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SNELL & WILMER L.L.P. 

Don Bivens (#005134) 

Nicole E. Sornsin (#027321) 

One Arizona Center 

400 East Van Buren 

Phoenix, AZ 85004-2202 

Telephone: (602) 382-6000 

dbivens@swlaw.com 

nsornsin@swlaw.com 

CRAVATH, SWAINE & MOORE LLP 

Daniel Slifkin (pro hac vice)

David M. Stuart (pro hac vice)

Worldwide Plaza 

825 Eighth Avenue 

New York, NY 10019 

Telephone: (212) 474-1000 

dslifkin@cravath.com 

dstuart@cravath.com 

Attorneys for Defendants 

UNITED STATES DISTRICT COURT 

DISTRICT OF ARIZONA 

Richard Di Donato, Individually and 

On Behalf of All Others Similarly 

Situated,

Plaintiff,

v. 

Insys Therapeutics, Inc.; Michael L. 

Babich; Darryl S. Baker; John N. 

Kapoor; and Alec Burlakoff 

Defendants. 

No. 16-cv-302-NVW 

DEFENDANTS’ MOTION TO 

DISMISS AND MEMORANDUM

OF POINTS AND AUTHORITIES

ORAL ARGUMENT 

REQUESTED

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TABLE OF CONTENTS 

Page

I. INTRODUCTION .................................................................................................... 1

II. STATEMENT OF FACTS ....................................................................................... 2

A. The Company’s Legal and Regulatory Problems Were Publicly 

Disclosed Before the Class Period Began. .................................................... 3

B. The Company Continued Warning Investors During the Time 

Plaintiff Alleges Information Was Concealed. ............................................. 5

1. Plaintiff Alleges That the “Truth Behind Subsys’s Success” 

Began to Be Revealed Even Before He Purchased Any Stock. ......... 5

2. Plaintiff Continues Purchasing Stock Even After More 

Allegedly “Corrective” Information Is Disclosed. ............................. 6

3. Insys Continued To Provide Investors Current Information 

Regarding Its Legal Matters. .............................................................. 7

4. Plaintiff Alleges That Five More Disclosures “Partially 

Corrected” Prior Fraudulent Statements. ........................................... 8

III. ARGUMENT ......................................................................................................... 10

A. Plaintiff’s Section 10(b) Claims Should Be Dismissed. ............................. 10

1. The Complaint Fails To Plead Actionable False or Misleading 

Statements. ....................................................................................... 10

(a) The Complaint Does Not Plead With Particularity 

Why the Challenged Statements, Taken in Context, 

Are False or Misleading. ....................................................... 11

(b) Forward-Looking Statements Are Protected by the 

Statutory Safe Harbor. ........................................................... 16

2. The Complaint Fails to Plead Loss Causation. ................................ 18

B. The Complaint Fails to Plead Facts Giving Rise to a “Strong 

Inference” of Scienter on the Part of Kapoor and Baker, and the 

Claims Against Them Should Be Dismissed. ............................................. 23

(a) Plaintiff’s Inappropriate Group Pleading Fails to Plead 

Facts Giving Rise to a Strong Inference of Scienter. ............ 24

(b) Plaintiff’s Individualized Allegations Fail to Plead 

Facts Giving Rise to a Strong Inference of Scienter. ............ 26

C. Plaintiff’s Claim Against Burlakoff Should Be Dismissed. ....................... 29

D. Plaintiff’s Section 20(a) Claims Should Be Dismissed. ............................. 30

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IV. CONCLUSION ...................................................................................................... 30

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Defendants Insys Therapeutics, Inc., Michael L. Babich, Darryl S. Baker, John N. 

Kapoor and Alec Burlakoff move to dismiss Plaintiff Clark Miller’s Second Amended 

Class Action Complaint (the “Complaint”) for failure to state a claim, pursuant to Rules 9 

and 12(b)(6) of the Federal Rules of Civil Procedure and the Private Securities Litigation 

Reform Act of 1995, 15 U.S.C. § 78u et seq. (“PSLRA”). 

MEMORANDUM OF POINTS AND AUTHORITIES

I. INTRODUCTION

Plaintiff filed the Second Amended Complaint on December 22, 2016, primarily 

to add allegations relating to the indictment of Babich, Burlakoff and other Insys 

employees on December 8, 2016. Plaintiff, however, continues to attack the same 

alleged misstatements outlined in his prior amended complaint and still alleges the same 

basis for securities fraud: Insys’s supposed failure to disclose that Company employees 

provided kickbacks, marketed an Insys product for unapproved uses and committed fraud 

against insurance companies. But, in fact, Insys disclosed both: (1) the risk that such 

conduct could occur, and (2) the fact that Insys was under investigation for such 

conduct—long before Plaintiff or other putative class members bought shares of the 

Company. In addition to Insys’s disclosures, the same information was also reported 

widely in the national news media. 

Although the fact of the indictment was new information, many of the allegations 

it contained already had been publicized. Further, it did not correct any prior alleged 

misstatements. Indeed, Plaintiff’s theory that Insys investors were defrauded is 

inconsistent with other positions he has taken in this case. Plaintiff previously argued 

that the “truth” about Insys was revealed between November 2014 and April 2016, when 

investors supposedly learned that the Company was allegedly an “active criminal 

enterprise” and that “prosecutors [were] moving aggressively in their investigation”.

(ECF No. 67 at p. 2, 27 (brackets in original).) Plaintiff’s Complaint now alleges that it 

was the indictment that caused investors to learn that “Insys was engaged in a multi-year 

nationwide criminal scheme”. (Compl. ¶ 23.) If investors learned the “truth” about the 

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Company’s alleged criminal activity in April 2016, they could not have continued to be 

misled about this activity between April 2016 and December 2016 when the indictment 

was announced. In an effort to increase alleged damages, Plaintiff has identified a series 

of stock drops over a more than two year period, but has failed to identify, with the 

specificity required by the securities laws, what particular information was concealed 

from investors and how the disclosure of such information caused him loss. The 

Complaint should be dismissed. 

II. STATEMENT OF FACTS

Insys manufactures and sells Subsys, a fentanyl product indicated for the treatment 

of breakthrough pain (i.e., an intense increase or flare of otherwise stable and persistent 

pain) experienced by opioid-tolerant adults with cancer. (See Compl. ¶¶ 1, 2.)1

 Plaintiff 

alleges that the Company’s financial statements and other statements made by 

Defendants from August 12, 2014 through December 8, 2016 (the “Class Period”) were 

false and misleading because Defendants failed to inform investors that the Company was 

engaged in an illegal kickback scheme, off-label marketing of Subsys and fraud against 

health insurance companies. (See, e.g., Compl. ¶¶ 12-15.) But the indisputable evidence 

appropriate for a motion to dismiss shows that, during and even long before the Class 

Period, the information Plaintiff claims the Company should have disclosed had already 

been in the public domain. First, the Company had already disclosed that it was under 

federal investigation for such misconduct. Second, before the Class Period, lawsuits with 

the same allegations had been filed against the Company, and the national news media 

had criticized the Company for alleged illegal marketing of its product. Finally, even 

before the Company disclosed actual allegations of kickbacks and off-label marketing, 

Insys repeatedly warned investors of the risk that such improper conduct might occur. 

1

 On a motion to dismiss, courts may consider “the complaint, materials incorporated 

into the complaint by reference, and matters of which the court may take judicial notice”. 

See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1061 & 1064 n.7 

(9th Cir. 2008).

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A. The Company’s Legal and Regulatory Problems Were Publicly 

Disclosed Before the Class Period Began. 

On May 2, 2013, over a year before any members of the putative class bought 

Insys stock, Insys explicitly informed investors of risks that could adversely affect the 

Company’s financial performance, including specifically that the Company’s “employees 

may engage in misconduct or other improper activities” and that the Company could be 

subject to regulatory actions for failing “to comply with federal and state healthcare laws, 

including fraud and abuse and health information privacy and security laws”, which 

prohibit kickbacks and the submission of false claims. (Ex. 1 at 30, 43-44.)2

 This 

warning was repeated or reaffirmed in every subsequent quarterly or annual report filed 

by the Company, before and during the Class Period. (Exs. 2-13.) 

In July 2013, still over a year before the Class Period, a Qui Tam Complaint 

asserting that the Company had violated federal and state False Claims Acts was 

unsealed. (Ex. 14.) The relator, a former sales professional at the Company, alleged that 

the Company: (i) provided kickbacks to physicians in exchange for prescribing Subsys, 

(ii) promoted off-label usage of Subsys, and (iii) improperly encouraged physicians to 

prescribe Subsys at higher dosages than indicated by the FDA-approved label. (Id.

¶¶ 88-113.) The relator specifically alleged that he personally had witnessed Michael 

Babich and Alec Burlakoff, who were then the Company’s CEO and Vice President of 

Sales, respectively, participate in misconduct. (Id. ¶ 101.)

