♪ ♪ ♪ ♪ >> NARRATOR: It was an unremarkable morning in a wealthy enclave just north of Phoenix... >> Let's get to this breaking news right now.

Federal agents have arrested the billionaire founder and former C.E.O.

of a pharmaceutical company right here in Phoenix.

>> NARRATOR: Until federal agents launched a raid on the home of billionaire John Kapoor.

>> 74-year-old Kapoor is the most significant pharmaceutical executive to be criminally charged thus far in the nationwide opioid crisis.

>> Why?

'Cause there's no evidence against him.

He didn't do anything wrong.

>> I've never seen anything like this.

These doctors were writing massive volumes of prescriptions for one of the most dangerous drugs on the market.

>> No, he wasn't.

>> No, he was not doing that, either.

>> NARRATOR: John Kapoor's arrest was a watershed in the opioid crisis-- and a warning to corporate America.

>> Going to take a look at shares of Insys Therapeutics.

They're falling more than 18% today on news that executives from the pharmaceutical company have been arrested on racketeering charges.

>> Wall Street loves a success story-- everybody does, Wall Street just loves it more.

And John Kapoor had a great story to sell.

(cameras clicking) >> It's a terrible thing, but he's got nothing to do with it.

>> NARRATOR: With colleagues at the "Financial Times," we've been investigating opioid manufacturer Insys Therapeutics and its founder.

>> There simply weren't enough people who were joining up the dots, to ask the question of, "Is this legal?

What's really driving these profits, and is it good for society more widely?"

♪ ♪ ♪ ♪ ♪ ♪ >> NARRATOR: This is a story that starts with pain-- the kind that's so severe, people become desperate for relief.

John Kapoor understood that pain and thought he could help.

>> I met John Kapoor here in Phoenix.

He had come to Arizona from Chicago and developed Insys Corporation to try and produce some medication that would help with cancer pain and its symptoms.

>> NARRATOR: Dr. Lisa Jo Stearns is one of eight people connected with Insys who agreed to speak to us about their experiences with Kapoor and his drug.

>> Kapoor's wife had died of... with breast cancer.

She had developed quite a deal of pain.

He had tears well up in his eyes when speaking about his wife, and that his main mission now was to try and help decrease the amount of suffering for patients.

I believed that he was somebody that could help us change the way that we have cancer pain treatment in America.

(audience applauding) >> NARRATOR: He was, at the time, one of the drug industry's most successful entrepreneurs.

>> I know there are all kinds of definitions for entrepreneurs.

The one that I think we all recognize most is that entrepreneurs are risk-takers.

Entrepreneurs are also dreamers.

♪ ♪ My dream started in India.

And my dream was to come to this country.

I was fortunate that I was able to get a fellowship at State University of New York at Buffalo, where I did my PhD in medicinal chemistry.

>> NARRATOR: Kapoor had taken his chemistry degree and gone into business.

Between 1981 and 2002, he started and invested in more than a dozen pharmaceuticals.

Over those two decades, he developed a reputation-- he was ruthless in pursuit of profits.

Roddy Boyd is a former hedge-fund analyst turned investigative reporter who's covered Kapoor's career.

>> He sold his first company to the Japanese for about $800 million.

But his factories were known for their rampant violations.

He cut corners left, right, and center, to the point where they took it over and found that the actual formulation of these drugs were so problematic that they had to halt production.

>> NARRATOR: It wasn't an isolated incident.

Violations and lawsuits littered his path.

But that didn't get in the way of him becoming a billionaire.

>> We were the first of the investors who built the category in pharma today called specialty pharma, where you pick up products, and then you add some twist to it to make it better, different, and promote it to your sales force.

By promoting, you can build those products.

>> NARRATOR: One of Kapoor's innovative and lucrative twists: he'd taken an existing heart drug, turned it into a spray, and marked up the price.

With Insys, he'd try the same thing using fentanyl, a synthetic opioid up to 100 times more powerful than morphine.

It's often used by doctors to treat end-stage cancer pain, like the kind his wife had experienced.

>> Fentanyl, it's very addictive, and it's very dangerous if used, um, in the wrong way.

But if used in the right way, it's a godsend to many patients.

>> NARRATOR: Kapoor called his new fentanyl spray Subsys.

Dr. Stearns was a principal investigator of a Subsys clinical trial.

>> There were other fentanyl products that people were utilizing for breakthrough pain.

But they took anywhere from 15 to 45 minutes to work.

But then Subsys comes along and patients would, within five minutes, get a clinical response and feel better.

I thought that that was, um, amazing.

