Category: Insys Therapeutics

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Corcept Therapeutics: The Company That Perfectly Explains the Health Care Crisis

If someone wanted to use a Venn diagram to illustrate what is wrong with the U.S. health care system, picking the different sets would be easy: Price gouging, abuse of loopholes, hidden risks to patients, baffling regulatory decisions, marginal efficacies and the use of doctor payments to stimulate drug sales would be some logical choices.

And a case in point would be Corcept Therapeutics, a specialty pharmaceutical company based in Menlo Park, California, and the apparent union of all things expensive and opaque. So how did Corcept, a small company with just one drug aimed at treating a tiny population of patients with a rare pituitary disorder, wind up there?

Corcept has managed to make handsome profits by quietly yet efficiently exploiting gaps in the nation’s health care regulatory framework. And its sole drug is none other than the storied mifepristone, better known as the abortion pill. While Roussel-Uclaf developed mifepristone in France in 1980, it became famous in the U.S. in 2000 when the Food and Drug Administration ruled that doctors could prescribe it to induce an abortion; it was sold as RU-486.

Just before that, two doctors at Stanford University Medical School’s psychiatry department began examining mifepristone for quite another use. In the mid-1990s Dr. Joseph Belanoff began testing a longstanding hypothesis of then-department chairman Dr. Alan Schatzberg that mifepristone could block the body’s production of cortisol and be used to help treat episodic psychosis, a condition that’s found in about 15 percent of people with major depressive disorder.

Encouraged by the results they observed in the few patients they tested, the doctors founded Corcept in 1998, with Stanford University’s technology licensing office serving as a silent third partner; the university had applied for a patent covering mifepristone’s use in treating depression.

The doctors proved adept at generating national interest for Corcept’s early-stage trial: Dr. Schatzberg proclaimed in 2002 that the drug’s potential was “the equivalent of shock treatments in a pill.”

But a preliminary study of mifepristone, released in the journal Biological Psychiatry in 2002, kicked off the academic equivalent of a food fight when several veteran psychiatric researchers argued that the test results provided no statistical backing for Schatzberg’s claims. One high-profile critic told the San Jose Mercury News in 2006 that the study was an “experimercial,” or an experiment whose purpose was to generate publicity rather than meaningful results.

These critics were onto something: In 2007 Corcept halted its clinical trial for the drug’s treatment of depression and did not publish the results, a development that usually means that the findings were not positive.

Faced with the prospect of the company’s business model collapsing, Corcept’s management managed to pull off what an April 2018 Kaiser Health News article called a “Hail Mary” when it sought — and received — Food and Drug Administration approval to test mifepristone as an orphan drug for the treatment of Cushing’s syndrome.

Endogenous Cushing’s syndrome is a pituitary gland disorder whereby the body is prompted to make too much adrenocorticotropic hormone, which governs the level of cortisol. And people with hypercortisolism — who overproduce cortisol — might have their metabolic functions go awry; this could lead to a host of painful and dangerous symptoms like rapid weight gain, skin discoloration, bone loss, heart disease and diabetes.

The primary culprit behind endogenous Cushing’s syndrome is a tumor that grows on the pituitary gland; in 70 percent to 90 percent of these cases, surgery to remove the tumor can successfully address the condition, according to the Pituitary Society.

But for as many as 30 percent or so of the people with Cushing’s syndrome (individuals who can’t undergo surgery or for whom surgery doesn’t mitigate these symptoms), Corcept developed a mifepristone treatment. And on Feb. 17, 2012, the FDA approved Corcept’s application to market its mifepristone medication Korlym as an orphan drug. The label, or the official designation for what it was approved to treat, is very specific: Korlym is to be prescribed only to people with endogenous Cushing’s syndrome who have both hypercortisolism and diabetes in order to reduce side effects of hyperglycemia, or high blood sugar levels.

The fact that the FDA had granted an approval allowing the company to market Korlym, however, doesn’t mean Corcept had scientifically demonstrated the drug’s success in treating Cushing’s syndrome.

Southern Investigative Reporting Foundation readers may recall from previous reporting on Acadia Pharmaceuticals that the FDA can sharply relax evidentiary standards when confronted with a small patient population possessing a rare disease.

Indeed, the FDA approved Korlym based on a single open-label study consisting of one group of 50 patients. (An open-label study is the least rigorous type of scientific investigation.) All participants in the study knew they were receiving the drug — and not a placebo — which risked the possible introduction of bias. And the study lacked a comparison group, whose results could be contrasted with those of the drug’s recipients. Plus, 36 of the 50 study participants reported protocol violations.

The FDA’s risk assessment and risk mitigation review for this study did conclude that Korlym’s trial design was flawed without the testing of an approved comparator drug, but “the progressive and serious nature of [Cushing’s syndrome] would make it unethical to randomize any patients to placebo.”

When the company tried to expand Korlym’s sales by seeking approval to market it in Europe, other problems emerged. In March 2015 Corcept withdrew its application for Corluxin (a renamed Korlym) after receiving a final round of questions from a committee of the European Medicines Agency and declining to answer them; the company cited “strategic business reasons” for ending the process.

In a late December 2018 interview, Corcept’s CFO Charles Robb told the Southern Investigative Reporting Foundation that the reason the company pulled Corluxin’s application was “primarily commercial.”

Robb said, “We just at the end of the day couldn’t figure how we would make any money [in Europe] selling it, given the way they priced [orphan] drugs.”

The European Medicines Agency had a starkly different view of events. In a brief “question and answers” release posted online in May 2015, the agency’s committee said its “provisional opinion” was against approving the drug. Three weeks later in a more formal assessment, it cited a laundry list of concerns, including the company’s failure to control the introduction of impurities during manufacturing, the design of the clinical trial and “limited” evidence of effectiveness.

Robb did not respond to a follow-up call and email with questions from the Southern Investigative Reporting Foundation about why Corcept spent the time and money to pursue approval of its drug all the way to the last stage of the process before realizing it couldn’t make money in Europe.

Asked about the recent sharp increase in the number of deaths recorded for Korlym in the FDA’s adverse events reporting system (FAERS), to 37 in the first nine months of 2018 from 17 for all of 2017, Robb was adamant that none of the deaths could be directly attributed to Korlym. In response to a question about how he could be certain of that, he said, “All [the FAERS death reports] are adjudicated by a third party”: Robb added that Corcept retains Ashfield to provide pharmacovigilance, a service that evaluates reports of a drug’s adverse events for a manufacturer. And he insisted that the medicine and its dosage were not responsible for any of 103 deaths reported for Korlym since 2012. He did not answer a question about why 17 of the 103 death reports mentioned “product used for unknown indication.”

A brief aside: Adverse event reports are a tabulation of patient responses to a drug. The reports are unverified and are not designed to replace a formal investigation or autopsy. This completely voluntary reporting system allows for a wide array of filers, and with family members, caregivers and trained medical professionals able to make submissions, the level of accuracy and detail varies widely. Finally, many medical professionals have suggested that because this documentation is voluntary, incidents involving newer drugs are not reported to FAERS.

(To present a more nuanced view of patient deaths on Korlym, the Southern Investigative Reporting Foundation obtained longer form FAERS reports via the Freedom of Information Act. While not official reports, they do provide valuable context and data, such as dosage, basic health datapoints, initial diagnosis and the duration of Korlym use. Accordingly, any instances where the circumstances of a patient’s death suggested that a reaction to Korlym was secondary were eliminated.)

Ashfield officials did not return a call seeking comment.

Robb did, however, have a lengthy list of possible causes for these deaths: “The thing to understand is these patients are very ill. Some of them have adrenal cancer,”  he said, “Some of them ahead have been suffering from the symptoms of Cushing’s syndrome for decades; some are simply elderly and the list of medications these patients have to take can be 20 and 30 drugs long.”

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Nonetheless, as Corcept’s recent income statements show, the company has certainly figured out a way to make quite a bit of money in the United States from selling this drug. Corcept’s road to success in this country has followed the tried and true specialty pharmaceutical playbook, raising a medication’s price steeply and often, while using physician speakers bureau payments to build drug awareness.

The public battering of other specialty pharmaceutical company CEOs after they tried to defend price increases might have given Corcept’s Dr. Belanoff the idea of acknowledging unpleasant facts first — before others do. Thus in April 2018 Dr. Belanoff told Kaiser Health News, “We have an expensive drug, there’s no getting around that,” perhaps in an effort to diffuse some of the sticker shock of his drug’s price tag, which he later cited as $180,000.

But that’s not anywhere close to a person’s cost for a year’s worth of Korlym prescriptions. Dr. Belanoff’s quote is only for the annual price for prescriptions of 300 milligrams, which is half the suggested 600-milligram daily dose. A more accurate yearly cost would be $308,000. And the annual expense for a patient will probably rise since, as Dr. Belanoff noted in a recent conference call, Corcept expects the typical prescription to eventually be 730 milligrams daily, the dosage explored in the FDA study.

Taxpayers are playing a growing role in Corcept’s expansion plans. According to Medicare Part D coverage data, in 2016 (the most recent year for which statistics are available), the government forked out $23.1 million for 1,086 prescriptions in the United States, a steep increase from 2015’s $11.4 million expenditure. All told, Medicare Part D payments accounted for just slightly more than 28 percent of Corcept’s revenue in 2016, a jump from 14 percent in 2015.

Medicare Part D and the Department of Veteran Affairs records are the only two sources for the general public to search for details about who prescribes Korlym. People who rely on private insurers place their orders through a single specialty pharmacy, whose sales are not reported to prescription-monitoring services. According to Medicare Part D payment records, 44 doctors each wrote at least 11 Korlym prescriptions in 2016. (The Centers for Medicare & Medicaid Services doesn’t release the names of doctors writing 10 or fewer prescriptions.)

Eleven of the 15 doctors who are the most frequent prescribers of Korlym to Medicare Part D enrollees received at least $7,500 in speakers bureau payments from Corcept in 2016 and 2017 combined. (The centers’ Open Payments Data portal lists payments only to medical doctors and not physician assistants; its data for 2018 will be released in May, along with 2017 Medicare Part D data for Korlym.)

A savvy observer might suspect that Corcept is using its speakers bureau program to compensate doctors for prescribing Korlym.

To be sure, the concept of a speakers bureau is a fully legal, well-used strategy employed by many pharmaceutical companies. Done by the book, these programs serve both marketing and educational purposes: Doctors are compensated for their time in preparing presentations and discussing their experiences of administering a medication to their patients, and other physicians can hear a discussion about the drug at a level of sophistication that a sales representative would be hard pressed to match.

But in practice, as the Southern Investigative Reporting Foundation found after its investigation of Insys Therapeutics, speakers bureau programs (if not carefully monitored) can devolve into frequently questionable, if not illegal, quid pro quo inducements.

Note: PA refers to physician assistant. Source: Centers for Medicare & Medicaid Services
Note: PA refers to physician assistant. Source: Centers for Medicare & Medicaid Services

 

Another thing that stands out in the list of high-volume Korlym prescribers is their peculiar geographic clustering. Cushing’s syndrome is a rare disease. The FDA has estimated that the number of people in the United States who could be prescribed this drug is 5,000. So some medical experts might be surprised to see Korlym prescribers found mainly in small towns and modest-sized cities, many at a substantial distance from established medical research centers. (For example, Dr. John C. Parker, a Wilmington, North Carolina–based endocrinologist, wrote at least 41 Korlym prescriptions in 2016. But one would have expected instead that some larger-volume prescribers would be located, say, in the state’s heavier populated Durham and Chapel Hill area, where two pituitary disorder clinics are affiliated with prominent university hospitals. Wilmington, though, is about 2.5 hours by car from these clinics.)

Could these doctors based in smaller communities with a limited pool of patients to draw from be prescribing Corcept to patients merely with diabetes — instead of endogenous Cushing’s syndrome?

When Corcept’s CFO Robb was asked during the late December interview if his company was using its speakers bureau program to encourage doctors to prescribe the drug for off-label uses, he said the company was doing no such thing. He argued that the FDA’s estimate of 5,000 U.S. patients who could potentially take the drug was somewhat arbitrary and nearly seven years old. He said that a better figure, based on research by Corcept and Novartis, is closer to 20,000. (Novartis is in the late stages of testing its own Cushing’s syndrome drug.)

