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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; and John N. 

Kapoor, 

Defendants. 

No. 16-cv-302-NVW 

DEFENDANTS’ MOTION TO 

DISMISS CLASS ACTION 

COMPLAINT 

ORAL ARGUMENT 

REQUESTED

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Defendants Insys Therapeutics, Inc. (“Insys” or the “Company”), Michael L. 

Babich, Darryl S. Baker and John N. Kapoor move to dismiss Plaintiff Richard Di 

Donato’s Class Action Complaint (“Complaint”) for failure to state a claim, pursuant to 

Rules 8, 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”).1

MEMORANDUM OF POINTS AND AUTHORITIES 

I. INTRODUCTION

Plaintiff’s Complaint recycles old allegations of misconduct from a prior securities 

fraud case against Insys, which settled in December 2015, into a supposedly new case of 

securities fraud. Allegations of misconduct that Plaintiff says Insys failed to disclose 

were well-publicized (including by Insys itself) before the members of the putative class 

in this case bought shares in the Company. None of the information disclosed during the 

Class Period was new news that revealed that the Defendants’ statements were false or 

misleading. Because Plaintiff’s Complaint does not sufficiently plead actionable 

misstatements, scienter or loss causation, it should be dismissed. 

II. STATEMENT OF FACTS

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”, including prior court filings and the Company’s publicly available 

financial documents. See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 

1049, 1061 & 1064 n.7 (9th Cir. 2008). Accordingly, solely for this motion, Defendants 

assume the well-pleaded allegations in the Complaint to be true, but refer also to court 

submissions and the Company’s Securities and Exchange Commission filings, both of 

which have been in the public domain. (See Defendants’ Request for Judicial Notice in 

Support of the Motion to Dismiss the Complaint filed together with this Motion.) The 

 1

 Pursuant to the Order entered by the Court on February 3, 2016, Defendants’ 

counsel certify that the parties conferred on March 9, 2016 to determine whether an 

amendment could cure the deficient Complaint and have been unable to agree that the 

Complaint is curable by permissible amendment. 

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chronology of relevant events is as follows. 

A. Pre-Complaint Period 

Insys develops and commercializes medical products designed to help patients 

address side effects of their disease, treatment or therapy. (Compl., Dkt. No. 1, ¶ 2.) One 

of its products—Subsys—is a fentanyl-based medication that rapidly treats intense 

episodes of pain that cancer patients often experience and that are not prevented by 

routine pain medication (called “breakthrough cancer pain”). (See Compl. ¶ 26.) On 

May 2, 2013, almost two years before the Class Period alleged in the Complaint, Insys 

filed an amended Registration Statement in connection with its initial public offering of 

common stock. ((Ex. 1 (May 8, 2013 Form 8-K); Ex. 2 (May 2, 2013 Registration 

Statement).)2

 The Registration Statement informed investors of the risks that could 

adversely affect the Company’s financial performance, including the risks that the 

Company’s employees could engage in misconduct or other improper activities and that 

the Company could be subject to regulatory actions as a result of infringement of federal 

and state laws prohibiting fraud and abuse, kickbacks and the submission of false claims. 

(Ex. 2 at 30, 43-44.) In addition, the Company informed investors of the risk that its 

financial performance could be affected by undesirable side effects associated with its 

products. (Ex. 2 at 38-39.) This information was repeated or reaffirmed in every 

subsequent public quarterly and annual report filed by the Company. (Exs. 3-14.) 

Two months after Insys went public, in July 2013, a Qui Tam Complaint asserting 

that the Company had violated federal and state False Claims Acts was unsealed. (Ex. 15 

(Complaint, United States ex rel. Furchak v. Insys Therapeutics, Inc. et al., 12-cv-2930 

(S.D. Tex.)).) The relator, a former sales professional at the Company, alleged that the 

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

 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 Class Action Complaint, filed contemporaneously with this 

Motion. 

