GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg Robert V. Prongay Elaine Chang 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310 201-9150 Facsimile: (310 201-9160 LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215 638-4847 Facsimile: (215 638-4867 Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA PLAINTIFF, Individually and on Behalf of All Others Similarly Situated, v. Plaintiffs, INSYS THERAPEUTICS, INC., MICHAEL L. BABICH, DARRYL S. BAKER, JOHN N. KAPOOR, PATRICK P. FOURTEAU, PIERRE LAPALME, STEVEN MEYER, THEODORE H. STANLEY, BRIAN TAMBI, WELLS FARGO SECURITIES, LLC, JMP SECURITIES LLC, and OPPENHEIMER & CO. INC., Defendants. No. DRAFT CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS DEMAND FOR JURY TRIAL 1
Plaintiff, by and through the undersigned attorneys, alleges the following upon information and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff s information and belief is based upon, among other things, plaintiff s counsel s investigation, which includes without limitation: (a review and analysis of regulatory filings made by INSYS THERAPEUTICS, INC. ( Insys or the Company with the United States Securities and Exchange Commission ( SEC ; (b review and analysis of press releases and media reports issued by and disseminated by Insys; and (c review of other publicly available information concerning Insys. NATURE AND SUMMARY OF THE ACTION 1. This is a class action on behalf of persons and/or entities who purchased or otherwise acquired the common stock of Insys pursuant and/or traceable to the Company s false and/or misleading Registration Statement and Prospectus (collectively, the Registration Statement issued in connection with the Company s May 2, 2013, initial public offering (the IPO or the Offering, seeking to pursue remedies under the Securities Act of 1933 (the Securities Act. 2. Insys is a specialty pharmaceutical company that develops and commercializes innovative supportive care products. The Company has two marketed products - Subsys, a proprietary sublingual fentanyl spray for breakthrough cancer pain in opioid-tolerant patients and Dronabinol SG Capsule, a generic equivalent to Marinol, an approved second-line treatment for chemotherapy-induced nausea and vomiting and anorexia associated with weight loss in patients with AIDS. 3. On March 24, 2014, after the close of trading, Insys effected a 3-for-2 forward stock 2
split of its common shares. Unless otherwise indicated, all common stock prices are presented in split-adjusted prices, while all daily trading volume is presented as the actual number of shares traded that day. 4. The claims in this action arise from the materially false and/or misleading Registration Statement and Prospectus issued in connection with the Offering. In the IPO, the Company and the underwriters sold 6,900,000 shares of its common stock (4,600,000 on a pre-split basis at a price of $5.33 per share ($8.00 on a pre-split basis. According to the Company, the Offering raised approximately $32.5 million in net proceeds, after deducting underwriting discounts and commissions of $2.6 million and offering expenses of $1.8 million. 5. As detailed below, the Registration Statement and Prospectus contained materially false and misleading statements and omitted material information in violation of Sections 11 and 15 of the Securities Act of 1933 (the Securities Act, 15 U.S.C. 77k and 77o. JURISDICTION AND VENUE 6. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the Securities Act (15 U.S.C. 77k and 77o. 7. This Court has jurisdiction over the subject matter of this action pursuant to Section 22 of the Securities Act (15 U.S.C. 77v. 8. Venue is proper in this Judicial District pursuant to Section 22 of the Securities Act. Many of the acts and transactions alleged herein, including the preparation and dissemination of materially false and/or misleading information, occurred in substantial part in this Judicial District. Additionally, Insys principal executive offices are located within this Judicial District. 3
9. In connection with the acts alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mail, interstate telephone communications and the facilities of the national securities exchange. PARTIES 10. Plaintiff, as set forth in the accompanying certification, incorporated by reference herein, purchased Insys securities pursuant and/or traceable to the Registration Statement issued in connection with the Company s IPO and has been damaged thereby. 11. Defendant Insys is a Delaware corporation with its principal executive offices located at 444 South Ellis St, Chandler, Arizona 85224 12. Defendant Michael L. Babich ( Babich was, at all relevant times, Chief Executive Officer ( CEO and a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 13. Defendant Darryl S. Baker ( Baker was, at all relevant times, Chief Financial Officer ( CFO of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 14. Defendant Patrick P. Fourteau ( Fourteau was, a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 15. Defendant John N. Kapoor ( Kapoor was, at all relevant times, a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 16. Defendant Pierre Lapalme ( Lapalme was, at all relevant times, a director of Insys 4
and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 17. Defendant Steven Meyer ( Meyer was, at all relevant times, a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 18. Defendant Theodore H. Stanley ( Stanley was, at all relevant times, a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 19. Defendant Brian Tambi ( Tambi was, at all relevant times, a director of Insys and signed or authorized the signing of the Company s Registration Statement filed with the SEC. 20. Defendants Babich, Baker, Fourteau, Kapoor, Lapalme, Meyer, Stanley and Tambi, are collectively referred to hereinafter as the Individual Defendants. 21. Defendant Wells Fargo Securities, LLC ( Wells Fargo served as an underwriter to Insys in connection with the Offering. 22. Defendant JMP Securities LLC ( JMP served as an underwriter to Insys in connection with the Offering. 23. Defendant Oppenheimer & Co. Inc. ( Oppenheimer served as an underwriter to Insys in connection with the Offering. 24. Defendants Wells Fargo, JMP, and Oppenheimer are collectively referred to hereinafter as the Underwriter Defendants. CLASS ACTION ALLEGATIONS 25. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23(a and (b(3 on behalf of a Class, consisting of all those who purchased or otherwise 5