In addition, Robb said that as awareness of Korlym grows, doctors will realize that more of their patients have Cushing’s syndrome, and the clustering of Korlym prescribers in smaller communities happened only because one group of physicians recognized earlier than their colleagues how the disease could be treated.

Pressed on the unusual odds of so many prescriptions for a treatment of such a rare disease from doctors in Zanesville, Ohio and Murfreesboro, Tennessee, Robb declared that “over 90 percent” of all Korlym prescriptions were “on label.” He added that “since it’s an expensive drug,” nearly all commercial insurers have an extensive preapproval process before paying for the drug.

Speaking more generally about Corcept’s marketing efforts, Robb said a company has a lot of work to do when selling a medicine for a rare disease like Cushing’s syndrome. “It is just not the case that you can walk into a doctor’s office, drop off some brochures and come back later and suddenly they’ve got a Cushing’s syndrome patient. It takes five to seven visits” for physicians to become aware of the disease, he said.

“I know the meal [served during the presentation] is modest,” Robb added. “It’s held at your local Holiday Inn or whatever and it’s entirely compliant with the PhRMA code.” The code he referred to is a set of voluntary ethical guidelines for drug companies adopted in 2002 by the Pharmaceutical Research and Manufacturers of America, frowning on sales representatives using gifts to doctors or providing them meals or entertainment as a means of drumming up business.

“We’re not flying people to Hawaii to hear about our drug,” Robb said.

Robb’s full-throated defense of Corcept’s business practices would make more sense if not for the company’s relationship with Dr. Hanford Yau. An endocrinologist, Dr. Yau sees patients at an Orlando Veterans Administration Medical Center’s clinic.

According to records obtained by the Southern Investigative Reporting Foundation, Yau and his colleagues at the VA clinic prescribed Korlym for 84 people from early 2016 to Sept. 1, 2018. Yau wrote 27 of the prescriptions. A back of the envelope calculation, using 2017’s sales and prescription volume, illustrates how important the clinic is to Corcept: VA records from that year reveal that 50 people began taking Korlym through prescriptions written by the clinic’s doctors. With their medication costing the then-prevailing price of $290,304 a year (or $24,192 a month), these 50 patients generated more than $14.51 million in sales, or 9.1 percent, of the company’s $159.2 million in 2017 revenue. (Of course, some of those taking the drug in 2017 might have started only in the middle of the year. And the figure excludes patients who had already begun taking Korlym in previous years and stayed on the drug.)

Moreover, just as his clinic had become so central to Corcept’s economic well-being, Dr. Yau became the company’s leading recipient of speakers bureau payments. In 2017 he received $95,139 from the company — over 12 percent of Corcept’s total payments to medical professionals — a more than sevenfold increase from 2016’s $13,524, according to the Centers for Medicare & Medicaid Services’ Open Payment Data portal. (But in 2014 and 2015 combined, Yau was paid just $4,610.) The second leading recipient of the company’s speakers bureau cash in 2017 was Dr. Joseph Mathews of Summerville, South Carolina, who was paid $73,777.

None of these payments were for research purposes, according to the Open Payments Data portal. Nor does Dr. Yau’s name surface on ClinicalTrials.gov, the U.S. National Library of Medicine’s database of public and private clinical studies.

Asked several times about this doctor’s relationship to his company, CFO Robb would speak only in broad terms about the speakers bureau program’s goals without discussing Dr. Yau. He did not answer a follow-up question sent via email. And Dr. Yau did not reply to a phone message or email.

Through a Freedom of Information Act request, the Southern Investigative Reporting Foundation obtained emails between Dr. Yau and Corcept that show he was working with an Italian endocrinologist and another VA colleague to create a white paper for marketing Korlym to “community physicians.”

The expectation for a peer-reviewed medical journal article is that an investigator’s research is conducted independently from consultations with a drug’s manufacturer. But the emails obtained through the FOIA request, as shown in the image below, show that Corcept was entirely in control of this project conceptually and editorially. (The image also reveals where the VA redacted the name of the person directing the project for Corcept and other related identifiers.)

In addition, the fact that the Orlando VA Medical Center generates so many Korlym prescriptions is rather curious. The patient base of the VA’s medical system nationwide has in recent years been more than 91 percent male, according to the department’s analysis of those using its services from 2006 to 2015. But Cushing’s syndrome typically occurs in women rather than men, by an almost 5-to-1 ratio, according to the National Organization of Rare Disorders.

Susan Carter, a VA spokeswoman, did not reply to several calls and an email seeking clarification about Dr. Yau’s prescribing of Korlym and compensation for serving as part of Corlym’s speakers bureau.

Update: This story has been amended to include two paragraphs discussing the natural limitations of the FDA’s Adverse Events Reporting System and the Southern Investigation Reporting Foundation’s approach to reporting with this data.

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The Brotherhood of Thieves: Insys Therapeutics

Executives at Insys Therapeutics have continued to pressure its employees to develop new ways to mislead insurance companies into granting coverage to patients prescribed its drug Subsys, even as the Food and Drug Administration’s Office of Criminal Investigations is issuing a stream of subpoenas to former employees.

As reported in a December Southern Investigative Reporting Foundation story, Insys’ prior authorization unit (also known internally as the insurance reimbursement center) employees were trained and rewarded for saying anything, including purportedly inventing patient diagnoses, to get Subsys approved. The revelations illuminated the answer to the conundrum raised in our previous stories: How does a company marketing a standard fentanyl spray formulation, under a strict FDA usage protocol, easily double the insurance approval rates of its more established competitors?

Internal Insys documents and an audio recording of a prior authorization unit meeting show that as recently as the late autumn executives were frantically brainstorming new ways to get around increasingly stringent pharmacy benefit manager rule enforcement.

“[Pharmacy benefit managers] had begun to deny Insys’ [prior authorization] requests in the early autumn to the point where it was rare to get more than two dozen approvals per week for the unit,” said ex-prior authorization staffer Jana Montgomery (a pseudonym) and something that began to accelerate after the CNBC reports came out.

“That’s a big change from each employee getting 25, at least, per week.”

Unlike their sales unit colleagues, Insys prior authorization staffers can’t call on long standing professional relationships with prescribers or use speakers program cash to win business. They are hourly workers — albeit among the higher paid prior authorization staff in the medical industry — dealing with other hourly workers and both have little latitude to depart from established scripts. If the pharmacy benefit manager denies the coverage, Insys has few levers to pull, apart from beginning an appeals process.

As critical reports began to pile up in the press, particularly a November CNBC investigative series — and with at least a half-dozen state and two concurrent federal investigations ongoing — insurers began to deny authorization for Subsys.

By the spring Montgomery said that it was clear to everyone in the unit that something had to change or the business would grind to a halt. One big problem was that insurers appear to have gotten wise to what was known internally as “the spiel,” a script of dubious answers to pharmacy benefit manager employee questions designed to clearly suggest the patient had been diagnosed with breakthrough cancer pain (while not coming right out and saying so).

Put bluntly, with state and federal subpoenas becoming a common occurrence, the prior authorization unit could no longer afford to push the legal limits of word games. On the other hand, simply reporting an off-label diagnosis was an unpalatable option given that under 3% of Insys’ patients had cancer.

So Jeff Kobos, the prior authorization unit’s new supervisor, wrote a new version of the spiel that was alternately called “Statement 13” or, in a homage to its confidential nature, “Agent 14.” It tried to thread a needle, designed to navigate both elevated pharmacy benefit manager scrutiny and the rising level of compliance oversight required, while still allowing the unit’s employees to try and guide pharmacy benefit managers to an approval.

The problem being, according to Montgomery, is that the prior authorization unit had gotten behind the curve.

“If you’re doing a prior authorization it should always be straight forward and exactly what the provider gives you,” she said. Pharmacy benefit managers “learned to approach [Insys] with questions that had non-negotiable answers like, ‘On what date did the patient receive their original cancer diagnosis?’

“We didn’t figure that out right away and kept on submitting requests for authorization which were all quickly rejected.”

So like many corporate outfits the world over, the prior authorization unit held a meeting to discuss how to get better results (where “better results” was defined as getting people to think patients with back or leg pain had cancer.)

The Southern Investigative Reporting Foundation obtained a recording of this meeting, held in November.

 

The initial speaker (and the clearest voice) is prior authorization executive Jeff Kobos who makes a pair of important admissions: At the 2:20 mark he acknowledged the unit’s pattern of dishonesty by saying “when we were using [insurance codes for cancer-related pain diagnoses] for non-cancer [pain].” At 4:30, he made jokes referring to “sandwiches” and “the sky is blue” as the kind of conversational gambits they should try to deflect pharmacy benefit manager worker questions with.

At 5:00, David Richardson a trainer with the prior authorization unit, suggests dropping the “Agent 14” spiel since it wasn’t working. A minute later, he and his wife, Tamara Kalmykova, an analyst with the prior authorization unit, begin to discuss an idea he had in response to so-called smart-scripting, whereby employees of a pharmacy benefit manager use software analysis to determine if a patient — per the FDA’s protocol — had tried another fentanyl drug.

(Montgomery said smart-scripting was another development that Insys’ prior authorization staff couldn’t readily steer around.)

Richardson suggested patients use a coupon for a free-trial prescription of Cephalon’s Actiq. The patient wouldn’t pick the drug up but it would register in databases and allow prior authorization staffers to plausibly claim that the patient was in full compliance with regulations.

But smart-scripting wasn’t the only new obstacle that unit staffers were encountering. Humana, Silverscripts Medicare and other pharmacy benefit managers started requiring not only Actiq or Depomed’s Lazanda, a nasal spray, but the previous use of other major painkillers like morphine, oxycodone and hydromorphone. Still others were calling prescriber offices and confirming every aspect of the diagnosis, including prior history with fentanyl and other opioids.

Adding in a variable like the delivery system (lozenges, nasal spray or inhaler) did offer Insys an opportunity to claim that its patients could only tolerate oral inhalers. Montgomery said pharmacy benefit manager questions about prior use of Lazanda, for instance, were handled by noting the “provider states patient cannot tolerate inter-nasal spray.”

Unfortunately for Insys’ shareholders, the hard line taken with its prior authorization unit is having a very real effect on prescription count, according to IMS Health data.

Source: IMS Health
Source: IMS Health

 

The number of Subsys prescriptions filled in the third quarter dropped about 4 percent from second quarter levels and the erosion accelerated in the fourth quarter, falling an additional 11%.

Thus far in January, the new year has not brought much in the way of promise, with the 815 prescriptions reported for the week ended Jan. 15 down 6 percent from the comparable week a year ago. Subsys’ share of the transmucosal immediate release Fentanyl market, which hovered near 50 percent for most of the summer, has now fallen below 45 percent.

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Jana Montgomery was given a pseudonym because of her cooperation with an ongoing federal investigation. Her account of prior authorization unit practices was read to two of her former co-workers who agreed with her characterization of “the spiel” and declining pharmacy benefit manager authorizations.

As is the case with prior Southern Investigative Reporting Foundation investigations, everyone named in the story was called repeatedly on mobile or home phones and left detailed messages about what we sought comment for. When possible an email was sent as well. As of publication, no one replied.

A detailed message was left on Insys general counsel Franc Del Fosse’s mobile phone seeking comment on these subjects. As of press time the call had not been returned.

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Murder Incorporated: Insys Therapeutics, Part II

The Insys that investors loved and that made its founder and chairman John Kapoor a billionaire is going away and, despite heroic efforts by company officials to rebrand it as a research and development-driven shop, its future will probably be less profitable, with little of the mercurial growth and compounding profits that defined its first four years.

The Southern Investigative Reporting Foundation interviewed two dozen then-current and former Insys Therapeutics sales staff, as well as six doctors and their staff, and their accounts paint a uniformly grim picture of the company’s prospects.

Its forecast is murky because the number of prescriptions for Subsys, Insys’ sole commercially viable product, is dropping and likely to continue to do so.

The forces arrayed against Insys, from a federal grand jury investigation in Boston to, as described in a Dec. 3 Southern Investigative Reporting Foundation story, mounting insurer scrutiny of Subsys prescriptions, represent brutal, if not possibly insurmountable, obstacles. A quick glance at Insys’ financial filings from 2012, when it was committed to marketing primarily to oncologists, is proof that playing by the rules is not very lucrative.