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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 alleged that the Company paid medical professionals unreasonably 

large compensation to give presentations concerning Subsys to other medical 

professionals and that some physicians were chosen as speakers as a reward for 

prescribing Subsys. (Id. ¶¶ 91-92.) The relator specifically alleged that he personally 

had witnessed Michael Babich, who was then the Company’s CEO, participate in 

misconduct. (Id. ¶ 101.) After the federal government and the states declined to 

intervene in the case, the relator voluntarily dismissed the Qui Tam Complaint. United 

States ex rel. Furchak v. Insys Therapeutics, Inc. et al., 12-cv-2930, Dkt. Nos. 15 & 16 

(S.D. Tex.). 

On December 13, 2013, before the alleged Class Period, the Company filed a 

Form 8-K and issued a press release to inform investors that it had received a subpoena 

from the Office of the Inspector General of the Department of Health and Human 

Services (“HHS”) in connection with an investigation of the Company’s sales and 

marketing practices for Subsys. (Ex. 16 (Dec. 13, 2013 Form 8-K).) 

On May 15, 2014 and May 19, 2014, again before the Class Period, two putative 

class actions were filed against the Company in the District of Arizona; these actions 

were consolidated and assigned to Judge Snow, and an amended complaint was filed on 

October 27, 2014. (Ex. 17 (“Prior Securities Complaint”).) The Prior Securities 

Complaint alleged that throughout a class period running from November 12, 2013 to 

May 14, 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. (Id. ¶¶ 1, 3.) 

The Prior Securities Complaint substantially repeated the earlier Qui Tam

Complaint’s allegations about the kickback scheme operated by the Company and 

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Michael Babich’s alleged personal involvement in the scheme. (Id. ¶¶ 110-131.) 

According to the Prior Securities Complaint, when concerns about the Company’s 

marketing practices were disclosed to the market, the price of shares of common stock in 

Insys dropped, causing harm to the putative class members. (Id. ¶¶ 26-34.) The first 

alleged 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. (Id. ¶¶ 258-59.) The second alleged disclosure was a May 13, 

2014, New York Times 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 also referenced the then-recent arrest of the 

Michigan doctor. (Id. ¶¶ 275-76.) The Prior Securities Complaint noted that on 

September 12, 2014, the Company filed a Form 8-K announcing that it had received a 

subpoena from the U.S. Attorney’s Office for the District of Massachusetts requesting 

documents regarding the Company’s sales and marketing practices related to Subsys. (Id.

¶ 143.) The consolidated class action litigation based on the Prior Securities Complaint 

was settled on May 28, 2015, and was finally terminated on December 7, 2015. Larson 

et al. v. Insys Therapeutics Inc. et al., 14-cv-0143, Dkt. Nos. 66 & 80 (D. Ariz.). 

On August 6, 2015, the Company filed its Form 10-Q reporting financial results 

for the second quarter of 2015. In that filing, the Company informed investors that a 

Connecticut-based nurse practitioner, who had participated in the Company’s speaker 

programs, had pleaded guilty to violating the federal Anti-Kickback Statute in connection 

with payments of approximately $83,000 from the Company. (Ex. 12 (Aug. 6, 2015 

Form 10-Q) at 10.) The Company stated that it was investigating the issue. (Id.) In the 

same filing, the Company also informed investors that it had received Civil Investigative 

Demands from the offices of the Attorneys General of the States of Arizona, Illinois, 

Massachusetts and Oregon, each seeking documents regarding the Company’s sales and 

marketing practices with respect to Subsys in each State. (Id. at 11.) The Company 

further updated investors on these matters in its Form 10-Q filed on November 5, 2015, 

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which also reported the Company’s financial results for the third quarter of 2015. (Ex. 13 

(Nov. 5, 2015 Form 10-Q) at 11.) 