♪ ♪ >> NARRATOR: John Kapoor launched Subsys in the spring of 2012, after the FDA approved it for treating breakthrough pain in cancer patients.

>> Subsys comes in individual blister packages.

Do not open the blister package until you're ready to use it.

>> NARRATOR: But Subsys sales were lackluster for the first six months.

>> We prescribed maybe a couple of prescriptions a week.

Because there weren't a lot of people that needed to be managed that acutely.

>> NARRATOR: Behind closed doors, Kapoor said Subsys was the worst launch in pharmaceutical history.

He was furious.

>> For John Kapoor, this is, simply put, not acceptable level of business.

And the first national director of sales was fired in a few months.

They brought in Alec Burlakoff, and lo and behold, things changed.

>> NARRATOR: Alec Burlakoff had spent close to six years in pharmaceutical sales.

He would become central to the rise of Insys, and its ultimate fall.

>> You want me to do anything, or just, uh... >> No, no, you can just look around.

>> NARRATOR: This is his first on-camera interview, conducted under the supervision of federal authorities.

>> When was the first time that you met John Kapoor?

>> Approximately April of 2012.

They're on a fast track to going under.

My basic understanding is lack of sales results.

I mean, I come to every interview with more passion and enthusiasm than I like to think anybody else can bring to the table.

And I can tell you that when I interviewed for the sales manager position, that interview ended with Dr. Kapoor pounding the desk saying, "This is our next VP of sales."

I left thinking, "This is the opportunity that, of a lifetime, I've been waiting for my whole life.

I've always wanted to work with a billionaire."

>> Alec Burlakoff, I thought, was a genius and definitely knew how to, I don't know how, build a sales team that quick, that fast, and make the company go where it did.

>> You could see the guy can sell, only because of the way he connects with people.

And you throw in a lot of enthusiasm, where you see someone genuinely looking to help you become successful financially, you can't help but to gravitate toward him.

>> His mantra was, "By any means necessary, get the job done."

It's from sunup to sundown, and by any means necessary.

>> NARRATOR: These three former sales insiders, who were let go by the company, were the few who would go on camera to tell us about an unbridled sales culture at Insys.

>> It wasn't about cancer patients.

It was about getting as many people as you could on the drug.

>> NARRATOR: With $80 million on the line, Kapoor was Insys's principal investor.

He wanted his money back-- and more.

>> The instruction was go out there, show that we can get a minimum return on investment of two to one, minimum-- and do not lose his money-- or get fired.

And the only way that I knew how to do it, uh, to get that guarantee, is to bribe doctors.

>> You're saying bribery, like, you're kind of... >> Yes, I am.

>> That has a really kind of big meaning, that word.

>> Yes.

I think to use any other word would be irresponsible of me at this point, I mean... >> Back then, did you think, "Oh, I'm going to go bribe people?"

>> Yes.

(people talking in background) >> How did you know what you needed to do?

>> From my experience in the industry.

>> NARRATOR: Burlakoff told us how he boosted sales, turning to the legal industry practice of paying doctors to appear at professional gatherings.

They're called "speaker programs."

>> It is a very common practice, something that I'm very familiar with from my days back at Eli Lilly as a rep, at Johnson and Johnson, at Cephalon.

The only difference is, at Insys, no one cared if... if anybody showed up to the programs and if the doctor even spoke.

The only thing that mattered was the bottom line.

>> I have here documented my day-to-day schedule.

I had a speaker program, if that's what you want to call it.

The infamous dinner program, May 17.

>> NARRATOR: April Moore was a new sales rep at the time, working for one of Burlakoff's handpicked managers.

She was told to focus on one doctor in Chicago, Dr. Paul Madison.

>> Sunrise Lee was my manager.

She told me, "You want to get Dr. Madison out to do speaker programs.

Push speaker programs, because that's money."

I was told there were going to be approximately 11 to 13 doctors.

And not one doctor showed up.

Dr. Madison saw one of his friends.

So Sunrise had Dr. Madison's friend and the date forge signatures of other doctors that were supposed to be at this dinner program.

So that Dr. Madison could get paid.

He got anywhere between $1,200 to $1,500 for that speaker program.

>> Dr. Kapoor insisted on actually tracking the number of prescriptions that the speaker prescribed, which had never been done in any other company I've been involved in.

We were getting daily data, a report that would show a correlation between the number of dollars that they were paid in honorarium to speak by Insys Therapeutics, and the number of dollars that they provided to Insys via prescriptions of Subsys.

Again, minimum of two dollars for every one dollar we spent.

