Former Insys CEO pleads guilty to bribery scheme

Former Insys CEO Michael Babich walked away from federal court after a hearing on Jan. 9.Pat Greenhouse/Globe Staff/Globe Staff

Under Michael L. Babich, the former president and CEO of a company that made a highly addictive fentanyl spray, sales representatives took doctors out to strip clubs and plied them with $500 bottles of champagne, according to court documents.

Babich’s chief sales executive at the company, Arizona-based Insys Therapeutics, hired a slew of attractive but inexperienced sales representatives, including a former West Palm Beach, Fla., exotic dancer, to sway doctors into prescribing Insys’ fentanyl spray, even to those who did not need it.

“He had to have had one of the best nights of his life,” the executive, Alec Burlakoff, texted a sales representative after taking one medical practitioner to an Arizona strip club, court documents filed in Boston stated.

Between 2012 and 2015, as the opioid epidemic was claiming thousands of lives a year, Insys executives waged a nationwide conspiracy to bribe doctors and pharmacists to prescribe the powerful opioid medication, approved by the FDA to treat severe cancer pain.

The tactics, part of an elaborate strategy of bribes and kickbacks that targeted doctors, clinicians, and other medical professionals, were so successful that the company’s stock skyrocketed, Babich made $3.5 million in proceeds, and the drug, Subsys, became the most prescribed of its kind. Many patients became addicted.

On Wednesday, Babich, 42, pleaded guilty to conspiracy and mail fraud after reaching a cooperation agreement with prosecutors. He faces up to 20 years in prison.

The details of his agreement with prosecutors were not revealed. The racketeering trial of the company’s founder, John Kapoor, who is in his mid-70s, is scheduled to begin on Jan. 28. He is expected to be tried with four other former executives, Richard Simon, Joseph Rowan, Michel Gurry, and Sunrise Lee.

In a Boston courtroom, Assistant US Attorney Fred M. Wyshak Jr. outlined the case against Babich, describing a scheme that centered around the company’s Speaker Program, a marketing technique in which doctors touted the benefits of Subsys before a crowd of other practitioners.

While that practice is not illegal, Babich and other Insys executives broke the law when they began using the program to pay doctors so they would prescribe Subsys, prosecutors said.

“This was a very expensive drug and a very dangerous drug if abused,” Wyshak told US District Court Judge Allison Burroughs. “In essence, the defendant . . . used the Speaker Program to bribe medical professionals to prescribe Subsys to as many patients as possible.”

Insys executives set up Speaker Programs around the country, including in Massachusetts restaurants, that in many cases were sham events, prosecutors have said. Sometimes, only the doctor’s staff and friends would show up at an event, where they ate and drank on the company’s tab. Sometimes, there was barely anyone there at all.

Doctors who wrote a high volume of Subsys prescriptions would receive tens of thousands of dollars from Insys executives for each speaking event, Wyshak said.

They “punished those who were not writing a sufficient volume by removing them from the [program] or withholding paid speaking engagements,” Wyshak said.

Wyshak said the scheme also involved defrauding insurance companies that reimbursed the company for the drug. Subsys employees would call insurers pretending to be employees of medical practitioners and repeatedly lie about patients’ conditions, Wyshak said.

“As a result of this scheme, insurers were defrauded by paying reimbursements for Subsys, a more expensive drug than the generic alternative and some of its branded competitors,” he said.

After Wyshak outlined the prosecution’s case, Burroughs turned to Babich and asked if he disagreed with his statement.

“No, your honor,” he said.

Several doctors, a nurse, a physician’s assistant, and Babich’s wife, a former sales representative for the company, have been convicted in connection with the case. In November, Burlakoff pleaded guilty to one count of racketeering conspiracy and also reached a cooperation agreement with prosecutors.

The multistate federal investigation, which stretches from California to Alabama to Massachusetts, was sparked by several former employees, who filed whistle-blower complaints detailing how company executives advised sales representatives to send filets mignons and wine to the offices of practitioners, and to bring medical professionals to shooting ranges and entertain them at strip clubs.

Prosecutors have not directly linked the company’s actions to anyone’s death. But relatives of people who overdosed on opioids after becoming addicted to Subsys have filed lawsuits across the country.

Insys, which is still operating, has already reached an agreement with the Department of Justice to pay $150 million over the next five years to settle civil and criminal investigations into its marketing practices.

Dr. Andrew Kolodny, codirector of Opioid Policy Research at the Heller School for Social Policy and Management at Brandeis University, said it is critical for prosecutors to continue criminal investigations into the actions of top executives at companies that manufacture opioid medication.

“Insys got caught. But what Insys did is not that different from what other opioid manufacturers have done,” Kolodny said. “It’s not enough to just fine these companies. This really is the right approach for corporations who in their pursuit of profit kill people.”