On December 13, 2013, eight months before the Class Period, the Company issued 

a press release disclosing to investors that the Office of the Inspector General of the 

Department of Health and Human Services (“HHS”) was investigating potential 

violations related to the Company’s sales and marketing practices for Subsys. (Ex. 15.)

2

 All “Ex.” references herein are to the Exhibits to the Declaration of Nicole Sornsin, 

which is Exhibit A to Defendants’ Request for Judicial Notice in Support of the Motion 

to Dismiss the Amended Class Action Complaint, filed contemporaneously with this 

Motion.

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On May 13, 2014, three months before the Class Period, The New York Times

published an article entitled “Doubts Raised About Off-Label Use of Subsys, a Strong 

Painkiller”, which characterized the Company’s marketing practices as aggressive and 

potentially improper, and which referenced the then-recent arrest of a Michigan doctor 

charged with Medicare fraud in connection with prescriptions of Subsys. (Ex. 16.)

On May 15, 2014 and May 19, 2014, still three months before the Class Period, 

two putative securities class actions were filed against the Company in this District. 

(Ex. 17; Ex. 18 (collectively, the “Prior Securities Complaints”).) The Prior Securities 

Complaints, repeating allegations in the earlier Qui Tam Complaint, alleged that between 

May 1 or 2, 2013 to May 8, 2014, the Company made false and misleading statements 

indicating that its strong financial performance was attributable to a motivated sales force 

and the quality of its Subsys product, when in fact the Company’s performance was 

driven by off-label marketing of Subsys, kickbacks and efforts to persuade doctors to 

prescribe the medication at higher-than-indicated dosages. (See Ex. 17, ¶¶ 6, 23-35; 

Ex. 18, ¶¶ 7, 22-33, 42-44.)

According to the Prior Securities Complaints: “(i) the Company engaged in illegal 

and/or unethical off label marketing of Subsys; (ii) the Company was exposed to 

potential fines and other disciplinary actions as a result of its Subsys marketing practices; 

and (iii) as a result, the Company’s financial statements were materially false and 

misleading at all relevant times.” (Ex. 17, ¶ 6; see also Ex. 18, ¶ 7.) The Prior Securities 

Complaints allege that when the “truth” was revealed in a series of negative filings and 

news articles, the price of shares of common stock in Insys dropped, causing harm to the 

putative class members. (Ex. 18, ¶¶ 46, 34-35; Ex. 17, ¶¶ 36-41.) The first disclosure 

was the December 12, 2013 Form 8-K disclosing the subpoena from HHS. (Ex. 17, 

¶¶ 36-37.) The second disclosure was a May 8, 2014 Michigan local news report of a 

criminal complaint charging a Michigan doctor with Medicare fraud in connection with 

his prescriptions of Subsys. (Ex. 17, ¶¶ 38-39; Ex. 18, ¶¶ 34-35.) And the third 

disclosure was a May 11, 2014 report by an analyst highlighting the allegations against 

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the Michigan doctor. (Ex. 17, ¶¶ 40-41.)3

B. The Company Continued Warning Investors During the Time Plaintiff 

Alleges Information Was Concealed. 

1. Plaintiff Alleges That the “Truth Behind Subsys’s Success” Began to 

Be Revealed Even Before He Purchased Any Stock.

The Class Period begins in August 2014, when Insys reported its financial results 

for the second quarter of 2014. Plaintiff alleges this report began a “fraudulent scheme to 

mislead investors” concerning the factors that affected Subsys sales. (Compl. ¶¶ 11, 13.) 

Plaintiff also alleges, however, that “[t]he truth behind Subsys’s success” began to be 

revealed almost immediately after the publication of these results. (Compl. 

Section IV.D.) 

On September 12, 2014, near the beginning of the Class Period, after having 

informed investors nine months earlier of an HHS investigation into the Company’s sales 

and marketing practices, the Company disclosed publicly that the U.S. Attorney’s Office 

for the District of Massachusetts was conducting an investigation concerning the 

Company’s sales and marketing practices for Subsys. (Ex. 20.) Despite the additional 

multiple public disclosures discussed above, Plaintiff alleges that this disclosure was the 

one that began the revelation of “[t]he truth behind Subsys’s success”. (Compl. ¶ 315.) 

Although it was this U.S. Attorney’s Office that ultimately pursued the indictment against 

Babich and Burlakoff in 2016, the disclosure of the U.S. Attorney’s investigation 

revealed nothing materially different from the Company’s disclosure nine months earlier 

that a federal investigation was underway. (Compare Ex. 15 with Ex. 20.)

On November 27, 2014, The New York Times published an article entitled “Using 

Doctors with Troubled Pasts to Market a Painkiller”. (Compl. ¶ 316; Ex. 21.) The article 

3

 On October 27, 2014, plaintiffs in the prior securities litigation filed an amended 

complaint (the “Prior Amended Securities Complaint”), which refers to a confidential 

witness who allegedly worked as a “Prior Authorization (PA) specialist” and allegedly 

witnessed improper conduct. (Ex. 19, ¶¶ 84-86.) The consolidated class action litigation 

based on the Prior Amended Securities Complaint was settled on May 28, 2015. Larson

v. Insys Therapeutics, Inc., 14-cv-0143, Dkt No. 66 (D. Ariz.). 

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reported that three doctors received payments through Insys’s speaker program and “were 

said to have inappropriately prescribed painkillers”. (Compl. ¶ 316; Ex. 21 at 2.) It also 

quoted from “former sales representatives” who reportedly said that “they were 

encouraged by the company to call on pain doctors . . . and to reward high-prescribing 

physicians with perks”. (Compl. ¶ 316; Ex. 21 at 3.) Most of the information in the 

article—including Insys’s prior disclosures that it had received subpoenas, reports about 

Insys’s aggressive marketing, and allegations of inappropriate physician prescription 

behavior—was repackaged from previous articles and public filings from before the 

Class Period. (See Exs. 15-18.) Nonetheless, Plaintiff alleges that the article “partially 

(but incompletely) revealed . . . Insys’ illegal promotion of Subsys for off-label use [and] 

illegal kickback payments”. (Compl. ¶ 400.) 

On April 24, 2015, the Southern Investigative Reporting Foundation (“SIRF”) 

published an article entitled “Insys Therapeutics and the New ‘Killing It’”. (Ex. 22; 

Compl. ¶¶ 317-18.) The article referred to “data show[ing] that Subsys is proving lethal 

to a growing number of patients, many of whom . . . are taking it for so-called off-label 

indications”, and described the allegations in The New York Times articles, the Qui Tam 

Complaint and the Prior Amended Securities Complaint. (Ex. 22.) The article also 

discussed Heather Alfonso, a Connecticut-based nurse practitioner who surrendered her 

prescription-writing licenses during an investigation into her conduct related to Subsys, 

and noted that former Insys employees had been subpoenaed by the federal grand jury in 

Massachusetts or had been interviewed by HHS. (Ex. 22 at 11.)

Despite all of this negative public information about Insys that Plaintiff himself 

alleges revealed the “truth” about the Company, Plaintiff made his first purchase of 

nearly $15,000 of stock after this information was disclosed on May 19, 2015. (Friedman 

Decl. Ex. A, ECF No. 34-1.) 

2. Plaintiff Continues Purchasing Stock Even After More Allegedly 

“Corrective” Information Is Disclosed.

On May 20, 2015, the U.S. Attorney’s Office for the Southern District of Alabama 

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announced that two Alabama-based physicians had been indicted on healthcare fraud 

charges. (Compl. ¶ 319; Ex. 23.) Neither the press release nor the indictment mentioned 

Subsys or Insys. (Id.) And on June 23, 2015, Alfonso’s Information and Plea Agreement 

were entered onto the electronic docket in the U.S. District Court in Connecticut.

(Compl. ¶ 321; Exs. 24-25.) As previously explained, news of the Alfonso investigation 

had already been public information. (See supra p. 6.) Subsequently, on June 25, an 

article published by The New York Times entitled “Nurse Pleads Guilty to Taking 

Kickbacks from Drug Maker”, reported on Alfonso’s guilty plea to receiving illegal 

payments in exchange for writing Subsys prescriptions. (Compl. ¶ 321; Ex. 26.) The 

article noted that the Company had “previously acknowledged that it [was] under federal 

investigation”, and linked to and repeated information from the two prior New York 

Times articles, including the one from before the start of the Class Period. (Ex. 26.)

Nonetheless, Plaintiff alleges that these events “revealed some of the relevant truth . . . 

concerning Subsys”. (Compl. ¶¶ 408, 412.) 

On June 8, 2015, Plaintiff sold all his shares for $17,690, a profit of $2,780. 

(Friedman Decl. Ex. A, ECF No. 34-1.) The next day, on July 9, 2015, Plaintiff 

purchased additional Insys stock. (Friedman Decl. Ex. A, ECF No. 34-1.)

