Literally overnight, Valley billionaire John Kapoor went from cancer-pain-fighting hero to accused opioid pusher. We tell the story of his tumble – and of the executives, doctors and patients who fell with him.
Early in the morning on Thursday, October 26, 2017, ferried in a caravan of cars winding through the wealthy Biltmore Estates gated community on the south side of Piestewa Peak in North-Central Phoenix, a team of federal agents stormed the mansion of INSYS Therapeutics founder John Kapoor and arrested the billionaire pharmaceutical executive at gunpoint on fraud and racketeering charges.
It was a raid worthy of El Chapo, and, given the crime Kapoor was charged with – allegedly bribing doctors and deceiving insurance companies into overprescribing a potent opioid – the agents’ treatment of the diminutive, shaggy-haired Kapoor as a dangerous drug trafficker appeared calculated to send a message. Coming on the same day President Donald Trump declared the nation’s opioid epidemic a public health emergency – without, it should be noted, appropriating any new funding to fight it – the dramatic bust was characterized as a “curious coincidence of timing” by Kapoor’s lawyer Brian Kelly, a veteran Boston attorney known for prosecuting mobster James “Whitey” Bulger.
“We just didn’t think it was reasonable to arrest a 74-year-old man at gunpoint with a dozen federal agents,” says Kelly, who subsequently filed a motion protesting the court’s insistence on Kapoor wearing an electronic monitoring ankle bracelet. “Dr. Kapoor has no intention of fleeing Arizona. He intends to stay and fight these charges.”
For Kapoor, an immigrant from Mumbai, India, who rose from poverty to become Arizona’s sixth wealthiest resident by 2016 and whose company, upon going public in 2013, was named that year’s “Best IPO” by both CNBC and Fox Business, the undignified raid marked a spectacular fall from grace.
Outwardly, the entrepreneur had embodied the American dream. “I arrived in this country with $5 in my pocket,” he told PHOENIX magazine in a 2008 profile, detailing how he’d earned his Ph.D. in medicinal chemistry on a support grant from the University of New York at Buffalo, a debt he repaid after making his first few million. In Phoenix, his rapid success with INSYS made him the poster boy of the biotechnology startup scene and a respected philanthropist, funding Central Phoenix’s Editha House, a charitable organization named after his late wife, to provide free housing to cancer patients and their caregivers while visiting Arizona for treatment. On paper, his net worth, recently estimated by Forbes at $1.74 billion, seemed credible: At INSYS, Kapoor developed Subsys, a powerful, fast-acting, under-the-tongue spray the U.S. Food and Drug Administration approved strictly for alleviating pain in cancer patients. Originally marketed as a solution for opioid-tolerant patients with no options left, it was unexpectedly welcomed as a godsend by individuals who experienced nausea from ordinary pain pills, as they received relief almost immediately using the spray, and without any stomach issues.
Behind the scenes, however, former employees say that Kapoor was an unscrupulous marketer who orchestrated a devious plan to expand the market for Subsys – which contains fentanyl, a synthetic opioid the Centers for Disease Control and Prevention (CDC) ranks as 50 to 100 times more potent than morphine and 10 times deadlier than heroin – well beyond cancer patients. The phenomenal sales figures were the first tipoff: Had Subsys been marketed solely to oncologists for the approved users – cancer sufferers dealing with chemotherapy/radiation pain or end-of-life discomfort – that market would have been expected to grow about 10 percent annually. Instead, Subsys sales doubled to more than $500 million within three years of its 2012 launch.
Intrigued, some investigative reporters – most notably, Roddy Boyd of the Wilmington, North Carolina-based nonprofit Southern Investigative Reporting Foundation (SIRF) – began digging into INSYS’s practices, and Claire McCaskill, a Democratic U.S. Senator from Missouri, launched an investigation into the strategies INSYS and other manufacturers (including Purdue, Johnson & Johnson and Mylan) were employing to promote opioid use. In the end, federal prosecutors charged that INSYS awarded kickbacks to physicians who prescribed the most Subsys, in the form of hefty “speaking fees.” In invitation-only events at Roka Akor, the upscale Japanese restaurant in Scottsdale owned by Kapoor, the doctors in question allegedly pushed the product to other doctors over dinner.
Further, prosecutors say Kapoor set in motion a commission-based sales force of about 67 people (according to INSYS’s 2013 SEC filings) incentivized to get insurance company approvals on thousands of Subsys prescriptions that were largely “off-label,” meaning for purposes outside the FDA-approved use of treating pain in cancer patients already tolerant to opioid therapy. That pre-existing tolerance was critical to patient safety: The FDA’s tracking of fatalities related to Subsys use showed that the drug was referenced in 63 reports resulting in deaths since its FDA approval in 2012.
