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Francis J. Balint, Jr. (State Bar No. 007699)

Andrew S. Friedman (State Bar No. 005425)

BONNETT FAIRBOURN FRIEDMAN & BALINT, P.C.

2325 E. Camelback Road, Ste. 300

Phoenix, AZ 85016

Telephone: (602) 274-1100

Fascimile: (602) 274-1199

fbalint@bffb.com

afriedman@bffb.com

Attorneys for Plaintiff Richard Di Donato

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; and John N. Kapoor, 

Defendants.

No. 

CLASS ACTION 

COMPLAINT FOR VIOLATION 

OF THE FEDERAL SECURITIES 

LAWS

DEMAND FOR JURY TRIAL

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Plaintiff Richard Di Donato (“Plaintiff”), individually and on behalf of all others 

similarly situated, by and through Plaintiff’s counsel, alleges the following based upon 

personal knowledge as to Plaintiff’s own acts, and upon an investigation conducted by 

and through Plaintiff’s attorneys, which included, among other things, a review of the 

filings of Insys Therapeutics, Inc. (“Insys” or the “Company”) with the United States 

Securities and Exchange Commission (“SEC”), Company news releases and conference 

calls, public statements issued by Defendants, securities analyst reports, and media and 

industry reports. Plaintiff believes that substantial additional evidentiary support will 

exist for the allegations set forth herein after Plaintiff has had a reasonable opportunity to 

conduct discovery. 

I. NATURE OF THE ACTION 

1. This is a federal securities class action on behalf of all persons who 

purchased or otherwise acquired Insys common stock between March 3, 2015 and 

January 25, 2016, inclusive (the “Class Period”), seeking to pursue remedies under the 

Securities Exchange Act of 1934 (the “Exchange Act”).

2. Insys is a commercial-stage specialty pharmaceutical company that 

develops and commercializes supportive care products primarily designed to assist 

patients with pain management attributable to their disease, treatment, or therapy. 

3. The Company’s principal product and source of revenue is Subsys, a 

sublingual fentanyl spray designed to treat breakthrough cancer pain (“BTCP”) in opioidtolerant patients. 

4. Throughout the Class Period, Defendants (defined herein) made false and 

misleading statements and failed to disclose material adverse facts about the Company’s 

business and operations. Specifically, Defendants failed to disclose that: (i) the Company

was engaged in the illegal and improper off-labeling marketing of Subsys; (ii) certain 

Insys employees—including Defendant Michael L. Babich, the President and Chief 

Executive Officer of Insys during much of the Class Period—were complicit in an illegal 

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kickback scheme operated for the purpose of increasing prescriptions of Subsys; and (iii) 

as a result, the Company’s financial statements were materially false and misleading at all 

relevant times.

5. After the close of the market on April 24, 2015, the Southern Investigating 

Report Foundation (“SIRF”) published an article entitled “Insys Therapeutics and the 

New ‘Killing It,’” reporting on patients who either died or suffered adverse events while 

being treated with Subsys. The article also detailed how Insys aggressively markets 

Subsys.

6. On this news, the price of Company shares declined $6.00 per share, or 

nearly 10%, from a close of $62.42 per share on April 24, 2015, to close at $56.42 per 

share on April 27, 2015. 

7. Then, on May 20, 2015, Seeking Alpha published an article entitled “Top 

prescribers of Insys Therapeutics’ Subsys arrested on drug charges,” reporting that two of 

Insys’s highest-volume prescribers had been charged with illegal prescription drug 

distribution by the Drug Enforcement Agency (“DEA”).

8. On this news, the price of Company shares declined $2.65 per share, or 

more than 4%, from a close of $59.77 per share on May 19, 2015, to close at $57.12 per 

share on May 20, 2015. 

9. On June 25, 2015, The New York Times reported that a nurse in Connecticut 

pled guilty to participating in a kickback scheme wherein she accepted approximately 

$83,000 in kickbacks from Insys in exchange for writing more than $1 million worth of 

Subsys prescriptions. 

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10. On this news, the price of Company shares declined $3.00 per share, or 

nearly 8%, from a close of $38.74 per share on June 24, 2015, to close at $35.74 per 

share on June 25, 2015.1 

11. On December 3, 2015, SIRF published an article entitled “Murder 

Incorporated: Insys Therapeutics, Part I,” alleging that Defendant Babich had been forced 

to resign from the Company by Defendant John N. Kapoor—the Company’s founder and 

the Executive Chairman of Insys’s Board of Directors—and that the Company operated a 

scheme to promote the illegal and improper off-label marketing and sale of Subsys. 