B. The Present Action 

On February 2, 2016, Plaintiff filed the Complaint in this case, which alleges that 

from March 3, 2015 to January 25, 2016 (the “Class Period”), the Company’s financial 

statements and other statements made by Defendants were false and misleading because 

Defendants failed to inform investors that (i) the Company was engaged in the illegal and 

improper off-label marketing of Subsys and (ii) certain Insys employees, including 

Defendant Babich, were involved in an illegal kickback scheme operated for the purpose 

of increasing prescriptions of Subsys. (Compl. ¶ 40.) 

III. ARGUMENT

A. Legal Standards 

1. General Standards Governing Motions to Dismiss 

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). 

2. Pleading Standards in Securities Fraud Cases 

To state a claim of securities fraud under Section 10(b) of the Securities Exchange 

Act of 1934 and SEC Rule 10b-5, Plaintiff must allege: (1) a material misrepresentation 

or omission of fact; (2) scienter; (3) a connection with the purchase or sale of a security; 

(4) transaction and loss causation; and (5) economic loss. See Zucco Partners, LLC v. 

Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009). To state a “control person” claim 

under Section 20(a), Plaintiff must allege: (1) a primary violation of the securities laws, 

and (2) that the defendant “exercised actual power or control over the primary violator”. 

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Id. 

Plaintiff must satisfy the heightened pleading requirements imposed by Federal 

Rule of Civil Procedure 9(b) as well as the PSLRA. Rubke v. Capitol Bancorp Ltd., 551 

F.3d 1156, 1164 (9th Cir. 2009). Rule 9(b) requires a complaint to “state with 

particularity the circumstances constituting fraud”. Similarly, under the PSLRA, the 

complaint must “specify each statement alleged to have been misleading, the reason or 

reasons why the statement is misleading, and, if an allegation regarding the statement or 

omission is made on information and belief, the complaint shall state with particularity all 

facts on which that belief is formed”. 15 U.S.C. § 78u-4(b)(1) (2012). 

The PSLRA also requires the 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). “A court must 

compare the malicious and innocent inferences cognizable from the facts pled in the 

complaint, and only allow the complaint to survive a motion to dismiss if the malicious 

inference is at least as compelling as any opposing innocent inference.” Zucco Partners, 

552 F.3d at 991 (citing Tellabs, 551 U.S. at 323). 

B. Plaintiff’s Section 10(b) Claim Should Be Dismissed. 

Plaintiff’s claim for securities fraud should be dismissed because it fails to plead 

sufficiently three required elements of a § 10(b) claim: (1) a misrepresentation or 

omission of a material fact, (2) scienter and (3) loss causation. 

1. The Complaint Fails to Plead Any Actionable False or Misleading 

Statements. 

Plaintiff fails to plead any misstatements with the particularity required or to 

explain why any statements were allegedly false or misleading. Furthermore, Plaintiff 

challenges statements that are “forward-looking” and thus inactionable as a matter of law. 

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

Challenged Statements Are False or Misleading. 

The Complaint challenges statements in four of the Company’s SEC filings and 

related press releases (¶¶ 27-39): 

 March 3, 2015, Form 10-K (discussing Subsys’ large market share and the 

Company’s efforts to increase market penetration). (Compl. ¶¶ 27-30.) 

 May 11, 2015, Form 10-Q and press release on May 7, 2015 (noting that 

“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.” Also noting that “[b]y 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”). (Compl. ¶¶ 33-34.) 

 August 6, 2015, Form 10-Q and press release (containing substantially 

similar language as the May 11, 2015 Form 10-Q and noting that “we are 

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

(Compl. ¶¶ 35-36.) 

 November 5, 2015, Form 10-Q and press release (containing substantially 

similar language as the May 2015 and August 2015 reports). (Compl. 

¶¶ 37-39.) 

The Complaint alleges that these statements were false and misleading because the 

“Defendants failed to disclose that: (i) the Company was engaged in the illegal and 

improper off-label marketing of Subsys; [and] (ii) certain Insys employees—including 

Defendant Babich—were complicit in an illegal kickback scheme operated for the 

purpose of increasing prescriptions of Subsys”. (Compl. ¶ 40.) 

