John Kapoor, chairman, president, and CEO of Insys.
John Kapoor, chairman, president, and CEO of Insys.

Billionaire John Kapoor of Insys Therapeutics Arrested in Phoenix on Opioid Charges

John Kapoor, the billionaire founder of an Arizona pharmaceutical company, was arrested today in Phoenix like a drug-cartel boss and charged with illegal opioid distribution.

His arrest by the FBI and indictment on a raft of bribery and fraud charges came a few hours before President Donald Trump made a major announcement in the fight against opioids, which have been responsible for tens of thousands of deaths in the past couple of years alone.

The feds accuse Kapoor, 74, and several top executives of the Chandler-based Insys Therapeutics with a conspiracy scheme that has helped lead the country into its epic opioid problem. Arizona Attorney General Mark Brnovich sued the company last month following an investigation into Insys' alleged, fraudulent fentanyl-pushing scheme. The federal case is being handled by the Massachusetts U.S. District Attorney's Office.

"Mr. Kapoor was taken into custody without incident at his home in Phoenix," said Boston FBI spokeswoman Kristen Setera.

Kapoor’s great wealth came from Insys and Akorn Pharmaceuticals, an Illinois-based firm he founded.

Besides helping fill the world with opioids, he’s also the founder of JNK Concepts, a company that owns seven restaurants including Roka Akor in Scottsdale and Marigold Maison in Phoenix.

Kapoor was scheduled to appear in Arizona U.S. District Court in Phoenix at 3 p.m. today, and "will appear" at the federal courthouse in Boston at a later date, according to a news release.

"In the midst of a nationwide opioid epidemic that has reached crisis proportions, Mr. Kapoor and his company stand accused of bribing doctors to overprescribe a potent opioid and committing fraud on insurance companies solely for profit,” said Acting United States Attorney William D. Weinreb of the Massachusetts district. “Today's arrest and charges reflect our ongoing efforts to attack the opioid crisis from all angles. We must hold the industry and its leadership accountable — just as we would the cartels or a street-level drug dealer.”

The other Arizona defendants include the company's former CEO and president, Michael Babich, 40, of Scottsdale, and the company's former vice president of managed markets, Michael Gurry, 53, of Scottsdale. Four other defendants are from North Carolina, California, Michigan, and Florida.

They're charged with conspiracy to commit racketeering, mail fraud, and wire fraud in a 79-page indictment (see below) unsealed on Thursday that also seeks asset forfeiture.

Under Kapoor, Insys Therapeutics helped cause the failure of last year's cannabis-legalization ballot measure with a $500,000 donation accepted by the opposition group Arizonans for Responsible Drug Policy. Insys wanted to see the measure go down because it makes a synthetic form of THC called Syndros, which would have faced competition from legal, whole-plant marijuana.

The indictment accuses Kapoor, the former Insys CEO and chairman of the board of directors, of managing and directing the "development, promotion, distribution, and sale in interstate commerce of a fentanyl spray.

"Following the launch of the fentanyl spray in 2012, Kapoor and Babich quickly grew dissatisfied with the success of the drug during its first three months on the market," records state. The defendants then "sought to devise and foster a scheme to profit by using bribes and fraud to cause the illicit distribution of the fentanyl spray.

"The defendants and co-conspirators used bribes and kickbacks to try to cause practitioners to issue new prescriptions for the fentanyl spray, as well as increases in the dosage, and volume of existing prescriptions ... The bribes and kickbacks took different forms, including speaker fees and honoraria for marketing events, food and entertainment, administrative support, and fees paid to co-conspirator pharmacies."

The bribery scheme couldn't be fully monetized without insurers getting involved, the feds allege, so the group also "sought to mislead and defraud insurers" to help pay for the potent opioid spray. That's the tactic that Brnovich is also suing over.

Fentanyl produces effects very similar to morphine and heroin, but takes effect faster and more intensely in users, according to the indictment. It was approved in early 2012 as a powerful palliative for cancer treatment, but its makers wanted many more people to use it than just cancer patients.

The drug is expensive, costing thousands of dollars for each month of use. Medicare, Medicaid, and other insurers wanted end users to have a medical diagnosis before they prescribed the drug, the indictment states, and they preferred patients to have already tried other drugs before obtaining the fentanyl spray. The need to get around those policies prompted an extensive and elaborate fraud scheme by Insys, according to federal prosecutors.

The defendants created a speaker program in 2012 intended to raise awareness of the benefits of fentanyl at "educational lunches and dinners." They paid licensed medical practitioners to lecture about fentanyl's use at the events.

In a June 2012 email to sales managers, Babich said he wanted sales representatives to understand "the important nature of having one of their top targets as a speaker. It can pay big dividends to them."

The company's southeast regional sales manager, Alec Burlakoff of Charlotte, North Carolina, later told sales reps that "the key to sales was using the speaker program to pay practitioners to prescribe fentanyl spray," the indictment states.

Burlakoff told one sales rep in a text obtained by the feds that the practitioners "don't need to be good speakers, they need to write a lot of (prescriptions)."

The speaker-bribery scheme became "endemic" at Insys. A New Jersey sales rep who felt slighted complained directly to Kapoor in an email about the speaker fees being "thrown at doctors."

"Nobody has offered my doctors unlimited speaker programs to put me in the top 10" among the rep's peers, the rep told Kapoor. "Does the speaker money grow on a special speaker money tree?"

Kapoor and Babich budgeted $10 million for speaker fees in 2014.

The company wined and dined doctors at expensive restaurants in Massachusetts and elsewhere, and in return for the bribes, the practitioners were expected to prescribe plenty of fentanyl, records state. Allegedly, Kapoor was also well-aware of the company's plan to ensure that insurers and doctors didn't limit their patients to small doses of the spray, since higher doses meant more product would be sold.

The company even made a video featuring a sales rep dressed as a giant fentanyl spray bottle, rapping and dancing to a song that pushed the idea of getting doctors to prescribe high doses.

“The allegations of selling a highly addictive opioid cancer pain drug to patients who did not have cancer, make them no better than street-level drug dealers," said Harold H. Shaw, Special Agent in Charge of the FBI's Boston Field Division. "Today's charges mark an important step in holding pharmaceutical executives responsible for their part in the opioid crisis. The FBI will vigorously investigate corrupt organizations with business practices that promote fraud with a total disregard for patient safety.”

In his opioid speech today, Trump announced that his administration will declare the opioid problem a public health emergency and deliver grant funds to help combat the crisis.

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