12. On this news, the price of Company shares declined $5.93 per share, or 

nearly 19%, from a close of $31.99 per share on December 2, 2015, to close at $26.06 per 

share on December 3, 2015.

13. On January 25, 2016, SIRF published an article entitled “The Brotherhood 

of Thieves: Insys Therapeutics,” alleging that Insys’s executives have continued to 

pressure Company employees to develop new schemes to promote the illegal and 

improper off-label marketing and sale of Subsys. 

14. On this news, the price of Company shares declined $1.07 per share, or 

nearly 5%, from a close of $22.65 per share on January 24, 2016, to close at $21.58 per 

share on January 25, 2016. 

II. JURISDICTION AND VENUE

15. The claims asserted herein arise under Sections 10(b) and 20(a) of the 

Exchange Act, 15 U.S.C. §§ 78j(b), and 78t(a) and the rules and regulations promulgated 

thereunder, including SEC Rule 10b-5, 17 C.P.R. § 2401.10b-5. 

16. This Court has jurisdiction over the subject matter of this action pursuant to 

28 U.S.C. §§ 1331 and 1337, and Section 27 of the Exchange Act, 12 U.S.C. § 78aa. 

 

1 On June 5, 2015, Insys effected a two-for-one stock split of the Company’s 

common stock, which began trading on a spit-adjusted basis on June 8, 2015. All 

share prices after June 8, 2015 reflect the June 5, 2015 two-for-one stock split.

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Venue is proper in this District pursuant to Section 27 of the Exchange Act, 15 U.S.C. §§ 

78aa, and 28 U.S.C. § 1391(b), as Insys’s principal place of business is located within

this District.

17. 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 mails, interstate telephone communications, and the facilities of the 

national securities markets.

III. PARTIES

18. Plaintiff Richard Di Donato, as set forth in the accompanying certification, 

incorporated by reference herein, purchased Insys common stock at artificially inflated 

prices during the Class Period and has suffered damages as a result of the federal law 

violations and false and/or misleading statements and/or material omissions alleged 

herein.

19. Defendant Insys is incorporated in Delaware and maintains its principal 

executive offices at 1333 South Spectrum Boulevard, Suite 100, Chandler, Arizona, 

85286. Insys’s common stock trades on the NASDAQ under the ticker symbol “INSY.”

20. Defendant Michael L. Babich (“Babich”) was the Company’s President and 

Chief Executive Officer throughout the Class Period until his resignation on or before 

November 5, 2015. 

21. Defendant Darryl S. Baker (“Baker”) was the Company’s Chief Financial 

Officer throughout the Class Period.

22. Defendant John N. Kapoor (“Kapoor”) is the Executive Chairman of the 

Board of Directors of Insys and was appointed President and Chief Executive Officer on 

or before November 5, 2015. 

23. Defendants Babich, Baker, and Kapoor are collectively referred to herein as 

the “Individual Defendants.” The Individual Defendants, because of their positions with 

the Company, possessed the power and authority to control the contents of Insys’s reports 

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to the SEC, press releases, and presentations to securities analysts, money and portfolio 

managers, and institutional investors—i.e., the market. Each Defendant was provided 

with copies of the Company’s reports and press releases alleged herein to be misleading 

prior to, or shortly after, their issuance and had the ability and opportunity to prevent 

their issuance or cause them to be corrected. Because of their positions and access to 

material non-public information available to them, each of the Individual Defendants 

knew that the adverse facts specified herein had not been disclosed to, and were being 

concealed from, the public, and that the positive representations which were being made 

were then materially false and/or misleading. 

24. Defendants Insys, Babich, Baker, and Kapoor are collectively referred to 

herein as the “Defendants.”

IV. SUBSTANTIVE ALLEGATIONS

A. Background

25. Insys, a Delaware company headquartered in Chandler, Arizona, is a 

commercial-stage specialty pharmaceutical company that develops and commercializes 

supportive care products designed to assist patients with the side effects attributable to 

their disease, treatment, or therapy. 

26. The Company has two marketed products: (i) Subsys; and (ii) Drabinol SG 

Capsule. Subsys is a sublingual fentanyl spray designed to treat BTCP in opioid-tolerant 

patients. Subsys is classified as a transmucosal immediate-release fentanyl (“TIRF”) and 

competes in the TIRF market. Drabinol SG Capsule is a generic equivalent to Marinol 

(dronabinol), which is an approved second-line treatment for both chemotherapy-induced

nausea and vomiting (“CINV”) and anorexia associated with weight loss in patients with 

Auto Immune Deficiency Syndrome (“AIDS”). 

