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Insys Therapeutics made millions off of feeding the opioid crisis. Now it seeks to profit off of treating opiod addiction.


If you get caught selling cannabis at college, you can lose your scholarship and access to financial aid. But if your company is caught bribing doctors to sell the deadly opioid fentanyl, you can get a building named after you.

Insys Therapeutics, a pharmaceutical company backed by the hedge funds Orbimed Advisors and Scopia Capital, has had its CEO and five other executives charged with conspiring to bribe doctors to prescribe the opioid fentanyl. Insys is now seeking to profit from treating the opioid epidemic that it helped to exacerbate by selling drugs to treat addiction and reverse overdoses.

In December 2016, six executives at Insys Therapeutics, including former CEO Michael Babich, were arrested and charged with paying off doctors to prescribe Subsys, an oral spray form of fentanyl, a powerful opioid that is many times more potent than morphine or heroin. The arrests came amid investigations by several states and the federal government as well as inquiries from Congress and a shareholder lawsuit.

Investigations began in 2014 after doctors who were paid tens of thousands of dollars in speaking fees by Insys were arrested for improperly prescribing Subsys. The New York Times reported that, though Subsys was only approved for breakthrough cancer pain, only around one percent of prescriptions for Subsys were made by oncologists. Half of the prescriptions for Subsys were written by pain specialists, with the rest coming from “general practice physicians, neurologists and even dentists and podiatrists.”

In early 2016, a New Jersey woman who was prescribed Subsys for fibromyalgia was found dead with a lethal level of fentanyl in her blood.

Fentanyl billionaire John Kapoor

Insys was founded by John Kapoor, who also invented the Subsys fentanyl preparation and has become a billionaire from its sale. Kapoor became Insys’s CEO in November 2015, a little less than a year before Babich and the other executives’ arrests, and stepped down in January 2017, just afterwards.

Kapoor is the largest Insys shareholder; even after stepping down he controlled 67% of the company’s stock, according to its most recent proxy statement. Kapoor’s 48.3 million shares of Insys stock were worth $510 million when the company filed the statement on April 17. As of May 10, 2017, Forbes estimates Kapoor’s net worth at $2.1 billion.

The State University of New York at Buffalo, where Kapoor obtained his pharmacy degree, named the building housing its pharmacy school after Kapoor and his late wife Editha. Erie County, where SUNY Buffalo is located, had 320 suspected and confirmed deaths from opioid overdoses in 2016, and 50 deaths in the first month of 2017. From March 23 through April 6, 2017, overdoses killed another 17 people.

Kapoor Hall Opening on the South Campus
Photographer: Douglas Levere

Backed by hedge fund managers Sam Isaly, Matt Sirovich, and Jeremy Mindich

But Kapoor isn’t the only one profiting off of dangerous opioid sales. The two largest owners of Insys after Kapoor are the hedge funds Orbimed Advisors and Scopia Capital Management.

Orbimed, which owns 8.44% of all Insys shares, is a healthcare-focused fund led by manager Sam Isaly. The fund is invested in several companies behind some of the most expensive drugs in the world. Stock in Alexion, whose drug Soliris may be the world’s most expensive drug at $700,000 per year, makes up 5.28% of OrbiMed’s portfolio, more than any other holding. Other major Orbimed holdings include AbbVie, whose leukemia drug Imbruvica has a wholesale list price of $116,000 per year; Amgen, which was targeted for job cuts by Third Point manager, Daniel Loeb; and Shire, an Ireland-based company involved with a 2016 tax inversion deal with Loeb-led Baxalta.

Scopia, led by Matt Sirovich and Jeremy Mindich, owns 3.9% of outstanding Insys stock. In addition to several other pharmaceutical companies, including United Therapeutics, GW Pharmaceuticals, and Horizon Pharmaceuticals, Scopia is heavily invested in the energy industry. The fund’s top holdings include Williams Companies, Southwest Gas Corporation, CONSOL Energy, and Antero Resources. Scopia is also a major investor in Netflix.

Selling addictive drugs and the drugs to treat addiction

After feeding the nation’s opioid addiction and raking in hundreds of millions in profit from fentanyl sales, Insys is now seeking to also gain by selling drugs meant to treat that same addiction and reverse overdoses.

In February 2017, Santosh Vetticaden, Kapoor’s interim replacement as CEO, told financial analysts:

As a responsible marketer of opioids, we believe we have a moral and social responsibility to provide solutions to what has been the inappropriate use of opioids, which has led to the opioid epidemic, and so we are committed to coming up with solutions to address that.

Vetticaden highlighted how the company’s research pipeline included buprenorphine, “a potentially safer opioid;” naloxone, “for the reversal of opioid toxicity;” buprenorphine naloxone, “for the treatment of opioid maintenance;” and “our next generation Subsys, which is fentanyl with an addition of naloxone as an abuse deterrent.” The company spent $17.9 million on research and development for these drugs in 2016, according to its most recent annual report.

Fighting to keep cannabis illegal while developing cannabinoids to sell

Outside of opiates, Insys has also sought to monetize medicinal cannabis, while simultaneously fighting against a ballot measure to legalize recreational use of the drug in Arizona where the company is based.

According to Insys’s 2016 annual report, the company spent $19.2 million on R&D related to cannabinoids, including $15.3 million on cannabidiol, a non-psychoactive compound that has been used to treat a variety of ailments. On the February 2017 conference call, Vetticaden called cannabidiol “a very exciting product” that Insys was seeking to sell “for diseases ranging from PTSD to Prader-Willi Syndrome to catastrophic epilepsies.”

That year, Insys also reported spending $3.9 million on research and development for dronabinol, “a synthetic cannabinoid whose chemical name is THC.” THC is the main psychoactive component in cannabis, which is prohibited for recreational use in 42 states. The same year that Insys spent nearly $4 million developing its THC drug, the company spent $500,000 opposing a measure that would legalize cannabis in Arizona, where the company is headquartered.

Insys claimed that it opposed legalization because cannabis had not yet been proven “safe and effective.” At the same time, Insys was applying for Food and Drug Administration approval for its THC drug, which it won in July 2016. Insys was ultimately successful in blocking the legalization proposition, and four months later, in March 2017, the company received preliminary approval from the Drug Enforcement Administration for its dronabinol drug.

Expanding Subsys indications expected to drive growth

Although fentanyl prescriptions are down amid Insys’s various controversies – interim CEO Santosh Vetticaden told analysts in February that scripts were down to 6,000 per month from a high of 10,000 – the company has expressed confidence that it will return to profitability.

Vetticaden expects an expansion of the types of illnesses for which the company’s opioid and cannabinoid drugs are approved to create profits for Insys. He told analysts, “the drivers for growth that we see are going to be our current market of product Subsys and new indications and lifecycle extensions for the Subsys. Similarly for Syndros, new indications. Third will be our new products, and of course the cannabinoid platform or cannabidiol.”