How Wall Street Abetted an Opioid Disaster

Illustrations by Tyler Comrie

Illustrations by Tyler Comrie

Insys Therapeutics allegedly pushed doctors to prescribe extreme pain medication for minor discomfort. People died. Wall Street analysts missed it — but a handful of journalists and hedge funds knew.

Four years before he was arrested, John Kapoor became a billionaire.

It was October 2013 and stock in Insys Therapeutics, the painkiller company of which Kapoor was CEO, had risen 360 percent since going public. After an uneven career in the generic drug business, Kapoor, then 70, was a comeback kid on Wall Street. He wore his white hair like Beethoven and was effusive with the press; his success, he told a journalist, was possible “nowhere else” but America.

In America in 2013 there was steady demand for new and more powerful opioids. Laypeople knew of Vicodin, which equals the strength of morphine, and OxyContin, which exceeds it very slightly, but fentanyl — a simplification of the morphine molecule that can be synthesized to 100 times morphine’s strength — was still obscure. Fentanyl made OxyContin look like aspirin. In one study funded by the U.S. government, rhesus monkeys given fentanyl-laced sugar cubes passed out cold in a matter of minutes, and could be intubated without anesthetic.

Where Insys saw an advantage was within that matter of minutes, in the lag between ingestion and onset. Its competitors’ products, mostly fentanyl in the form of lozenges or lollipops, took 15 minutes to act. Insys’s product, a fentanyl mist sprayed beneath the tongue, took five. Because rapid-onset opioids are intended for cancer patients suffering from breakthrough pain — pain that “breaks through” a regimen of round-the-clock opioids — the difference between five and 15 minutes really matters. To Insys’s target customer, ten minutes could be excruciating, a fact that Insys played up in marketing materials. “When breakthrough cancer pain strikes, strike fast.”

Simple, catchy, and clear, the fast-onset message appealed to Wall Street analysts, who started urging Insys stock on their clients. The importance of analysts is easy to underestimate. Their job is telling hedge funds and investment banks what to buy, but they are totally invisible outside the world of finance, and many people on Wall Street insist they never use them. (If your hedge fund is sitting around all day reading analyst reports that are widely available, what are your clients paying for?)

But analysts’ reports are crucial in granting legitimacy to new stocks. In a research note from October 2014, analyst David Amsellem of brokerage house Piper Jaffray & Co. wrote approvingly of Insys: “the name of the game . . . is speed.” He recommended that his clients buy shares. Analyst Rohit Vanjani, then with brokerage house Oppenheimer & Co., praised Insys for its “faster onset of action.” He too recommended buying shares.


Buying at first seemed like a really great idea. Revenues were going crazy: up 196 percent in the second quarter of 2014, then 99.5 percent in the third, then 65 percent, then 70 percent. By the summer of 2015, a tiny company from Chandler, Arizona, which practically no one had ever heard of, was suddenly worth $3 billion, hauling in $90 million a quarter, the vast majority from Subsys, Insys’ fentanyl spray.

In the middle of that miraculous quarter with 196 percent growth, a neurologist named Gavin Awerbuch was arrested near his pain clinic in Saginaw, Michigan. Analysts, as well as those with long positions in the stock, saw a dismissible local news event. Others saw the hint of a coordinated crime.


Posing as patients, undercover cops had discovered fraud at Awerbuch’s clinic. He had billed Medicare for hastily performed “needle measurements” using an “electronic probing device” that “did not generate any kind of printout or reading,” they alleged. More obviously harmful was his willingness to prescribe fentanyl even to patients who hadn’t reported cancer pain, a flagrantly illegal off-label use. He had ultimately bilked Medicare out of $7 million, the indictment alleged, for off-label prescriptions of Subsys.

For Insys, Awerbuch’s didn’t merit so much as a press release. For several short-sellers — I spoke to five who bet against Insys stock starting in 2014 — it signaled that the story was worth following.

One year later, in April 2015, two Alabama doctors were indicted for a similar crime. John Couch and Xiulu Ruan, who ran a pair of pain clinics in Mobile, were alleged to have distributed opioids “not for a legitimate medical purpose.”