Patty Nixon worked in the call center at INSYS’s “prior-authorization unit” just across the street from its headquarters – an unassuming, new-build beige office park near the Chandler Fashion Center mall – for about nine months. During that time, Nixon says she was given specific instructions from her boss, Elizabeth Gurrieri, then manager of reimbursement services, on how to obtain approvals from insurance companies on Subsys prescriptions for patients who didn’t have cancer.
“On my first day, I was excited to be working for the company,” Nixon recalls, noting that the pay for the job – roughly $18 to $20 per hour, plus bonuses – was better than most call center work. “I thought everything was legit and that I was going to be helping cancer patients. But I immediately saw that most of the patients on my list were non-cancer patients.”
To get the insurance companies to sign off on such prescriptions, Nixon says employees, who pretended to be calling from doctor’s offices, were trained to use some tricky phrasing, acknowledging that Subsys “is for the management of breakthrough cancer pain,” but omitting the word “cancer” when referencing a treatment plan. “The doctor has treated the patient for breakthrough pain,” she recalls saying, using a term that could technically cover anything from fibromyalgia to migraines.
“One time I was having trouble getting a Cigna patient approved, and I went into Liz’s office and said, ‘I’ve tried everything and don’t know how I can get this approved.’ She wrote on a sticky note the diagnosis code ‘787.20,’ which is for dysphagia, or difficulty swallowing, and said, ‘Put this on all of your charts, and you won’t have any problems.’” It worked: The code indicated an emergency situation that most pharmacy benefit managers honored.
Eventually Nixon began to suffer guilt over having to engage in unethical practices at her job. “The last few months there were pretty awful,” she says. “I mean, I was throwing up on the way to work, I was having high blood pressure issues.”
She was afraid to quit, however, because of the reputation Gurrieri had for intimidating staffers. “I know there were a couple employees that were trying to quit, and Liz actually went to their houses,” Nixon says. “One time a woman said that she wanted to go on leave because she was starting to attend beauty school at night – and Liz left early one day to stop at the beauty school to see if she was there.”
On the day Nixon’s blood pressure became so elevated on the job she passed out and had to be taken out of the building by ambulance, she finally decided not to return. She was later contacted by an agent at the U.S. Department of Health and Human Services office in Florida who persuaded her to talk, and a week later was subpoenaed to testify before a grand jury in Boston, where the FBI’s case was assembled. Although Nixon says she never had any direct dealings with Kapoor, she believes the founder was fully aware of the deceptions going on in the unit. “Liz had almost weekly meetings over at corporate with Kapoor, and there were several times that she would come back from those meetings and say, ‘Kapoor is not happy. We got to get these numbers up,’” she recalls.
Kapoor’s arrest came at the culmination of an FBI crackdown on INSYS senior executives that began in December 2016, with the indictment of former INSYS CEO Michael Babich and five other former executives and managers, including Gurrieri, by the U.S. District Court in Massachusetts, one of three U.S. attorneys’ offices that filed claims against INSYS for violating their states’ anti-kickback statutes. Also named in a separate lawsuit filed in Maricopa County Superior Court by Attorney General Mark Brnovich were three Arizona doctors accused of accepting the bogus speaker fees in exchange for writing prescriptions: Scottsdale pain management physician Steve Fanto, Tucson anesthesiologist Sheldon Gingerich and former PHOENIX Top Doctors vote-getter Nikesh Seth. The AG’s office says the three physicians collectively prescribed more than 64 percent, or $33 million, of Subsys sales in Arizona. In July, Fanto signed a consent agreement with the Arizona Medical Board prohibiting him from practicing medicine until further word from the board; so far, Seth and Gingerich have not been disciplined. Nationally, at least 10 doctors, physician assistants and advanced-practice nurses in nine states are currently being investigated for accepting improper gifts.
In retrospect, even Kapoor’s lawyer admits his client should have seen his own bust coming. “Since at least December 2016, when the original indictment in this case was unsealed, Dr. Kapoor has been aware of the potential that the government might seek criminal charges against him,” Kelly writes in his motion protesting the ankle bracelet. But insiders say the general perception across the industry was that Kapoor was too big a fish to catch.
“In America, we’ve long ago accepted this very clear message that we no longer nail billionaires,” says SIRF’s Roddy Boyd, who’s been writing on INSYS’s mounting troubles for more than two years. “And this guy seemed to have the equivalent of a truly Midas touch. Everywhere he’s gone, massive trouble has emerged – but always after he leaves.”