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B. Materially False and Misleading Statements

27. On March 3, 2015, the Company released its annual report for the 2014 

year (“2014 Annual Report”) on Form 10-K filed with the SEC. In its 2014 Annual 

Report, the Company indicated that: (i) Subsys commands a substantial portion of the 

market share for TIRF products; (ii) the Company can increase the market penetration of 

Subsys; and (iii) the Company can leverage its commercial organization to effectively 

market Subsys. 

28. Regarding Subsys’s market share of the TIRF market, the Company stated: 

In December 2014, Subsys was the most prescribed TIRF 

product with 40.2% market share on a prescription basis. . . . 

Through our ongoing commercial initiatives, we believe we 

can continue to grow our market share and net revenue for 

Subsys. According to Source Healthcare Analytics, in 2014, 

TIRF products generated $450.4 million in annual U.S. 

product sales. Traditionally, the physician prescriber base for 

TIRF products is concentrated, with approximately 1,594 

physicians writing 90% of all TIRF product prescriptions in 

2014, according to IMS. As a result, our commercial 

organization has been able to promote Subsys using a highly 

targeted approach designed to maximize impact with 

physicians who are TIRF REMS enrolled. In addition, our 

commercial organization continues to specifically target 

oncology health care providers and practices.

29. The Company also stated that “We believe that we can continue to increase 

Subsys net product revenue through further market penetration and educating the medical 

community to ensure that patients are titrated to an effective dose of Subsys and have 

access to Subsys.” 

30. Regarding its product commercialization efforts, the Company stated that:

“We commercialize Subsys through a cost-efficient commercial organization utilizing an 

incentive-based sales model similar to that employed by Sciele Pharma and other 

companies previously led by members of our board of directors, including our founder 

and Executive Chairman.”

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31. Also on March 3, 2015, the Company filed its Fourth Quarter 2014 

financial results and Year End 2014 financial results with the SEC on Form 8-K. For the 

Fourth Quarter 2014, the Company announced revenues of $66.5 million, of which $66.1 

million were attributed to sales of Subsys, an increase of 69% from the Fourth Quarter 

2013. The Company reported Fourth Quarter 2014 net income of $9.3 million, or $0.25 

per diluted share. 

32. For the Year End 2014 financial results the Company reported revenue of 

$222.1 million, of which $219.5 million was attributed to the sales of Subsys. The 

Company reported Year End 2014 net income of $38 million, or $1.04 per diluted share. 

33. On May 7, 2015, the Company issued a press release announcing its First 

Quarter 2015 financial results. For the First Quarter 2015, the Company announced 

revenues of $70.8 million, of which $70.5 million were attributed to sales of Subsys, an 

increase of 74% from the First Quarter 2014. The Company reported First Quarter 2015 

net income of $8 million, or $0.21 per diluted share. Regarding the Company’s First 

Quarter 2015 financial results, Defendant Babich stated: “Insys had another strong 

quarter, driven by our twelfth consecutive quarter of Subsys sales growth. We expect this 

will remain our largest near-term revenue driver as we advance the many projects in our 

pipeline through clinical trials and bring them to market.” Defendant Babich stated 

further: “By continuing to focus our clinical, regulatory and commercial expertise on 

developing and successfully commercializing innovative products, we expect to deliver 

long-term value for our shareholders.”

34. On May 11, 2015, the Company filed its financial results for the quarter 

ending March 31, 2015 on Form 10-Q, in which the Company restated their previously 

announced financial results for the First Quarter 2015. 

35. On August 6, 2015, the Company issued a press release announcing its 

Second Quarter 2015 financial results. For the Second Quarter 2015, the Company 

announced revenues of $77.6 million, of which $76.7 million were attributed to sales of 

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Subsys, an increase of 40% from the Second Quarter 2014. The Company reported 

Second Quarter 2015 net income of $7.3 million, or $0.10 per diluted share. Regarding 

the Company’s Second Quarter 2015 financial results, Defendant Babich stated: “Insys 

had another strong quarter, driven by our thirteenth consecutive quarter of Subsys sales 

growth. While we expect this will remain our largest near-term revenue driver, we are 

very pleased to have submitted the NDA for Dronabinol Oral Solution.” Defendant 

Babich stated further: “By continuing to focus our clinical, regulatory, and commercial 

expertise on developing and successfully commercializing innovative products, we 

expect to deliver long-term value for our shareholders.”

36. On August 6, 2015, the Company filed its financial results for the quarter 

ending June 31, 2015 on Form 10-Q, in which the Company restated their previously 

announced financial results for the Second Quarter 2015. 

37. On November 5, 2015, the Company issued a press release announcing its 

Third Quarter 2015 financial results. For the Third Quarter 2015, the Company 

announced revenues of $91.3 million, of which $91.1 million were attributed to sales of 

Subsys, an increase of 57% from the Third Quarter 2014. The Company reported Third 

Quarter 2015 net income of $26.1 million, or $0.34 per diluted share. 