3. Insys Continued To Provide Investors Current Information 

Regarding Its Legal Matters.

Although not alleged by Plaintiff to be “corrective disclosures”, Insys provided 

investors current information about the continuing regulatory investigations during the 

time Defendants are alleged to have continued concealing facts about Insys. On 

August 5, 2015, the Oregon Attorney General’s Office announced that it had reached a 

settlement with Insys to resolve allegations that Insys had marketed Subsys off-label and 

provided improper financial incentives to doctors to increase Subsys prescriptions.

(Ex. 27.) In the settlement, Insys did not admit to any violation of law or regulation.

(See Ex. 35 at 3.) The next day, in its quarterly filing, the Company informed investors 

of the Oregon settlement and that Alfonso had pleaded guilty to violating the federal 

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Anti-Kickback Statute in connection with payments of approximately $83,000 from the 

Company. (Ex. 11 at 10-11.) The Company stated that it was investigating the matter.

(Id.) In the same filing, the Company also informed investors that the offices of the 

Attorneys General of Arizona, Illinois and Massachusetts were each investigating the 

Company’s sales and marketing practices. (Ex. 11 at 11.)

4. Plaintiff Alleges That Five More Disclosures “Partially Corrected” 

Prior Fraudulent Statements.

Plaintiff then alleges several “partial corrective disclosures” around the date of 

Insys’s third quarter 2015 financial results. On November 4, 2015, the day before Insys 

released its third quarter financial results, CNBC published an article entitled “The pain 

killer: A drug company putting profits above patients”. (Compl. ¶¶ 415-17; Ex. 28.)

The article, written with the assistance of the author of the prior SIRF article, relied on 

the Prior Amended Securities Complaint, past reporting by SIRF, the Company’s public 

filings, the Oregon settlement, the Alfonso plea and unnamed sources to describe the 

conduct that was alleged in those prior sources. (Ex. 28.) The article also stated that 

HHS had placed Subsys on a list of “new diversion drugs of concern”, indicating that 

Subsys may have been prescribed for unintended uses. (Ex. 28 at 2.) The next day, Insys 

announced its third quarter 2015 financial results and also disclosed that Defendant 

Babich was resigning from his position as CEO and that Defendant Kapoor had been 

appointed President and CEO of the Company. (Compl. ¶ 325; Exs. 29-30.)4

SIRF published two additional articles on December 3, 2015 and January 25, 2016 

that Plaintiff alleges were also “partial corrective disclosures”. (Compl. ¶¶ 423, 427.)

The December article, entitled “Murder Incorporated: Insys Therapeutics, Part I”, cited 

anonymous sources to allege that Michael Babich had been forced to resign by Kapoor 

and that the Company was operating an illegal kickback scheme to promote off-label 

4

 On January 9, 2017, the Company announced that Kapoor had retired as Chairman, 

President and CEO of the Company. (Ex. 49.)

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marketing of Subsys. (Compl. ¶ 326; Ex. 31.) The January article, entitled “The 

Brotherhood of Thieves: Insys Therapeutics”, alleged that the Company was continuing 

to engage in improper off-label marketing of Subsys. (Compl. ¶ 330; Ex. 32.) Both 

articles cited and quoted from the prior articles and filings. (Exs. 31-32.)

Plaintiff’s prior amended complaint alleged that the final “corrective disclosure” 

occurred on April 11, 2016, when Insys announced that its first quarter 2016 revenues 

would be lower than expected. (Compl. ¶ 432.) The announcement, however, said 

nothing about off-label marketing or kickbacks.

Between April and December 2016, investors learned of additional events 

concerning the Company: (1) the arrest of a former District Manager and a former sales 

representative for allegedly providing kickbacks in June 2016 (Compl. ¶ 337), (2) a 

complaint against the Company by the State of Illinois in August 2016 containing similar 

allegations previously made by other governmental entities (Compl. ¶ 338), (3) the arrest 

of a former District Sales Manager for allegedly providing kickbacks in September 2016 

(Compl. ¶ 339), (4) a letter from a U.S. Senator to the Administrator of the Centers for 

Medicare and Medicaid Services, allegedly raising concerns about Medicare coverage for 

Subsys, which was sent in October 2016 (Compl. ¶ 340), and (4) the arrest of a former 

Manager of Reimbursement Services in October 2016 for allegedly conspiring to defraud 

health insurance companies (Compl. ¶ 341), and (5) the guilty plea by a physician who 

had prescribed Subsys to healthcare fraud and unlawful prescription of Subsys for no 

legitimate medical purpose, in November 2016 (Compl. ¶ 342). 

Although Plaintiff alleges that these events were part of the way in which “the 

truth behind Subsys’s success [was] slowly revealed”, they are not alleged to have caused 

investors any loss. Plaintiff instead alleges that on December 8, 2016, as a result of the 

indictment, investors finally “learned that Insys was engaged in a multi-year nationwide 

criminal scheme, orchestrated and executed by the Company’s highest-ranking 

executives, to increase revenues from selling Subsys” from the “very illegal payment of 

kickbacks to prescribers and insurance fraud” Plaintiff alleges had been revealed since 

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2014. (Compl. ¶ 435.) 

III. ARGUMENT

Although the Court assumes, for purposes of a motion to dismiss, that all factual 

allegations in the complaint are true, “the court need not . . . accept as true allegations 

that contradict matters properly subject to judicial notice or by exhibit. Nor is the court 

required to accept as true allegations that are merely conclusory, unwarranted deductions 

of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 

988 (9th Cir. 2001) (citations omitted). 

Plaintiff’s claim for securities fraud should be dismissed in its entirety because it 

fails to plead sufficiently a misrepresentation or omission of a material fact and loss 

causation. The Complaint also fails to plead scienter against Kapoor and Baker, and 

several elements of a securities fraud claim against Burlakoff.

A. Plaintiff’s Section 10(b) Claims Should Be Dismissed.5

1. The Complaint Fails To Plead Actionable False or Misleading 

Statements.

Plaintiff’s Second Amended Complaint relies on the same alleged misstatements 

as his prior complaint. Those remain inactionable for the same reasons presented in 

Defendants’ prior motion to dismiss, and the new allegations do not affect that analysis.

To allege claims for securities fraud, the complaint must allege that a defendant made a 

false statement—“an untrue statement of a material fact”—or a misleading statement—a

statement that omits “a material fact necessary in order to make the statements made, in 

light of the circumstances in which they were made, not misleading”. 15 U.S.C. § 78u4(b)(1)(A)-(B). The complaint must plead with particularity “each statement alleged to 

have been misleading” and “the reason or reasons why the statement is misleading”. 15 

U.S.C. § 78u-4(b)(1). Although Plaintiff consistently conflates these two concepts 

5

 In the prior amended complaint, Plaintiff added a new Defendant, Alec Burlakoff.

Because Burlakoff is alleged only to have made misstatements attributed to him by a 

single article, the arguments for dismissal of the claim against him are presented 

separately at the end of this Memorandum. (See infra pp. 29-30.) 

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throughout the Complaint by alleging that statements were “false and misleading” (see,

e.g., Compl. ¶¶ 172, 179, 189, 195, 201), they are distinct, and Plaintiff fails to plead any 

misstatements with the particularity required, or explain why any statements were either 

false or misleading. Plaintiff also challenges forward-looking statements, which are 

inactionable as a matter of law.

(a) The Complaint Does Not Plead With Particularity Why the 

Challenged Statements, Taken in Context, Are False or 

Misleading.

Plaintiff challenges three categories of statements as “false and misleading”, none 

of which are properly pled. First, the Complaint challenges statements concerning the 

financial results, historical sales, growth, profitability and marketing strategy for Subsys.6

Plaintiff does not allege that any of this financial information (e.g., revenue or growth 

numbers) was actually false. In addition, Plaintiff does not allege that the reasons 

provided for the growth of Subsys revenues—the “successful execution” of the 

Company’s strategy, “a clinically superior product”, “change in the mix of prescribed 

dosages” or that Subsys “helps” patients—were not, in fact, factors that affected revenue.

Plaintiff also alleges that the Company’s statements that it marketed Subsys by 

“building awareness among oncologists” and that the Company had “some very unique 

programs in the oncology setting”, both in March 2015, were false. (Compl. ¶¶ 268, 

272.) Plaintiff relies on the allegation that Burlakoff instructed sales representatives “to 

avoid meeting with oncology doctors and pain specialists” at a national sales meeting 

sometime in 2014 (Compl. ¶¶ 113, 275), but that does not mean that the Company did not 

make efforts to educate oncologists about Subsys at the time these statements were made 

in 2015.7

6

 (Compl. ¶¶ 251, 254, 260-62, 267-68, 271-72, 282-84, 292, 297-98, 300-01, 309.) 