>> NARRATOR: Dr. Madison made an estimated $86,000 in speaker fees, and wrote at least $1.2 million in Subsys prescriptions.

He told us he didn't do anything improper with the speaker programs or overprescribe Subsys.

He hasn't been charged for the crime related to Insys, but his medical license was revoked in Illinois.

Inside the company, doctors like Madison were known as whales.

>> My reps would get up at 5:00 or 6:00.

They'd drive around from doctor's office to doctor's office.

The ones that, with lines of patients sitting in the parking lot, on the floor drinking Mountain Dew?

Pretty good tell-tale sign that that's going to be the doctor that you're going to want to engage with.

>> NARRATOR: They were pain doctors, in strip mall clinics, row house offices, even suburban hospitals.

>> The office probably could very well have been described as a pill mill.

The percentage of patients that had direct cancer-related pain was zero to one percent.

>> NARRATOR: Heather Alfonso was an Insys whale-- the only one willing to talk on camera.

>> The bulk of my responsibility was signing prescriptions.

Altogether, with my time with Subsys, I made about $83,000, which, in the whole scope of things, isn't very much now, is it?

>> The scope of things being what?

>> Considering how much they all made.

>> Let's just talk about the money, then.

You say yourself that you were motivated by it.

>> Yes, of course I was motivated by the money.

>> What do you mean, "of course"?

I mean...

I mean, well, I'll be honest, you're, you're a healthcare provider, and you're...

There are these lines that one, providers are not supposed to cross.

>> Right.

>> So tell me about, why were you crossing those lines?

>> What lines?

Well, because, see, in my mind, understand this.

I was prescribing a medication anyway.

Prescribe one called Subsys or one called Fentora, or add some more oxycodone to the streets.

I mean, one way or another, something was getting prescribed.

>> And the speaker's money, did it change your prescribing patterns?

>> Absolutely, the speaker's money changed my prescribing patterns, yes.

Because if I'm going to add a medication, I'm going to be more apt to add Subsys that, you know, supplements my income.

I have five children, and having a significant other who wasn't bringing in the income to help pay the bills, this additional money was something that I needed.

>> It all comes down to targeting.

You gotta find their hot button.

Whatever makes them tick.

And it sounds ruthless.

And it is ruthless, that we would target someone that's in distress in an effort to take advantage of them.

>> NARRATOR: Burlakoff told us that once the sales reps had their marks, they'd pressure the prescribers to write ever-higher doses of Subsys, a process known as titration.

>> It was a directive from Dr. John Kapoor that we roll out this effective dose campaign, which was basically all about titration.

If the doctor's not escalating the dose quickly, then we have an issue.

>> NARRATOR: Subsys was measured in micrograms.

100 micrograms was the lowest, 1,600 the highest, a prescription worth up to $60,000 a month to the company.

And the sales reps benefited as well.

>> This is where the dirt is, this is probably the most guilty thing in the company.

If you had a doctor that wrote a prescription, it was a bonus on your paycheck.

>> Low doses aren't that much money.

Higher dose, more money.

>> If you reach the 1,600 micrograms of fentanyl... That could kill you, but people were getting there.

>> NARRATOR: They even held contests for the sales team.

The higher the doses they got their doctors to write, the higher the cash prize.

>> Three, two, one, cut!

>> NARRATOR: John Kapoor's business was booming.

He returned to his alma mater to commemorate a new pharmacy building named after him and his late wife.

>> I must tell you, I'm really, really humbled with all the kind words that have been said about me.

They're only half-right.

(audience laughs) No.

>> NARRATOR: Wall Street was paying attention.

♪ ♪ David Amsellem is a stock analyst who advises institutional investors.

His reports would help influence Insys's rise on Wall Street.

>> Initially, I was skeptical that the company would be able to be successful commercially with Subsys, you know.

It's a highly competitive marketplace.

What was interesting is, the sales and the volumes really started to take off.

And that, I think, made an impression on a number of us in the investor and analyst community.

>> Over at the NASDAQ, Insys Therapeutics, a specialty pharma company.

>> NARRATOR: Insys went public in May 2013.

>> Good morning, and welcome to Insys Therapeutics' operating results conference call.

I'll turn the call over to Insys C.E.O.

Michael Babich.

>> Thank you for taking the time out of your day to join us for our first conference call as a public company.

>> NARRATOR: John Kapoor hired Michael Babich in 2001 to help manage his stock portfolio.

Babich was recently out of college.

Kapoor grew to trust him over the next decade, and chose him to be C.E.O.

and the public face of Insys.