38. The Company also announced on November 5, 2015 that Defendant Babich 

had stepped down as the Company’s President and Chief Executive Officer and would be 

replaced by Defendant Kapoor. Regarding the Company’s Third Quarter 2015 financial 

results, Defendant Kapoor stated: “Today we reported record results and our twelfth 

consecutive quarter of profitability at Insys. We have driven top line revenue expansion 

with our market-leading brand, Subsys, and see opportunity for further market share 

gains in the coming quarters.”

39. On November 5, 2015, the Company filed its financial results for the 

quarter ending September 31, 2015 on Form 10-Q, in which the Company restated their 

previously announced financial results for the Third Quarter 2015. 

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40. The above statements regarding the Company’s business and operations 

were materially false and misleading. Specifically, Defendants failed to disclose that: (i) 

the Company was engaged in the illegal and improper off-labeling marketing of Subsys; 

(ii) certain Insys employees—including Defendant Babich—were complicit in an illegal 

kickback scheme operated for the purpose of increasing prescriptions of Subsys; and (iii) 

as a result, the Company’s financial statements were materially false and misleading at all 

relevant times.

C. The Truth Begins to Emerge

41. On April 24, 2015, after the close of market, SIRF published an article 

entitled “Insys Therapeutics and the New ‘Killing It’” which reported that patients on 

Subsys had suffered adverse events, including death, and that the Company’s Subsys 

commercialization program was promoting Subsys through various aggressive schemes. 

The article stated, in relevant part:

The Southern Investigative Reporting Foundation asked 

Adverse Events, a California-based consultancy that collects 

and analyzes drug side effect data to analyze the FDA’s 

Adverse Event Reporting System’s tracking of fatalities 

related to Subsys. (In medical terms, an adverse event is 

defined as an undesirable outcome related to a drug’s use and 

includes categories in addition to death.)

The analysis shows Subsys was referenced in 63 adverse 

event reports resulting in deaths since its January 2012 FDA 

approval. Participation in the FAERS database is voluntary --

a prescribing physician might not learn of an adverse event 

related to a drug; others elect not to report them. Because of 

this, many in the medical industry argue -- privately -- that 

FAERS’ data skews toward the lowest potential occurrence 

rate.

Given the relatively sparse amount of FAERS data that the 

Southern Investigative Reporting Foundation obtained (just 

age, gender and date of death are provided), placing the death 

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of 63 Subsys users in a broader context is not so cut-anddried. Certainly it’s reasonable to suppose that a percentage 

of those prescribed Subsys have cancer and would naturally 

have a higher rate of mortality. Some FAERS entries list 

Subsys along with one or two additional drugs. But dying of 

cancer isn’t usually considered an adverse pharmacological 

event; dying of respiratory failure when taking Subsys for a 

migraine is.

***

So how has Insys managed to grow exponentially?

The answer appears to have multiple parts: a truly unique 

sales force paired with a corporate speakers program that 

provides a stream of ready cash to frequent prescription 

writers.

There’s no way around it: Insys’ sales force is very different 

from its competitors in the pharmaceutical industry. One 

reason is that a pharmaceutical sales background or even 

college courses in science are not required. Another is that if 

a candidate appears to be driven and aggressive, the company 

will look past things that a local Starbucks might not.

***

A qui tam claim filed last year by former Insys salesman Ray 

Furchak alleged that the speakers program’s sole purpose 

was, in the words of his then supervisor Alec Burlakoff, “to 

get money in the doctor’s pocket.” The catch, Furchak 

alleged, was that the doctors who increased the level of 

Subsys prescriptions, and at higher dosages (such 400 or 800 

micrograms instead of 200 micrograms), would receive the 

invitations to the program -- and the checks.

The claim described texts from Burlakoff to Furchak and 

other sales colleagues regularly demanding that “doctors be 

held accountable” and that “doctors who are not increasing 

their clinical experience [prescription writing], please cancel, 

suspend, and cease doing speaker programs.”

42. On this news, the price of Company shares declined $6.00 per share, or 

nearly 10%, from a close of $62.42 per share on April 24, 2015, to close at $56.42 per 

share on April 27, 2015. 

