The Insys that investors loved and which made its founder and chairman John Kapoor a billionaire is going away and, despite heroic efforts to rebrand itself as a research shop, its future will 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 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 Subsys prescriptions, Insys’s sole commercially viable product, are dropping and are likely going to continue to do so.

The forces arrayed against Insys, from a Federal grand jury in Boston to, as described in our December 3 story, the mounting insurer scrutiny of Subsys prescriptions, are brutal, if 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.

The IMS Health data through late November leaves little to the imagination, showing a decline of 10.4% quarter-to-quarter in the Subsys prescription count. Even allowing for the traditionally soft Thanksgiving week, this is a grim trend for a company that regularly gets around 99% of its sales from Subsys.

[drizzle]

Insys Therapeutics Inc (INSY)
Source: IMS Health data through 11/27/2015

Dan Brennan, Insys’ new chief operating officer, admitted as much when he tried to rally the troops at the December 3 analyst presentation by alluding to some unspecified “commercial opportunities….that can stabilize and grow scripts.”

From an investor perspective, Insys’ decidedly mixed third-quarter earnings report offered a clear sign of Insys’ headaches. The seemingly impressive third quarter revenues were boosted by $6.6 million in distributor shipments which risk stuffing the channel, decreasing future sales and profits. More positively, lower unit demand of about 5% was offset by lower rebates and higher prices.

Absent this $8.4 million benefit, Insys would not have been able to report $91.3 million in revenues, allowing it to claim that it 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.

Having ploughed an entirely new furrow, regulatorily speaking, since early 2012, ready comparisons for Insys’ situation are hard to come by. The only real analogue might be Purdue Pharma’s 2007 settlement with the Department of Justice for misbranding Oxycontin. (Three Purdue executives also pled guilty and 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 version of the standard template for U.S. businesses accused of wrongdoing in the past decade. Despite some shockingly large settlements, especially in the pharmaceutical industry, the process of writing a huge check and issuing a guarded, conditional apology (without admitting or denying anything specific) is made more palatable as investors often bid share prices of these companies up on the view that “the bad news is now behind them.”

Our research suggests Insys’s case may be somewhat different.

To start, former employees say that no more than 10% of prescriptions were written on-label, an inconvenient fact when coupled with our December 3 investigation, which described in detail how 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.

At market-leading prescription approval rates of between 85% and 90%, Insys’ PA unit’s alleged scheme easily cost insurers hundreds of millions of dollars. They are unlikely to write these losses off without a fight.

Moreover, federal prosecutors will be seeking recovery on behalf of their employer, the U.S. government. Data obtained via freedom of information act shows nearly 25% of Insys’s $576.5 million in Subsys revenues since launch, or $144.1 million, coming from Medicare and Tricare. While not every prescription was unlawful, at up to $10,000 per violation, the ones that were can quickly send liability into the eight figures.

One saving grace is Insys’s decent cash position at the end of the third quarter, with just under $94 million in cash and equivalents available, and another $61.5 million in short-term investments behind that.

From a practical perspective what almost four years of selling Subsys off-label looks like across the U.S. landscape is captured in the graph below.

It’s simple enough — we overlayed IMS Health’s tracked prescription counts for Subsys against SIRF’s culling of the FDA’s Adverse Events Reporting System data, listing fatalities where Subsys was listed as the probable candidate for triggering an adverse reaction.

As noted in previous investigations FAERS data is not authoritative, relying on medical professional informal assessments that are voluntarily reported. (Last week, the company put out a press release taking exception to our reporting and offering its own interpretation of what FAERS data does–and does not–mean.)

Insys Therapeutics Inc (INSY)
Sources: IMS Health, FDA FAERS data through June 30, 2015

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

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

The Southern Investigative Reporting Foundation began talking to Neely while he was wrestling 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 provided documents as well. Finally, he spent four days with a reporter in California confirming and corroborating this account.

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

Based on prescription value, he ranked within Insys’ top 15 sales representatives last year, good enough to place him in the “President’s Club,” where one perk was an all-expense paid Mexican beach junket with the other sales leaders. It was all the more impressive since he only began selling pharmaceuticals in October 2013.

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

A proud daily surfer, in emails and texts Neely would tell beach buddies and his family  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 he felt good helping people who were in pain.

But late last summer Neely changed his mind in

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