The purpose appeared to be money. Between them the doctors owned an Aston Martin DB9, an Audi Spyder, a Bentley GT, a Ferrari F430, a Ferrari 599, a Lamborghini Diablo, a Shelby Series 1, a Spyker C9 Laviolette, a Maserati, a Porsche, a Land Rover, and a Cadillac, according to the indictment. Most troublingly, Couch and Ruan had received some $225,000 in direct payments from Insys in 2014 alone — putatively for consulting work, meals, and travel to conferences. That year, 28,647 Americans died of opioid overdoses, an increase of more than 250 percent over 1999.

On Wall Street, however, the question that mattered was whether the arrests of individual doctors would hurt the share price. Some analysts, who’d hitched their wagons to Insys with the buy recommendations and could not reverse course now, churned out notes to defend the company, putting a floor beneath the stock.

At Oppenheimer, Vanjani had assured clients in the summer of 2014 — prior to the arrests of Couch and Ruan — that he had spoken to “three physician consultants” and “conducted a 22-physician survey,” and not a single respondent reported having “received off-label messaging.” Further, Vanjani had noted, these doctors had emphasized to him that “Subsys use was driven by patient needs.” [Editor’s note: An email request for comment that was sent to Vanjani’s firm, General Atlantic Equities, prior to publication was not returned. Since the story was originally published, Vanjani contacted Institutional Investor to note that he downgraded Insys from outperform to perform in November of 2014.]

Jefferies analyst David Steinberg reassured his clients: “Insys has been emphatic that its representatives are instructed not to stray from on-label promotions.” In plain English, there was nothing to worry about as long as no one connected the policies of Insys management to the actions of any abusive rogue employees.

In a circuitous way, the man who made the connection was President Barack Obama. Negotiating the Affordable Care Act in 2010, Obama had pressed for a tiny provision — section 6002 in the final law — known as the Sunshine Act. It required drug manufacturers to report to the government any payments they made to doctors.

The fact that a Sunshine Act was even considered useful indicated the prevalence in the U.S. medical system of informal kickbacks between drug companies and prescribers. Sales representatives regularly offer doctors “speaking fees” for addressing barely extant medical conventions, as well as three-course dinners and strip club excursions in Miami. In exchange they expect the doctors to prescribe their company’s drugs. Though it passed in 2010, the provision required four years to implement.

By coincidence, the Sunshine Act database launched in September 2014, four months after the Awerbuch indictment. Called Open Payments, it was accessible to anyone with an internet connection. Punching in “Gavin Awerbuch” revealed $89,892 in speaker fees from Insys in an 18-month period, during which he wrote 1,161 prescriptions for Subsys.

Immediately The New York Times published a series of articles showing extensive off-label Subsys scripts and the accompanying speaker-fee payments. Veteran muckraker Roddy Boyd followed with his own detailed report at the Southern Investigative Reporting Foundation, where he alleged, among other things, that doctors in the Insys network would diagnose patients with cancer even when they weren’t ill.

In response, executives coolly insisted they had done nothing wrong. “As a manufacturer of a breakthrough cancer pain drug,” read a press release about Boyd’s report, “[Insys is] committed to complying with corresponding laws and regulations.” Patient safety was their “primary concern.” And if the Times and Boyd were correct, and doctors bent the rules, why did that implicate Insys? If anything they were the victims, rather than the perpetrators, of a fraud; evil doctors took their speaker fees and broke the law.

Only one interpretation could be true. For investors the difference between owning the stock and shorting it now came down to research.


Senvest is a midsize hedge fund with $1.5 billion under management; it has returned about 18 percent annually since it opened in 1997. Its chief investment officer, Richard Mashaal, runs the business with his sister, Joy Mashaal, who studied biology in college before finance sucked her in. They share the job of covering the health care sector, but Richard, along with his co-CIO Brian Gonick, calls the shots financially, so the dynamic between them is Joy, the master’s in environmental studies, convincing Richard, the MBA, that her research supports a trade.

In 2014, Joy was glued to Open Payments. “I have now done searches on the top 20 docs ($ wise) paid by Insys,” she wrote Richard on October 6, 2014. “These docs have been paid sums ranging from 30k to 67k in the last 5 months of 2013. Out of these I have found 5 of them (25%) to have serious issues with their credibility.”

A Dr. Somerville in Texas had had his license restricted after an investigation of his pain clinics, the Times reported. A Dr. Rosenberg had been reprimanded by the Rhode Island medical board for writing Subsys off-label. In California, public records showed, a Dr. Panjabi had been sued for the death of a patient, arrested for drunk driving, and banned from practicing medicine for five years.