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43. On May 20, 2015, Seeking Alpha published an article entitled “Top 

prescribers of Insys Therapeutics’ Subsys arrested on drug charges,” reporting that two of 

Insys’s highest-volume prescribers had been charged with illegal prescription drug 

distribution by the DEA. The article stated, in relevant part:

Two Mobile, AL-based pain specialists, Dr. Xiulu Ruan and 

Dr. John Patrick Couch were arrested today on charges of 

illegal prescription drug distribution and conspiracy to 

commit healthcare fraud to increase insurance 

reimbursements. Both doctors, owners of Physicians’ Pain 

Specialists of Alabama Pain Center, are the top prescribers of 

Insys Therapeutics’ (NASDAQ:INSY) Subsys (fentanyl 

sublingual spray), a powerful opioid for the management of 

pain in adult cancer patients. Neither doctor is a boardcertified oncologist.

44. On this news, the price of Company shares declined $2.65 per share, or 

more than 4%, from a close of $59.77 per share on May 19, 2015, to close at $57.12 per 

share on May 20, 2015. 

45. On June 25, 2015, The New York Times published an article entitled “Nurse 

Pleads Guilty to Taking Kickbacks From Drug Maker” which reported that a nurse in 

Connecticut pled guilty to federal charges for participating in a kickback scheme wherein 

she accepted approximately $83,000 in kickbacks from Insys in exchange for writing 

more than $1 million worth of Subsys prescriptions. 

46. On this news, the price of Company shares declined $3.00 per share, or 

nearly 8%, from a close of $38.74 per share on June 24, 2015, to close at $35.74 per 

share on June 25, 2015. 

47. On December 3, 2015, SIRF published an article entitled “Murder 

Incorporated: Insys Therapeutics, Part I,” alleging that Defendant Babich had been forced 

to resign from the Company by Defendant Kapoor and that the Company operated a 

scheme to promote the illegal and improper off-label marketing and sale of Subsys. The 

article stated, in relevant part:

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On Nov. 2, on the eve of an earnings announcement, CEO 

Babich suddenly resigned -- a move that typically raises a 

major red flag for investors. Kapoor, who assumed the CEO 

mantle, told those listening on the conference call, “Mike 

decided that now is the best time to turn the page and focus 

on his family as well as pursue new opportunities.”

Babich was forced out by Kapoor, according to a senior Insys 

executive who was in regular contact with Kapoor in the days 

prior to the announcement. While both men are the subjects 

of intense regulatory scrutiny, the founder and chairman 

bluntly told his lieutenant of 14 years that Babich was closest 

to the issues that federal prosecutors were looking at and that 

a change had to be made should settlement talks became 

serious, according to the executive source.

While Babich may be spending time with his young family, 

his personal life is more complex.

Earlier this year, Babich began a relationship with Natalie 

Levine, then a Boston area Insys sales executive who 

subsequently became pregnant; they married in the summer.

(This is Babich’s second romance with a sales colleague; 

Kapoor has also dated two sales executives.) Aside from the 

fact that it’s unusual for a public company CEO to date 

someone who reports to him, the Babich-Levine relationship 

had another dynamic to it.

The newlyweds will probably be monitoring the 

developments in a rapidly expanding criminal suit filed in the 

U.S. District Court in Hartford where Heather Alfonso, an 

advanced practice registered nurse who was a high-volume 

Subsys prescriber over the past two years, pleaded guilty to 

accepting $83,000 in kickbacks. Federal prosecutors, 

according to the transcript of the July plea hearing, allege that 

the kickbacks prompted her to write Subsys prescriptions 

worth $1.6 million.

What appears to have brought the federal prosecutors’ intense 

scrutiny of the divorced mother of four was the baldness of 

the scheme. According to her plea, Alfonso was paid $1,000 

each time she attended an Insys speakers event, where she 

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was supposed to discuss with other medical professionals her 

clinical experience of Subsys. In reality, however, no other 

prescribers were present, and prosecutors said the events 

amounted to nothing more than Insys-sponsored dinners and 

drinks for Alfonso and her co-workers.

Natalie Levine was one of the sales staffers who called on 

Alfonso, and Levine arranged and attended many of the 70 

speakers program events. As CEO, Babich approved two 

years’ worth of budgeted payments to Alfonso.

***

Alfonso is cooperating with the government, as might be 

expected for someone facing a possible sentence of 46 to 57 

months in jail; her sentencing date has been pushed back 

twice, most recently for six months. In the plea hearing 

transcript, prosecutors offered a pretty big clue about where 

Alfonso’s cooperation might be taking the investigation. For 

example, several Medicare Part D beneficiaries were 

described by prosecutors as ready to testify that she diagnosed 

them with having issues other than breakthrough cancer pain 

(the primary condition Subsys is indicated to treat) yet 

insurers still authorized the prescriptions.

As described in the transcript, Insys’ prior-authorization unit 

changed Alfonso’s diagnoses to cancer. Absent the alleged 

changes, the prosecutor asserted, the insurers would have 

never paid for the prescriptions.