Plaintiff fails to plead with particularity what, precisely, was false or misleading 

about each of these particular statements and why these statements were false or 

misleading when they were made. See 15 U.S.C. § 78u-4(b)(1) (requiring the Plaintiff to 

allege with particularity “the reason or reasons why the statement is misleading”). “A 

litany of alleged false statements, unaccompanied by the pleading of specific facts 

indicating why those statements were false, does not meet this standard.” Metzler Inv., 

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540 F.3d at 1070 (emphasis added). Notably, the Complaint does not allege that any of 

the financial results and other historical facts reported in these statements (e.g., the 

Subsys market share, revenues, historical sales growth or profitability) were inaccurate. 

Rather, the Complaint alleges that the Defendants’ statements were misleading by 

implying that the Company’s business and operations complied with relevant regulations. 

Such allegations alone, however, are insufficient as a matter of law. See id. at 1071 

(rejecting the allegation that a company’s financial statements were false “because they 

created the overarching impression that the Company was outperforming expectations 

and continually increasing revenue through legitimate business means”). 

Moreover, the Company informed investors, in each of its public SEC filings since 

it went public, 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. (Ex. 2 at 30, 38-39 & 43-44; Ex. 3 at 38, 44-45 & 48; Ex. 4 at 27; 

Ex. 5 at 25; Ex. 6 at 41 & 46-48; Ex. 7 at 27; Ex. 8 at 29; Ex. 9 at 29; Ex. 10 at 22, 39, & 

43-46; Ex. 11 at 29; Ex. 12 at 29-30; Ex. 13 at 29; Ex. 14 at 36, 40-42.) The Company 

addressed these risks in each of its public filings beginning before the Class Period from 

the time the Company went public. (Exs. 2-9.) In addition, the Company informed 

investors of actual government investigations into the exact employee misconduct about 

which the Company had warned investors since going public in 2013. (Ex. 8 at 12; Ex. 9 

at 10-11; Ex. 10 at 84-85; Ex. 11 at 11-12; Ex. 12 at 10-11; Ex. 13 at 10-11; Ex. 14 at 85-

86; Ex. 16 & Ex. 35.) When viewed in the context of those contemporaneous and 

repeated disclosures, there is no reasonable inference that the challenged statements were 

misleading by omission. See In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1414 (9th 

Cir. 1994) (citing the “unremarkable proposition that statements must be analyzed in 

context”); see also Sprewell, 266 F.3d at 988 (holding that a court need not accept an 

allegation that is contradicted by documents of which the court may take judicial notice). 

Accordingly, Plaintiff has failed to plead falsity with sufficient particularity. 

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(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. The PSLRA provides a 

“safe harbor” for “forward-looking statements”, which are defined to include: “(A) a 

statement containing a projection of revenues, income . . . or other financial items; (B) a 

statement of the plans and objectives of management for future operations . . . ; (C) a 

statement of future economic performance . . . ; [and] (D) any statement of the 

assumptions underlying or relating to any statement described in subparagraph (A), (B), 

or (C)”. 15 U.S.C. § 78u-5(i)(1). Defendants “shall not be liable” for any forwardlooking statements if: the statement is “identified as a 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 adequately 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). 

The Complaint challenges the following forward-looking statements: 

 “Through our ongoing commercial initiatives, we believe we can continue 

to grow our market share and net revenue for Subsys.” (Compl. ¶ 28.) 

 “We believe that we can continue to increase Subsys net product 

revenue . . .” (Id. ¶ 29.) 

 “We expect [Subsys] 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.” (Id. ¶¶ 33, 35.) 

 “[W]e expect to deliver long-term value for our shareholders.” (Id.) 

 “We . . . see opportunity for further market share gains in the coming 

quarters.” (Id. ¶ 38.) 