IMS Health data through late November, though, shows a 10.4 percent decline quarter to quarter in Subsys prescriptions. Even allowing for the traditionally soft Thanksgiving week, this is a grim trend for a company that regularly receives about 99 percent of its sales from Subsys.

   Source: IMS Health data through Nov. 27, 2015
Source: IMS Health data through Nov. 27, 2015

 

Dan Brennan, Insys’ new chief operating officer, seemed to reference the drop-off  when he tried to rally the troops at a Dec. 3 analyst presentation by alluding to some unspecified “commercial opportunities . . . that can stabilize and grow scripts.”

Insys’ decidedly mixed third-quarter earnings report offered a clear sign of the company’s headaches. The seemingly impressive third-quarter revenue figures were boosted by $6.6 million in distributor shipments, which risk “stuffing the channel,” decreasing future sales and profits. More positively for the company’s prospects, lower unit demand of about 5 percent was offset by an $8.4 million gain from ​diminished rebate amounts and higher drug ​prices.

Absent this $8.4 million benefit, Insys would not have been able to report $91.3 million in revenue, allowing it to claim that it had beat the brokerage community’s $83 million consensus estimate.

Flagging sales, however, are nothing compared to what the looming Department of Justice settlement negotiations might bring.

Ready comparisons for Insys’ situation are hard to come by. The only analogy might be Purdue Pharma’s 2007 $600 million settlement with the Department of Justice for intentionally misbranding OxyContin. (Three Purdue Pharma executives also pleaded guilty and separately paid a combined $34.5 million in fines.)

Brokerage firm analysts expect Insys to pay a fine and perhaps agree to amended business practices, a standard ​ritual over the past decade for U.S. businesses accused of wrongdoing. Despite some shockingly large fines and settlement, especially for pharmaceutical firms, the process of writing a huge check and issuing a guarded, conditional apology (without admitting or denying anything specific) is made more palatable for companies as investors often bid up their share prices on the view that “the bad news is now behind them.”

Research by the Southern Investigative Reporting Foundation suggests Insys’ case may be somewhat different.

Former employees say that about 90 percent of Subsys prescriptions were for off-label uses. This happened as a prior-authorization unit executive (and her supervisor) allegedly spent the past three years developing new and improved ways for employees to gull insurers with misleading patient diagnoses and codes, as the Dec. 3 article described in detail.

With the company’s achieving market-leading prescription-approval rates of 85 percent to 90 percent, the alleged scheme of Insys’ prior-authorization unit easily cost insurers hundreds of millions of dollars. They are unlikely to write off these losses without a fight.

Moreover, federal prosecutors will seek recovery on behalf of their employer, the U.S. government. Data obtained via the Freedom of Information Act shows that nearly 25 percent of Insys’ $576.5 million in revenue for Subsys since its launch, or $144.1 million, comes from Medicare and Tricare. While not every prescription was unlawful, with a potential fine of $10,000 per violation, the ones that were could result in an eight-figure company liability.

One saving grace for Insys may be its decent cash position at the end of the third quarter, with just a tad less than $94 million in cash and equivalents available and an additional $61.5 million in short-term investments.

The graph below captures what almost four years of Insys’ selling Subsys off label across the United States looks like.

Sources: IMS Health and FDA Adverse Events Reporting System data through June 30, 2015
Sources: IMS Health and FDA Adverse Events Reporting System data through June 30, 2015

 

Here the Southern Investigative Reporting Foundation plotted IMS Health’s prescription counts for Subsys adjacent to the FDA’s Adverse Events Reporting System data listing fatalities for which Subsys was listed as the probable candidate for triggering an adverse reaction.

This FDA data is not definitive, as it relies on informal assessments by medical professionals that are voluntarily reported. (An Insys press release last week took exception to the Southern Investigative Reporting Foundation’s reporting and offered its own interpretation of what the FDA data means.)

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For more than nine months the Southern Investigative Reporting Foundation has documented Insys’ freewheeling, compliance-light approach to selling Fentanyl. In the course of this reporting, it became clear that Insys’ approach to building and managing its sale force was both the key to its explosive growth and its subsequent woes.

The experience of Insys salesman Tim Neely, a 43-year old former fireman from San Clemente, Calif., is illustrative of how good intentions and honest ambition can be thwarted by a company’s drive for expanding earnings at all costs.

The Southern Investigative Reporting Foundation began talking to Neely while he wrestled with the company over a bereavement leave dispute in the late summer. In October Insys fired him. He has retained a labor lawyer and, in his words, “is examining his options.” In short, Neely is by no means a neutral observer.

Nonetheless, in addition to talking on the record, Neely provided documents, texts, emails and personal notes taken during calls with managers. Anything he discussed was checked with current and former Insys sales reps and managers, several of whom also provided documents. Finally, a reporter spent four days in California and confirmed and corroborated his account.

All signs point to the fact that Neely was a very good sales rep for Insys.

Based on the value of prescriptions, he ranked within Insys’ top 15 sales representatives last year, an achievement good enough to place him in the “President’s Club,” with one perk being an all-expenses-paid Mexican beach junket with other sales leaders. This is noteworthy considering the fact that he began selling pharmaceuticals only in October 2013.

Neely told the Southern Investigative Reporting Foundation that he earned $207,000 last year and, based on the documents he provided, he was on track to earn $170,000 to $180,000 this year.

A proud daily surfer, Neely would tell beach buddies and his family in emails and texts that he had taken a lot of risk leaving the job safety and camaraderie of the firehouse for Insys but that he was doing well and felt good about helping people who were in pain.

But late last summer Neely changed his mind in a big way about Insys.

While remaining a “true believer” in Subsys’ potential as a drug (a broken back a few years ago made him an expert on breakthrough pain, he said), Neely started to become troubled about the integrity of Insys’ management.

Neely said he felt management pushed the sales force to market Subsys “to anyone with a prescription pad.” Anyone who disagreed with that approach, he said, “was treated like garbage” and eventually fired.

His customers were several veteran surgeons who prescribed Subsys with regularity. Based on Neely’s documents and notes, he did what Insys trained him to do — become nearly indispensable to his clients. He instructed patients on the proper use of the drug in doctors’ offices and worked to overcome numerous impasses between patients and insurance companies. His doctors liked him enough to regularly allow him inside their office suites if he needed to make calls to schedule other appointments.

Like many a sales rep in any field, Neely hustled to keep his doctors happy. In one case, Neely arranged the weekly rental of a Beverly Hills basketball court for a regular pickup game with a doctor and his friends; in another, he celebrated a doctor’s birthday with sushi and tickets to a Los Angeles Kings hockey game.

And plenty of prescriptions were written, so much so that Neely said he takes pride in never having asked a doctor to prescribe the drug. The prescriptions were (usually) for cancer and postoperative trauma patients, keeping him far away from legal headaches.

But, as he described it, that wasn’t good enough. Insys’ management wanted more and wished him to somehow try to persuade the doctors to move the prescribed dosage to 800 or even 1,200 micrograms, even if the patient was doing well at 400. To Neely, doing so was destined to hurt patients and strain lucrative relationships.

“Serious doctors don’t want criticism on their dosing [protocols] from a sales rep and they don’t need [Insys’] speaker program money,” Neely said. But “the crappy ones” will and do, he added. “There’s just a point where you can’t sell more Subsys without crossing some lines. It’s not a [skin care] product; it’s not like other drugs.”

Neely and other former Insys reps described the pressure to constantly land new prescribers as unrelenting. Company departures became the norm, with many seasoned pharmaceutical sales reps leaving within weeks of being hired.

The pressure to generate sales revenue often reached absurd levels, according to one former Insys sales manager who for a decade had sold pain-management drugs at other companies. He said the sales leads the company gave his representatives were culled from a database like the yellow pages and had no connection to pain management or oncology. At varying times, his reps were asked to call on a naturopathic healer, a self-described shaman, several chiropractors and a nurse midwife, none of whom were able to prescribe Fentanyl — let alone needed to, he said.

His complaints to management were ignored. After concluding that there was no real business plan, this sales manager resigned three months later.

Another distinctive feature of life at Insys, Neely said, was adapting to what he described as a form of corporate schizophrenia: “Sales training and company-wide phone calls would be by the book, exactly like Merck or someone might do. Then your [district and regional] managers would pull you aside and tell you, ‘Don’t worry about that. Just sell. Do what you need to do.'”

The “say one thing, do another” culture became apparent early on to Neely.

During his training week, after a series of discussions on Subsys’ chemistry, how it compared to rivals and its place within the transmucosal immediate release Fentanyl  marketplace, Neely and his sales trainee colleagues were told they were taking a test the next day — and failure would result in dismissal. A few hours later, a regional manager emailed them the answers to the exam — and the group was taken out drinking until the early morning by sales managers.

A core part of Insys’ sales training involved discussion of the company’s policy against wining and dining prescribers. Shortly after attending that presentation, a still green Neely wound up one night with a prescribing doctor (and his troop of thirsty friends) drinking and smoking cigars at a swank Beverly Hills club. The $530 bill was handed to him straightaway and he paid.

Pharmaceutical companies now disclose what they spend on physicians, either in terms of speakers program fees, research payments or hospitality, per the Physicians Payment Sunshine Act. No record of Neely’s boozy evening has been disclosed.

A few days after his Los Angeles outing, a district sales manager, Darin Cecil, told Neely that since that doctor was a good prescriber, the company kept a credit card available to help pay for just those expenses. Cecil told Neely that this had to be done “quietly” (he was given the card number via a text message) but a sales rep could use it to order sports and concert tickets. And a sales rep could be reimbursed for other events, too. Just as long as prescriptions were written afterward, Neely was told, no one would have any problems with the practice.

Through this hidden reimbursement channel Neely expensed thousands of dollars in entertainment charges — and he was not the only one, according to his former Insys colleagues. Neely said he was led to believe that then CEO Michael Babich knew about the practice but Neely was instructed to never bring it up publicly.

Neely was reimbursed for his charges every time.

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While Neely might not have been aware of what other sales reps across the country were doing to sell Subsys, he readily said, “I certainly felt some of the stuff [management] said was OK to do was probably not.”

One controversial practice that Neely described was the following: Sales reps were told to seek permission from staff in doctors’ offices to go through patient files looking for likely Subsys candidates, which, depending on the circumstances, could be a violation of patient privacy standards under the Health Insurance Portability and Accountability Act.

“They treated HIPAA like it was a joke,” Neely said, describing how sales reps, managers and their assistants regularly sent one another emails discussing patients’ treatments, including their diagnoses and dosages. Neely’s files are indeed full of Subsys user data.

Insys had some reasons for that. The prior-authorization program allowed Insys access to patient data so the company could try to secure insurer payment — and the sales rep was usually the point of contact for the patients, telling them when coverage was approved, about next steps, or if coverage was declined, how to initiate an appeal.

The procedures before the weekly sales conference call in Neely’s district illustrate how Insys’ real-time data collection, when combined with the patient disclosures from the prior-authorization program, could lead to potential disclosures of personal health information, according to Neely. Prior to the start of the call, Neely’s district manager would send an email detailing a list of prescriptions that had not been renewed or picked up or that had been canceled, indexed by the prescribers’ names. The idea was that the sales rep would call the prescribers to try to work for a renewal of the prescription or reverse a cancellation.

What was unsaid was that the sales reps likely knew — or at least could take an educated guess about — the names of many of those patients from the prior-authorization process. This led to, in several instances, sales reps’ contacting the patients directly and  encouraging them to ask the prescriber for another, stronger Subsys prescription.

Then there were the episodes so far outside industry norms that they appeared surreal to Nealy.

At a cocktail party during a 2014 sales retreat, according to three of the attendees, one sales manager told her colleagues about an NBA star who had been prescribed Subsys for postoperative pain. This revelation stunned those who had heard it into silence until one wag remarked, “Well at 800 micrograms for 90 days, I guess, he won’t be back for the playoffs.”

In another instance, the Southern Investigative Reporting Foundation obtained a text from a pharmacist who sought a manager’s help locating an Insys sales rep named Brook Spangler. The text described how Spangler had purportedly — and inexplicably — been given a patient’s Subsys prescription but had not dropped it off.