And as the Southern Investigative Reporting Foundation 

wrote in July, Medicare and commercial insurers appear to 

have approved reimbursement of prescriptions for Subsys at 

vastly higher rates than those of its rivals in the Fentanyl 

marketplace.

The prior-authorization unit was set up to assist patients with 

complex insurance paperwork. Its value proposition was 

simple: The patient signs a few forms and Insys handles the 

messy paperwork. Patients would get the medicine, 

prescribers wouldn’t have to scramble for an alternate 

medication and Insys would book thousands of dollars in 

revenue per prescription.

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In reality what the prior-authorization unit did was take 

advantage of pharmacy-benefit manager inertia to work a 

type of bureaucratic alchemy, whereby a torrent of off-label 

Subsys prescriptions would be transformed into ones 

associated with medically urgent cancer diagnoses.

Unmistakably, the prior-authorization unit was the key piece 

in helping Insys double the size of the Fentanyl marketplace 

to more than $500 million in less than two years.

48. On this news, the price of Company shares declined $5.93 per share, or 

nearly 19%, from a close of $31.99 per share on December 2, 2015, to close at $26.06 per 

share on December 3, 2015. 

49. On January 25, 2016, SIRF published an article entitled “The Brotherhood 

of Thieves: Insys Therapeutics,” alleging that Insys’s executives have continued to 

pressure Company employees to develop new schemes to promote the illegal and 

improper off-label marketing and sale of Subsys. The article stated, in relevant part:

Executives at Insys Therapeutics have continued to pressure 

its employees to develop new ways to mislead insurance 

companies into granting coverage to patients prescribed its 

drug Subsys, even as the Food and Drug Administration’s 

Office of Criminal Investigations issues a stream of 

subpoenas to former employees.

***

Internal Insys documents and an audio recording of a PA unit 

meeting show that as recently as the late autumn executives 

were frantically brainstorming new ways to get around 

increasingly stringent pharmacy benefit manager rule 

enforcement.

***

So Jeff Kobos, the prior authorization unit’s new supervisor, 

wrote a new version of the spiel that was alternately called 

“Statement 13” or, in a homage to its confidential nature, 

“Agent 14.” It tried to thread a needle, designed to navigate 

both elevated PBM scrutiny and the rising level of 

compliance oversight required, while still allowing the unit’s 

employees to try and guide PBMs to an approval.

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***

The initial speaker (and the clearest voice) is PA executive 

Jeff Kobos who makes a pair of important admissions: at the 

2:20 mark he acknowledged the unit’s pattern of dishonesty 

by saying “when we were using [insurance codes for cancerrelated pain diagnoses] for non-cancer [pain].” At 4:30, he 

made jokes referring to “sandwiches” and “the sky is blue” as 

the kind of conversational gambits they should try and deflect 

PBM worker questions with.

At 5:00, David Richardson a trainer with the PA unit, 

suggests dropping the “Agent 14” spiel since it wasn’t 

working. A minute later, he and his wife, Tamara 

Kalmykova, an analyst with the PA unit, begin to discuss an 

idea he had in response to so-called smart-scripting, whereby 

PBMs use software analysis to determine if a patient--per the 

FDAs protocol--had tried another Fentanyl drug.

(Montgomery said smart-scripting was another development 

that Insys’ PA staff couldn’t readily steer around.)

Richardson suggested patients use a coupon for a free-trial 

prescription of Cephalon’s Actiq. The patient wouldn’t pick 

the drug up but it would register in databases and allow PA 

staffers to plausibly claim that the patient was in full 

compliance with regulations.

50. On this news, the price of Company shares declined $1.07 per share, or 

nearly 5%, from a close of $22.65 per share on January 24, 2016, to close at $21.58 per 

share on January 25, 2016. 

V. PLAINTIFF’S CLASS ACTION ALLEGATIONS

51. Plaintiff brings this action as a class action pursuant to Rule 23 of the 

Federal Rules of Civil Procedure on behalf of all persons who purchased Insys common 

stock during the Class Period (the “Class”). Excluded from the Class are Defendants, 

directors and officers of Insys, and their families and affiliates.

52. The members of the Class are so numerous that joinder of all members is 

impracticable. The disposition of their claims in a class action will provide substantial 

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benefits to the parties and the Court. According to the Company’s Form 10-K filed with 

the SEC on March 3, 2015, Insys had more than 35 million shares of stock outstanding, 

likely owned by thousands of persons—subsequently increasing to more than 71 million 

shares outstanding after the Company’s two-for-one stock split on June 5, 2015. 

