Insys says it may be forced to file for bankruptcy due to litigation cash crunch

© Reuters. FILE PHOTO: John Kapoor arrives at the federal courthouse in Boston

(Reuters) - Insys Therapeutics Inc said on Friday that a cash crunch resulting from legal costs related to a U.S. Justice Department probe into sales practices for the company's powerful opioid medication and other litigation may lead the company to file for bankruptcy and prevent it from completing its settlement deal with the Justice Department.

Insys, which has been exploring strategic options and is in talks to divest its opioid product Subsys, said it was likely that investors will lose all or a part of their investments if the company is not able to sell its assets at the value they are booked in its audited financial statements.

Last August, Insys reached a tentative deal to pay at least $150 million to resolve a Department of Justice investigation into claims that the drugmaker paid doctors kickbacks to prescribe Subsys, an under-the-tongue spray that contains fentanyl, an opioid 100 times stronger than morphine.

The Arizona-based company said it was uncertain about its ability to fulfill demands made by the DoJ, which includes the execution of a security agreement related to the assets of the company to collateralize payments under the settlement.

It said available liquidity was limited to $87.6 million in cash, cash equivalents and investments as of March 31 and the company expects to have continued negative cash flows from its operations.

"It may be necessary for the company to file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in order to implement a restructuring. Therefore, trading in our securities is highly speculative," the company said in a statement.

Insys' founder, John Kapoor, and four other former Insys executives and managers were found guilty last week of participating in a scheme to bribe doctors to prescribe Subsys.

The U.S. Food and Drug Administration approved Subsys in 2012 only for use in treating severe cancer pain. Yet prosecutors claimed doctors who took bribes often prescribed Subsys to patients without cancer, helping boost sales for Insys.

The company said it had experienced recurring and increasing losses from operations over the previous 18 months due to significant declines in the transmucosal immediate-release fentanyl (TIRF) market and legal expenses resulting from investigation by the DoJ and other litigation.

The company said its first-quarter net revenue dropped 68% to $7.6 million, while the net loss widened to $123.8 million from a loss of $20.4 million a year earlier. It said the adjusted loss for the first quarter was 55 cents per share.