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Insys Has Legal Issues Galore

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Indictment of the company’s founder

In December 2016, the U.S. Attorney’s Office for the District of Massachusetts issued an indictment against six former Insys (INSY) employees, which included the company’s former president, CEO, and director Michael Babich. This indictment was on charges including racketeering conspiracy, conspiracy to commit mail fraud, conspiracy to commit wire fraud, and conspiracy to violate the anti-kickback statute.

 

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In a superseding indictment in October 2017, the U.S. attorney’s office for the district of Massachusetts also added charges against the company’s founder and former president, CEO, and director, John Kapoor. After this indictment, Kapoor agreed to put his ownership in Insys common stock in a trust that would be controlled independently and resigned from the company’s board of directors. This would end his remaining involvement in the management of the company.

In February 2017, Insys’s former district sales manager in the Northwest was charged with violating the federal anti-kickback statute in the federal court of New Haven, Connecticut, in connection with interacting with health care professionals who prescribed the company’s product and served on its speaker bureau. In October 2017, a healthcare professional in Rhode Island who served on Insys’s speaker bureau related to the company’s speaker program, which aimed to educate and promote product awareness, pled guilty to health care fraud and conspiracy to receive kickbacks in relation to payments received from Insys of ~$188,000.

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Paragraph four challenges

In June 2017, Insys received a “Paragraph Four” notice from Par Pharmaceuticals in relation to Insys’s product Syndros stating that the FDA received an ANDA (abbreviated new drug application) from Par. In August 2017, Insys filed a suit in the district court of Delaware claiming the ANDA was not sufficiently complete and alleged patent infringement.

In August 2017, Insys received a Paragraph Four notice from Teva Pharmaceuticals related to Subsys stating that the FDA received an ANDA from Teva. Insys has filed a suit in the district court of Delaware alleging patent infringement in September 2017.

Insurance litigation

Aetna (AET), Anthem (ANTM), and Humana (HUM) have filed an action suit against Insys in 2017, alleging charges, which include insurance fraud, civil conspiracy, common law fraud, and unjust enrichment. These charges are related to Insys’s product Subsys.

Insys makes up about 0.01% of the Vanguard Health Care ETF’s (VHT) total portfolio holdings.

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