7Relatedly, Plaintiff confuses the issue by alleging that it was somehow improper for 

the Company to focus marketing efforts on physicians who already prescribed other 

drugs in the same class as Subsys, all of which are approved only for BTCP, which is a 

strategy that was previously disclosed to investors. (Compl. ¶¶ 115-17.) But physicians 

who prescribe drugs in the TIRF class (including Actiq and Subsys) are required to enroll 

in the restrictive TIRF REMS program mandated by the FDA. (Ex. 50.) Physicians who 

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As for being misleading, the Complaint alleges that each of these statements was 

“false and misleading” because the Company failed to disclose that Subsys revenues 

“were the result of Insys’s illegal promotion” or of “wide-ranging, pervasive insurance 

fraud”.8

 The Ninth Circuit, however, “has consistently held that the PSLRA’s falsity 

requirement is not satisfied by conclusory allegations that a company’s class period 

statements regarding its financial well-being are per se false based on the plaintiff’s 

allegations of fraud generally”. Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 

F.3d 1049, 1070 (9th Cir. 2008). In Metzler, the plaintiff alleged that the company’s 

purported “fraudulent practices” rendered its public statements about its “financial wellbeing” “either affirmatively false or false by way of omission” (i.e., misleading). Id. The 

court held that the allegation in a complaint of fraud was insufficient to render a 

company’s public statements false or misleading for failing to disclose that supposed 

fraud. Id. at 1070-71 (rejecting the notion that “statements regarding [a company’s] 

financial status were false because they ‘create the false impression that defendants ran 

their business with proper financial reporting compliance’”). Plaintiff’s allegations here 

are similarly generalized as those found to be insufficiently pled in Metzler and 

accordingly cannot be the basis for a securities fraud claim. 

Further, and most importantly, none of the Company’s statements could have been 

misleading because the Company explicitly disclosed that the conduct that Plaintiff 

enroll in the TIRF REMS must review an Education Program concerning TIRFs and their 

approved use, successfully complete a Knowledge Assessment and acknowledge their 

understanding that, although they are not precluded from prescribing TIRFs for other 

uses, TIRFs are indicated only for breakthrough cancer pain. (Ex. 50.) And although the 

manufacturer of Actiq had pled guilty to off-label marketing in 2008, the manufacturer 

had entered into a Corporate Integrity Agreement that imposed extensive remedial 

measures concerning its interactions with physicians and required an independent 

monitor to review its compliance with those measures, negating any assumption that, 

years later, Actiq prescribers remained tainted by off-label marketing. (Ex. 51.) Plaintiff 

also acknowledges that some insurers require that patients try Actiq before using Subsys. 

(Compl. ¶ 270.) For all these reasons, it is not plausible to infer that marketing to Actiq 

prescribers necessarily constituted off-label marketing.

8

 (See Compl. ¶¶ 257, 264, 274, 286, 294, 304, 310.) 

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claims the Company concealed was being investigated and challenged in civil 

proceedings. See In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1414 (9th Cir. 1994) 

(referring to the “unremarkable proposition that statements must be analyzed in context”).

The Company never denied or misled investors about any investigation, but rather 

informed investors of specific law enforcement investigations into the very type of 

employee misconduct about which the Company had warned since going public in 2013.9

Cf. Metzler Inv., 540 F.3d at 1071 (concluding that failing to disclose regulatory 

investigations did not render defendant company’s public statements about revenue and 

growth false or misleading because the connection between the statements and the 

investigations was “extraordinarily vague”). In addition, in each SEC filing since Insys 

went public, the Company informed investors of the significant risks associated with 

employee misconduct in marketing and sales practices and other activity in the highly 

regulated industry in which the Company operates.10 Investors were informed of these 

risks by each of the Company’s public filings starting before the Class Period. (Exs. 1-

13.) Specifically, investors were expressly warned “our employees may engage in 

misconduct or other improper activities” including “intentional failures to comply with 

FDA regulations . . . [and] with federal and state healthcare fraud and abuse laws and 

regulations” and that “[e]mployee misconduct could also involve . . . illegal promotion of 

a drug product for off-label use”. (Ex. 5 at 41; see also, e.g., Ex. 2 at 38; Ex. 9 at 39.) In 

light of this and other similar repeated disclosures, Defendants’ statements were not 

misleading as a matter of law because the allegedly omitted information was made public 

both by Insys and by others. 

Second, the Complaint challenges statements concerning the Company’s 

interactions with healthcare insurers. (See Compl. ¶¶ 252-53, 261, 269-70, 284, 293, 302, 

9

 (Ex. 7 at 12; Ex. 8 at 10-11; Ex. 9 at 84-85; Ex. 10 at 11-12; Ex. 11 at 10-11; Ex. 12 

at 10-11; Ex. 13 at 85-86; Ex. 15; Ex. 35 at 4.) 

10 (Ex. 1 at 30, 38-39, 43-44; Ex. 2 at 38, 44-45,48; Ex. 3 at 27; Ex. 4 at 25; Ex. 5 

at 41, 46-48; Ex. 6 at 27; Ex. 7 at 29; Ex. 8 at 29; Ex. 9 at 22, 39, 43-46; Ex. 10 at 29; 

Ex. 11 at 29-30; Ex. 12 at 30; Ex. 13 at 36, 40-42.) 

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303, 313.) The Complaint repeatedly alleges that those statements were “false and 

misleading” because Defendants failed to disclose that Subsys revenues were the result of 

“the creation and utilization of” an Insurance Reimbursement Center (also known as the 

Patient Services Center or “IRC”) “to surreptitiously engage in wide-ranging, pervasive 

insurance fraud”. (See, e.g., Compl. ¶ 257.)

When examined in context, many of the statements challenged by Plaintiff are not 

only not “false”, but have nothing to do with the IRC. For example, Defendant Babich 

stated that “We continue to proactively work with managed care providers to ensure 

coverage”. (Comp. ¶ 252.) The plain meaning of this statement, expressed in the very 

next sentence of the disclosure cited by Plaintiff, is that the Company had worked to 

“maintain Tier 3 coverage under nearly all major insurance plans”—i.e., to ensure that 

insurance plans covered Subsys in the first place, not to ensure that they granted prior 

authorizations. (Compl. ¶ 252.) Similarly, Defendant Babich’s statement that “we 

continue to properly communicate with all the major plans and the [pharmacy benefit 

managers] to ensure proper access for Subsys” also referred to the Company’s efforts to 

ensure Subsys would remain covered by health insurance plans. (Ex. 34 at 9; Compl. 

¶ 12.) The statements made about the IRC—such as that the IRC was created to “provide 

administrative patient support assistance”—are not false because Plaintiff does not allege 

that the IRC does not exist or did not actually provide such assistance. (See Compl.

¶¶ 212, 269, 284, 293, 302.) 

All this leaves Plaintiff with the argument that the statement was misleading 

because the statement omitted that the IRC’s “true purpose” was “defrauding third-party 

payers into approving insurance coverage for off-label prescriptions of Subsys”. (E.g.,

Compl. ¶ 212.) Plaintiff cannot base his securities fraud claim, however, on the 

allegation that general statements about the Company left the misimpression that its 

performance was due to “legitimate business means that could be expected to continue”.

See Metzler Inv., 540 F.3d at 1057, 1071. Moreover, before and throughout the Class 

Period, in many of the Company’s disclosures challenged as misleading, investors were 

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given prominent, specific information concerning the risk of employee misconduct (see

Ex. 5 at 41; see also, e.g., Ex. 2 at 38; Ex. 9 at 39), as well as the heightened regulatory 

risks posed by the Company’s utilization of an insurance reimbursement support hub, 

including that it is “subject to extensive and complex federal and state laws” and that 

“companies that violate such laws, regulations and standards may face substantial 

penalties”. (See, e.g., Ex. 9 at 24; Ex. 8 at 29; Ex. 7 at 17.) In light of these express 

disclosures, the challenged statements could not have been misleading because they 

omitted a statement of the risk of misconduct involving the IRC. 

Third, the Complaint challenges as “false and misleading” statements made later 

in the Class Period about the Company’s investigation into employee misconduct, and its 

policies and procedures relating to compliance.11 These statements were not false. For 

example, Plaintiff challenges as “false and misleading” the Company’s statement in a 

press release and earnings call that the Company was “committed to complying with 

laws”. (Compl. ¶¶ 289, 291.) But these statements were made in the context of the 

Company announcing its settlement of claims with the Oregon Department of Justice, 

and simply described the Company’s future goals (Ex. 35 at 3; Ex. 36 at 6). Thus, they 

are not rendered false or misleading by allegations of past misconduct. Similarly, 

Plaintiff challenges the statement in the Company’s Form 10-Q that the Company had 

“taken a number of remedial actions and implemented enhancements to the Company’s 

compliance controls regarding relationships with health care providers”, but would 

“continue to assess these matters to ensure we have an effective compliance program”. 