(Contacted for comment, Spangler denied every aspect of the story: “I have never had a patient script in my hands, ever.” When read the contents of the text, she said it was a mistake. Messages left for the pharmacist were not returned.)

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The Insys executive who suggested examining patient files — albeit with the permission of office staff — and the biggest proponent of using a so-called secret credit card for entertainment expenses was national sales chief Alec Burlakoff.

Burlakoff’s vision for sales reps at Insys pushed the boundaries of pharmaceutical sales. He wanted them to be so integral to the patient’s experience with Subsys that a doctor would not think of prescribing other drugs. Sales representatives who had worked under him said his rationale for searching through patient files was that it was a win-win proposition: Insys could get additional prescriptions written and the doctor could receive speakers program fees.

A man of incalculable energy and a dynamic speaker, Burlakoff has been a frequent focus of Southern Investigative Reporting Foundation reporting on Insys. His effect on new sales reps was, as Neely put it, “incredibly powerful.”

Also powerful was the effect of his sales policies upon Insys’ income statement. As Burlakoff departed in July, annual sales were anticipated to be $300 million; when he became sales manager in early 2013, the company had just reported about $16 million in revenue.

By the time Burlakoff was lecturing Neely’s late October 2013 training class on his sales views, his strategy was generating tremendous returns in the form of double- and triple-digit quarterly sales increases. So when he spoke, everyone at Insys listened.

“If you can keep [patients] on [Subsys] for four months, they’re hooked,” Burlakoff told Neely’s training group. “Then they’ll be on it for a year, maybe longer.”

(Privately Neely would ask him if by “hooked” he meant addicted. In reply, Burlakoff gave him a puzzled smile and would only say, by way if clarification, “It’s not addicted if [the patient] is in pain.”)

Like many sales managers, Burlakoff used pop cultural references to drive home his goals. In an early 2014 sales meeting that Neely attended, Burlakoff told a group of several sales reps that if they hadn’t seen the then newly released movie “The Wolf of Wall Street,” they needed to see it right away.

Burlakoff said, according to Neely, “It’s the best sales training video in history” (although carrying out its lessons could result in federal prison sentences.)

Another video that Burlakoff found inspiring was something he showed Neely toward the end of his training week. In a break after a session, Neely was pulled aside and shown a video of a man using a dildo to pleasure a woman. After the smartphone-shot clip ended, Neely found himself speechless.

“Alec,” he said, “what’s that about?”

To which, Neely said, Burlakoff only smiled and walked away.

Burlakoff had a very specific vision about the people he wanted at Insys.

For instance, Burlakoff rejected the framework of hiring and training practices of what he derisively called “Big Pharma.” He preferred to hire salespeople who were used to the pressure of having to make quota or face dismissal; prestigious colleges weren’t very important for that skill set. A sales rep who needed to get three prescriptions written in four days (or else) would push Subsys without dwelling on too many other things.

Because all that Burlakoff valued was sales — generating prescriptions — he made rather unusual hiring choices.

In April, for instance, the Southern Investigative Reporting Foundation reported on his decision to hire Sunrise Lee and make her sales chief of the Midwest region. They had known each other when Lee worked as a stripper in Miami and apparent escort agency owner. Lee’s Insys job centered largely 0n socializing with prescribers. Burlakoff described Lee’s professional skill in serving as “more of a ‘closer.'”

Burlakoff hired numerous women for key sales roles. As is the case at many pharmaceutical companies, the women were uniformly attractive and several had unique backgrounds. There was Amanda Corey Emhof, a former reality-TV show star who had won $477 on an episode of “Judge Judy” and had once considered becoming a sex therapist.

Prior to selling Fentanyl, Emhof posed for Playboy [NSFW]. She co-founded Thrive Model Management, a business that provided models for marketing campaigns and private parties where she heads “model managing.” Reached on her cell phone the day before Thanksgiving, she declined to comment.

Insys’ apparent practices of hiring women based on their looks, with extraordinary economic incentives to sell the drug, resulted in a good deal of extracurricular sales rep-doctor relationships complicated by sex. None more so than in 2013 when the wife of a high-volume Subsys prescriber found a revealing photograph of an Insys sales executive on his phone. Since she lived not far from headquarters, she drove there and raised a ruckus; she was assured that all appropriate measures would be taken against the rep.

The sales rep was promoted soon after to sales trainer; the doctor no longer prescribes much Subsys.

While Burlakoff’s laissez faire sales approach led to a great deal of revenue, some take issue with its practices. Dr. Ken Bradley, a Torrance, California-based pain management physician, said that he disagreed with Insys’ sales approach.

“Not a lot of doctors are going to write a [prescription for a drug] whose rep doesn’t understand it very much and dangling speaker programs in front of them doesn’t make up for that,” Bradley said, referring briefly to a sales rep he had dealt with who had worked in auto leasing before joining Insys.

Bradley added that he had, upon joining a practice, “inherited several patients” using Subsys but that after their course of treatment was completed, he declined to further prescribe the drug. (To be fair, he said the drug worked as it was supposed to.)

“The high-pressure sales tactics became annoying and were just another reason to not deal with [Insys’] sales staff,” he said.

Dr. Bart Gatz, a Boynton Beach, Florida-based pain-management doctor with multiple offices, said that the regulatory and insurance headaches associated with prescribing Subsys have “made it impossible to prescribe.” He added that he didn’t think he had written five prescriptions for the drug this year.

Coming from him, that’s devastating news for Insys: Gatz was the sixth leading prescriber of Subsys under Medicare in 2013 and was Insys’ fourth highest recipient of speakers program fees in 2013 and 2014, collecting more than $154,000.

“I’ve seen this a few times before where a company just grows too fast and does stupid things, gets some doctors to write inappropriately and the feds come down all over them and everybody else,” Gatz said. “That’s what happened here. It’s over.”

Gatz added that he liked Subsys and that it worked well for patients who couldn’t swallow or digest easily during chemotherapy regimens, but authorizing insurer payments had proved so difficult this year that he had switched his patients off the drug.

Asked about his Insys sales representative, Gatz mentioned that “she hadn’t been coming around very much” since he stopped writing prescriptions for Subsys. He said that it was difficult beginning a dialogue with her about Fentanyl products given that her previous job had been working as a cashier at a Publix supermarket.

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Everyone named in this story was contacted for comment by phone, email and, if possible, text message — often multiple times.

Except where noted, no replies were received.

In all cases detailed messages were left about the nature of the Southern Investigative Reporting Foundation’s inquiry.

Insys Therapeutics, despite its profitability and current high profile, is unique in that it doesn’t have either an internal media relations staff nor an external advisor.

Calls seeking comment were directed to chief financial officer Darryl Baker, who did not return a call and text message sent to his cell phone.

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Murder Incorporated: Insys Therapeutics, Part I

Insys Therapeutics is a company in a great deal of trouble.

The manufacturer of a Fentanyl spray called Subsys with 100 times the strength of morphine, Chandler, Arizona-based Insys scored the top-performing initial public offering of 2013, according to CNBC. Analysts and investors adored the company’s fast sales and profit growth and dreamed of a future when Insys’ cash flow would lead to dividends and acquisitions.

As Insys’ market capitalization topped $3 billion, those who got in on the ground floor, investing early on, shared in its success: Founder Dr. John Kapoor became a billionaire and a host of company insiders, led by CEO Michael Babich, became millionaires.

Their joy was not to last.

Starting late last year critical press reports detailed alleged business practices at Insys so aggressive as to make the company an outlier in the oft-sanctioned pharmaceutical industry.

It wasn’t long before subpoenas began to pile up, with state and federal prosecutors on both coasts swinging into action; the U.S. attorney’s office in Boston, for example, impaneled a grand jury (and grand juries rarely fail to return indictments). Indictments of Insys’ most frequent prescribers continued and key executives have departed without notice.

Then came the lawyers.

In August, Oregon’s Department of Justice arrived at a $1.1 million settlement with Insys that represented about twice the amount of its revenue in that state. (In April, the company had settled a class action for $6.125 million.)

The proposed resolution from the Oregon Department of Justice makes for stark reading; it uses depositions and emails to claim that the company misrepresented a key scientific study, encouraged off-label prescriptions (allegedly in violation of U.S. Food and Drug Administration guidelines) and ran its speakers program solely to reward frequent prescribers.

While Insys’ investors haven’t thrown in the towel (the company’s share price has risen a split-adjusted 50 percent in the past year, in some measure because Kapoor and his family’s trusts control 66 percent of the outstanding shares), investor enthusiasm is starting to wane.

On Nov. 2, on the eve of an earnings announcement, CEO Babich suddenly resigned — a move that typically raises a major red flag for investors. Kapoor, who assumed the CEO mantle, told those listening on the conference call, “Mike decided that now is the best time to turn the page and focus on his family as well as pursue new opportunities.”

There’s more to the story, though.

Babich was forced out by Kapoor, according to a senior Insys executive who was in regular contact with Kapoor in the days prior to the announcement. While both men are the subjects of intense regulatory scrutiny, the founder and chairman bluntly told his lieutenant of 14 years that Babich was closest to the issues that federal prosecutors were looking at and that a change had to be made should settlement talks became serious, according to the executive source.

While Babich may be spending time with his young family, his personal life is more complex.

Earlier this year, Babich began a relationship with Natalie Levine, then a Boston area Insys sales executive who subsequently became pregnant; they married in the summer. (This is Babich’s second romance with a sales colleague; Kapoor has also dated two sales executives.) Aside from the fact that it’s unusual for a public company CEO to date someone who reports to him, the Babich-Levine relationship had another dynamic to it.

The newlyweds will probably be monitoring the developments in a rapidly expanding criminal suit filed in the U.S. District Court in Hartford where Heather Alfonso, an advanced practice registered nurse who was a high-volume Subsys prescriber over the past two years, pleaded guilty to accepting $83,000 in kickbacks. Federal prosecutors, according to the transcript of the July plea hearing, allege that the kickbacks prompted her to write Subsys prescriptions worth $1.6 million.

What appears to have brought the federal prosecutors’ intense scrutiny of the divorced mother of four was the baldness of the scheme. According to her plea, Alfonso was paid $1,000 each time she attended an Insys speakers event, where she was supposed to discuss with other medical professionals her clinical experience of Subsys. In reality, however, no other prescribers were present, and prosecutors said the events amounted to nothing more than Insys-sponsored dinners and drinks for Alfonso and her co-workers.

Natalie Levine was one of the sales staffers who called on Alfonso, and Levine arranged and attended many of the 70 speakers program events. As CEO, Babich approved two years’ worth of budgeted payments to Alfonso.

(While courts have traditionally recognized spousal privilege and declined to compel a husband or wife to provide testimony about a spouse, the events in the Alfonso case occurred before Levine and Babich married.)

Alfonso is cooperating with the government, as might be expected for someone facing a possible sentence of 46 to 57 months in jail; her sentencing date has been pushed back twice, most recently for six months. In the plea hearing transcript, prosecutors offered a pretty big clue about where Alfonso’s cooperation might be taking the investigation. For example, several Medicare Part D beneficiaries were described by prosecutors as ready to testify that she diagnosed them with having issues other than breakthrough cancer pain (the primary condition Subsys is indicated to treat) yet insurers still authorized the prescriptions.

As described in the transcript, Insys’ prior-authorization unit changed Alfonso’s diagnoses to cancer. Absent the alleged changes, the prosecutor asserted, the insurers would have never paid for the prescriptions.

And as the Southern Investigative Reporting Foundation wrote in July, Medicare and commercial insurers appear to have approved reimbursement of prescriptions for Subsys at vastly higher rates than those of its rivals in the Fentanyl marketplace.

The prior-authorization unit was set up to assist patients with complex insurance paperwork. Its value proposition was simple: The patient signs a few forms and Insys handles the messy paperwork. Patients would get the medicine, prescribers wouldn’t have to scramble for an alternate medication and Insys would book thousands of dollars in revenue per prescription.

In reality what the prior-authorization unit did was take advantage of pharmacy-benefit manager inertia to work a type of bureaucratic alchemy, whereby a torrent of off-label Subsys prescriptions would be transformed into ones associated with medically urgent cancer diagnoses.