When Joy raised her concerns with a stock analyst at Piper Jaffray — the brokerage house that had written “the name of the game . . . is speed” — she was told the worst-case scenario was “a slap on the wrist.” She wrote to Richard: “He seemed to think the behavior was fine as long as the ramifications weren’t too dire.”

The ramifications weren’t yet dire. In 2015, Insys was still clearing $90 million a quarter, and analysts maintained buy recommendations on the stock. One West Coast short-seller who bet against Insys told me, “The analysts defended, defended, defended. And investors who were otherwise reticent about the story would look and go, ‘Oh, there must be something I’m missing.’”

Chris Irons, senior business writer at GeoInvesting and founder of Quoth the Raven Research, started following the story in 2015. “When a company commits accounting fraud, sure, you want to bet against them,” he said. “But this didn’t look like accounting fraud. This looked like killing people.”

Joy started building a history of the company’s management. Everyone knew that Kapoor had a dubious past, full of lawsuits and angry partners. In 1990, for example, he’d made $800 million by selling his pneumonia-drug company, Lyphomed, to Japanese conglomerate Fujisawa Pharmaceuticals. Then the Food and Drug Administration accused Lyphomed of falsifying research data and Fujisawa sued to get its money back. (Kapoor settled.) But Joy, along with other Insys short-sellers, got interested in the less-familiar names.

Michael Babich, Insys’s CEO at the time, lacked experience in the pharmaceutical space altogether, having been Kapoor’s right-hand man in the wealth-management business. Three of the top men in the sales department — Alec Burlakoff, Matthew Napoletano, and Daniel Tondre — had come to Insys from Cephalon, the manufacturer of the fentanyl lollipop Actiq. In 2008 the Department of Justice had fined Cephalon $425 million for paying off doctors to write off-label scripts. Actiq sales reps lived by the motto “pain is pain,” which meant persuading doctors to write Actiq for, say, backaches, when the FDA licensed it only for breakthrough pain.

Dragging a finger down the Insys organizational chart, you could stop almost anywhere and find a person with questionable qualifications for their position. The West Coast short-seller said he bet against Insys partly because of the company’s new head of compliance.

“They are selling literally the most dangerous drug in all of U.S. pharmacopoeia,” he said. “They are paying doctors, and they have this crazy arrangement with insurance reimbursements. You would think the most important role in that company would have been the compliance officer.”

The compliance head was Danielle Davis, an Australian-born lawyer who’d come to Insys from the compliance department of a midsize Indian reservation casino in Washington state. The rumor among investors was that Babich had met her at a tennis match.

One of the most intriguing records of the corporate culture — which anyone could have uncovered — was a speech written for Burlakoff to deliver at an event for Insys sales representatives in 2014. Amazingly, the writer hired by Burlakoff had posted the entire speech on his website — he was proud of it. (He has since taken it down, but I viewed a downloaded copy.)

“Welcome to the rugged frontier,” the speech began. “Do we have a room full of good-looking, well-dressed, silver-tongued communicators in here? Oh yeah we do. And we had better.”

Then Burlakoff encouraged them to play dirty. “Fair sucks. I want it tough.” He concluded: “We forge relationships so fucking strong that nobody, or nothing in the world, can break those bonds. No naysayer, no salesperson, no investigator, or journalist. Nobody. Nada. That’s it.”

Senvest maximized its short position against Insys in 2016. “It is incredible that everyone thinks they will get away with this,” Joy wrote to her brother.

In November 2016, Darryl Baker, Insys’s CFO, addressed the Piper Jaffray Healthcare Conference in New York. By then, things were tricky for Insys, publicity-wise. The DOJ had just expanded its allegations against Couch and Ruan, and now directly accused Insys of bribing them to write Subsys scripts off-label. But Baker wasn’t worried.

“We continue to engage in robust dialogue with the folks at DOJ,” he told his audience. Further, the incoming Trump administration “will likely result in significant turnover” at the DOJ and “create an appetite for a more timely resolution.” Insys retained the white-shoe firm Skadden, Arps, Slate, Meagher & Flom, whose litigation division contains several former federal prosecutors, sending a message to investors that they would settle the suits among friends.