(Compl. ¶ 303; Ex. 12 at 11.) Plaintiff does not allege that the Company did not take 

remedial actions, nor does Plaintiff allege that Insys stopped assessing its compliance 

program or stopped working to make it effective. Similarly, the Company’s statement in 

January 2016 that it was “striv[ing] to comply with applicable laws and regulations” and 

required its personnel to “undergo specific training on applicable laws and regulations” 

(Compl. ¶ 313) is not rendered untrue by allegations that employees had earlier engaged 

11 (See Compl. ¶¶ 278, 289, 291, 303, 309, 313.) 

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in misconduct. 

Further, these statements were not misleading because none was a guarantee that 

the risk of employee misconduct had been eliminated; rather, each was accompanied by 

disclosures of the very risks Plaintiff alleges were omitted. Throughout the Class Period, 

including in the very documents Plaintiff cites for these alleged misleading statements, 

the Company provided and referenced warnings about the risk of employee misconduct. 

(See Ex. 35 at 4 (citing the “Risk Factors” in the Company’s public filings, which 

included the risk of employee misconduct); Ex. 36 at 1 (citing risks noted in the press 

release and public filings); see, e.g., Ex. 5 at 41 (disclosing the risk of employee 

misconduct); Ex. 2 at 38 (same); Ex. 9 at 39 (same).)12 Finally, to the extent Plaintiff 

alleges that such statements are misleading for failing to disclose the purported ongoing 

fraud, that type of allegation is, again, insufficient as a matter of law. See Metzler Inv.,

540 F.3d at 1071. 

(b) Forward-Looking Statements Are Protected by the Statutory 

Safe Harbor.

Many of the statements challenged by Plaintiff are “forward-looking statements” 

that cannot form the basis of a claim under the securities laws.13 The PSLRA provides a 

“safe harbor” for “forward-looking statements” if the statement is “identified as a 

12 Plaintiff alleges that Defendant Kapoor’s statement concerning Babich’s reasons 

for resigning in November 2015 was false and misleading, because it concealed that 

Babich “had been forced out as a result of the intensity and focus of multiple related 

regulatory investigations”. (Compl. ¶ 306.) However, the regulatory investigations were 

never concealed from investors but instead were fully described in multiple disclosures 

throughout the Class Period. In his prior briefing, Plaintiff argued that the statement was 

misleading because it “concealed that Kapoor fired Babich due to his role in the 

misconduct being investigated” (ECF No. 67 at p. 16 n.9), but Plaintiff’s Complaint 

contains no particular allegations supporting that argument and only alleges that Kapoor 

caused Babich to resign because “‘Babich was closest to the issues’ under investigation 

and that a change was necessary to appease government regulators” (Compl. ¶ 326), not 

that he was “fired” due to misconduct. The indictment, which came more than a year 

after Babich resigned, also could not have rendered Kapoor’s statement false when made.

13 (See Compl. ¶¶ 251, 267, 268, 269, 282, 284, 293, 297, 298, 302, 303.) 

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forward-looking statement, and is accompanied by meaningful cautionary statements 

identifying important factors that could cause actual results to differ materially from 

those in the forward-looking statement” or plaintiffs do not plead that the statement was 

made “with actual knowledge” that the statement was false or misleading. 15 U.S.C. 

§ 78u-5(c)(1); see In re Cutera Sec. Litig., 610 F.3d 1103, 1111-13 (9th Cir. 2010). 

For example, Plaintiff alleges that it was false and misleading when Defendant 

Babich stated on a March 3, 2015 earnings call that “I think Q4 is a great indication of 

what we can do with the product moving forward as well. . . . I’ve always talked about, 

from a market share, our next total is 50% market share. . . . So I think long term we can 

eventually get to that 60% market share for this product.” (Compl. ¶ 268.) Plainly, when 

“examined as a whole, the challenged statement[] relate[s] to future expectations and 

performance”. Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 

1059 (9th Cir. 2014).

This and the other forward-looking statements are in the “safe harbor” because 

they were identified as forward-looking statements and were accompanied by meaningful 

cautionary statements in every SEC filing, press release and earnings announcement cited 

by the Complaint.14 In addition, the Company informed investors in its SEC filings that 

there were “important factors that could cause actual results to differ materially from 

those in the forward-looking statement[s]”. 15 U.S.C. § 78u-5(c)(1)(A); see Police Ret. 

Sys., 759 F.3d at 1058. In particular, the Company expressly warned investors of the 

same regulatory and compliance risks Plaintiff now erroneously contends were 

concealed. (See, e.g., Ex. 9 at 22, 39, 43; see also Exs. 10-12.) When forward-looking 

statements are accompanied by such cautionary statements, the statements cannot be used 

as the basis of a securities law claim as a matter of law. See In re Cutera, 610 F.3d at 

1112.

14 (See Ex. 9 at 39, 43, 57; Ex. 10 at 17, 29; Ex. 11 at 16-17, 29-30; 17-18, 29; Ex. 29 

at 2; Ex. 30 at 4; Ex. 33 at 1-2; Ex. 35 at 5; Ex. 37 at 2-3; Ex. 38 at 3; Ex. 39 at 3-4; 

Ex. 40 at 5; Ex. 41 at 4-5; Ex. 42 at 4-6; Ex. 43 at 4-5; Ex. 44 at 5-6; Ex. 45 at 4; Ex. 46 

at 4.)

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2. The Complaint Fails to Plead Loss Causation.

As in the first Amended Complaint, the Plaintiff still fails to sufficiently plead 

another essential element of a securities fraud claim: loss causation. In Dura 

Pharmaceuticals, the Supreme Court made clear that plaintiffs must plead a causal link 

between alleged misrepresentations and actual economic loss by alleging that the 

revelation of the misrepresentation caused the price of the security to decrease. Dura

Pharmaceuticals, Inc., v. Broudo, 544 U.S. 336, 342-46 (2005). Accordingly, with the 

particularity required by Rule 9(b) and the PSLRA, Plaintiff must “allege specific 

statements . . . that were made untrue or called into question by subsequent public 

disclosures”. Oregon Pub. Emp. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 608 (9th 

Cir. 2014).

In Plaintiff’s first Amended Complaint, he merely tracked stock price drops and 

then deemed whatever event occurred that day a “partial corrective disclosure”, even if it 

contained no new news that undermined prior statements. For the same reasons 

discussed in Defendants’ prior motion to dismiss, this approach does not sufficiently 

plead loss causation. Plaintiff’s Second Amended Complaint differs only in that it adds 

the indictment of Babich and Burlakoff on December 8, 2016, as an additional, final 

corrective disclosure, and alleges that as a result of the indictment, investors finally 

“learned that Insys was engaged in a multi-year nationwide criminal scheme, orchestrated 

by the Company’s highest-ranking executives”. (Compl. ¶ 23.) But the fact of this new 

allegation means that none of the alleged “partial corrective disclosures” prior to 

December 2016 could have constituted “new news” that rendered untrue an alleged 

misstatement. Indeed, Plaintiff previously argued that investors learned that Insys was an 

“active criminal enterprise” by April 2016. (ECF No. 67 at p. 2.) Plaintiff cannot argue 

coherently both that investors learned this alleged “truth” about Insys between August 

2014 and April 2016, and that the “truth” was finally revealed only in December 2016 as 

a result of the indictment. 

Many of the so-called partial corrective disclosures repeat allegations that were 

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contained in the Qui Tam Complaint or in the Prior Securities Complaints and, thus, were 

not new news. For example, the SIRF articles extensively quote or paraphrase 

allegations contained in the Qui Tam and Prior Securities Complaints, including 

allegations concerning kickbacks, off-label marketing of Subsys and efforts to persuade 

physicians to prescribe a higher-than-indicated dose. (Exs. 22, 31.) The Prior Securities 

Complaints, which were filed in 2014 long before the Class Period, were obviously 

known to the market. Indeed, the Company specifically disclosed the underlying 

litigations in its August 12, 2014 Form 10-Q and in subsequent SEC filings. (Exs. 7-13.)

The Prior Securities Complaints, in turn, repeated many of the allegations from the earlier 

Qui Tam Complaint that had become public well before the beginning of the Class 

Period. 

Examining each alleged “partial corrective disclosure” further demonstrates that 

Plaintiff has failed to plead with the requisite particularity how any of the alleged 

disclosures contained new news that “made untrue or called into question” any of the 

alleged misstatements. See Apollo Grp., 774 F.3d at 608. The first two events—the 

November 27, 2014 New York Times article and the April 24, 2015 SIRF article—were 

published prior to Plaintiff’s stock purchases in May and July 2015, and therefore could 

not have caused his loss. (Compl. ¶¶ 399, 403.) Despite Plaintiff’s conclusory assertion 

that the New York Times article revealed an “illegal kickback scheme” (Compl. ¶ 399), 

the article does not reveal the existence of such a scheme, but rather focuses on individual 

doctors and sales representatives. (Ex. 21). Plaintiff admits as much when he notes that 

the article describes a practice that investors would only “later learn” was an unlawful 

kickback scheme. (Compl. ¶ 399.) 