Unmistakably, the prior-authorization unit was the key piece in helping Insys double the size of the Fentanyl marketplace to more than $500 million in less than two years.

Lost in the cascade of prescriptions, however, is the human toll from peddling Subsys like a new piece of software or an improved detergent. Since the drug was launched in January 2012, the FDA’s Adverse Events Reporting System lists 203 deaths for which medical providers have fingered Subsys as the probable candidate for triggering an adverse reaction. Moreover, the pace of purported Subsys-related deaths has been accelerating, with the FDA’s disclosing 52 deaths in the second quarter of this year alone.

(This FDA data is not definitive: It relies on voluntary medical-provider reporting so the number of incidents may be undercounted. Additionally, most reports represent a medical professional’s assessment and do not present an official cause of death.)

These deaths have occurred amid a nationwide opioid abuse epidemic. According to the Centers for Disease Control, in 2013 (the most recent year for which data is available), 16,235 Americans died from prescription opioid overdose. Subsys is now the top-ranked “diversion drug of concern”or the most frequently stolen or fraudulently obtained, according to the Department of Health and Human Services’ Office of the Inspector General.

What follows below is a description of what happens to a company when rule bending is institutionalized and the pressure to make a sale has deadly repercussions.

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Danielle Gardner worked in Insys’ prior-authorization unit for a year and feels terrible about it. She is convinced that the unit’s arranging for insurance company approvals for thousands of off-label Subsys prescriptions led to the addiction or death of a certain percentage of the patients involved.

Gardner, whose name is a pseudonym, would love to be told that she’s jumping to conclusions, that there’s no concrete proof of anything like that. But the plain fact of the matter is that she is almost certainly right.

For a portion of her professional life, Gardner woke up each day to perform a job with a singular goal: to do anything to make the employees who handled pharmacy benefits for insurers think that the people who had been prescribed Subsys had cancer when only 1 percent of them did.

She and her seven or so colleagues did that one thing very well and many people made a great deal of money.

Gardner began her odyssey at the prior-authorization unit after her application submitted via a job-hunting site led to an interview. During her visit to Insys’ office, she deemed its operations to be busy and serious. To her, Insys seemed to be a growing company whose only business, as she was told, was helping people beat cancer.

“I liked the idea of helping people with the paperwork, which can be the hardest part of health care, but mostly I needed a job and [$18 to $20] per hour and benefits” was very good for Phoenix, she said. Better still, there was the prospect of bonuses. A veteran of several doctor’s offices, Gardner was well versed in obtaining insurance company approvals but had never heard of employees in a prior-authorization unit receiving bonuses. The decision was “yes” or a “no” proposition. How money came into the equation baffled her.

But her co-workers swore they were receiving the bonuses.

The bonus wasn’t the only matter that Gardner had questions about, though. She didn’t know why Insys’ prior-authorization unit was located across the street from headquarters or why the lobby had no sign for the division. The unit had a different phone exchange and a separate email server.

But Gardner kept her mouth shut.

While her boss Liz Gurrieri who ran the prior-authorization unit could be friendly, she had made very clear to everyone that the best questions were about how to do the job better. Gurrieri had built the unit from the ground up in 2012 and was held in the highest esteem at headquarters. In just a few years, as the story around the cubicles went, Gurrieri’s stock options had helped her become wealthy enough to build a six-bedroom house.

So everyone in the unit did things Gurrieri’s way because the money was good.

After a brief training period, Gardner went to work. Each day Gurrieri handed out stacks with five patient charts to Gardner and her seven colleagues and they would dive right in to make calls.

Prior-authorization unit staffers had a very specific formula that governed their life. Individually they had to secure 25 Subsys approvals a week; during a Monday meeting, Gurrieri’s boss, Michael Gurry from the corporate office, would tell the prior-authorization team the “group gate,” or minimum number of total approvals expected for the week, usually at least 200.

Assuming that the minimum was met, for every additional approval Insys gave $7 to a “bonus pool.” For example, if the prior-authorization unit received 300 approvals, then the bonus pool was $700 per person.

Plus there were individual bonuses: After a prior-authorization staffer secured 35 approvals, Insys gave the employee a $50 bonus and $10 for each incremental approval. So if Gardner received 47 approvals for the week, she would earn an extra $170 bonus on top of the $700 pool-based bonus. (A team member who failed to hit 25 was not eligible for a bonus.)

In a good week, Gardner found she could arrange for as many as 55 approvals; others achieved even more. After taxes, she was bringing home $3,000 to $3,500 a paycheck.

All she had to do, of course, was to change in the charts the insurance codes for the diagnosis of back or joint pain, organ problems, work accidents, military trauma or menstrual cramps into cancer ones.

Until the subpoena from the Department of Health and Human Services’ Office of Inspector General arrived at the end of 2013, that proved to be easy for her.

Up to that point Gardner would reply yes to pharmacy benefit manager employees who asked if the patient had “breakthrough cancer pain,” Gardner said. Then it was a slam dunk. Very few insurers wanted to be accountable for denying a cancer patient pain medicine. No matter what else changed, confirming a cancer diagnosis remained a requirement for any patient whose doctor was prescribing him or her Subsys for the first time, Gardner said.

Everything had been scripted per instructions from Gurrieri, with each phone call beginning with an identification of the prior-authorization unit staffer as being “from Dr. ____’s office.”

No one argued with success as the prior-authorization unit’s approval rates ran as high as 80 percent or more. They were limited only by the number of prescriptions written.

Despite the sharply increasing volume of Subsys prescriptions by the start of 2014, few, if any, pharmacy benefit managers had linked the prior-authorization unit to Insys.

Then again, few details were overlooked in keeping the connection obscured.

Outgoing phone numbers were blocked to avoid showing up on a caller ID and staffers were under orders to never use the company’s name when speaking to anyone from an insurer or a pharmacy benefit manager; if pressed, they would only say that they “were working closely with Dr. ___’s office.” When providing a phone number for a return call was required, they gave out a toll-free 800 number that would be answered by a colleague named Shannon. She would quickly direct the caller to the prior-authorization staffer without fielding any questions.

After the arrival of the Health and Human Services subpoena, which Gurry assured the prior-authorization unit staff was just a routine federal inquiry that a certain number of pharmaceutical companies underwent every year, Gurrieri ordered a change of strategy, Gardner said.

Instead of answering yes to questions about breakthrough cancer pain, prior-authorization unit staffers were to answer, “yes, they have breakthrough pain,” which was both an affirmative answer but ambiguous enough to mean virtually anything. Plus, pharmacy benefit management call-center employees, some of whom were located overseas and with hourly or daily quotas for handling calls, might mishear one or two words and consider the question properly answered. (The prior authorization unit never discussed the fact that insurers may have been given a false impression, according to Gardner.)

Through the spring of 2014, approval rates remained impressive, but pharmacy benefit managers began to push back, sometimes demanding to speak with the physician about the diagnosis. If the pharmacy benefit manager called the prescriber, that was a big problem in and of itself as the prior-authorization unit was in no way “from” any doctor’s office.

Messy episodes sometimes occurred, Gardner said, with physicians angrily insisting that no one by the prior-authorization staffer’s name worked at their office and that the patient in question did not have cancer.

Gardner said there were rarely long-term issues with pharmacy benefit managers, who would usually accept the prior-authorization unit’s explanations of misread charts and human error as an explanation. Doctors, too, often accepted an apology from the sales rep or a district manager.

By mid-2014, the fortunes of prior-authorization staffers were changing. The subpoena that Michael Gurry had assured them was part of a standard procedure for pharmaceutical companies didn’t go away and another arrived after Labor Day.

Given the legal issues that several key Subsys prescribers were experiencing, Gurrieri ordered Gardner and her colleagues to begin phone conversations by referencing “calling on behalf of Dr. ______’s office.”

Even so, approval levels were dropping in the late summer of 2014 as pharmacy benefit managers began demanding more detailed answers about diagnoses for a Fentanyl prescription. The approval woes went unnoticed to the world, however, as a spike in newly hired sales reps kept the prescriptions rolling in.

To reverse the trend of a slowdown in number of approvals, Gurrieri developed what prior-authorization staffers called “the spiel,” a series of dialogues (to commit to memory), designed to address detailed questions about whether a patient had breakthrough pain and cancer.

When someone from a pharmacy benefit management office asked about a patient’s having breakthrough pain from cancer, the prior-authorization staffer would reply, “The physician has stated that Subsys is approved for treating breakthrough cancer pain so (he or she) is treating breakthrough pain.”

While this response was wrestled with, prior-authorization staffers, per their instructions, would invent conversation to suggest they were right inside the prescriber’s office — something along the lines of “You should see this guy. It’s a real sad case and the doctor is upset about it.”

Approval rates began to stabilize and even inch back up, yet some of the biggest insurers began to become strident in their refusal to approve Subsys. Gardner said she told Guerrieri this, who pulled her into her office and instructed her to change the insurance code on patients charts to 787.20 on the most difficult cases. That was the code for dysphagia, a condition of having difficulty swallowing that’s related to illness. This served to box in the pharmacy benefit manager because a denial of a Subsys prescription could run the risk of starving a patient. This technique worked every time to secure an approval.

In addition, Gardner was ordered to intentionally mix up insurance codes, to substitute in, say, 338.30, associated with cancer-related chronic pain, for 338.29, which is for general chronic pain not connected to cancer.

Shortly after that, though, in the autumn of 2014, Gardner began to suffer anxiety related to performing what she was certain constituted unethical behavior, she said. She left the company shortly afterward.

“I couldn’t take [the misrepresentation] anymore,” she said, adding that she was “traumatized by thoughts of getting arrested.”

Gardner told the Southern Investigative Reporting Foundation that she had cooperated “extensively” with federal law enforcement officials over the past year about the nature of her prior-authorization job at Insys but declined to say she was asked about.

Her description of events at Insys’ prior-authorization unit was corroborated by other Insys employees, including sales representatives and managers, who had frequent contact with the group, a physician who was familiar with its operations, another prior-authorization unit employee — and a description in the now-settled class action.

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As is the case for all Southern Investigative Reporting Foundation articles, numerous attempts were made to reach all the people in this story and provide them with an opportunity to comment on what had been reported about them. In cases where an email address was unavailable, a detailed voice message was left with questions. Over the course of several months, five attempts were made to contact Michael Babich and Natalie Levine on their mobile phones by leaving detailed voice messages and sending texts. They did not respond.

A call to Insys was referred to the company’s chief financial officer, Darryl Baker, and a voice mail was left on his office phone. A later call was placed and a message was left on his mobile phone as well. He never responded.

Michael Gurry did not reply to a voice message left on his office phone.

Multiple attempts to seek comment from Elizabeth Gurrieri were made that included messages being left on her cell phone and texts. On the one occasion she answered, she declined to comment, citing time constraints.

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The Black World of Insys Therapeutics

Slowly but surely answers to the many riddles of how Insys Therapeutics could achieve its mercurial success are beginning to emerge.

The Scottsdale, Arizona-based pharmaceutical company has only one commercial offering, a sublingual Fentanyl formulation called Subsys, whose sales growth has managed to double its market’s size, to more than $500 million from an estimated $225 million since its approval and launch in March 2012, according to executives at rival companies. In turn, the upward march of the company’s share price has turned its growing legion of supportive brokerage analysts and money managers into minor geniuses. (Southern Investigative Reporting Foundation readers will recall Insys from an April 24 investigation of the drug’s mounting number of lethality cases and the company’s unusual marketing efforts.)

Therein lies the rub.

Subsys is approved only to treat breakthrough cancer pain. The market for such drugs was estimated to have an annual growth rate of about 10 percent in the spring of 2012, according to former Insys sales staff and rival pharmaceutical executives. Instead, on March 21, 2014, about two years after its launch, Subsys managed to nose past Cephalon’s Actiq, then a leader in this narrow category, in number of prescriptions written, according to IMS Health data obtained by SIRF; last September Subsys took the lead for good.

These opioid drugs are so potent that the Food and Drug Administration created a stringent prescription protocol for them (known as TIRF-REMS), with multiple steps for a patient to go through before a prescription is dispensed.

Yet according to Medicare Part D records for 2013, no oncologists appear on the list of Subsys’ biggest prescribers.