acquired Insys securities pursuant and/or traceable to the Registration Statement issued in connection with the Company s May 2, 2013 IPO, and who were damaged thereby (the Class. Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest. 26. The members of the Class are so numerous that joinder of all members is impracticable. During the relevant period, Insys securities were actively traded on the NASDAQ Stock Exchange ( NASDAQ. While the exact number of Class members is unknown to Plaintiffs at this time and can only be ascertained through appropriate discovery, Plaintiffs believe that there are hundreds or thousands of members in the proposed Class. The Company sold more than four million shares (on a pre-split basis of common stock in the IPO. Moreover, record owners and other members of the Class may be identified from records maintained by Insys or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions. 27. Plaintiffs claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants wrongful conduct in violation of federal law that is complained of herein. 28. Plaintiffs will fairly and adequately protect the interests of the members of the Class and have retained counsel competent and experienced in class and securities litigation. 29. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the 6
questions of law and fact common to the Class are: (a (b whether the Securities Act was violated by Defendants acts as alleged herein; whether statements made by Defendants to the investing public in connection with the Company s IPO omitted and/or misrepresented material facts about the business, operations, and prospects of Insys; and (c to what extent the members of the Class have sustained damages and the proper measure of damages. 30. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. BACKGROUND 31. Insys is a specialty pharmaceutical company that develops and commercializes innovative supportive care products. The Company has two marketed products - Subsys, a proprietary sublingual fentanyl spray for breakthrough cancer pain in opioid-tolerant patients and Dronabinol SG Capsule, a generic equivalent to Marinol, an approved second-line treatment for chemotherapy-induced nausea and vomiting and anorexia associated with weight loss in patients with AIDS. INSYS FALSE AND/OR MISLEADING REGISTRATION STATEMENT AND PROSPECTUS 32. On or about May 2, 2013, Insys filed the IPO Registration Statement with the SEC on 7
Form S-1/A. 33. On or around May 2, 2013, the Company filed with the SEC its IPO Prospectus, which forms part of the IPO Registration Statement that was declared effective on May 2, 2013. In the IPO, the Company sold 6,900,000 shares of its common stock (4,600,000 on a pre-split basis at a price of $5.33 per share ($8.00 on a pre-split basis. According to the Company, the Offering raised approximately $32.5 million in net proceeds, after deducting underwriting discounts and commissions of $2.6 million and offering expenses of $1.8 million. 34. The Registration Statement was materially false and misleading and/or omitted to state that the Company had engaged in illegal and/or unethical marketing practices in connection with the prescription and sale of Subsys. 35. Thus, the Registration Statement was negligently prepared and, as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements made not misleading, and were not prepared in accordance with the rules and regulations governing their preparation. 36. Under applicable SEC rules and regulations, the IPO Registration Statement was required to disclose known trends, events or uncertainties that were having, and were reasonably likely to have, an impact on the Company s continuing operations. 37. With respect to the Company s product Subsys, the Registration Statement, in relevant part, stated: In March 2012, we launched Subsys, our proprietary sublingual fentanyl spray for breakthrough cancer pain, or BTCP, in opioid-tolerant patients, through our costefficient commercial organization of approximately 50 sales professionals. In March 2013, we increased the size of our commercial organization to approximately 67 sales 8
professionals to enhance our Subsys sales and marketing capabilities. In February 2013, Subsys was the second most prescribed branded transmucosal immediaterelease fentanyl, or TIRF, product with 16.1% market share on a prescription basis according to Source Healthcare Analytics. * * * We employ a targeted, cost-efficient approach to commercialization and product development. Our commercial organization utilizes an incentive-based sales model similar to that employed by Sciele Pharma, Inc. and other companies previously led by members of our management team and board, including our founder and Executive Chairman. The physician prescriber base for TIRF products is concentrated with approximately 1,850 physicians writing 90% of all TIRF product prescriptions from the launch of Subsys through February 2013. As a result, we are able to promote Subsys using a highly targeted approach designed to maximize impact with physicians. In the fourth quarter of 2012, our aggregate sales and marketing expenditures were $3.1 million, and we generated $4.8 million in Subsys net revenue. * * * 38. Additionally, the Registration stressed the risk of abuse with Schedule II substances, stating, in relevant part: In addition, products used to treat and manage pain, especially in the case of controlled substances, are from time to time subject to negative publicity, including illegal use, overdoses, abuse, diversion, serious injury and