Insys Warns It Could Run out of Cash as It Continues to Face Litigation Over Subsys Sales

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Shares of Insys Therapeutics plunged more than 25 percent in trading Wednesday after the company said in a filing with the U.S. Securities and Exchange Commission that it could soon run out of revenue and may have to resort to liquidating its assets.

In the filing, the company said there is “uncertainty in generating sufficient cash to meet our legal obligations and settlements and sustain our operations raise substantial doubt about our ability to continue as a going concern.”

Insys has been embroiled in lawsuits over the marketing tactics for Subsys, its powerful pain killer intended for use with cancer patients. Insys founder John Kapoor other executives from Insys, along with members of its sales team, has been charged with orchestrating kickback schemes to encourage doctors to boost prescriptions of Subsys, Along with Kapoor, the government charged former CEO and company president Michael Babich, Alec Burlakoff, the former vice president of Sales; Richard Simon, the former national director of sales; former regional sales directors Sunrise Lee and Joseph Rowan; and former vice president of managed markets, Michael Gurry.

Over the course of an ongoing trial in Boston, jurors have heard about some of the aggressive sales tactics used by Insys to promote sales of Subsys, including having a sales manager perform a lap dance at a strip club for a doctor the company was trying to woo. Jurors were also introduced to a video from a 2015 sales conference of sales associates dancing with a giant bottle of the addictive fentanyl-based Subsys in a rap music video. The company used a song by rapper A$AP Rocky and changed the lyrics to refer to titration, which the indictment against Kapoor described as the process of “increasing the strength of the prescription until the patient reached the adequate dosage strength.”

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In the SEC filing, the company pointed to various cost-reduction initiatives it has taken over the past year due to declining revenues. In July 2018, the company slashed 45 positions, 30 of which were part of the sales and marketing team. Insys cut another 48 employees in November 2018. The cuts in November were also primarily to the sales and marketing team, with 36 positions eliminated there. In the filing, Insys said the cuts to its sales and marketing force may further negatively impact revenues from its marketed product.

In August, Insys reached an agreement with the Department of Justice to settle civil and criminal investigation into inappropriate sales and commercial practices by some former company employees. The company will pay $150 million over five years as part of the settlement.

As the company continues to face litigation, Insys said it may need to undertake additional cost reduction measures in the future if revenue does not stabilize or other factors come into play.

“In addition, our company may need to seek liquidity from outside sources including debt and equity in order to continue to meet management’s operating plans and objectives and there can be no assurances that we will be able to do so at all or on terms that we believe are favorable to us,” Insys said in its filing.

As it continues to move forward, Insys said it engaged Lazard Freres & Co. LLC to advise the company on capital planning and the evaluation of strategic alternatives.

In November, Insys said the company is shifting its focus away from the development of opioids and focusing on becoming a leader in pharmaceutical cannabinoids. To support that switch, the company has invested more than $200 million in cannabinoids R&D since 2016. The company is also interested in divesting itself of Subsys and other opioid-related products.

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