Boyd cites Kapoor’s tenure at Lyphomed, a pharmaceutical firm he helped create in the late 1980s. After the division was spun off and sold, it turned out to have manufacturing problems that resulted in three patient deaths. The company’s buyer, the Japanese drug company Fujisawa, tried to sue Kapoor for the $100 million he made on the sale but were talked into settling for a much lower amount. Accounting and manufacturing problems also plagued Kapoor’s other company, Illinois-based Akorn Pharmaceuticals – but only during the two brief periods he’d stepped down as CEO.
“There’s always been a wake of destruction following behind John Kapoor,” agrees Richard Hollawell, a New Jersey lawyer representing the family of Sarah Fuller, who died in 2016 as a result of being improperly prescribed large doses of Subsys for back and neck pain. “But he just seems to pirouette out of trouble.”
Nixon hopes Kapoor’s arrest sends a message to other CEOs at the top of the pharmaceuticals industry, who up until now have enjoyed similar Teflon status.
“I think that throughout the entire pharmaceutical industry, the attitude is, ‘We can do whatever we want, because we’ll make a ton of money and the worst that can happen is a slap on the wrist and a small fine,’” she says, citing the plea agreement signed by the lawyers of Connecticut-based Purdue Pharma in 2007 admitting the company had intentionally misrepresented the risks involved with their opiate OxyContin. The Department of Justice hit the company with a $600 million fine but none of the company’s executives, headed by New York’s billionaire Sackler brothers, was charged.
“I really believe that had they put those executives in jail, INSYS probably wouldn’t have gone down this path,” Nixon says. “So that’s a big reason why I’m speaking out publicly: to put the pressure on the government to get it right this time.”
In November, Kapoor pleaded not guilty to all charges and is currently awaiting trial, along with the six other former executives, who pleaded not guilty last January. All have severed ties with INSYS, which continues to do business. In July, it received FDA approval for a new drug, Syndros, a synthetic form of THC, the psychoactive component found in cannabis, to treat chemotherapy-induced nausea and loss of appetite in AIDS patients. As it did with Subsys, the company is looking into ways to manufacture the drug as a sublingual spray. Under Kapoor, the company donated $500,000 to the effort to defeat the measure to legalize marijuana for recreational use on Arizona’s 2016 general election ballot, paving the way for the synthetic substitute.
Ironically, Kapoor could have easily retired with the pharma industry’s respect had he stuck to selling Subsys only for its FDA-approved use: effectively relieving severe pain in cancer patients in as little as five minutes, for which it’s garnered much peer recognition.
Farhan Taghizadeh, a local board-certified plastic surgeon who’s been involved in three biomedical startups, says leaders in the Valley’s biotechnology incubator community often held up Kapoor’s success as a model to other entrepreneurs. “Everybody loves the unicorn,” he says. “But there are individuals in the biotech startup community who promote economic development and flipping stocks over actually helping people. What’s happened with INSYS has finally changed the conversation. Now we’re seeing a prime example of exactly what happens when your priorities get distorted.”
Boyd agrees. “INSYS probably would have been a very successful business, making $25 million to $40 million in revenue each year. But that wasn’t good enough. Kapoor wanted to be filthy stinking rich, and so the lawlessness of this culture flexed itself in every direction. And now there’s blood on their hands.”
Arizona hospitals reported 51,473 unique “opioid-related” encounters in 2016 – up from 20,365 in 2009 – with 790 deaths. As recent data demonstrate, opioid-abuse deaths tend to track…
White - 77.5 percent of opioid fatalities between 2007 and 2016 were white, at a rate of 12 per 100,000 residents – twice that of the next-highest ethnic group.
Middle age - By age, opioid death rates in Arizona are the highest between ages 45-54 (18 percent).
Middle class - The Valley neighborhoods most affected by opioid abuse are in West Mesa, Sunny-slope and North Phoenix. To see fatalities mapped by neighborhood, visit tinyurl.com/yaxf5xav.
Source: Arizona Department of Health Services (ADHS)
Death in the Brotherhood
Who killed Cave Creek Hells Angel Patrick Eberhardt? There are some striking theories on the street. ...
Hells Angels Shootout
After a fierce shootout last year in Chino Valley between members of the Hells Angels and rival bikers the Vagos, it seems a turf battle is brewing. Could Phoenix be a future battleground?It was a peaceful Saturday morning like any other for Terrance...
Where will you live in 2035? Who will be Arizona governor in 2050? What about that bullet train to Tucson? And zombies? Steal a glimpse of the Phoenix that could be. ...
As badly as the recent Veterans affairs scandal has tarnished the agency’s reputation... ...
Thanks to a new law, home bakers can measure, mix and bake their way to the free market, but not everyone is buying it. ...