>> This has been a rip-roaring stock for you guys.

The I.P.O.

's been fantastic.

Tell us what it is about Insys that has investors so excited.

>> Mike Babich had no background in pharma.

That, I thought, was striking.

Here he is, the C.E.O.

of the company.

As I got to know him, though, he seemed to say all the right things.

>> Our first commercial product, branded product, is called Subsys, and it's a sublingual spray of fentanyl, which is approved for breakthrough cancer pain.

And we believe this platform is very important for the future of drug delivery.

>> NARRATOR: Within five months of its I.P.O., Insys shares shot up 400%.

And John Kapoor's $80 million personal investment was worth close to $550 million.

Investors were doing well, too.

>> A lot of biopharma companies are not even generating any revenues.

Here was a company with a product on the market that was starting to see some success.

So that I found attractive.

>> Um, so, so tell me what, what you thought was up.

When a company's share price goes ballistic like that, yes, it may be because they discovered a new innovation that's so exciting and good for mankind that it's going to carry on indefinitely, but that's a pretty rare example.

Usually, there's something in that that's just too good to be true.

♪ ♪ >> NARRATOR: It was just months after Subsys was launched that the first whistleblowers began to emerge.

>> I first heard about Insys in the end of 2013.

One of the chief civil lawyers in our office forwarded me a whistleblower complaint.

I was at the time the chief of the healthcare fraud unit of the United States attorney's office in Boston.

All of the whistleblowers made similar allegations.

All over the country, these doctors were being bribed and were writing massive volumes of prescriptions for one of the most dangerous drugs on the market.

Every investigation of one of these companies starts with, is it possible to go after them criminally?

But they're always very difficult.

We're talking with, with the FDA, we're talking within our group about ways to move the case along.

>> NARRATOR: The company announced it was being investigated.

Word spread on Wall Street.

>> I would say there was something of a collective shrug.

There had been a whole host of investigations of other companies-- companies that are industry leaders, and big fines that were paid.

And so, I think the market looked at this as another investigation, one of many.

>> NARRATOR: Insys' stock price rose.

By early 2014, John Kapoor's investment was approaching $1 billion in value.

>> And around 2014, I started to publish research on Insys.

>> And you recommended it to investors to buy.

>> I did recommend it, yes.

>> NARRATOR: But a handful of high-level investors were not buying the Insys story.

>> There's a class of investors who go short.

They take out bets on the idea that the stock price is going to fall.

It's a rather, if you like, sick and perverted mentality, you might say.

But without them, we would have a financial system that's a lot less effective, because in a way, shorts often keep the rest of the system honest.

>> NARRATOR: Jim Carruthers was one of those short sellers.

He'd just started his own investment firm.

>> Someone had told us that there were only a small number of doctors that were, um, approximately, you know, 50% of their entire revenue.

Remember, this is a drug that, it specifically had a warning to be given to breakthrough cancer patients only.

We discovered that the primary prescribers are pain med doctors.

And then, when you did any kind of background check on these pain med doctors, what you really found was, in our opinion, pill mills.

>> NARRATOR: By then, Subsys was turning up in federal busts of pill mills across the U.S. >> There are a couple of things going on that are incredibly helpful.

The U.S. attorney's office in Michigan is prosecuting a doctor out there named Gavin Awerbuch.

They've talked to patients, they've done surveillance, they've actually had some undercover buys.

At one point, he was the largest prescriber of Subsys in the United States.

>> NARRATOR: Gavin Awerbuch was in fact Insys's biggest whale.

For $138,000 in speaking fees and other gifts from the company, he prescribed at least $7 million worth of Subsys.

♪ ♪ >> When we heard about those first headlines, you know, naturally, I, I asked management about them.

And I wasn't the only one.

>> They were quick to point out that there was a wide audience of physicians who were writing prescriptions.

Now, I couldn't see that kind of data from my own research.

You know, you, you want to believe that management teams are going to be honest.

And so, they were very, very clear: It's a bad actor, or one or two bad actors.

And, and this, there, there isn't anything to worry about here.

>> NARRATOR: Within days of Dr. Awerbuch's arrest, Katie Thomas of "The New York Times" published the first national exposé on Insys.

>> I got a tip to look into this company and look into their marketing practices.

The thing that caught my attention was, this is a very dangerous product.

If it was misused, it could actually kill people.

But if you googled Insys, you would see a lot of, you know, people talking about it from a Wall Street point of view, and how it's a stock to watch.

>> NARRATOR: She found one analyst hyping the company's titration strategy: "high doses driving higher revenues."