Given this apparent lack of support from oncologists, it appears odd that insurance companies seem to have embraced Subsys, continually approving its reimbursement at a level none of its competitors can obtain. A leading Subsys prescriber told the Southern Investigative Reporting Foundation that in his estimation, “Insurers cover over 90 percent of [Subsys prescriptions] for at least one [90-day] cycle,” whereas rival drugs appear to have an approval rate hovering at 33 percent. The doctor’s account of a chasm between how insurers treat Subsys and how they deal with its rivals was corroborated by a senior executive at an Insys rival and three former Insys sales staff members.

But it was not until records in the Centers for Medicare & Medicaid Services Open Payments database were released in October 2014 — covering the last five months of 2013 — that a linkage could be more readily detected between the volume of Subsys prescriptions and payments to doctors.

As Insys’ share price continued to trend upward, Wall Street’s brokerages found it easy to promote the company’s business practices, as a Jefferies research report from December shows.

But now federal prosecutors are peeling back the veil to reveal a black world behind Insys’ earnings. The initial results suggest they do not condone what they are seeing.

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Dr. Gordon Freedman, a 55-year-old anesthesiologist, is in every way imaginable a member of New York’s medical establishment, with a busy two-office practice and, until very recently, a faculty appointment at the Mount Sinai School of Medicine.

A graduate of the Sackler School of Medicine, Dr. Freedman resides in Irvington, N.Y., a pretty village along the Hudson River just 20 miles north of Manhattan. This seems to be the perfect capstone to a life that outwardly evinces the virtues of taking initiative and pursuing hard work.

But in life, as in medicine, the mechanics of how the system works matter. And for Dr. Freedman, the road to success has been paved with lots of Insys’ cash.

The June 30 update to the Centers for Medicare & Medicaid Services Open Payments database included the full amounts of pharmaceutical company payments in 2013 and 2014 to doctors for entertainment and speaking at corporate events and for research. The database revealed that in the last two years Insys spent almost $204,000 on Dr. Freedman, with more than $147,000 of that being for speaking programs last year in 52 separate payments of $2,400 to $3,750, not including food and travel expenses; none of the money was for research.

Was paying Dr. Freedman so much a good investment for Insys? Probably — at least initially.

Medicare Part D records show that in 2013, the most recent year for which data is available, Dr. Freedman ranked as the 15th-highest Subsys prescriber as measured by dollar amount, having written 35 prescriptions that cost Medicare $393,961. The Southern Investigative Reporting Foundation, via a database tracking TIRF-REMS prescriptions, identified 60 Subsys prescriptions that Freedman wrote from March 2012 (when Insys obtained FDA approval to sell the drug) to the end of December 2013.

The math behind a typical prescription shows why Insys has not been hesitant to pay prescribers to talk about the drug. In 2013 the wholesale acquisition cost of a 90-day supply of Subsys of 400 micrograms, statistically the most frequently prescribed amount according to Wolters Kluwers data, cost $4,608. In 2014 at a blended cost of $58.68 per unit (there was a midyear price hike), that same 90-day supply cost $5,281. Currently, priced at $97.80 per unit, a prescription costs $8,802. (These figures do not take into account frequent discounts.)

The Southern Investigative Reporting Foundation repeatedly reached out to Dr. Freedman to discuss his speaking engagements but he did not return multiple calls to his home, office or cell phone; he also did not reply to an email sent to his Mount Sinai address.

In response to questions about the ethics of Dr. Freedman’s Insys payments, Mount Sinai spokeswoman Elizabeth Dowling emailed the following statement: “Dr. Freedman is not employed by Mount Sinai and we do not have access to the details of his personal relationships with non-Mount Sinai entities.” She did not reply to follow-up questions.

As the chart below indicates, Dr. Freedman was hardly alone in profiting from Insys’ gravy train; 12 other doctors received more than $100,000 last year from the company.

Medicare rank is determined by the value of Subsys prescriptions written by the doctors.
Medicare rank is determined by the value of Subsys prescriptions written by the doctors.

 

The nearly $7,390,872 that Insys spent last year on payments for what it calls “compensation for services other than consulting” —  with $6.3 million going to doctors and the almost $1.1 million balance for travel and entertainment costs — stands out from the practices of its competitors marketing TIRF-REMS drugs.  The $7 million sum represents 7.2 percent of Insys’ 2014 selling, general and administrative expenses, with the speaker payments amounting to 2.9 percent of its total sales.

In comparison, Galena BioPharma, the maker of Subsys competitor Abstral, spent just $132,372 on what it calls “honoraria,” representing 0.4 percent of selling, general and administrative expenses, with speaker payments amounting to 0.8 percent of total sales. (To be fair, Depomed, the maker of Lazanda, spent $206,250, or 3 percent, of its almost $7 million in sales on speakers.)

When the Southern Investigative Reporting Foundation interviewed Insys’ sales chief Alec Burlakoff in April, he bristled at the suggestion of a quid pro quo between prescription-writing volume and speakers program compensation. As he saw it, the speakers program was the pharmaceutical industry version of a university’s faculty lounge, where colleagues could discuss the latest approaches and innovations in their discipline (albeit one where the conversations are shaped by frequent payments of thousands of dollars, as opposed to a reinterpretation of Sylvia Plath).

“Putting board-certified doctors together, where one of them is explaining the benefits he or she is seeing” [from prescribing Subsys] was the key to the company’s remarkable sales growth, Burlakoff said.

But federal prosecutors have recently served notice that they are taking a very different view of Insys’ speakers program. In a pair of cases in Connecticut and Alabama, assistant U.S. attorneys have removed some of the basis for support of the company among brokerage and investors by definitively linking three of the most highest-volume Subsys prescribers to Insys’ payments of “bribes” and “kickbacks” in open court.

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In Hartford’s U.S. District Court on June 23, nurse practitioner Heather Alfonso of Derby, Connecticut, pleaded guilty to accepting $83,000 in bribes from a pharmaceutical company that were designed to influence the choice and amount of prescriptions she wrote. According to an account of the proceeding, the company was identified as Insys and the payments were made under its speakers program.

Apart from the connection of the speakers program to bribery, Alfonso’s surrender of her prescription-writing licenses means Insys loses another important prescription writer, in the latest round of the cat-and-mouse type contest between law enforcement and the high-volume writers of Class II opioids prescriptions. She was the 22nd-highest Subsys prescriber in 2013, according to Medicare Part D data, and ranked 25th in Tricare records in 2014.

Screen Shot 2015-07-13 at 11.28.43 PM

Alfonso, in her plea, admitted to having been paid for her attendance at 70 separate speaker dinners, with the prosecutor describing them as either having no doctors or physician assistants in attendance — and thus no educational value — or as meals with only her Insys sales representative and friends in attendance.

The plea completes a remarkably tumultuous six-year span for Alfonso. In July 2009, with five children and her parents claimed as dependents, she sued for protection from creditors under Chapter 7 of the bankruptcy code, listing $424,682 in assets and $525,316 in liabilities.

According to Alfonso’s plea agreement, she is potentially facing 46 to 57 months in prison but the prosecutors reserve the right to request that a judge adjust that figure, presumably downward. None too subtly, this means that Alfonso has a remarkable incentive to negatively portray Insys and its sales practices.

Reading between the lines of the press release announcing Alfonso’s plea, however, an observer could infer that federal prosecutors are expanding the investigation beyond the bribery plea into insurance fraud.

“Interviews with several of Alfonso’s patients, who are Medicare Part D beneficiaries and who were prescribed the drug, revealed that most of them did not have cancer, but were taking the drug to treat their chronic pain,” according to the release. “Medicare and most private insurers will not pay for the drug unless the patient has an active cancer diagnosis and an explanation that the drug is needed to manage the patient’s cancer pain.”

To whit: Alfonso’s patients received Subsys despite the absence of a cancer diagnosis; without it, a refusal of coverage is nearly automatic within the field. Thus the granting of insurance reimbursement could imply that somehow the diagnosis codes of these patients were changed.

This also speaks to what the unnamed physician referenced above, about Subsys prescriptions’ being approved by major commercial insurance carriers and Medicare much more frequently than prescriptions of rival medications were.

On investor conference calls, Insys CEO Michael Babich has mentioned a dedicated prior authorization unit that works closely with a prescriber’s office and sales staff to assist with paperwork. But other rivals do this, too, and while Insys might realize more efficiencies, it seems unlikely that the company is almost three times better at this.

One possible answer is provided in a class action (recently settled for an undisclosed amount): A confidential witness from Insys’ prior authorization unit claimed that staff people were trained to impersonate prescriber office staff when talking to pharmacy benefit-management companies, lie about the previous drugs taken by the patient (most insurers require patients try a generic drug and have it fail before a branded drug is approved) and tailor diagnoses to insurers, based on internal records of prior approval rates.

Insys never responded to these charges prior to the class action’s settlement.

Another possible explanation lies with the remarkably close working relationship that Insys has with a drug distributor called Linden Care, based in Syosset, New York. Former sales executives describe this bond as much closer than the standard vendor-distributor relationship, such that any issue with a prescription could be rapidly cleared up and, despite the multiple checks and balances within TIRF-REMS, the drug appear at the patient’s door within 24 to 48 hours. Linden Care has recently been put up for sale by its owner, BelHealth Investment Partners. A phone call to Inder Tellur at BelHealth was not returned.

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Alfonso’s legal predicament pales in scope next to the May charges filed against two pain-management physicians, Dr. John Couch and Dr. Xiuliu Ruan, partners in Physician’s Pain Specialists of Alabama in Mobile. Ranking as No. 3 and No. 6, respectively, as prolific Subsys prescribers through Medicare, in 2013, and second and first as Tricare prescribers for 2014, the pair had almost certainly become the company’s largest single revenue source.

With the two doctors arrested and charged with conspiracy to commit health care fraud and for distributing controlled substances, prosecutors released a few weeks ago a pair of affidavits that the Federal Bureau of Investigation special agents who led the investigation had filed.

Both agents described a veritable Class II drug prescription-writing factory, with prescriptions being written every four minutes and almost no medical analysis occurring from the harried physician assistants who saw the majority of the clinic’s patients. Undercover agents posing as patients with demonstrably false injury claims were barely examined yet received multimonth subscriptions for Class II drugs.

FBI Special Agent Amy White said that a confidential informant employed by Dr. Couch and Dr. Ruan described their participation in a pharmaceutical company’s speakers program as being “paid for promotion.” (While Insys was not named specifically, thc company’s identity can be deduced given the amount and timing of the payments cited.)

Similar to Alfonso’s case, the Insys speakers program is portrayed in the FBI agents’ affidavits as little more than Dr. Couch’s and Dr. Ruan’s being paid thousands of dollars for having dinner with their sales representative, according to the confidential informant. (A former Insys sales representative told the Southern Investigative Reporting Foundation that Dr. Couch and Dr. Ruan have been personally close for a decade to their Insys representative, Joe Rowan, whom they also dealt with at Teva Pharmaceuticals.)

Agent White’s affidavit alludes to the possibility that Dr. Couch abused the same class of drugs he so frequently prescribed. In a joint operation with a county drug task force, the FBI obtained the content of the trash from Dr. Couch’s residence and found that several syringe and Subsys packages had been discarded. Additionally, a confidential witness told the FBI of observing used syringes in the restroom of Dr. Couch’s personal office. Dr. Couch has a history of alcohol and prescription drug abuse, per his testimony in a California Medical Board account of the probationary certificate he was awarded in 1995, while completing a one-year pain-management residency at UCLA.

Another FBI special agent, Michael Burt, said he estimated that 50 percent to 60 percent of the clinic’s gross proceeds were derived from fraudulent activities. He said payments from Insys were found in several personal bank accounts of Dr. Couch and Dr. Ruan that he sought to seize. Another account of Dr. Ruan, Burt said, contained “kickbacks” from Industrial Pharmacy Management, a drug distributor whose founder Michael Drobot pled guilty in February 2014 to a $500 million insurance fraud scheme.

The Southern Investigative Reporting Foundation sought comment from Dr. Couch and Dr. Ruan. Neither doctor replied to multiple attempts to obtain comment.

Dennis Knizely, Dr. Ruan’s defense counsel, did respond, however, saying his client has been unfairly targeted: “These are baseless accusations, centered on the government’s interpretation [of complex issues] only. We will fight this at trial and show the government to be wrong.”

