Bankruptcy Looms as Insys Scrapes Together Cash for Legal Disputes
Insys may be closer to running out of cash than previously expected. On Friday, the company pointed to its mounting legal costs associated with lawsuits against the company’s marketing practices for its powerful opioid and said it may not have enough cash to fulfill demands from the federal government.
In the company’s quarterly report, Insys said its available liquidity is limited to $87.6 million in cash and cash equivalents as of March 31. However, the company owes far more than that from the litigation over sales of Subsys, as well as a $150 million agreement with the U.S. Department of Justice (DOJ) struck last fall. Insys said it has estimated liabilities of approximately $240.3 million.
“We are uncertain if we will be able to complete a final settlement with the DOJ because of the company’s inability to fulfill demands made by the DOJ, including the execution of a security agreement related to the assets of the company to collateralize payments under the settlement. These factors raise substantial doubt about the company’s ability to continue as a going concern within one year of the issuance date of the unaudited condensed consolidated financial statements,” Insys said in its quarterly report.
In its report, Insys said net revenue for the first quarter of 2019 was $7.6 million, compared to $23.9 million for the first quarter of 2018.
In order to meet those financial demands, Insys said it may have to liquidate its assets for less than they are actually worth. The company said if that happens, it is likely that investors will lose all or a part of their investment. As could be expected, shares of Insys have plunged more than 47 percent in premarket trading to $1.90, down from Friday’s close of $3.60 per share. Insys’ announcement should come as no surprise. In March, the company warned that is could run out of revenue and would have to resort to liquidating its assets. Insys management said it has been seeking ways to improve its cash flow, including the pursuit of strategic alternatives related to the sale or licensing of the company’s assets. If it can’t meet those needs though, Insys said it will have to consider filing for bankruptcy.
Insys has been embroiled in litigation over its marketing practices of Subsys, a powerful opioid that is intended for cancer patients. Earlier this month, several former executives, including founder John Kapoor, were found guilty of orchestrating the kickback schemes. Kapoor, the founder and former chief executive officer of Insys, along with Richard M. Simon, the former National Director of Sales; Sunrise Lee, a former Regional Sales Director; Joseph A. Rowan, a former Regional Sales Director; and Michael J. Gurry, the former Vice President of Managed Markets, were convicted by a federal jury of violating the Racketeer Influenced and Corrupt Organizations (RICO) Act, a statute typically used to take on organized crime. In addition to bribing the prescribers, the former Insys executives conspired to defraud health insurance providers who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients, the government said. Federal authorities said the company misled insurers regarding the true diagnosis of a patient in order to get approval for Subsys, which was to be prescribed to cancer patients.