>> This idea that the patients as they became more addicted, essentially-- he didn't use that word-- but, and needed higher doses, this would be, you know, a good reliable revenue growth stream for the, for the company.

>> Katie Thomas writes her story for "The New York Times," and the stock goes from 20 to 12, roughly.

We thought, "Okay, the market's seen what is going on here.

They've reacted."

We continued to follow this story for a number of months, and the stock price pops back up to about $25 or so.

There were people on Wall Street who were intent on keeping this stock price up and, I believe, ignoring some of the more obvious indications that this was a, um, unsustainable, potentially fraudulent business model.

>> November of 2014, I get a package from a source of mine, Jim Carruthers, and he has some tips about Insys Therapeutics.

At some level, he's being somewhat self-serving, right?

He wants me to do my own work, write a story about it, hopefully the stock price declines, and he makes a profit.

But there was a story here, and I was just blown away.

So I hopped on LinkedIn and found current and former employees, and began reaching out to them.

>> NARRATOR: What Boyd discovered went beyond titration and no-show speaker programs.

It was a decadent sales culture in service of one goal.

>> Alec Burlakoff created a culture that the only thing that mattered was a prescription of Subsys.

What it took did not matter, and he was very clear about that.

>> ♪ 2015, let me begin ♪ ♪ Insys Therapeutics ♪ ♪ That is our name ♪ ♪ We're raising the bar and we're changing the game ♪ >> NARRATOR: His sales reps, like the ones who created this rap video for a company-wide contest, bought in.

>> ♪ Like they never seen ♪ ♪ Going deeper than Dan in a submarine ♪ >> He argued strongly that if you're producing, you know, you should have a lot of fun.

>> ♪ We're making history ♪ ♪ Because we're great by choice ♪ ♪ I love titration ♪ ♪ Yeah, that's not a problem ♪ ♪ I got new patients ♪ ♪ And I got a lot of them ♪ >> He encouraged, or at least tolerated, doctors and female staff having affairs.

>> ♪ I got new patients ♪ ♪ And I got a lot of them ♪ ♪ If you want to be great ♪ ♪ Listen to my voice ♪ ♪ You can be great ♪ ♪ But it's your choice ♪ >> Sex with a doctor, or chartering a private jet and taking a couple of doctors to, say, Cancun, Mexico, it's been done.

>> ♪ And I got a lot of them ♪ >> I encouraged these people, implored them, to form relationships.

>> ♪ If you want to be great ♪ ♪ Listen to my voice ♪ ♪ You can be great ♪ ♪ But it's your choice ♪ >> Because with relationship comes what?

Trust.

Whoo!

And if there is no trust there, they certainly are not going to get involved in a quid pro quo situation.

♪ I love titration ♪ ♪ Yeah, that's not a problem ♪ (boat engine humming) >> NARRATOR: Burlakoff and Kapoor picked people without pharma experience for the sales team.

Like Tim Neely, a former firefighter.

Before he was let go in 2015, he says he was one of Insys's top ten sales reps. >> I can tell you about my own experience with Insys, and going in for the first week of training, all right?

(chuckles): Retirement from the fire department, diving into some crazy pharmaceutical sales company, and I didn't really know anything.

Our class, no one had a degree in pharmaceutical sales, period.

I mean, we had a guy that played pro football, and a girl that posed for "Playboy" before.

I think our company was more about, "Can we trust you?"

It's like selling heroin on the streets.

>> NARRATOR: They also hired inexperienced people for senior management positions.

>> A saleswoman told me about Sunrise Lee, who oversaw the entire Midwest.

The only Sunrise Lee that I could track had been a dancer at a gentlemen's club in Florida.

She has no pharmaceutical background, no science background.

>> NARRATOR: Burlakoff put Lee in charge of a region with two of Insys's whales, Dr. Paul Madison and Dr. Gavin Awerbuch.

She wouldn't speak to us.

But when Boyd was reporting, she said that she was under federal investigation for Insys' sales practices.

>> I was not nearly as concerned at hiring a former "Playboy" model or a former exotic dancer as I was assessing whether or not they had what I call, unfortunately, a killer instinct.

Almost no conscience.

♪ ♪ >> NARRATOR: When Boyd finally published his story, he also made the first link to a death from Subsys.

>> Carolyn Markland had back pain.

She had taken Subsys the night before and literally died with it on her bed.

>> NARRATOR: Carolyn Markland's doctor had been a paid speaker for Insys.

>> We put it out, and I got a lot of emails from people on Wall Street who felt \that I didn't understand what I was talking about.

