding indictment based solely on RICO conspiracy with the “pattern of racketeering activity” consisting of multiple indictable offenses that involved mail and wire fraud, honest services mail and wire fraud, and offenses involving the distribution of controlled substances.
“Pattern of Racketeering Activity”
The following is based on DOJ’s press release announcing the conviction and provides an overview of the defendant’s criminal conduct:
- Using pharmacy data to identify practitioners who either prescribed unusually high volumes of rapid-onset opioids, or had demonstrated a capacity to do so, and bribed and provided kickbacks to the practitioners to increase the number of new Subsys prescriptions, and to increase the dosage and number of units of Subsys;
- Comparing the net revenue earned from targeted practitioners with the total value of bribes and kickbacks paid (this information was used to reduce or eliminate bribes paid to practitioners who failed to meet satisfactory prescribing requirements, which they determined to be the net revenue equal to at least twice the amount of bribes paid to the practitioner);
- Using “speaker programs” purportedly intended to increase brand awareness of Subsys through peer-to-peer educational lunches and dinners (programs were actually used as a vehicle to pay bribes and kickbacks to targeted practitioners in exchange for increased Subsys prescriptions and increased dosage);
- Misleading and defrauding health insurance providers who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients by setting up a reimbursement hub that was dedicated to obtaining prior authorization for payment directly from insurers and pharmacy benefit managers (hub employees posed as employees of the practitioner and used a script of false and misleading representations about patient diagnoses in order to secure approval for the drug by the insurance provider)
The Trial
A Bloomberg article stated “[t]he trial of Insys founder and former Chief Executive Officer John Kapoor and four others took 10 weeks, featured 39 witnesses and more than 100 exhibits.” Two star witnesses for the government included Michael Babich (former CEO and president of Insys) and Alec Burlakoff (former VP of Sales), both of whom plead guilty prior to the start of the trial (see here and here for more info).
At one point in the trial, the jury watched a 5-minute rap video featuring Burlakoff dressed a prescription bottle of Subsys. The jury also learned that one of the defendants, Sunrise Lee, was a former stripper that gave lap dances as part of a sales pitch for Subsys.
After nine weeks of presenting its case, the government handed it over to the defense, who rested its case in less than three days. Following closing arguments, the jury began deliberations. After 15 days, the jury returned with a single question and guilty verdict.
What’s next?
Kapoor and the four former executives face a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $250,000 or twice the amount of pecuniary gain or loss. Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors. Their trial dates have not been set. As mentioned above, they are likely to appeal their convictions.
According to DOJ’s website related to the criminal trial, Babich and Burlakoff will be sentenced on September 5, 2019.
Takeaway
This case is major victory for the government and shows that executives are not immune from being prosecuted. Executives of companies that manufacture, market, or distribute controlled substances, especially opioids, are prime targets. But the case should be a wakeup call for the entire life sciences industry (pharmaceutical, medical device, distributors, and 02generics). We will be covering the topic in greater detail in our Policy & Medicine Compliance Update (subscription required).