One week after Baker’s speech, the roof caved in. The DOJ indicted two of his former colleagues, Babich and Burlakoff, on charges of bribing doctors. Three months after that, the parents of a young woman named Sarah Fuller sued Insys for wrongful death. Fuller had visited a doctor in Philadelphia; an Insys representative was inside the consultation room; the rep and doctor convinced her to take Subsys for the pain she was experiencing after a car accident. Fuller accepted the script, overdosed, and died.

In May 2017, Couch was sentenced to 240 months and Ruan to 252 months in federal prison for violating the Controlled Substances Act and committing RICO violations. Five months later Kapoor was put in handcuffs, to face charges of racketeering and conspiracy to violate anti-kickback statutes.

Some dimensions of the scheme are still unknown; whistleblower lawsuits were unsealed as I sat at my desk writing this piece. But poring over the still-growing pile of allegations and convictions, there’s no mistaking the pattern. Insys got countless people addicted to fentanyl and likely holds responsibility for many deaths. The company showed a reckless disregard for the well-being of the people it was supposed to help.

According to an 80-page indictment filed by U.S. attorneys in 2017, Burlakoff told his sales team in no uncertain terms that “the key to sales was using the speaker program to pay practitioners to prescribe [Subsys].” When a subordinate worried that a doctor lacked the communication skills to be part of the speaker program, Burlakoff responded, “They do not need to be good speakers, they need to write a lot of [scripts].”

Burlakoff harassed his female employees, according to whistleblower suits filed by two of them, telling them to “behave more sexually” to sell drugs. When a female doctor declined to write enough Subsys scripts, Burlakoff allegedly texted a colleague, “I want to jerk off in her fuckn [sic] face!” Inside the company, the off-label promotion strategy had a name: “the kiss of death.”

Along with Kapoor, prosecutors claim, Burlakoff hatched a plan to up the recommended dosage of Subsys from 100 micrograms to 600 micrograms, a potentially fatal alteration designed purely to move more product. To grease their doctors into writing that dosage, they spent liberally on dinners, shooting ranges, and strip clubs. A former stripper, Sunrise Lee, joined the company at Burlakoff’s invitation, as a regional sales director. (Commenters on pharma-industry message boards mocked her, but the irony was, as a former stripper charged with manipulating middle-aged men, she was practically the only person at Insys who was truly qualified for her job.)

When the kickbacks didn’t move enough product, Insys may have employed a simpler strategy: inventing diagnoses. One problem with the fentanyl market is there are too many fentanyl devices, and insurers and Medicare would not always reimburse for Subsys if a less expensive fentanyl lozenge would suffice.

Kapoor and Babich saw a way around that roadblock, the 2017 indictment alleges. They advised their network of doctors to diagnose patients with dysphagia, or difficulty swallowing. A dysphagic patient might have trouble with a pill or lozenge, but not with a mist like Subsys. They ran the dysphagia play so often that they had a pre-written letter they provided to doctors, which read, in part: “I have treated (Full name) in my clinic since (xx/xx/xxxx). (Mr.Mrs.) is a (age) year old (man/woman) with severe (diagnosis). (He/she) has difficulty swallowing and ingesting oral medications.”

These schemes can sound cartoonishly nefarious, but their effects were real, and Insys is one of many opioid manufacturers that profited off of a crisis. In 2017 more people died of drug overdoses in the U.S. than at any time in history, a total of about 72,000. Of those, nearly 50,000 died from opioids. In the brief window between Insys going public and Burlakoff being indicted, 61,351 people died of prescription opioids alone.

In light of those figures, it comes as a surprise to realize Insys still exists. The stock trades around $9, propped up by institutional asset managers like OrbiMed Advisors, BlackRock, and Vanguard, who together own 28 percent of the publicly available shares. In August, Insys agreed to settle with the DOJ for $150 million. The company said through a spokesperson: “We generally refrain from commenting about legal proceedings, which pertain mostly to the company’s past.” (The DOJ declined to comment.)

On a recent call with investors, the new CEO, Saeed Motahari, acknowledged a steep drop in Subsys revenue, then turned his attention to the pipeline. Now was the time, he said, to wean Insys off fentanyl. The company had a hot new product in development. It was a nasal-spray version of naloxone — the miracle drug first patented in 1961, which can save the life of a person who has overdosed on opioids.