These are classic forward-looking statements because, when “examined as a whole, the 

challenged statements related to future expectations and performance”. Police 

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Retirement Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1059 (9th 

Cir. 2014). 

Each of these forward-looking statements is in the “safe harbor” because it was 

identified as a forward-looking statement and accompanied by meaningful cautionary 

statements. In every SEC filing made during the Class Period and on every press release 

or earnings announcement cited in the Complaint, Insys advised investors that its report 

or announcement contained forward-looking statements relating to the Company’s future 

prospects. For example, in the 2014 Annual Report, Insys warned investors: 

The information in this Annual Report on Form 10K, or this 

Form 10K . . . contains forward-looking statements and 

information . . . In evaluating these statements, you should 

specifically consider various factors, uncertainties and risks 

that could affect our future results or operations as described 

from time to time in our SEC reports, including those risks 

outlined under the heading “Risk Factors” in Item 1A of this 

Form 10K. 

(Ex. 10 at 57.) The Company repeated similar warnings in subsequent SEC filings 

throughout the Class Period. (See Exs. 11-13.) The Company also provided cautions in 

each relevant press release issued by the Company, including those now challenged by 

Plaintiff. (Exs. 18-29.) These warnings and cautions are similar to the warnings the 

Ninth Circuit has repeatedly found adequate to put statements within the safe harbor. See 

Police Retirement Sys., 759 F.3d at 1059 (“I would like to inform you that comments 

mentioned on today’s call may be deemed to contain forward-looking statements. Actual 

results may differ materially from those expressed or implied, as a result of certain risks 

and uncertainties. These risks and uncertainties are described in detail in the company’s 

SEC filings.”); In re Cutera, 610 F.3d at 1112. 

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.” 15 U.S.C. § 78u-5(c)(1)(A); see Police Retirement Sys., 759 

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

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regulatory and compliance risks Plaintiff now erroneously contends were concealed. For 

example, the 2014 Annual Report warns: 

 “[O]ur ability to continue to generate revenues from these products 

will depend on a number of factors, including, but not limited to . . . 

our ability to comply with regulatory requirements.” (Ex. 10 at 22.) 

 “Our employees may engage in misconduct or other improper 

activities, including noncompliance with regulatory standards . . . 

We are exposed to the risk of fraud or other misconduct.” (Id.

at 39.) 

 “In particular, sales, marketing and business arrangements in the 

healthcare industry are subject to extensive laws and regulations 

intended to prevent fraud, misconduct, kickbacks, self dealing and 

other abusive practices. These laws and regulations may restrict or 

prohibit a wide range of pricing, false claims, discounting, marketing 

and promotion, sales commission, customer incentive programs and 

other business arrangements. [M]isconduct could also involve . . . 

illegal promotion of a drug product for off label use, which could 

result in regulatory sanctions and serious harm to our reputation.” 

(Id.) 

These risk factors were repeated or reaffirmed in the Company’s subsequent SEC filings 

throughout the Class Period. (Exs. 11-13.) 

When forward-looking statements are accompanied by such cautionary statements, 

the statements cannot be used as the basis of a securities law claim and “the state of mind 

of the individual making the statement is irrelevant”. In re Cutera, 610 F.3d at 1112. 

Even if this Court were to conclude that these cautions were inadequate, however, the 

Complaint must allege “facts that would create a strong inference that the defendants 

made the forecast(s) at issue with actual knowledge that the statement was false or 

misleading”. Id. (citing 15 U.S.C. § 78u-5(c)(1)(B)(i)). As set forth below, Plaintiff fails 

to allege facts showing any degree of scienter, much less actual knowledge on the part of 

any Defendant who made forward-looking statements. The forward-looking statements 

challenged in the Complaint are not actionable. 

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

Inference” of Scienter. 

