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Derick Larson, Et Al. V. Insys Therapeutics Incorporated, Et Al. 14

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Derick Larson, Et Al. V. Insys Therapeutics Incorporated, Et Al. 14 Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 1 of 135 1 Richard G. Himelrick (004738) J. James Christian (023614) 2 TIFFANY & BOSCO, P.A. 3 Seventh Floor Camelback Esplanade II 2525 East Camelback Road 4 Phoenix, AZ 85016 5 Telephone: (602) 255-6000 Facsimile: (602) 255-0103 6 E-mail: [email protected]; [email protected] 7 Lionel Z. Glancy (admitted pro hac vice) 8 Leanne E. Heine (admitted pro hac vice) Elaine Chang (admitted pro hac vice) 9 GLANCY BINKOW & GOLDBERG LLP 1925 Century Park East, Suite 2100 10 Los Angeles, California 90067 11 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 12 -and- 13 Robin Bronzaft Howald (admitted pro hac vice) GLANCY BINKOW & GOLDBERG LLP 14 122 East 42nd Street, Suite 2920 New York, New York 10168 15 Telephone: (212) 682-5340 16 Facsimile: (212) 884-0988 17 [Additional counsel appear on signature page] 18 Attorneys for Plaintiff Hongwei Li 19 UNITED STATES DISTRICT COURT 20 DISTRICT OF ARIZONA 21 Derick Larson, Lead Case No. CV-14-01043-GMS Consolidated with: 22 No: CV-14-1077-PHX-GMS Plaintiff, 23 v. CLASS ACTION 24 Insys Therapeutics Incorporated, et al., AMENDED CLASS ACTION 25 COMPLAINT FOR VIOLATIONS OF Defendants. THE FEDERAL SECURITIES LAWS 26 JURY TRIAL DEMANDED 27 28 [Captions Continue on Next Page] 294458.1 INSYS Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 2 of 135 Hongwei Li, 1 2 Lead Plaintiff, v. 3 4 Insys Therapeutics Incorporated, et al., 5 Defendants. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 AMENDED CLASS ACTION COMPLAINT Lead Case No. CV-14-01043-GMS 294458.1 INSYS Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 3 of 135 TABLE OF CONTENTS 1 2 I. NATURE OF THE ACTION AND OVERVIEW ................................................... 1 3 II. JURISDICTION AND VENUE ............................................................................. 15 4 5 III. BACKGROUND ALLEGATIONS ....................................................................... 20 6 A. The Legal Framework Within Which Insys Operates................................. 22 7 1. FDA Approval and Regulation of Prescription Drugs ..................... 22 8 2. Anti-Kickback Provisions ................................................................ 25 9 3. Open Payments Program .................................................................. 26 10 4. TIRF REMS Access and Education Program .................................. 26 11 5. Data Collected from the TIRF REMS Access Program .................. 34 12 6. Adverse Incident Reporting to the FDA .......................................... 35 13 B. Insys’s Insidious Role in Obtaining Public and Private Payment to 14 Subsidize Subsys’s High Costs ................................................................... 36 15 C. Insys’s Unqualified Sales Team .................................................................. 39 16 D. “Start Them High, and Hope They Don’t Die” ........................................... 41 17 E. Subpoenas And Prior Proceedings Against Insys ....................................... 47 18 19 1. The Qui Tam Action ......................................................................... 47 20 2. The December 12, 2013 Subpoena .................................................. 54 21 3. The Awerbuch Criminal Complaint ................................................. 55 22 4. The September 8, 2014 Subpoena .................................................... 57 23 F. Confidential Witness Statements About the Company’s Sales and 24 Marketing Practices ..................................................................................... 57 25 IV. HAVING ESTABLISHED ITSELF IN THE MARKET, INSYS GOES PUBLIC .................................................................................................................. 76 26 27 28 AMENDED CLASS ACTION COMPLAINT Lead Case No. CV-14-01043-GMS 294458.1 INSYS i Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 4 of 135 V. MATERIAL MISREPRESENTATIONS AND OMISSIONS DURING THE 1 CLASS PERIOD .................................................................................................... 77 2 VI. THE TRUTH BEGINS TO EMERGE ................................................................. 104 3 VII. ADDITIONAL SCIENTER ALLEGATIONS .................................................... 114 4 VIII. CLASS ACTION ALLEGATIONS ..................................................................... 117 5 6 IX. LOSS CAUSATION ............................................................................................ 119 7 X. APPLICABILITY OF PRESUMPTION OF RELIANCE (FRAUD-ON-THE- MARKET DOCTRINE)....................................................................................... 