Moreover, the only portion of the SIRF article that Plaintiff particularly claims 

was a corrective disclosure—a government investigation that the Company disclosed 

publicly on September 2014 (Compl. ¶¶ 403-04; Ex. 22)—has been rejected by the Ninth 

Circuit as insufficient, without more, to plead loss causation. See Loos v. Immersion 

Corp., 762 F.3d 880, 890 (9th Cir. 2014) (“While the disclosure of an investigation is 

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certainly an ominous event, it simply puts investors on notice of a potential future

disclosure of fraudulent conduct. Consequently, any decline in a corporation’s share 

price following the announcement of an investigation can only be attributed to market 

speculation . . . [and] cannot form the basis of a viable loss causation theory.”). 

The third event—a May 20, 2015 announcement that two doctors were indicted 

for unlawfully distributing unspecified Schedule II controlled substances—does not 

mention Insys, Subsys or any off-label marketing or kickback scheme. (Compl. ¶¶ 407-

09; Ex. 23.) 

The fourth event was the June 23, 2015 guilty plea by Heather Alfonso and a New

York Times article about the plea two days later. (Compl. ¶¶ 411-13; Exs. 24-26.) 

Plaintiff points to nothing specific in either statement that disclosed new information 

about the Company. Instead, he merely repeats that these events “revealed new 

information that was previously concealed”. (Compl. ¶¶ 408, 412.) Plaintiff’s only 

attempt at specificity is an allegation that the New York Times article states that the 

“guilty plea was a signal that prosecutors were intensifying their investigation of the 

Company’s marketing practices”. (Compl. ¶ 411.) But this is the New York Times’s 

speculation, and, as explained, an investigation, “simply puts investors on notice of a 

potential future disclosure of fraudulent conduct” and is “insufficient to establish loss 

causation”. See Loos, 762 F.3d at 890. Furthermore, the revelation that an individual 

was punished for misconduct is not analogous to a disclosure of Company-wide unlawful 

conduct. See Metzler Inv., 540 F.3d at 1063 (investigation of one campus out of 88 was 

not a revelation of a for-profit university’s company-wide scheme).

The fifth event was the publication of a CNBC article on November 4, 2015. 

(Compl. ¶¶ 415-17.) Plaintiff claims that this article disclosed that Subsys was placed, 

presumably alongside other drugs, on an internal HHS list of “new diversion drugs of 

concern”, where “diversion is defined as ‘a form of medical fraud that can include 

doctors prescribing drugs for unintended uses’”. (Compl. ¶ 415.) However, HHS’s 

labeling Subsys a diversion drug is not a disclosure that the Company had been engaged 

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in off-label marketing or a kickback scheme. Rather, as Plaintiff himself alleges, this 

label only means that doctors might be prescribing the drug for unintended uses (Compl. 

¶ 415), or, as another of Plaintiff’s sources indicates, means that Subsys is “the most 

frequently stolen or fraudulently obtained” (Ex. 31 at 3). None of these accusations 

revealed that any prior statement by any Defendant was false or misleading. 

The sixth supposed disclosure was the resignation of Babich on November 5, 

2015. (Compl. ¶¶ 419-21.) Unsurprisingly, Plaintiff points to no particular disclosure 

that arose out of Babich’s resignation, as there was nothing revealed except the fact that 

Babich was resigning. (Compl. ¶ 419.) Furthermore, although Plaintiff is correct that the 

stock price dropped from $26.38 to $25.43 between November 4 and November 5, by the 

end of trading on November 6, the price had not only recovered, but had increased to 

close at $27.3915, negating any plausible inference that the resignation had revealed 

information that caused a loss to Plaintiff. See Metzler Inv., 540 F.3d at 1064.

The seventh and eighth events were SIRF articles on December 3, 2015 and 

January 25, 2016, which Plaintiff claims revealed that Insys’s “prior authorization unit” 

provided false information to pharmacy benefit managers so that they would cover 

Subsys. (Compl. ¶¶ 423-31; Exs. 31, 32.) But those allegations were recycled from the 

Prior Amended Securities Complaint, which was filed on October 27, 2014, and which 

even refers to a confidential witness who allegedly worked in the “prior authorization 

unit” and witnessed improper conduct. (Ex. 19, ¶¶ 84-86.) Plaintiff also alleges that, 

contrary to Kapoor’s November 5, 2015 statement, the December 3, 2015 SIRF article 

revealed that Babich had been forced to resign because of the various government 

investigations into the Company. (Compl. ¶¶ 423-24.) However, this quote attributed to 

an anonymous “senior Insys executive” is wholly unreliable, and there is no allegation 

that Babich resigned because of a Company-wide off-label marketing or kickback 

scheme. Rather, the anonymous executive states only that Kapoor said that Babich had to 

resign because he was “closest to the issues that federal prosecutors were looking at and 

15 See http://www.nasdaq.com/symbol/insy/historical. 

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that a change had to be made should settlement talks become serious”. (Ex. 31 at 1; 

Compl. ¶¶ 326, 382.)

The ninth alleged event is a Company press release announcing net revenues on 

April 11, 2016, which Plaintiff alleges were lower than expected. (Compl. ¶¶ 332, 432-

34.) However, the press release itself does not reveal anything about an alleged off-label 

marketing or kickback scheme. (Ex. 33.) Moreover, an announcement of lower earnings 

is not an implicit corrective disclosure of a fraudulent scheme that forms a basis for loss 

causation. See Metzler Inv., 540 F.3d at 1064-65 (rejecting announcement of lower 

earnings as implicit disclosure of an underlying fraudulent scheme). Although the 

Company’s stock price dropped after the April 11, 2016 announcement, the “far more 

plausible reason for the resulting drop” was not fraud, see id. at 1065, but is admitted in 

Plaintiff’s own allegations: “revenues [were] significantly lower than consensus 

expectations” (Compl. ¶ 432).

Finally, Plaintiff now alleges that it was only in December 2016 when investors 

learned “that Insys was engaged in a multi-year nationwide criminal scheme, orchestrated 

and executed by the Company’s highest-ranking executives, to increase revenues from 

selling Subsys”. (Compl. ¶ 435.) Although the indictment of the Company’s former 

CEO and others is undeniably a significant, new event affecting the Company, Plaintiff 

still has failed to identify with the required particularity any alleged misstatement that 

was rendered untrue by this disclosure, and consequently has failed to allege loss 

causation with respect to this disclosure as well. See Apollo Grp., 774 F.3d at 608. 

In the alternative, Plaintiff invokes the “materialization of the risk theory”. (See,

e.g., Compl. ¶¶ 428-30.) Under that theory, a plaintiff may plead loss causation, without 

a “corrective disclosure”, by alleging that a risk materialized that was “within the zone of 

risk concealed by the misrepresentations and omissions”. Nuveen Mun. High Income 

Opportunity Fund v. City of Alameda, 730 F.3d 1111, 1120 (9th Cir. 2013) (internal 

citation omitted). However, “[t]he Ninth Circuit has not adopted the materialization of 

the risk approach” for loss causation. Id. at 1122 n.5. Although some district courts in 

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this Circuit have experimented with the theory, the Court of Appeals more recently 

required that plaintiffs allege “specific statements made by the Defendants that were 

made untrue or called into question by subsequent public disclosures” and rejected less 

particularized showings of loss causation. See Apollo Grp., 774 F.3d at 608. 

Moreover, even if Ninth Circuit courts applied the materialization of risk theory, 

the theory is not adequately pled here and requires dismissal of Plaintiff’s Complaint. To 

the extent that Plaintiff alleges that Defendants concealed the risk of government 

investigations or legal actions or negative publicity concerning the Company’s sales and 

marketing practices (e.g., Compl. ¶¶ 400, 404), none of those risks was ever concealed at 

any time; each was fully disclosed starting from before the Class Period. (Supra p. 13.) 

The theory is also not pled adequately with respect to the indictment of Babich, Burlakoff 

and other employees, because the risk that Company employees would be accused of 

misconduct had been fully disclosed (by the Company and by the media) before and 

during the Class Period and was not concealed. (Supra p. 13.) 

B. The Complaint Fails to Plead Facts Giving Rise to a “Strong 

Inference” of Scienter on the Part of Kapoor and Baker, and the 

Claims Against Them Should Be Dismissed. 

The PSLRA requires a complaint to “state with particularity facts giving rise to a 

strong inference that the defendant acted with the required state of mind” (i.e., scienter).