Even if the Complaint had pleaded an actionable misstatement, it does not “state 

with particularity facts giving rise to a strong inference” that any Defendant made a 

misstatement “intentionally or with deliberate recklessness”. 15 U.S.C. § 78u-4(b)(2)(A); 

Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 607 (9th Cir. 2014). In 

fact, the Complaint contains a single, boilerplate allegation of scienter: 

Defendants had both the motive and opportunity to commit 

fraud. They also had actual knowledge 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. 

(Compl. ¶ 58.) This allegation consists of unsupported conclusions, and thus does not 

create any strong inference of scienter on the part of any Defendant. See Glazer Capital 

Mgmt., LP v. Magistri, 549 F.3d 736, 743 (9th Cir. 2008); see also Lipton v. 

Pathogenesis Corp., 284 F.3d 1027, 1035 (9th Cir. 2002) (“[P]laintiffs who plead the 

required state of mind in general terms of mere ‘motive and opportunity’ or 

‘recklessness’ fail to meet the PSLRA’s heightened pleading requirements”); Commcn’s 

Workers of Am. Plan for Emps.’ Pensions & Death Benefits v. CSK Auto Corp., 2007 WL 

951968, at *4 (D. Ariz. Mar. 28, 2007) (finding general allegations about defendants’ 

positions and access to non-public material information insufficient to establish that 

defendants acted deliberately or recklessly).3

 Accordingly, Plaintiff has failed to 

 3 The only factual allegation in the Complaint potentially related to any 

Defendant’s state of mind is the allegation that Defendant Kapoor stated that Defendant 

Babich resigned on November 2, 2015, because Babich “was closest to the issues that 

federal prosecutors were looking at”. (Compl. ¶ 47, p. 12.) There is only one alleged 

misstatement occurring after those events: Insys’s third-quarter 2015 results and an 

accompanying statement by Defendant Kapoor that “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.” (Compl. ¶ 38.) The Complaint does nothing to 

allege that these statements were false or misleading in light of Kapoor’s alleged 

knowledge concerning Babich. Accordingly, that allegation therefore does not create any 

inference of scienter, much less a strong one. 

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sufficiently plead scienter. 

3. The Complaint Fails to Plead Loss Causation. 

The Complaint also fails to plead another essential element of a securities fraud 

claim: loss causation. In Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), 

the Supreme Court made clear that Plaintiff must plead a causal link between the 

misrepresentations and actual economic loss by alleging that the revelation of the 

misrepresentation caused the price of the security to decrease. See id. at 342-46. 

Accordingly, Plaintiff must “allege specific statements . . . that were made untrue or 

called into question by subsequent public disclosures”. Oregon Public Emps. Ret. Fund, 

774 F.3d at 608. 

The Complaint identifies five specific news articles (so-called “Corrective 

Disclosures”) that Plaintiff claims revealed the “truth” concealed by the alleged 

misstatements and were allegedly followed by decreases in the market price of the 

Company’s securities: 

 An April 24, 2015, article published by the Southern Investigative 

Reporting Foundation (“SIRF”) entitled “Insys Therapeutics and the New 

‘Killing It’”, which addressed a purportedly large number of “adverse 

events”, including death, suffered by patients using Subsys, and described 

the allegations in the Qui Tam Complaint. (Compl. ¶¶ 41-42.) (Ex. 30.) 

 A May 20, 2015, article published by Seeking Alpha entitled “Top 

prescribers of Insys Therapeutics’ Subsys arrested on drug charges” 

reporting that two Alabama-based physicians, prescribers of Subsys, had 

been arrested on healthcare fraud charges. (Id. ¶¶ 43-44.) (Ex. 31.) 

 A June 25, 2015, article published by The New York Times entitled “Nurse 

Pleads Guilty to Taking Kickbacks from Drug Maker”, which reported on 

the Connecticut nurse practitioner, described above, pleading guilty to 

receiving illegal payments in exchange for writing Subsys prescriptions. 

(Id. ¶¶ 45-46.) (Ex. 32.) 

