(Bloomberg) -- When Insys Therapeutics Inc. filed bankruptcy in June, the governments, hospitals and opioid victims pursuing compensation from the drug maker in court knew they were unlikely to collect everything they were owed.
In its bankruptcy petition, Insys said the company’s drugs and other assets were worth only $175 million on paper. Even if that figure proved accurate, it wouldn’t be enough to cover the $243 million Insys owed to the federal government alone, much less the hundreds of millions of dollars claimed by states, hospitals and individuals for the company’s alleged role in America’s opioid crisis.
Insys won a judge’s approval Wednesday to set up a creditor vote on a plan slated to pay them less than a 10th of the $997 million they contend they’re owed. Lawyers for the beleaguered drug maker said they’ll ask U.S. Bankruptcy Judge Kevin Gross to give final approval to the plan after a hearing next month in Wilmington, Delaware.
It’s the latest chapter in the Insys saga, which includes the conviction of founder John Kapoor and other executives for duping doctors into believing the company’s Subsys opioid painkiller wasn’t addictive as part of a push to turn the drug into a billion-dollar blockbuster. The company was the first opioid maker forced into Chapter 11 over its mishandling of an opioid-based product.
After filing for protection from creditors, Insys sold Subsys and its other products for just $29 million in cash, with a promise of about $60 million more in the future. Creditors will get that money along with as much as $56 million in potential insurance proceeds.
The company negotiated with state and local governments over how best to equitably divide up the meager recovery to provide some funds to help combat the opioid epidemic. The municipalities, hospitals seeking reimbursement for monies spent on the fallout from the opioid crisis and personal-injury claimants signed off on the existing plan, Ronit Berkovich, one of Insys’s bankruptcy lawyers, said at a hearing.
“It’s remarkable” the disparate groups seeking compensation from Insys over its Subsys wrongdoing were able to come together in this deal, Gross said.
While creditors may be disappointed taking home pennies on the dollar for their claims, they may get some solace when Kapoor and other executives are sentenced next month. Kapoor and four other Insys executives are looking at a maximum of 20 years each.
In May, a federal-court jury in Boston convicted Kapoor, along with sales executives Michael Gurry, Richard Simon, Joseph Rowan and Sunrise Lee of a racketeering conspiracy that illegally drove sales of Subsys. That made Kapoor the first CEO of an opioid maker to be convicted of criminal charges spawned by the opioid epidemic.
During the 10-week trial, prosecutors took jurors deep into Insys’ inner workings to expose the company’s plan to use sexy sales reps, lap dances, sham speaker’s fees and lavish dinners at restaurants Kapoor owned to lure doctors into writing more Subsys prescriptions.
U.S. Justice Department lawyers argued Kapoor and the group used the scheme to wrongfully broaden the market for Subsys, which was only approved to treat cancer pain in a limited number of patients. Besides focusing on doctors, the conspirators also duped insurers into covering illegal prescriptions, the government said.
The bankruptcy case is Insys Therapeutics, 19-11292, U.S. Bankruptcy Court, District of Delaware (Wilmington). The criminal case is U.S. v. Kapoor, 16-cr-10343, U.S. District Court, District of Massachusetts (Boston).
(Updates with judge’s ruling in third paragraph)
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