120 8 XI. NO SAFE HARBOR ............................................................................................ 121 9 10 XII. COUNTS .............................................................................................................. 121 11 XIII. PRAYER FOR RELIEF ....................................................................................... 127 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 AMENDED CLASS ACTION COMPLAINT Lead Case No. CV-14-01043-GMS 294458.1 INSYS ii Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 5 of 135 1 Lead Plaintiff Hongwei Li (“Plaintiff”), by and through his attorneys, alleges the 2 following upon information and belief, except as to those allegations concerning Plaintiff, 3 which are alleged upon personal knowledge. Plaintiff’s information and belief is based upon, 4 among other things, his counsel’s investigation, which includes without limitation: (a) 5 review and analysis of regulatory filings made by Insys Therapeutics, Inc. (“Insys” or the 6 “Company”), with the United States Securities and Exchange Commission (“SEC”); (b) 7 review and analysis of press releases and media reports issued by and disseminated by Insys 8 and/or its management; (c) review of analyst reports, news articles and other publicly 9 available information concerning Insys and/or its products; (d) review of information 10 provided by the United States Food and Drug Administration (“FDA”) under the Freedom of 11 Information Act (“FOIA”); (e) review of pertinent court filings; and (f) interviews of 12 individuals with knowledge of the events described herein. 13 I. NATURE OF THE ACTION AND OVERVIEW 14 1. This is a class action on behalf of purchasers of Insys’s common stock between 15 November 12, 2013, and May 14, 2014, inclusive (the “Class Period”), seeking to pursue 16 remedies under the Securities Exchange Act of 1934 (the “Exchange Act”). 17 2. Insys is a specialty pharmaceutical company that develops and commercializes 18 supportive care products. The Company currently markets two products – Subsys, a 19 proprietary sublingual fentanyl spray approved to treat breakthrough cancer pain in opioid- 20 tolerant patients, and Dronabinol SG Capsule, a generic equivalent to Marinol, an approved 21 second-line treatment for chemotherapy-induced nausea and vomiting and anorexia 22 associated with weight loss in patients with AIDS. The vast majority of Insys’s revenues in 23 2013 and 2014 were derived from sales of the former. 24 3. This case arises from material misrepresentations in and omissions from 25 Insys’s public statements concerning the sales and marketing of Subsys, an extremely potent 26 and potentially lethal drug which is heavily regulated by the FDA. The gravamen of the 27 action is that while Insys repeatedly told investors that the Company had achieved its 28 AMENDED CLASS ACTION COMPLAINT Lead Case No. CV-14-01043-GMS 294458.1 INSYS 1 Case 2:14-cv-01043-GMS Document 41 Filed 10/27/14 Page 6 of 135 1 spectacular success through the hard work of a motivated sales force and Subsys’s unique 2 ability to provide immediate relief to cancer sufferers who, despite being heavily medicated 3 by opiates, still experience “breakthrough cancer pain,” the real story, as alleged herein, is 4 one of off-label sales to non-cancer patients, encouragement to doctors to disregard FDA- 5 mandated dosing, violation of patient privacy rights, fraudulent Medicare and private 6 insurance claims, kickbacks to doctors, and nepotism. 7 4. Sadly, Subsys’s meteoric rise to market domination appears to have been 8 driven by a desire to profit from the nationwide epidemic of pain-killer addiction and abuse. 9 During the class period, a handful of insiders sold over $34 million worth of stock – almost 10 all of which was sold at or near Insys’s all-time peak price – while in possession of non- 11 public information concerning Insys’s unlawful sales tactics. Insys’s founder and Executive 12 Chairman of the Board, John N. Kapoor, Ph.D., holds a majority of Insys’s shares. Due to 13 the extraordinary success of Subsys, a Forbes article proclaimed: “Pharmaceuticals 14 Developer John Kapoor Is New Billionaire.” 15 5. Subsys is a very potent drug which is required to be dispensed with a so-called 16 “black box warning.” Literally, the FDA requires the package inserts for certain prescription 17 drugs to contain a special warning inside a black box, in bold letters, under the word 18 “WARNING.” 21 C.F.R. §201.57(a)(4). These warnings are required in any one of three 19 circumstances.1 All three conditions apply to Subsys. 20 21 1 See Final Guidance “Warnings and Precautions, Contraindications, and Boxed Warning 22 Sections of Labeling for Human Prescription Drug and Biological Products,” at 11 (Oct. 11, 2011)((1) “There is an adverse reaction so serious in proportion to the
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