Added Knizely: “Dr. Ruan’s patients had many medical problems, including cancer, serious auto and work-related injuries. I have no doubt insurance companies have a problem with him; he ordered specific and complex procedures done to ensure the best care for his patients. His medical decisions will be shown to be sound and compassionate.”

John Beck, Dr. Couch’s lawyer, did not return multiple calls seeking comment.

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One of the odder elements in Insys’ operations has been its relationship with key sales executives. In April the company sued two salespeople, Lance Clark and former Western region sales chief Sunrise Lee, for purportedly maintaining outside jobs. The company has since amended its claim against Clark but dropped the suit against Lee. A call to Clark was not returned; an inquiry to Lee was referred to her lawyer, Stephanie Fleischman Cherny, who did not respond to a request for comment.

In addition, on May 8 Insys sued Michael Ferraro, a sales representative covering southwest Connecticut for maintaining an outside interest in a compounding pharmacy. On May 28 Ferraro filed a response, claiming that he had fully disclosed his interest in the pharmacy, that he was winding it up and that he had notified the company of a series of what he alleged were federal violations stemming from an April 17 lunch with his district supervisor, Michelle Breitenbach. On July 10 Insys dropped its suit against Ferraro.

Prior to the July 4 holiday weekend, Insys dismissed Fernando L. Serrano, Dr. Freedman’s sales representative. Serrano’s LinkedIn profile mentions a stint at JPMorgan Chase as a mortgage banker but not a 2012 stint at two heavily sanctioned boiler rooms, Aegis Capital and John Thomas Financial (a firm expelled from the securities industry by the Financial Industry Regulatory Authority in 2015, along with its founder). Serrano told the Southern Investigative Reporting Foundation that he was still in shock about his Insys dismissal.

A former Insys sales executive said that the large amounts of Subsys prescriptions written by Dr. Freedman and other prescribers that Serrano had called on in 2014 had propelled him into the top-tier of revenue generators.

Serrano declined to elaborate upon why he left Insys, other than saying, “It’s just insane” several times. A follow-up call was referred to his lawyer, Ali Benchakroun, who declined to comment.

An email to Insys sales chief Alec Burlakoff and New York regional sales manager Jeff Pearlman seeking comment about the reasons for Serrano’s dismissmal were not returned.

The Southern Investigative Reporting Foundation left a voice message for Insys CEO Michael Babich and sent an email with a series of questions. He did not reply.

Additionally voice messages and emails (when addresses could be found) were sent to the top 10 doctor recipients of Insys payments in 2014 but none responded.

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Insys Therapeutics and the New ‘Killing It’

On the evening of July 1, 2014, Carolyn “Suzy” Markland, a 58-year-old Jacksonville, Florida, resident with a degenerative disc disease, took her prescribed medicine — a 400-microgram dose of a Fentanyl spray called Subsys — and went straight to bed.

Despite the fact that she regularly experienced pain, taking Subsys was not an everyday affair for Markland. Her prescription had been filled several months prior but she almost never took the stuff; her longtime family doctor and pharmacist had expressed to her plenty of no-holds-barred skepticism about it. On the three occasions she had taken Subsys, her family noticed that its sedative and respiratory effects were noticeably sharper than those of another strong painkiller she took, Exalgo.

On July 2, Markland visited Dr. Orlando Florete, her pain-management physician of five years, for a scheduled injection for her lower spine. As part of her anesthesia mix prior to the procedure, she received another Fentanyl dose. Unlike what was the case after previous procedures, however, she wasn’t up and moving some 20 to 30 minutes afterward; this time it took about an hour until her oxygen levels allowed for her to be safely released.

Markland was tired for the balance of the day and headed to bed early, skipping her usual cup of decaf beforehand.

She never woke up.

With Markland pronounced dead at 7:01 a.m. on July 3, the Jacksonville medical examiner’s office listed the cause of her death on its report as “drug toxicity,” noting the presence of Fentanyl and Exalgo. Her death was  classified as “accidental.” The report also noted that Markland’s family doctor refused to sign the death certificate; Dr. Florete did.

Bob Markland, Carolyn’s husband of 19 years, declined to comment apart from providing a timeline of her Subsys use.

The medical examiner’s report of a lethal combination of Fentanyl and other drugs in Carolyn Markland’s blood is puzzling and sad, seemingly emblematic of a strain in modern American medicine whereby solutions to pain can be as scarce as the medication for that pain is abundant.

In another sense, this tale recounting Dr. Orlando Florete’s treatment presents a parallel trend in American medicine — that of the physician as a compensated endorser. According to figures from the Center for Medicare & Medicaid Services’ Open Payments database for the last five months of 2013, Florete was paid $18,874.03 by Subsys’ manufacturer to travel and speak to fellow doctors. The firm is  a small but rapidly growing pharmaceutical company called Insys Therapeutics.

Additionally, the 16 Subsys prescriptions written by Dr. Florete from Jan. 1, 2013, to May 31, 2103, according to documents obtained by the Southern Investigative Reporting Foundation through the Freedom of Information Act, cost the U.S. military primary health insurance plan Tricare $133,770.36.

Pharmaceutical companies’ compensating physicians for discussing their product — or even attending carefully scripted seminars — is a longstanding, and legal, practice. To be certain, many within the medical community have been concerned about this for a while, and in 2013 regulations were put in place to ensure disclosure of all physician payments. (Pro Publica has published a wealth of information on the issue.)

A phone message seeking comment from Dr. Florete about his relationship with Insys and his Subsys prescription writing was not returned by the time of publication.

Like Dr. Florete’s speaking engagements, another unremarked-upon issue was the nature of Carolyn Markland’s Subsys prescription. The drug indicated to treat breakthrough cancer pain was prescribed for a bad back. The law affords doctors great latitude in determining whether drugs can be prescribed for reasons other than what they are designed for. On the other hand, doctors’ writing prescriptions based on off-label marketing have been at the center of nearly two dozen False Claims Act cases in the past 20 years, resulting in more than $13 billion in pharmaceutical company fines and settlement payments.

In the case of Subsys, its official label — indicated by the folded paper insert with the impossibly small typeface that comes with the package — notes that it’s contraindicated for those with headache pain and people not tolerant of the opioid class of drugs. According to the Centers for Disease Control and Prevention, 175,000 people died from some form of prescription opioid abuse from 1999 to 2010 compared with 120,000 from heroin and cocaine overdoses.

Like Dr. Florete, Insys Therapeutics has been doing pretty darn well. The company has had a remarkable level of financial success and its soaring stock price, as shown in the chart below, has made it a darling on Wall Street.

Screen Shot 2015-04-23 at 7.55.46 AM

But that level of growth ought to warrant a raised eyebrow: Achieving in just two years more than $222 million in sales (from a level of about $15.5 million) without having invented something like a better search engine is no mean feat. Fentanyl, after all, has been around for many years. And while Subsys is the only spray version available, several Insys competitors are well-established and better capitalized and have sales forces that reach all 50 U.S. states.

While details about this breakthrough cancer pain medication are hard to find, or at least ones that are not self-serving management hype, veteran sales staff members from Insys and other pharmaceutical firms projected the company’s future growth rate to be roughly 10 percent a year. If this ends up being the case and the company is selling to oncologists, then the growth possibilities for Insys should be a function of that plus whatever business it can take away from its larger competitors. Many companies would be happy for those odds.

But Insys’ revenue grew north of 100 percent: Whatever organic growth the company is achieving is being aided by a whole lot of doctors who have grown profoundly fond of an expensive drug that’s accompanied by an acre of governmental red tape and one that the largest pharmacy benefit managers will no longer touch.

The question then becomes “how?”and “why?”

An investigation of Insys by the Southern Investigative Reporting Foundation reveals that this growth has come at a remarkable price: Food and Drug Administration data shows that Subsys is proving lethal to a growing number of patients, many of whom, like Carolyn Markland, are taking it for so-called off-label indications, such as headaches and back pain.

In reporting this story, the Southern Investigative Reporting Foundation repeatedly encountered former Insys employees who had received subpoenas requiring their appearance in front of a Department of Justice grand jury that has been empaneled in Boston. Still others had been interviewed for an investigation of the Department of Health and Human Services’ Office of the Inspector General.

A company that has been killing it — at least financially — is clearly in a lot of trouble.

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To understand Subsys, the first thing to know is that it is literally a drug apart: a Schedule II spray administered below the tongue and dozens of times stronger than morphine; its effects are profound, especially within the respiratory system, and almost immediately. Which is the point, of course, given that many people with cancer experience nausea and cannot take pills.

To address the twin risks of addiction and overdose, in March 2012 the Food and Drug Administration began what it calls the Transmucosal Immediate Release Fentanyl Risk Evaluation and Mitigation Strategy, blessedly shortened to TIRF-REMS. At its heart, the program is designed to make obtaining a prescription for Subsys (and five other drugs) a very deliberate process, with built-in checks and balances, such as confirmed opioid tolerance, signed patient statements and use of specially certified doctors and pharmacists.

No one, in other words, is dropping off a Subsys prescription at, say, a CVS pharmacy’s drive-through window.

Despite the unusual amount of federal guidelines designed to safeguard patients, Subsys is no stranger to adverse events.

The Southern Investigative Reporting Foundation asked Adverse Events, a California-based consultancy that collects and analyzes drug side effect data to analyze the FDA’s Adverse Event Reporting System’s tracking of fatalities related to Subsys. (In medical terms, an adverse event is defined as an undesirable outcome related to a drug’s use and includes categories in addition to death.)

The analysis shows Subsys was referenced in 63 adverse event reports resulting in deaths since its January 2012 FDA approval. Participation in the FAERS database is voluntary — a prescribing physician might not learn of an adverse event related to a drug; others elect not to report them. Because of this, many in the medical industry argue — privately — that FAERS’ data skews toward the lowest potential occurrence rate.

Given the relatively sparse amount of FAERS data that the Southern Investigative Reporting Foundation obtained (just age, gender and date of death are provided), placing the death of 63 Subsys users in a broader context is not so cut-and-dried. Certainly it’s reasonable to suppose that a percentage of those prescribed Subsys have cancer and would naturally have a higher rate of mortality. Some FAERS entries list Subsys along with one or two additional drugs. But dying of cancer isn’t usually considered an adverse pharmacological event; dying of respiratory failure when taking Subsys for a migraine is.

So how has Insys managed to grow exponentially?

The answer appears to have multiple parts: a truly unique sales force paired with a corporate speakers program that provides a stream of ready cash to frequent prescription writers.

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There’s no way around it: Insys’ sales force is very different from its competitors in the pharmaceutical industry. One reason is that a pharmaceutical sales background or even college courses in science are not required. Another is that if a candidate appears to be driven and aggressive, the company will look past things that a local Starbucks might not.

Scrolling through the LinkedIn profiles of Insys sales reps lends some credence to one of the assertions in an amended class action filed against the company in October that was settled the past week without a disclosure of the terms. The class action asserted that that Insys’ sales force was selected not for background or skill but for physical appeal

According to a summation of three confidential witnesses in the class action by the plantiffs’ lawyer, “most of Insys’s sales representatives were extremely attractive women.” (To be fair, Merck and other leading pharmaceutical companies have long drawn attention for constructing sales forces with a large percentage of attractive women.)

Then there’s the sales head of the New York region, Jeff Pearlman. Before becoming what his peers say is a highly productive salesman of Schedule II opioids, he was the marketing and sales chief of a company that sold aquariums.

Prior to that, he ran a ticket sales agency called Sitting Pretty Seating Services, which, in 2004, attracted the attention of the New Jersey Division of Consumer Affairs. Shortly afterward, the company’s registration was revoked after it did not file an annual report for two consecutive years, records indicate.

After this article’s initial posting, Pearlman said he had medical sales experience, having worked in the late 1990s for a company that sold diagnostic testing equipment to detect sleep apnea as well as for a company that sold genetic endocrinology testing devices in the mid-2000s.

Sunrise Lee, the recently departed head of Insy’s central and later Western sales region, offers an example of the company’s willingness to take a shot on a profoundly nontraditional prospect.