 A December 3, 2015, article published by SIRF entitled “Murder 

Incorporated: Insys Therapeutics, Part I”, alleging that Michael Babich had 

been forced to resign by John Kapoor, the Company’s chairman, and that 

the Company was operating an illegal kickback scheme to promote offlabel marketing of Subsys. (Id. ¶¶ 47-48.) (Ex. 33.) 

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 A January 25, 2016, article published by SIRF entitled “The Brotherhood 

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

continuing to engage in improper off-label marketing of Subsys. (Id. ¶¶ 49-

50.) (Ex. 34.) 

In fact, however, many of these so-called Corrective Disclosures identified by 

Plaintiff simply repeated allegations that were contained in the Qui Tam Complaint or in 

the Prior Securities Complaint and thus were not new news. For example, Plaintiff’s first 

supposed Corrective Disclosure, an article published by SIRF on April 24, 2015, 

extensively quotes or paraphrases allegations contained in both Complaints, including 

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

physicians to prescribe a higher-than-indicated dose. (Ex. 30.) The Prior Securities 

Complaint, which was filed in 2014, had been public long before the Class Period. 

Indeed, the Company described the allegations in the underlying litigations in its August 

12, 2014, Form 10-Q and in subsequent SEC filings. (Exs. 8-14.)4

 The Prior Securities 

Complaint, in turn, repeated many of the allegations from the earlier Qui Tam Complaint 

that had become public in July 2013, again well before the beginning of the Class Period. 

In particular, the allegation that Defendant Babich was involved in improper conduct had 

already been made in both of the prior Complaints. (Ex. 15 ¶ 101; Ex. 17 ¶ 111.) 

As another example, Plaintiff’s fourth Corrective Disclosure, a SIRF article 

published on December 3, 2015, describes allegations that the Company’s “prior 

authorization unit” provided false information to pharmacy benefit managers so that they 

would cover Subsys, and those allegations are repeated in Plaintiff’s fifth Corrective 

Disclosure, a SIRF article published on January 25, 2016. (Exs. 33, 34.) But those 

allegations were also recycled from the Prior Securities Complaint, which even refers to a 

confidential witness who allegedly worked in the “prior authorization unit” and witnessed 

 4 The first Corrective Disclosure also refers to instances of adverse events 

associated with Subsys being reported to the FDA. The Company had warned investors 

on several occasions, both prior to and during the Class Period, of the risk that patients 

taking Subsys might suffer side effects. (See, e.g., Ex. 6 (March 5, 2014 Form 10-K) 

at 48; Ex. 10 (March 3, 2015 Form 10-K) at 45-46.) In addition, the information 

contained in the article concerning potential adverse effects did not make untrue or call 

into question any of the prior alleged misstatements. 

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improper conduct. (Ex. 17 ¶¶ 84, 85.) 

In addition, many of Plaintiff’s Corrective Disclosures refer to governmental 

investigations of Insys or its employees that were not new. For example, the first 

Corrective Disclosure referred to investigations initiated by HHS and a “grand jury that 

has been empaneled in Boston”. (Ex. 30.) The second Corrective Disclosure, a May 20, 

2015 Seeking Alpha article, stated that “[i]n September, the Massachusetts Attorney 

General issued a subpoena requesting documents pertaining to its commercial practices 

supporting Subsys.” (Ex. 31.) (Although the article refers to a subpoena from the 

“Massachusetts Attorney General”, it is presumably referring to the subpoena from the 

United States Attorney for the District of Massachusetts issued September 8, 2014.) 

However, the Company previously had informed investors about the Massachusetts U.S. 