>> NARRATOR: Boyd stayed focused on the story, and soon made a discovery that would have impact.

>> Insys had what I call the killer app in its ability to get its drug approved.

And their hack, as it were, is simply to lie to the insurance companies.

>> NARRATOR: It was called the Insurance Reimbursement Center, I.R.C., an internal group at Insys that dealt directly with insurance companies.

>> NARRATOR: Boyd's reporting on their practices caught the attention of federal investigators.

>> When you're at a pharmaceutical company, you have to do two things.

First, you gotta get the doctor to write, and the second thing you do is, you gotta get somebody to pay for it.

In the industry, 35, 40% approval rate for a drug like this, it was the normal standard.

Kapoor thought that was outrageous.

And so, he was telling people, "I want, like, 100% approval rate."

>> NARRATOR: Special Agent Vivian Barrios works in the FBI's healthcare fraud unit.

>> I started going to Arizona pretty frequently to speak with as many of the I.R.C.

employees as I could.

I did speak with a woman, and she basically talked about that scheme that they had, which was misleading insurers.

>> NARRATOR: She was a prior-authorization specialist for Insys, and would become a key source for the investigators.

She agreed to speak to us if we concealed her identity.

>> I was the gatekeeper in between your doctor and the pharmacy.

And I was doing what I really thought was helping people, until I found out that it wasn't helping people.

>> Really, the prior- authorization specialist should have no control over whether or not it does or does not get approved, because a patient either meets the conditions or they don't.

>> So when it was a non-cancer patient, you were supposed to use this blurb or spiel.

The spiel was only talking about what the medication was intended for, and so that was meant to confuse the person on the phone.

>> That seems like a pretty straightforward question.

Does a patient have cancer?

Yes, no.

>> So the indication is, the doctor knows what it's been indicated for, he's treating the pain.

I didn't exactly say the person has cancer, but I, but I indicated it.

>> None of what we were saying was truthful.

We're just pocketing the money off of a prescription that should've never been approved anyway.

That's insurance fraud.

>> Starting in 2012, you can see at the very beginning that the, that the net revenue, it starts out low.

And then, as you go into 2013, when the I.R.C.

starts, net revenue goes way up-- why?

Because they're turning around and getting insurance prescriptions faster, and they're getting more, and so they're, they're getting a larger net revenue.

♪ ♪ >> The spray that we launched three years ago today, this year will do close to $300 million.

And our market share is approaching 50% of the market.

>> Everybody in the office was meticulously checking their phones all throughout the day to see where the stock was at.

And I had maybe $8 million, on paper.

That was based on the stock price as it was at its peak.

>> So you should have a dream, you should believe in yourself, and one important thing is stay humble.

>> NARRATOR: But there were increasing consequences.

♪ ♪ >> I had a large population of patients who had been prescribed Subsys by their clinicians for chronic pain conditions that were now addicts.

It created this very craving, addictive-like personality that they hadn't had before they used it.

>> NARRATOR: Subsys was being implicated in hundreds of deaths.

>> ...on 13 Action News live at 3:00, a Henderson judge found dead in her home.

>> A powerful painkiller was in her system at the time of her death.

>> NARRATOR: Diana Hampton was a municipal judge in Henderson, Nevada, outside Las Vegas.

>> Diana became addicted to fentanyl.

She'd been having problems with back pain.

Diana definitely fell into addiction as a result of pain management.

This is the paraphernalia that I got from her house.

This was the fentanyl.

♪ ♪ >> NARRATOR: She was seeing a Las Vegas pain doctor, one of the largest prescribers of Subsys in Nevada.

Later, he was arrested, and pled guilty to giving her hundreds of used Subsys canisters.

>> Diana was extracting the leftovers out of the Subsys bottles and shooting them into her arm.

I realized that in Diana's position, death was probably a better alternative than the exposure.

She would lose her job, she'd lose her judgeship.

She would be shamed.

♪ ♪ >> I didn't think about the patient, the people suffering, the addiction.

The, uh, the deaths.

I imagined that I was selling a widget.

All these lives that are being affected, I managed to... successfully compartmentalize, where it wasn't in the forefront on a daily basis.

Because if it was, I would not be able to do my job.

>> NARRATOR: News reports on Insys continued to surface.

Some of the biggest prescribers of Subsys had been charged, including Gavin Awerbuch and Heather Alfonso, who'd ultimately take pleas.

And the investigation of Kapoor and his company was closing in.

>> We got more than a terabyte of information from the company by way of subpoena.