death. These events have led to heightened regulatory scrutiny. Controlled substances are classified by the DEA as Schedule I through V substances, with Schedule I substances being prohibited for sale in the United States, Schedule II substances considered to present the highest risk of abuse and Schedule V substances being considered to present the lowest relative risk of abuse. Subsys contains fentanyl, an opioid, and is regulated as a Schedule II controlled substance, and our Dronabinol SG Capsule is regulated as a Schedule III controlled substance, and despite the strict regulations on the marketing, distributing, prescribing and dispensing of such substances, illicit use and abuse of controlled substances is well-documented. Thus, the marketing of Subsys, Dronabinol SG Capsule and, if approved, our product candidates that contain controlled substances, may generate public controversy that may adversely affect market acceptance of Subsys and Dronabinol SG Capsule and, if approved, such product candidates. 39. On December 12, 2013, after the market close, the Company issued a press release 9
entitled, Insys Therapeutics Receives Subpoena From Office of Inspector General. Therein, the Company, in relevant part, stated: Insys Therapeutics, Inc. (Nasdaq: INSY announced today that it has received a subpoena from the Office of Inspector General of the Department of Health and Human Services ( HHS in connection with an investigation of potential violations involving HHS programs. The subpoena requests documents regarding Subsys, including Insys sales and marketing practices relating to this product. Insys intends to cooperate with the investigation. 40. On this news, shares of the Company s stock declined $4.70 per share, nearly 16%, to close at $25.37 per share on December 13, 2013, on unusually heavy trading volume. 41. On May 8 and May 9, 2014, various news outlets reported that Dr. Gavin Awerbuch, a Michigan neurologist, is under federal investigation and accused of defrauding Medicare for allegedly receiving $6.9 million from January 1, 2009 through February 6, 2014, for Subsys he prescribed to Medicare beneficiaries nationwide during that period. According to an mlive.com news article, Medicare paid Awerbuch $6.9 million from Jan. 1, 2009, through Feb. 6, 2014, for Subsys he prescribed. The next highest amount a U.S. prescriber received was $1.6 million. Awerbuch is responsible for approximately 20.3 percent of the Subsys prescribed to Medicare beneficiaries nationwide during this time, the affidavit stated. He wrote 1,283 prescriptions for the drug in five years, while the next closest prescriber wrote 203 prescriptions, the complaint stated. 42. On this news, shares of the Company s stock declined $6.63 per share, over 17%, to close at $32.68 per share on May 9, 2014, on unusually heavy trading volume. FIRST CLAIM Violation of Section 11 of The Securities Act (Against All Defendants 10
43. Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct. 44. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. 77k, on behalf of the Class, against all Defendants. 45. The Registration Statement for the IPO was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein. 46. Insys is the registrant for the IPO. The Defendants named herein were responsible for the contents and dissemination of the Registration Statement. 47. As issuer of the shares, Insys is strictly liable to Plaintiffs and the Class for the misstatements and omissions. 48. None of the Defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement were true and without omissions of any material facts and were not misleading. 49. By reasons of the conduct herein alleged, each Defendant violated, and/or controlled a person who violated Section 11 of the Securities Act. 50. Plaintiffs acquired Insys shares pursuant and/or traceable to the Registration Statement for the IPO. 51. Plaintiffs and the Class have sustained damages. The value of Insys common stock has declined substantially subsequent to and due to Defendants violations. 11
SECOND CLAIM Violation of Section 15 of The Securities Act (Against the Individual Defendants 52. Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct. 53. This count is asserted against the Individual Defendants and is based upon Section 15 of the Securities Act. 54. Individual Defendants, by virtue of their offices, directorship and specific acts were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of Insys within the meaning of Section 15 of the Securities Act. The Individual Defendants had the power and influence and exercised the same to cause Insys to engage in the acts described herein. 55. Individual Defendants positions made them privy to and provided them with actual knowledge of the material facts concealed from Plaintiffs and the Class. 56. By virtue of the conduct alleged herein, the Individual Defendants are liable for the aforesaid wrongful conduct and are liable to Plaintiffs and the Class for damages suffered. PRAYER FOR RELIEF WHEREFORE, Plaintiffs pray for relief and judgment, as follows: (a Determining that this action is a proper class action under Rule 23 of the Federal Rules of Civil Procedure; (b Awarding compensatory damages in favor of Plaintiffs and the other Class members against all Defendants, jointly and severally, for all damages sustained as a result of Defendants wrongdoing, in an amount to be proven at trial, including interest thereon; 12
(c Awarding Plaintiffs and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; (d (e Awarding rescission or a rescissory measure of damages; and Such other and further relief as the Court may deem just and proper. Plaintiffs hereby demand a trial by jury. JURY TRIAL DEMANDED Dated: GLANCY BINKOW & GOLDBERG LLP By: DRAFT Lionel Z. Glancy Michael Goldberg Robert V. Prongay Elaine Chang 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310 201-9150 Facsimile: (310 201-9160 LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215 638-4847 Facsimile: (215 638-4867 Attorneys for Plaintiff 13