Misstated figures can simply be errors, but the complaint for this class action says that Insys Therapeutics committed fraud by manipulating figures to hide the company’s falling revenues, in violation of Securities Exchange Act of 1934. It also claims that the reason revenue was falling was because of the company’s previous bad behavior.
The class for this action is all persons or entities who acquired the securities of Insys Therapeutics between May 7, 2015 and March 15, 2017.
Insys is a specialty pharmaceutical company that develops supportive care products for pain management needed because of disease, treatments, or therapies. Insys’s only current product is Subsys, a “rapid onset opioid” taken in the form of an under-the-tongue spray. The FDA approved Subsys only for the treatment of breakthrough cancer pain in seriously ill patients already receiving around-the-clock opioid pain medication.
Before the class period, Insys’s revenue had grown rapidly because of Subsys. However, the complaint alleges that this was because of Insys’s encouragement of off-label use and its kickback scheme, where insurance companies paid for prescriptions for uses other than cancer pain.
The scheme was exposed in the fall of 2014, the complaint claims, and insurance companies became reluctant to pay for off-label use, so that the company sold less of the drug and distributors began returning unused product.
To hide the fall in revenues, the complaint claims, Insys began recording revenue before it was earned and improperly recording sales allowances or rebate money owed. These were the primary metrics for the strength of the company’s income, the complaint says, so investors used them to assess the company’s value.
According to the complaint, it did this for three years, while making public statements saying it was monitoring the rate of prescriptions on a daily basis, keeping track of inventory levels at distributors, and communicating with insurance companies to get proper authorization and coverage for prescriptions. It also claimed to have adequate internal controls over reporting and to prepare its financial statements using generally accepted accounting principles (GAAP).
Finally, on March 15, 2017, Insys was forced to announce that it had to delay the release of its fourth-quarter and year-end 2016 results because its internal audit committee was investigating sales allowances and revenues, “with a potential reduction of 2015 net revenue and pre-tax income not expected to exceed $5 million, as well as extended payment terms offered to certain customers during the third quarter of 2016.” At this news, the company’s stock fell by 4.64%.
On March 31, it announced that some of its 2015 and 2016 financial statements contained material errors and would have to be restated.