15 U.S.C. § 78u-4(b)(2) (emphasis added). “To qualify as ‘strong’ . . . an inference of 

scienter must be more than merely plausible or reasonable—it must be cogent and at least 

as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor 

Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). For most misstatements, Plaintiff points 

to the same paragraphs of the Complaint to allege that all sets of financial results, as well 

as the earnings calls and press releases that went with them, were false and misleading. 

(See Compl. ¶¶ 257-58, 264-65, 274-75, 277, 276-87, 294-95, 304-06, 310, 314 (citing 

Compl. ¶¶ 90-249, 348-396).) These paragraphs largely consist of inappropriate “group” 

pleading that fails to give rise to a strong inference of scienter. The paragraphs that refer 

to Kapoor or Baker also fail to plead facts giving rise to a strong inference of scienter.

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Importantly, the indictment of Babich and Burlakoff does not refer to or contain 

allegations concerning Kapoor or Baker; the more compelling inference to be drawn from 

the allegations—sufficient to defeat scienter under the securities laws—is that Kapoor 

and Baker were not aware of the misconduct alleged in the indictment and in Plaintiff’s 

Complaint. See Tellabs, 551 U.S. at 308. 

(a) Plaintiff’s Inappropriate Group Pleading Fails to Plead Facts 

Giving Rise to a Strong Inference of Scienter.

The majority of Plaintiff’s scienter allegations lump “Defendants” together 

without distinguishing among them. (See Compl. ¶¶ 359-75, 380-81.) These allegations 

fail to connect Kapoor or Baker to scienter for specific misstatements. See Apollo Grp.,

774 F.3d at 607. 

Further, Plaintiff’s group allegations fail to plead facts giving rise to a strong 

inference of scienter. Plaintiff alleges that “Defendants’” senior positions, hands-on 

management, and involvement in the day-to-day activities of the Company establish 

scienter. (Compl. ¶¶ 359-60.) It is well-settled, however, that allegations of scienter 

based on a defendant’s role as senior management are insufficient. See Metzler Inv., 540 

F.3d at 1068. Similarly, Plaintiff’s allegation that “Defendants” had access to 

information (Compl. ¶¶ 364-75) is also insufficient to establish scienter. See Lipton v. 

Pathogenesis Corp., 284 F.3d 1027, 1036 (9th Cir. 2002); South Ferry, 542 F.3d at 783 

(concluding that plaintiffs must “bridge the gap” between a defendant’s mere access to 

information and an inference of knowledge). 

Plaintiff also attempts to rely on the “core operations” exception, which would 

allow the Court to draw a strong inference of scienter based on the principle that 

“corporate officers have knowledge of the critical core operations of the company”. 

Police Ret. Sys., 759 F.3d at 1062. The Ninth Circuit has held repeatedly, however, that 

the core operations exception can by itself establish scienter only “in rare circumstances 

where the nature of the relevant fact is of such prominence that it would be absurd to 

suggest that management was without knowledge of the matter”. Id. (citing S. Ferry LP, 

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No. 2 v. Killinger, 542 F.3d 776, 785-86 (9th Cir. 2008)). For example, the Ninth Circuit 

has drawn a strong inference of scienter when the defendants failed to disclose stop-work 

orders from its largest customers, which had a “devastating effect” on the company’s 

revenues and were “disastrous for the entire company”. South Ferry LP, No. 2 v. 

Killinger, 542 F.3d 776, 785 n.3. (9th Cir. 2008) (citing Berson v. Applied Signal 

Technology, Inc., 527 F.3d 982, 983, 988 (9th Cir. 2008)). It is insufficient to allege that 

Defendants “should have known” the information undermining their statements, because 

only information they “must have known” is “sufficient to meet the strict scienter 

pleading requirements”. See Glazer, 549 F.3d at 748. 

Plaintiff asserts that “Defendants” should be deemed to have knowledge of all the 

circumstances concerning the marketing of Subsys, primarily based on Subsys 

representing more than 98% of the Company’s revenues (Compl. ¶ 362) and a statement 

by Kapoor on December 1, 2015 that he and unnamed executives at Insys reviewed the 

number of Insys prescriptions written each day as the Company competed for market 

share (Ex. 47 at 3; Compl. ¶ 363; see also Compl. ¶¶ 359-75). Plaintiff’s argument, 

however, “rests on a[] [flawed] inference that the [daily tracking of prescriptions] 

mutually excludes the possibility that [Defendants] were unaware of [alleged unlawful 

conduct]”. Metzler Inv., 540 F.3d at 1067-68 (rejecting allegations that because senior 

management was “regularly made aware of . . . enrollment and placement figures”, they 

must have known about alleged fraudulent practices related to those figures); Zucco 

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1000-01 (9th Cir. 2009), as amended

(Feb. 10, 2009) (explaining that the fact “management analyzed the inventory numbers 

closely, do[es] not support the inference that management was in a position to know that 

such data was being manipulated”). 

Plaintiff’s own allegations, moreover, are inconsistent with the theory that it 

would be “absurd” for Defendants not to be aware of a company-wide scheme to commit 

unlawful conduct. For example, Plaintiff relies on a source who says that sales training 

was “by the book, exactly like Merck or someone might do”, but that “district and 

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regional managers”—not senior management—would later tell sales associates to “just 

sell”. (Compl. ¶ 128.) Such allegations of concealed misconduct by junior employees 

actually cut against Kapoor and Baker’s alleged scienter. 

Plaintiff alleges that government investigations, criminal charges and guilty pleas 

by individual Insys employees demonstrate that the “Defendants” as a group all had 

scienter when they made the alleged statements. (Compl. ¶¶ 383-85.) But none of these 

events included facts indicating that any Defendant had any prior knowledge of any 

unlawful conduct. Moreover, the Company had consistently disclosed all government 

investigations. (Exs. 7, 20.) Government investigations into company conduct alone do 

not demonstrate that specific individuals had scienter, see Thorpe v. Walter Inv. Mgmt., 

Corp., 111 F. Supp. 3d 1336, 1376 (S.D. Fla. 2015), especially because Kapoor and 

Baker were not among those who were indicted. 

Finally, Plaintiff alleges that “Defendants’ Incentive Compensation” is a fact 

giving rise to a strong inference of scienter. (Compl. ¶¶ 394-96.) Not only is such an 

allegation plainly insufficient, see In re Tibco Software, Inc. Secs. Litig., 2006 WL 

1469654 at *21 (N.D. Cal. May 24, 2006); In re Rigel Pharmaceuticals, Inc. Secs. Litig.,

697 F.3d 869, 884 (9th Cir. 2012) (“it is common for executive compensation, including 

stock options and bonuses, to be based partly on the executive’s success in achieving 

corporate goals”), but Plaintiff’s allegations only mention Baker, and thus cannot give 

rise to an inference with respect to Kapoor (Compl. ¶¶ 394-96). 

(b) Plaintiff’s Individualized Allegations Fail to Plead Facts 

Giving Rise to a Strong Inference of Scienter.

In addition to the insufficient group allegations, Plaintiff has also provided a few 

individualized allegations of scienter. None is sufficient to give rise to the strong 

inference required under the PSLRA for Kapoor or Baker.

Kapoor. Kapoor was the Co-Founder and Chairman of Insys and became the 

CEO on November 5, 2015. (Compl. ¶ 348.) Plaintiff ignores this change in Kapoor’s 

role and erroneously treats statements made by Kapoor after he became CEO as if they 

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relate to the entire Class Period and thus can be proven false by allegations concerning 

only the pre-November 2015 time period. For example, Plaintiff alleges that Kapoor’s 

November 5, 2015 statement that “we only call on REMS doctors” (i.e., doctors who 

have already qualified to prescribe Subsys and other TIRFs under the FDA’s REMS 

program) was false (Compl. ¶ 298) because of allegations that, before Kapoor became 

CEO, sales representatives called upon physicians who had not prescribed TIRFs. (E.g.,

Compl. ¶¶ 112 (citing pre-November 2015 allegations).) And Kapoor could not have 

intended this statement to mislead investors because his purpose in making it was to warn 

them that, because of this limitation on the Company’s marketing efforts, “further growth 

is going to be slower than in the past” (Compl. ¶ 298), not to conceal that Subsys 

revenues would continue to grow only as a result of misconduct, as Plaintiff alleges was 

Defendants’ motive throughout his Complaint. Similarly, the fact that Kapoor stated, 

after he became CEO, that he and other executives monitored the number of prescriptions 

written for Subsys “every single day” (Compl. ¶ 349) does not establish his knowledge of 

falsity of any statement at all, much less for any statements made before he became CEO.

Plaintiff’s failure to show that Kapoor knew statements were false when made precludes 

both falsity and scienter with respect to him.