Prior to her stint with Insys, she was a dancer at Rachel’s, a West Palm Beach strip club. (She is the person at the far left top photo, taken from Rachel’s Web site, in this set; the bottom photo, from Facebook, shows a Insys sales outing at Chicago’s Wrigley Field for its top revenue producers.) It’s not clear what Lee did before adult entertainment.

About a year after Lee started selling one of the six drugs so lethal that the FDA had created a separate prescription protocol to monitor them, Insys promoted her to run the company’s Midwest sales.

SIRF asked Alec Burlakoff, Insys’ national sales chief, about the choice of Sunrise Lee to run sales for a quarter of the American land mass.

While agreeing with SIRF’s assertion that the adult entertainment world is not a traditional recruiting ground for pharmaceutical companies, Burlakoff offered that Lee had unusual attributes that were helpful in marketing Subsys to doctors.

“Doctors really enjoyed spending time with her and found Sunrise to be a great listener,” Burlakoff said.

“She’s more of a ‘closer,’” he said, using the common sales term often invoked to describe someone who helps convince a wavering customer to purchase a product. “Often the initial contact [with a doctor] was made by another sales person.”

SIRF asked Burlakoff  about the scenario of a former exotic dancer pitching a restricted drug to board-certified oncologists. He said she was more effective with pain-management physicians who appreciated what he referred to as her “empathy.”

“When you are dealing with [doctors] who are around pain and cancer all day, an empathetic and caring sales person is helpful,” Burlakoff said. He said that Lee had been involved in an unnamed nutriceutical company prior to joining Insys and speculated that her “holisitic approach” to the medical field might also have appealed to some physicians. SIRF, having no idea what that means, asked him to elaborate; he did not. (SIRF couldn’t find or identify the company.)

For her part, Lee declined comment about Insys, noting that she had just been sued by the company — as was also the case for Lance Clark, an Insys sales executive from Dallas who had reported to her — for violating corporate policy regarding outside employment. The suit alleged that she recruited physicians to use a toxicology testing company, Advance Toxicology, that was formed by Clark when he was still employed by Insys. It also alleged that she made up having earned a degree from Michigan State.

She did however confirm to the Southern Investigative Reporting Foundation that she has been in contact with both the Department of Health and Human Services’ Office of the Inspector General and “those other prosecutors,” perhaps referring to the Department of Justice in Boston. (She declined to discuss it further when asked for clarification.)

Clark, who was unaware of the suit until the Southern Investigative Reporting Foundation told him about it, declined to comment.

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When asked about Insys’ controversial business practices, especially alleged off-label sales and payments made to physicians under its speakers bureau program (covered in New York Times investigations), Burlakoff insisted that these portrayals don’t match how he and his colleagues conduct themselves on a daily basis.

“There is a very, very easy way to get fired on your first day at this company,” said Burlakoff, “and that is to mention selling off-label. We are only selling a breakthrough cancer pain drug. That’s all we want to address with a doctor.”

“You don’t run a unit at a company like this by cutting corners,” he said. (Burlakoff was fired from Eli Lilly in 2003 for his role in sending unsolicited samples of Prozac through the mail in a bid to boost the drug’s then slumping sales. He and several colleagues sued the company, alleging management had approved of the plan.)

Having worked for rival drugmaker Cephalon, Burlakoff said he has run [Fentanyl] training programs “for years” and makes it clear to members of the sales staff that their job is not to try to convince doctors but educate them about the benefits and possibilities of a drug that can help their patients cope with a cancer-fighting regimen.

(The Department of Justice fined Cephalon $425 million in September 2008 for its off-label sales practices, particularly of its Fentanyl product, Actiq; Burlakoff is referenced in a qui tam complaint filed in 2014, for allegedly ordering his staff to organize speakers program events to promote off-label prescription of its Fentanyl drug. He did not respond to a request for comment about this via email and voice messages.)

The Southern Investigative Reporting Foundation asked Burlakoff about his previous assertion that the primary market for the drug was oncologists.

“Yes, well, we are trying to break in to that market but most [oncologists] only care about the tumor or malignancy and, in my opinion, don’t focus on the pain component,” he said. “That’s a problem — for them and for us.”

Adding that among oncologists there is a “sense that prescribing [Subsys] is something for hospice,” Burlakoff said most oncologists that he and his colleagues deal with are happy “to refer pain treatment out” to pain-management doctors so they could focus on the cancer treatment.

SIRF asked Burlakoff if the pain-management physicians who appear to be prescribing upward of 90 percent of the drug are thus working in tandem with oncologists or are otherwise treating cancer pain. He replied that this was his understanding based on what members of his sales staff were telling him.

“I can say that no one at Insys wants to see anyone taking [Subsys] for anything other than cancer pain,” said Burlakoff. He went on to relate several feel-good stories about people whose lives have been changed because of Subsys. More substantively, he referred to discussions he has had with Insys founder John Kapoor, whose wife Edith died of cancer in 2005, that motivate him to sell a product that eases the suffering of cancer patients.

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Also misunderstood, according to Burlakoff, was the role of Insys’ speakers program in the company’s sales model. It wasn’t, as the class action alleged via a confidential witness, “a kickback program.” Nor was it the way to incentivize a series of pain-management physicians to write more prescriptions, as a New York Times article suggested.

Rather, “putting board-certified doctors together, where one of them is explaining the benefits he or she is seeing” from prescribing Subsys is the way that the drug gets acceptance. No sales rep is as effective as a doctor at convincing other doctors, he said.

“These are rich, highly educated doctors,” Burlakoff said. “They have money. Whatever they are paid isn’t material.”

SIRF asked Burlakoff if money was not the primary motivation for the doctors whom Subsys paid $25,000, $50,000 or more over the last five months of 2013, then what did he suppose it was?

The chart below of the top nine recipients of Insys payments, drawn from the Center for Medicare & Medicaid Services’ Open Payments data, paints a clear picture of doctors who have generated substantial income from the program. (See a list of the top 25 recipients of Insys payments.)  Burlakoff did not reply to a request for comment on this data.

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Many of Burlakoff’s former colleagues, however, described a very different experience with the speakers program.

A qui tam claim filed last year by former Insys salesman Ray Furchak alleged that the speakers program’s sole purpose was, in the words of his then supervisor Alec Burlakoff, “to get money in the doctor’s pocket.” The catch, Furchak alleged, was that the doctors who increased the level of Subsys prescriptions, and at higher dosages (such 400 or 800 micrograms instead of 200 micrograms), would receive the invitations to the program — and the checks.

The claim described texts from Burlakoff to Furchak and other sales colleagues regularly demanding that “doctors be held accountable” and that “doctors who are not increasing their clinical experience [prescription writing], please cancel, suspend, and cease doing speaker programs.”

The Department of Justice chose not to join Furchak’s suit and he withdrew it. Reached at his new job, Furchak said he stood by everything he had alleged but declined to comment further.

Conversations with former sales staff members support Furchak’s allegations that the speakers program was regularly used as a lever to pressure doctors to increase dosage strength as well as the frequency of their prescriptions for Subsys. In return, former sales staff members (who were granted anonymity in this story because of their involvement with the Department of Justice’s grand jury proceedings) often had to deal with doctors’ annoyance about payment levels or delays in receiving their checks.

The speakers program events have often been held at branches of Roka Akor, a tony sushi-steak restaurant company with venues in Scottsdale, Chicago and San Francisco that’s owned by Insys founder John Kapoor. Based on interviews with multiple attendees, the expenses often run into the thousands of dollars and, given the sheer number of events, have helped his restaurants capture a handsome revenue stream. An email to Insys CEO Michael Babich seeking comment was not returned by the time of publication of this article.

Former sales staff members also disagreed that Burlakoff’s full-throated rejection of off-label sales was shared by upper management. As evidence of this, two former salespeople pointed to a quarterly meeting in Atlanta for the Southeast region sales team in a June 2014 when CEO Michael Babich, during a question and answer session, read a question about the risk of off-label sales, given Cephalon’s steep penalty in 2008.

“I understand why you’re asking that question,” said Babich. “But Cephalon didn’t have TIRF-REMS; we do. You are protected because both the MD and the patient have signed it.”

Asked to elaborate, Babich said because of the TIRF-REMS requirement that the patient be extensively briefed on the risks of Subsys, there couldn’t be a plausible claim that the patient (or doctor) did not know what he or she were doing.

As one of the two attendees who described this event to SIRF put it, “There wasn’t much else to say about the issue when your CEO sees an information protocol as an insurance policy.”

Putting Insys’ assertions about serving cancer patients aside, the company’s bread is buttered by pain-management and physical-rehabilitation doctors, according to Tricare’s reimbursement and prescription data from Jan. 1, 2013, to May 31, 2014. Tricare represents about 9.5 million people, or 3 percent of the U.S. population.
Listed below are Tricare’s top 15 prescribers of Subsys.

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Among the top 25 Subsys prescribers within the Tricare system, there are 20 pain-management physicians, one osteopath, one nurse practioner and three physician assistants. (See a full list of the top 25.)

The Southern Investigative Reporting Foundation attempted to contact Dr. Xiulu Ruan and Dr. Patrick Couch, partners in a Mobile, Alabama, practice, about the fact that they were the leading Subsys prescription writers by an impressive margin, to discuss this, as well as their ownership of C&R Pharmacy, which dispenses the drug to their patients. (About 50 percent of the Subsys dispensed in the United States is handled by Linden Care, a specialty pharmacy on New York’s Long Island, owned by Bell Health Ventures, a private-equity fund.)

Anthony Hoffman, a lawyer representing the practice, told the Southern Investigative Reporting Foundation, “Based on your representation of the [Tricare] data you discussed with my client, we believe it to be inaccurate and encourage you not to publish it.” He did not specify what was wrong with the data and declined to provide further comment.

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As first reported in The New York Times, a series of Insys’ leading prescribers have been at the center of serious allegations involving their prescription-writing practices.

Last May federal prosecutors filed a complaint against Gavin Awerbuch, a Michigan-based pain-management physician and the company’s largest prescriber under Medicare (and third most compensated), for allegedly bilking Medicare out of $5 million over several years. Prosecutors allege that he wrote 20 percent of the Subsys prescriptions dispensed to Medicaid recipients nationwide from 2009 to 2014. (Subsys, however, has only been FDA-approved since January 2012.)

In December 2013 Judson Somerville, a Laredo, Texas-based pain-management physician (the No. 8 prescriber under Medicare and the most compensated) had his prescription-writing privileges “temporarily suspended” by the Texas Board of Medical Examiners for a host of findings, including having three patients die with six months of 2012; it was not the first time he had regulatory trouble.

Stewart Grote, a Lansing, Kansas, pain physician and the company’s fourth biggest Tricare prescriber (he received $8,48.05 from Insys), was sanctioned for multiple standard of care lapses and is no longer registered as a physician in that state, according to licensing records; he also had an earlier regulatory issue in 2010.

The Florida Department of Health sued Paul Wand and Miguel de la Garza, the No. 11 and 23 Tricare prescribers, in 2012. (Wand received $20,169.06 from Insys; de la Garza $17,019.04.) The department alleged Wand’s standard of care did not meet professional standards for a series of patients, particularly with regard to his prescription writing. With respect to de la Garza, the department claimed he did not professionally administer care to one specific patient. According to the Florida Board of Medicine’s Web site, both cases appear to be ongoing.

Chicago-based pain-management physician Paul Madison is not among the top 25 Tricare prescribers but he was the 17th most compensated under the speakers program. He was indicted in 2012 in connection with an alleged $3.5 million false insurance billings scam. The case is ongoing.

Heather Alfonso, the 25th largest Tricare prescriber of Subsys and a Derby, Conn.-based nurse practitioner, surrendered her state and federal nursing and prescription-writing licenses within the past month amid a Connecticut Department of Public Health investigation into her conduct. A February Connecticut Health I-Team story reported that in 2012, the most recent year for which data was available, she was among the nation’s top 10 prescribers of Schedule II substances within Medicare’s drug program.

The Southern Investigative Reporting Foundation asked CEO Michael Babich for comment via a detailed voice message left on his office phone and a pair of emails. He did not reply by publication time.

Clarification: This piece has been updated to clarify the description of former work roles of Jeff Pearlman, Insys’ New York regional sales manager. He served as the sales and marketing chief of an aquarium company. He also worked at two medical technology companies.

Update: This story was updated on March 22, 2016.