In May,Insys founder and former Chief Executive Officer John Kapoor, 75,and four former executives were convicted of engaging in aracketeering conspiracy. (Photo: Shutterstock)

Insys Therapeutics Inc. filed for bankruptcy protection afteragreeing to pay hundreds of millions of dollarsto settle a probe by U.S. prosecutors over the promotion of itshighly addictive opioid painkiller.

Court papers filed Monday in Delaware by the drugmaker, whoseformer executives were convicted of bribing doctors, list at least $175.1 millionin assets and $262.5 million in liabilities. Chapter 11 protectionwill allow the company to keep operating while it devises a plan topay its obligations, including to the U.S. Justice Department, andto divest its fentanyl painkiller Subsys.

Related: The opioid epidemic claims its first corporatevictim

“After conducting a thorough review of available strategicalternatives, we determined that a court-supervised sale process isthe best course of action to maximize the value of our assets andaddress our legacy legal challenges in a fair and transparentmanner,” Chief Executive Officer Andrew Long said in astatement.

Shares of the Chandler, Arizona-based company fell as much as49 percent to 67 cents in New York, their lowest-everintraday price.

Insys is the first drugmaker to seek bankruptcy protection fromits creditors as a result of legal action related to the U.S.opioid epidemic. Several much larger, more diversified drugmakershave been sued by state and local governments that say drugmakersused misleading marketing tactics and created an addictioncrisis.

Executives convicted

In May, Insys founder and former Chief Executive Officer JohnKapoor, 75, and four former executives were convicted of engagingin a racketeering conspiracy to bribe doctors to boost off-labelprescriptions of Subsys, a fentanyl spray originally intended totreat cancer pain. The executives baited doctors with sham speakerfees, lavish dinners and nightclub outings, and then duped insurersinto covering the prescriptions, prosecutors said. Kapoor and theothers each face a maximum of 20 years in prison and will besentenced in September.

Insys has separately agreed to pay $225 million to settle U.S.claims that the drugmaker used illegal marketing tactics to luredoctors into ramping up Subsys prescriptions. Under terms of thedeal, Insys will pay $195 million to resolve whistle-blower claims,a $2 million criminal fine and forfeit $28 million in cash over afive-year period.

The government will get a $243 million unsecured claim in thebankruptcy case, according to the filing. Such claims are typicallyworth pennies on the dollar when a company reorganizes underChapter 11.

“This is a strategic move to get breathing room and hold off theDOJ as they figure out what to do,” said Charles Tatelbaum, abankruptcy lawyer at Tripp Scott. It's unlikely the company willhave to pay the entire sum, Tatelbaum said.

The company will be able to keep selling Subsys while it seeksto divest the spray and sell off other assets, including aportfolio of experimental cannabis-based drugs. If it can't shedSubsys within 90 days, it will have to stop promoting it, accordingto a June 5 agreement with the Office of Inspector General of theU.S. Department of Health and Human Services.

The settlement with federal prosecutors is structured so that apotential Subsys buyer can take over the product without assumingresponsibility for the fines, according to the bankruptcyfiling.

Opioid lawsuits

Legal costs related to the criminal claims aren't the onlyliabilities the company faces. Insys has also been named as adefendant 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 toSubsys and investors seeking to hold Kapoor and other formerexecutives responsible for the company's losses.

The bankruptcy filing allows Insys's current managers to corralall that litigation into one court, before a single judge, who candecide how much each plaintiff should get. Judge Kevin Gross, ofthe U.S. Bankruptcy Court in Wilmington, Delaware, will oversee thecase, according to the filing.

Insys may not be the only opioid maker to seek court protectionfrom creditors. Executives of closely held Purdue Pharma Inc.,maker of the opioid-based OxyContin painkiller, have said they maybe forced to file for Chapter 11 to deal with more than 1,900 suitsblaming it for fueling the opioid crisis.

Insys had 226 full-time workers at the end of 2018. The companyhired Lazard Ltd. last year to advise on capital planning and theevaluation of strategic alternatives. Weil, Gotshal & MangesLLP is serving as legal counsel, and FTI Consulting, Inc. isserving as a financial adviser.

The case is In RE Insys Therapeutics, No. 19-11292, U.S.Bankruptcy Court for the District of Delaware (Wilmington).

Read more: 

• 5 more states sue Purdue Pharma over opioidmarketing
• Responding to criticism, FDA takes action on opioidoversight
• New lawsuit unveils scope of Purdue's'extraordinary efforts' to push opioids

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