53. There is a well-defined community of interest in the questions of law and 

fact involved in this case. Questions of law and fact common to the members of the 

Class which predominate over questions which may affect individual Class members 

include:

(a) Whether Defendants violated the Securities Exchange Act;

(b) Whether Defendants omitted and/or misrepresented material facts;

(c) Whether Defendants’ statements omitted material facts necessary in order 

to make the statements made, in light of the circumstances under which 

they were made, not misleading;

(d) Whether Defendants knew or recklessly disregarded that their statements 

were false and misleading;

(e) Whether the price of Insys’s common stock was artificially inflated; and

(f) The extent of damage sustained by Class members and the appropriate 

measure of damages.

54. Plaintiff’s claims are typical of those of the Class because Plaintiff and the 

Class sustained damages from Defendants’ wrongful conduct. 

55. Plaintiff will adequately protect the interests of the Class and has retained 

counsel who are experienced in class action securities litigation. Plaintiff has no interests 

which conflict with those of the Class. 

56. A class action is superior to other available methods for the fair and 

efficient adjudication of this controversy.

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VI. LOSS CAUSATION/ECONOMIC LOSS

57. Defendants’ wrongful conduct, as alleged herein, directly and proximately 

caused the economic loss suffered by Plaintiff and the Class. The price of Insys’s 

common stock was artificially inflated throughout the Class Period by Defendants’ false 

and misleading statements, and significantly declined when the misrepresentations made 

to the market, and/or the information alleged herein to have been concealed from the 

market, and/or the effects thereof, were revealed, causing investors’ losses. As a result of 

their purchases of Insys securities during the Class Period, Plaintiff and other members of 

the Class suffered economic loss, i.e., damages, under the federal securities laws.

VII. SCIENTER ALLEGATIONS

58. During the Class Period, Defendants had both the motive and opportunity 

to commit fraud. They also had actual knowledge of the misleading nature of the 

statements they made, or acted in reckless disregard of the true information known to 

them at the time. In so doing, Defendants participated in a scheme to defraud and 

committed acts that operated as a fraud or deceit on purchasers of the Company’s 

common stock during the Class Period.

VIII. APPLICABILITY OF THE PRESUMPTION OF RELIANCE

59. Plaintiff will rely upon the presumption of reliance established by the 

fraud-on-the-market doctrine in that, among other things: 

(a) Defendants made public misrepresentations or failed to disclose 

material facts during the Class Period;

(b) The omissions and misrepresentations were material;

(c) The Company’s common stock traded in an efficient market; 

(d) The misrepresentations alleged would tend to induce a reasonable 

investor to misjudge the value of the Company’s common stock; and

(e) Plaintiff and other members of the Class purchased Insys common stock

between the time Defendants misrepresented or failed to disclose 

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material facts and the time the true facts were disclosed, without 

knowledge of the misrepresented or omitted facts

60. At all relevant times, the market for Insys common stock was efficient for 

the following reasons, among others: (i) as a regulated issuer, Insys filed periodic public 

reports with the SEC; and (ii) Insys regularly communicated with public investors 

through established market communication mechanisms, including through regular 

disseminations of press releases on major news wire services and through other wideranging public disclosures, such as communications with the financial press, securities 

analysts, and other similar reporting services.

IX. NO SAFE HARBOR

61. Defendants’ “Safe Harbor” warnings accompanying their forward-looking 

statements issued during the Class Period were ineffective to shield those statements from 

liability.

62. Defendants are also liable for any false or misleading forward-looking 

statements pled because, at the time each forward-looking statement was made, the 

speaker knew the forward-looking statement was false or misleading and the forwardlooking statement was authorized and/or approved by an executive officer of Insys who 

knew that the statement was false. None of the historic or present tense statements made 

by Defendants were assumptions underlying or relating to any plan, projection, or 

statement of future economic performance, as they were not stated to be such 

assumptions underlying or relating to any projection or statement of future economic 

performance when made, nor were any of the projections or forecasts made by 

Defendants expressly related to or stated to be dependent on those historic or present 

tense statements when made.

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FIRST CLAIM

Violation of Section 10(b) of the Exchange Act and Rule 10b-5 

Promulgated Thereunder Against All Defendants

63. Plaintiff repeats and realleges each and every allegation contained above as 

if fully set forth herein.

64. During the Class Period, Insys and the Individual Defendants carried out a 

plan, scheme and course of conduct which was intended to and, throughout the Class 

Period, did: (i) deceive the investing public, including Plaintiff and other Class members, 

as alleged herein; and (ii) cause Plaintiff and other members of the Class to purchase 

Insys common stock at artificially inflated prices. In furtherance of this unlawful 

scheme, plan and course of conduct, these Defendants, and each of them, took the actions 

set forth herein.