Attorney’s investigation on September 12, 2014, before the Class Period (Ex. 35 

(Sept. 12, 2014 Form 8-K)), and previously had informed investors about the HHS 

investigation on December 13, 2013, nearly 17 months prior to the article’s publication 

and well before the Class Period. (Ex. 16 (Dec. 13, 2013 Form 8-K).) In fact, Plaintiff’s 

second Corrective Disclosure noted that “Insys has been under scrutiny for some time for 

its Subsys marketing practices”. (Ex. 31.) The existence of those investigations was not 

new news.5

 Further, for the same reasons discussed above in Part III.B.1, Plaintiff fails to 

plead how the governmental investigations revealed that Defendants’ descriptions of the 

Company’s financial situation were false or misleading. See Metzler Inv., 540 F.3d 

at 1071. 

Other information reported in the Corrective Disclosures concerned 

contemporaneous events that the Company could not have previously disclosed, and 

which did not reveal that any of the Defendants’ prior alleged misstatements were false or 

 5

 In discussing the Seeking Alpha article, the Complaint (¶ 43) focuses on the 

indictment of two physicians who wrote prescriptions for Subsys. According to the 

article, the indictment alleged that the physicians dispensed controlled substances 

“outside professional practice and not for legitimate medical purpose”. (Ex. 31.) But 

there are no allegations of misconduct by Insys in the article’s description of the 

indictment. 

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misleading. Plaintiff’s third Corrective Disclosure, a June 25, 2015, article published by 

The New York Times, reported that Connecticut nurse-practitioner Heather Alfonso (who 

was not an Insys employee) pleaded guilty to charges of violating the federal AntiKickback Statute. (Ex. 32.) In its next Form 10-Q, the Company disclosed this guilty 

plea as a development in the ongoing federal investigations.6

 (Ex. 12 (Aug. 6, 2015 Form 

10-Q) at 10.) Similarly, Plaintiff’s fourth Corrective Disclosure, an article published 

December 3, 2015, asserted that “Defendant Babich had been forced to resign from the 

Company”. (Compl. ¶ 47.) However, Defendant Babich’s resignation had just occurred, 

and the Company promptly informed investors of it. (Ex. 13 (Nov. 5, 2015 Form 10-Q) 

at 30.) 

Because none of the Corrective Disclosures alleged by Plaintiff contained new 

news that revealed that the alleged misstatements were false or misleading, Plaintiff has 

failed to plead loss causation. 

C. Plaintiff’s Section 20(a) Claim Must Be Dismissed. 

Because Plaintiff fails to state a claim for violation of § 10(b), Plaintiff’s claim 

under § 20(a) necessarily fails as well. Section 20(a) provides for joint and several 

liability for “[e]very person who, directly or indirectly, controls any person liable under” 

the securities laws or SEC rules thereunder. 15 U.S.C. § 78t(a). To state a claim of 

“control person liability” under § 20(a), therefore, 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. As explained 

above, Plaintiff has failed in several respects to allege a primary violation of § 10(b) and 

Rule 10b-5; thus, the § 20(a) claim fails on the first prong. See, e.g., Lloyd v. CVB Fin. 

Corp., 811 F.3d 1200, 1206 n.2 (9th Cir. Feb. 1, 2016) (explaining that liability under 

§ 20(a) “rises or falls with the primary violation claim”). 

 6 The Company disclosed this guilty plea once again in its subsequent (and most 

recent) Form 10-Q, along with a description of remedial measures the Company had 

taken after a review by its board’s Compliance Committee and outside counsel. (Ex. 13 

(Nov. 5, 2015 Form 10-Q) at 11; see also Ex. 14 (Feb. 29, 2016 Form 10-K) at 85.)

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IV. CONCLUSION

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

DATED: March 15, 2016 

SNELL & WILMER L.L.P. 

 

 s/Nicole E. Sornsin

 Don Bivens 

Nicole E. Sornsin 

One Arizona Center 

400 E. Van Buren 

Phoenix, AZ 85004-2202 

 

 CRAVATH, SWAINE & MOORE LLP 

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 March 15, 2016, 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 

s/Jennifer Thomes 

23686781 

Case 2:16-cv-00302-NVW Document 18 Filed 03/15/16 Page 19 of 19