One of the really good pieces of evidence against Mike Babich was this office-wide email saying, "I thought we owned the top guys."

♪ ♪ >> NARRATOR: Feeling the pressure, Kapoor made a strategic move.

One night after work, he took the man who had been beside him for 14 years to get a drink.

There, Babich would later recall, Kapoor told him, "Every company goes through struggles, and when things like that happen, there's always a fall guy."

Then he told him, "You're going to be the fall guy."

Good morning and welcome to the Insys Therapeutics third quarter 2015 earnings call.

I'd like to turn the call over to Dr. Kapoor.

>> Today we announce that Michael Babich has stepped down as president and chief executive officer of Insys.

I will assume the additional role of president and C.E.O.

>> NARRATOR: Soon, amid tension with Kapoor, Burlakoff would leave the company.

(waves crashing) >> I was in California having lunch on the water, and I get a phone call.

I go, "This is my lawyer."

And we don't talk a lot, so I pick up the phone, and he says, "Alec, you are the subject of a federal investigation.

Like, any day now, like, within 24 hours.

You need to get a criminal attorney yesterday."

♪ ♪ >> Burlakoff left a message for me at the Massachusetts attorney general's office.

It was this bizarre moment, he said he'd just fired his lawyer and he wanted to come in and talk.

That's never happened before.

>> I had spent my entire life talking my way out of murky situations, and I thought I could do it again.

>> NARRATOR: Alec Burlakoff agreed to meet us one more time near his home in Florida.

He told us what happened next.

>> I purposefully went in without a lawyer.

I met with a assistant U.S. attorney, an FBI agent, and somebody who was typing on the computer, taking notes.

>> Did they ask you if you bribed doctors?

>> I don't recall specifically, but I believe so.

And if they did, I would have said something along the lines of, "Yes, the company bribed doctors."

But I wouldn't have taken complete responsibility for myself and the fact that I was directly involved in that.

>> And you knew that you were lying to them?

>> Yes, yes, I knew that I was lying, yes.

>> It was very clear that he had a story he was trying to sell, which was not reflected in our investigation.

>> You know, I let him talk.

I asked him very few questions.

He was a very good salesman, he is a very good salesman, and I think he was confident in his ability that he could, could turn us.

At the end of the conversation, I told him I thought he'd been lying to us the entire time he'd been talking to us.

And we sent him on his way.

(wind blowing) >> NARRATOR: Within months, there was enough evidence to move to the next phase of the case against Insys-- arrests.

♪ ♪ >> We charged Babich and five other defendants.

Michael Gurry ran the Insys reimbursement center.

Joe Rowan was responsible for a third of the U.S. sales force for Insys.

Richard Simon, the former national director of sales.

Sunrise Lee, who was also a regional sales manager, and then Alec Burlakoff.

We thought about charging Kapoor at the time, but we didn't have enough evidence to go forward at that point.

>> NARRATOR: Kapoor made changes.

Toni Paskoski was promoted to take over sales.

>> In 2016, things began to change significantly.

Mostly because of the news coverage, the media coverage.

The opioid epidemic was rising.

The reputation of the organization was obviously hindered.

A new director for market access told Dr. Kapoor, along with some of us, that some friends "told me that your company is toxic."

I mean, "We can't touch you right now."

These were high executives representing the insurance companies.

>> I stopped recommending the stock in, in 2017.

Subsys was not going to recover.

>> NARRATOR: And then came October 26, 2017.

>> What do you think about the opioid crisis going on?

>> It's a terrible thing, but he's got nothing to do with it.

>> John Kapoor has been arrested today in Arizona.

The stock's down 34% even before today, and then you can see the plunge that we are seeing if you include today's action.

>> Looking back at 2014, 2015, we did not know they were bribing doctors.

You know, we try our very best to believe that management is saying and doing the right thing.

That's not naïveté, I think, that's just a part of doing our jobs.

Um, it's about trust.

When management is telling us something over and over again, um, there's a part of us that say, "Okay, they seem like they're saying and doing all the right things."

Okay?

♪ ♪ >> I believe we took the position off in early 2018, when the stock had fallen to mid-single digits.

This was not a company brought down by short sellers.

This was a company that was brought down by its own reckless abuse of the system.

>> How much did you make?

>> I'm not going to disclose how much we made.

But it was a good, it was a good bet.

(train horn blows) >> NARRATOR: In Boston, federal prosecutors prepared the case against Insys.

They would pursue a novel strategy: using anti-racketeering laws designed to fight organized crime.

(people talking in background) Fred Wyshak, renowned for prosecuting mob kingpins like Whitey Bulger, was brought on to the case.