65. Insys and the Individual Defendants: (i) employed devices, schemes, and 

artifices to defraud; (ii) made untrue statements of material fact and/or omitted to state 

material facts necessary to make the statements not misleading; and (iii) engaged in acts, 

practices, and a course of business which operated as a fraud and deceit upon the 

purchasers of the Company’s common stock in an effort to maintain artificially high 

market prices for Insys common stock in violation of Section 10(b) of the Exchange Act 

and Rule 10b-5. These Defendants are sued either as primary participants in the 

wrongful and illegal conduct charged herein or as controlling persons.

66. Defendants had actual knowledge that their Class Period statements were 

materially false and misleading.

67. As a direct and proximate result of these Defendants’ wrongful conduct, 

Plaintiff and other members of the Class suffered damages in connection with their 

purchases of the Company’s common stock during the Class Period.

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SECOND CLAIM

Violation of Section 20(a) of 

The Exchange Act Against the Individual Defendants

68. Plaintiff repeats and realleges each and every allegation contained above as 

if fully set forth herein.

69. The Individual Defendants acted as controlling persons of Insys within the 

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their highlevel positions, and their ownership and contractual rights, participation in and/or 

awareness of the Company’s operations and/or intimate knowledge of the false financial 

statements filed by the Company with the SEC and disseminated to the investing public, 

the Individual Defendants had the power to influence and control and did influence and 

control, directly or indirectly, the decision-making of the Company, including the content 

and dissemination of the various statements which Plaintiff contends are false and 

misleading. The Individual Defendants were provided with or had unlimited access to 

copies of the Company’s reports, press releases, public filings, and other statements 

alleged by Plaintiff to be misleading prior to and/or shortly after these statements were 

issued and had the ability to prevent the issuance of the statements or cause the 

statements to be corrected.

70. In particular, each of the Individual Defendants had direct and supervisory 

involvement in the day-to-day operations of the Company and therefore are presumed to 

have had the power to control or influence the particular transactions giving rise to the 

securities violations as alleged herein, and exercised the same.

71. As set forth above, Insys and the Individual Defendants each violated 

Section 10(b) and Rule 10b-5 by their acts and omissions as alleged in this Complaint. 

By virtue of their positions as controlling persons, the Individual Defendants are liable 

pursuant to Section 20(a) of the Exchange Act. 

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72. As a direct and proximate result of these Defendants’ wrongful conduct, 

Plaintiff and other members of the Class suffered damages in connection with their 

purchases of the Company’s common stock during the Class Period.

X. PRAYER FOR RELIEF

WHEREFORE, Plaintiff requests that this Court enter judgment against 

Defendants and in favor of Plaintiff and the Class, and award the following relief:

(a) Determining that the instant action may be maintained as a class action 

under Rule 23 of the Federal Rules of Civil Procedure, and certifying 

Plaintiff as the Class Representative and Plaintiff’s counsel as Lead 

Counsel; 

(b) Awarding Plaintiff and the members of the Class damages and interest, in 

an amount to be proven at;

(c) Award Plaintiff all reasonable costs of prosecuting the litigation, including

attorneys’ fees and experts’ fees;

(d) Award such other and further relief to Plaintiff as this Court may deem just 

and proper. 

DEMAND FOR JURY TRIAL

Plaintiff hereby demands a trial by jury.

DATED: February 2, 2016. Respectfully submitted,

BONNETT FAIRBOURN FRIEDMAN & BALINT P.C.

s/Francis J. Balint, Jr.

Francis J. Balint, Jr.

Andrew S. Friedman

2325 E. Camelback Road, Ste. 300

Phoenix, AZ 85016

Telephone: (602) 274-1100

Fascimile: (602) 274-1199

fbalint@bffb.com

afriedman@bffb.com

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KESSLER TOPAZ MELTZER & CHECK, LLP

Naumon A. Amjed 

Ryan T. Degnan

Seamus D. Kaskela

280 King of Prussia Road

Radnor, PA 19087

Telephone: (610) 667-7706

Facsimile: (610) 667-7056

namjed@ktmc.com

rdegnan@ktmc.com

skaskela@ktmc.com 

GOLDBERG LAW PC

Michael Goldberg

Brian Schall

13650 Marina Pointe Dr., Suite 708

Marina Del Rey, CA 90292

Telephone: (800) 977-7401

Facsimile: (800) 536-0065

michael@goldberglawpc.com

brian@goldberglawpc.com

Attorneys for Plaintiff Richard Di Donato

Case 2:16-cv-00302-NVW Document 1 Filed 02/02/16 Page 23 of 23