Avoid Insys: Another Arrest Made Last Week

| About: Insys Therapeutics, (INSY)

Summary

Another former INSY executive arrested.

This brings our running total to 3.

This is 3 too many for any public company; we continue to avoid INSY despite the financials showing promise.

By Parke Shall

Relatively unnoticed news of the arrest of another former Insys (NASDAQ:INSY) executive has us continuing to avoid the company and has us confident about our previous thesis that, despite the numbers, the stock simply remains to toxic to touch.

Reuters reported on Monday of this week, October 17,

A former Insys Therapeutics Inc executive has been criminally charged for conspiring to defraud insurers into paying for a fentanyl-based cancer pain drug that was sometimes prescribed for off-label uses.

Elizabeth Gurrieri, a former manager of reimbursement services at Insys, was arrested in Arizona on Thursday and charged in a criminal complaint filed in federal court in Boston with wire fraud conspiracy, according to court records.

Liz had first been mentioned in a scathing writeup about INSY by the Southern Investigative Research Foundation in December of 2015,

While her boss Liz Gurrieri who ran the prior-authorization unit could be friendly, she had made very clear to everyone that the best questions were about how to do the job better. Gurrieri had built the unit from the ground up in 2012 and was held in the highest esteem at headquarters. In just a few years, as the story around the cubicles went, Gurrieri's stock options had helped her become wealthy enough to build a six-bedroom house.

So everyone in the unit did things Gurrieri's way because the money was good.

This news from Monday didn't really hit the mainstream media, but this puts the total of former executives of the company arrested number closer to 5 than to 0 (we believe 3 total now); way too many for any public company.

We have written about INSY several times in the past. Over the last year, a lot of dirty laundry has come out about the company as several journalists have brought to light the company's disgraceful sales practices when it came to their fentanyl drug, Subsys.

For those unfamiliar with Subsys, it is an extremely potent and powerful opioid that is far more addictive and far more potent than traditional painkillers. As such, it needs to be treated with immense respect and care, the exact opposite of what INSY executives have been charged with doing over the last 24 months.

It was only months ago that other former Insys employees were charged also for illegal kickbacks,

Two former employees of Insys Therapeutics, Jonathan Roper and Fernando Serrano, were arrested on Thursday for allegedly participating in kickback schemes involving doctors who prescribed the company's main drug, Subsys, a pain medication containing fentanyl.

Headlines linking Prince's death to a fentanyl overdose have raised the profile of the opioid; however, CNBC has previously reported on the dangers of these highly addictive drugs and the alleged illegal tactics some pharmaceutical companies have employed to drive sales.

These include allegations against specialty pharmaceutical company Insys, whose market cap is down about a billion dollars since last year. Company officials weren't immediately available to comment on the charges against Roper and Serrano.

We have not been the only SA author to be aware of potential risks still coming from the company's Subsys issues. Samuel Rae recently wrote a couple of months ago,

Where do the risks lie? Well, those familiar with the company will be aware of the furor surrounding off label administration of Subsys. For those that aren't familiar, Insys CEO Michael Babich stepped down as CEO in November last year on the back of allegations that the company had promoted off label use through various channels. The allegations seem founded, and Insys has since paid out various settlements relating to this off label promotion, while a number of its sales reps have plead guilty to pharmaceutical sales fraud in what seems to be a pretty expansive network of sales channels. What does this mean?

Well, it makes it difficult to accurately assess the future sales of Subsys, because we aren't sure just exactly how much of the Subsys revenues to date was derived from above board issue, and how much was derived from off label administration.

A lot of investors are trying to make the argument that the company's financials are worth giving a look to. While we agree that the company does look relatively undervalued on a strictly financial basis, this would not be the first example we have found of a company that has indiscretions hidden under the surface that could cause potential catastrophe in the future.

We have long stated that we thought implications from the way the company has handled itself and Subsys would be ongoing. Last week, we found that these consequences continue. While we can't possibly imagine a scenario where even more dirt is uncovered and catastrophe occurs with the company, we do not rule it out of the picture and we find it more likely to be possible in a company with INSY's operating history than most other companies.

As such, we remain on the sidelines as there are literally tens of thousands of other financial instruments to potentially look at instead.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.