Further, unattributed hearsay statements in news articles in which anonymous 

sources allege that Kapoor was “behind all this greed”, “built this whole thing”, and 

forced Babich to resign because he was “closest to the issues that federal prosecutors 

were looking at” (Compl. ¶¶ 350, 382), are not sufficient, because such anonymous 

hearsay statements are not facts that can support an inference of scienter. See Zucco 

Partners, 552 F.3d at 997 (hearsay statement from anonymous finance employee is 

insufficient to establish scienter); Constr. Laborers Pension Trust of Greater St. Louis v. 

Neurocrine Biosciences, Inc., 2008 WL 2053733, at *6 (S.D. Cal. May 13, 2008) 

(anonymous witness’s statement that company vice president knew that certain 

information was incorrect was insufficiently reliable to establish scienter).

Plaintiff’s allegation that “on information and belief” only, Kapoor knew that 

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Insys was representing the “effective dose” of Subsys as between 600 and 1600 mcg—

allegedly contrary to its label—is belied by the actual allegations of the Illinois State 

complaint from which it is drawn. (Compl. ¶ 131). That complaint makes clear that the 

Insys Board is alleged to have known that the Company was educating physicians that “3 

out of 4 patients found an effective dose between 600 and 1600 mcg” (Ex. 52), not that 

the Company “defined” the effective dose as “600 mcg to 1600 mcg”, as represented by 

Plaintiff. (Compl. ¶ 131.) 

Plaintiff also alleges that Kapoor’s understanding of FDA regulations and rules 

gives rise to a strong inference of scienter. (Compl. ¶ 351.) However, the allegation that 

Kapoor knows the rules, absent the allegation of facts showing that Kapoor had 

knowledge of activities that violated those rules, does not give rise to a strong inference 

of scienter. Finally, Plaintiff alleges, without any explanation, that the Company’s use of 

a restaurant owned by Kapoor to hold events (Compl. ¶ 148), and a third-party text 

message alleging that Kapoor advocated recruiting physicians to join the speaker 

program, as is generally lawful (Compl. ¶¶ 123-24), somehow demonstrate scienter. 

Similarly, the allegation that Kapoor attended a dinner at which the Company agreed to 

sell Subsys directly to two prescribers (Compl. ¶ 194) does not indicate that Kapoor knew 

the Company allegedly had a separate, unlawful arrangement to provide those doctors 

kickbacks. And the only allegation concerning Kapoor’s alleged knowledge of the 

operations of the IRC unit is a second-hand account that he encouraged employees to 

obtain approvals for Subsys (Compl. ¶ 224), not that he knew of or condoned unlawful 

conduct to obtain those approvals. None of these allegations, individually or collectively, 

gives rise to any inference, let alone a strong inference, of scienter. 

Baker. Baker was the CFO throughout the Class Period. (Compl. ¶ 355.) The 

Complaint provides practically no allegations in support of Baker’s scienter. Plaintiff 

attempts to allege a strong inference of scienter based on Baker’s position as CFO, his 

access to information, and his receipt of incentive-based compensation (Compl. ¶¶ 355, 

394-95), none of which come close to alleging scienter, as discussed previously. 

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Plaintiff’s only other allegation against Baker relates to the Company’s withholding 

of 5% of his potential bonus in 2015. (Compl. ¶ 396.) It is implausible that Insys would 

reduce Baker’s bonus by only 5% because it had learned Baker had engaged in unlawful 

conduct. Indeed, as the Company’s proxy statement makes clear, the Company 

withheld 5% of “each named executive officer[s’]” bonus because “notwithstanding the 

largely positive metrics[,] . . . the Company needed to improve in 2016 in instilling a 

culture of accountability in all areas including research and development and regulatory 

and compliance matters.” (Ex. 48 at 23 (2016 Proxy).) However, acknowledging the 

need to improve “instilling a culture of accountability” is a far cry from admitting 

knowledge of, or participation in, any long-running, company-wide scheme that Plaintiff 

alleges.

C. Plaintiff’s Claim Against Burlakoff Should Be Dismissed. 

Burlakoff was the Vice President of Sales throughout the Class Period (Compl. 

¶ 356) and is alleged to have made misstatements only in the April 24, 2015 SIRF report 

when he was quoted as allegedly stating that Insys was “selling a breakthrough cancer 

pain drug”, that such pain was “all we want to address with a doctor” and that “no one at 

Insys wants to see anyone taking [Subsys] for anything other than cancer pain” (Compl. 

¶¶ 278-79). Plaintiff’s claims based on Burlakoff’s statements must be dismissed for 

failure to allege that they were materially false or misleading or that the statements were 

made “in connection with” the purchase or sale of securities. 

Burlakoff’s statements in the SIRF report were not materially false or misleading. 

Plaintiff argues both that the SIRF report is a partial disclosure of the off-label marketing 

scheme and that it is the source of a misstatement for failing to disclose the very same 

scheme. (See Compl. ¶¶ 278-80, 403-05.) The remainder of the SIRF article—which 

implies that the Company was “killing it” financially and by placing patients at risk, and 

says that the company “is clearly in a lot of trouble”—could not have misled investors 

into believing that the Company had eliminated all employee misconduct. (Ex. 22 at 2, 

4.) Read in the context of the entire report, Burlakoff’s statements could not have been 

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materially misleading. See Worlds of Wonder, 35 F.3d at 1414. 

Burlakoff’s statements also are not actionable because Plaintiff does not allege 

that they were made in a publication “on which an investor would presumably rely”—

e.g., in an SEC filing, press release, call with analysts or a financial news publication—or 

were intended to influence the investing public. SEC v. Rana Research, Inc., 8 F.3d 

1358, 1362 (9th Cir. 1993). Therefore, Burlakoff’s statements were not made in 

connection with the purchase or sale of securities as required to establish liability under 

the securities laws. See In re Galena Biopharma, Inc. Sec. Litig., 117 F. Supp. 3d 1145, 

1179 (D. Or. 2015). If Plaintiff did plead that investors relied on the content of this and 

other SIRF articles, he would be forced to admit that investors already had extensive 

information concerning the misconduct purportedly concealed by all Defendants’ alleged 

misstatements. Further, the Complaint does not allege that Burlakoff had any control 

over the quote in the article. See Raab v. General Physics Corp., 4 F.3d 286, 288-89 (4th 

Cir. 1993) (“Without control over [the] report, any statement made by [company] 

personnel could be taken out of context, incorrectly quoted, or stripped of important 

qualifiers”).16 These are independent reasons to dismiss the claims against Burlakoff.

D. Plaintiff’s Section 20(a) Claims Should Be Dismissed. 

To state a claim of “control person liability” under § 20(a), Plaintiff must allege: 

(1) “a primary violation of federal securities law”, and (2) that “the defendant exercised 

actual power or control over the primary violator”. Zucco Partners, LLC, 552 F.3d at 

990 (internal citation omitted). Because Plaintiff fails to state a claim for a violation of 

Section 10(b), Plaintiff’s claim under Section 20(a) necessarily fails as well. 

IV. CONCLUSION

For all the foregoing reasons, the Complaint should be dismissed, with prejudice. 

16 A separate but related point is that, because Burlakoff is not an officer of the 

Company and did not have authority to make statements on behalf of the Company, 

neither his scienter nor his alleged fraud may be attributed to the Company. In re Energy 

Recovery, Inc. Sec. Litig., 2016 WL 324150, at *25 (N.D. Cal. 2016); see also Hollinger 

v. Titan Capital Corp., 914 F.2d 1564, 1576-78 (9th Cir. 1990). 

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DATED: January 12, 2017 SNELL & WILMER L.L.P. 

 Don Bivens 

Nicole E. Sornsin 

One Arizona Center 

400 E. Van Buren 

Phoenix, AZ 85004-2202 

 CRAVATH, SWAINE & MOORE LLP

__s/David M. Stuart________________

Daniel Slifkin 

David M. Stuart 

Worldwide Plaza 

825 Eighth Avenue 

New York, NY 10019 

Attorneys for Defendants 

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CERTIFICATE OF SERVICE 

I hereby certify that on January 12, 2017, I electronically transmitted the foregoing 

document to the Clerk’s Office using the CM/ECF System for filing and transmittal of a 

Notice of Electronic Filing to the following CM/ECF registrants:

Francis J. Balint, Jr. 

Andrew S. Friedman 

BONNETT FAIRBOURN FRIEDMAN & BALINT, P.C. 

2325 E. Camelback Road, Suite 300 

Phoenix, Arizona 85016 

Attorneys for Plaintiff 

Johnston de F. Whitman, Jr. 

Meredith L. Lambert 

Kessler Topaz Meltzer & Check, LLP 

280 King of Prussia Road 

Radnor, PA 19087 

Attorneys for Plaintiff 

Jennifer L. Joost 

Rupa Nath Cook 

Kessler Topaz Meltzer & Check, LLP 

1 Sansome Street, Suite 1850 

San Francisco, CA 94014 

Attorneys for Plaintiff 

s/David M. Stuart 

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