♪ ♪ >> Well, the racketeering statute, the RICO, was passed in about 1970, directly aiming at organized crime, the mafia.

Now we were able to indict the whole organization.

For example, the Winter Hill Gang in Boston.

We did a classic investigation.

We started at the bottom of the pyramid and we started taking out the bookies, and the loan sharks, and the drug dealers.

Get those individuals to cooperate, and that was a key to our success.

>> NARRATOR: Now they would try with Insys, methodically moving up the organizational chart, closing in on John Kapoor.

>> Alec Burlakoff, he had built a trap for himself.

You know, coming in and talking to prosecutors for four or five hours on tape and lying, he had created this piece of evidence that, uh, you know, was going to be devastating to him if he went to trial.

(waves lapping) >> I made the decision to plead guilty and cooperate fully.

And I'm going to cooperate like nobody's business.

>> NARRATOR: Alec Burlakoff had become a witness for the prosecution.

And soon, Michael Babich turned as well.

>> 42-year-old Michael Babich leaving federal court after pleading guilty to being part of a conspiracy to bribe medical professionals.

>> It was important to have Babich.

I mean, to me, that's the top step before the tip of the pyramid, you know.

With Alec Burlakoff right below Babich.

>> As part of his plea, Babich has agreed to cooperate with the government, and their case against Insys founder John Kapoor heads to trial later this month.

♪ ♪ >> NARRATOR: In January 2019, John Kapoor became the first pharmaceutical C.E.O.

to be tried criminally under the federal anti-racketeering law.

Over the next ten weeks, federal prosecutors implicated four Insys executives of widespread corruption, with John Kapoor as the architect, from emails connecting Kapoor to paying off doctors to testimony saying he approved the scheme to defraud insurance companies.

And they played the titration rap video.

♪ ♪ >> John Kapoor became very withdrawn once he saw his closest confidantes, like Alec Burlakoff, like Michael Babich, turning on him.

And, you know, obviously, these guys are self-interested.

They're doing it to save their own necks, too.

>> Alec Burlakoff was on the stand for five days.

He connected everyone around the country back to the decision-making that was going on at corporate headquarters.

♪ ♪ >> NARRATOR: The prosecution's most damning evidence, a spreadsheet ordered up by Kapoor, showing how Insys tracked the money that went to doctors and what the company got in return.

>> I called it a smoking gun.

I mean, it was about this return on investment theory that Kapoor had, and that's criminal.

So you might as well be writing out a confession.

♪ ♪ >> NARRATOR: After two weeks, the jury delivered an unprecedented guilty verdict against John Kapoor and four Insys senior executives.

>> This case was the first to bring criminal charges against the most senior executives of a publicly traded pharma company for their role in the opioid epidemic.

This is not only about punishing these defendants.

It's about making the next pharma company think hard about its basic responsibilities as a corporate entity and about not victimizing the public so it can make more money.

>> NARRATOR: Kapoor was sentenced to five-and-a-half years in prison.

He is appealing the decision.

Pending that, his lawyer told us, he would not participate in this film.

Babich and four other executives all received shorter sentences.

>> When executives go to jail, that sends out a pretty serious message to the wider business and financial community.

And certainly, with the Insys story, that message will be pretty clear-cut to the rest of the pharmaceutical world.

>> When I look at John Kapoor now, I'm very conflicted.

Because I see the man that told me about his wife and how she suffered with cancer, and how horrible that was.

And then I see this guy that heads this company that's evil.

>> NARRATOR: For his role, Alec Burlakoff was sentenced to 26 months in prison.

>> Dr. Kapoor, he tells you how to run the business.

You decide, however, whether or not you want to participate in it.

And I decided that I would, and that was wrong.

Well, and I'm going to prison as a result of it.

>> Go to pbs.org/frontline for more reporting on Insys with our partners at the "Financial Times."

>> And more from Alec Burlakoff.

>> Label, off-label-- nobody cares.

>> Then listen to the latest episode of our podcast.

>> I'm Raney Aronson, executive producer of "Frontline" and this is the "Frontline Dispatch."

>> Connect to the "Frontline" community on Facebook and Twitter, and watch "Frontline" any time on the PBS Video App or pbs.org/frontline.

♪ ♪ ♪ ♪ >> For more on this and other "Frontline" programs, visit our website at pbs.org/frontline.

♪ ♪ To order "Frontline: Opioids Inc." on DVD visit ShopPBS, or call 1-800-PLAY-PBS.

This program is also available on Amazon Prime Video.

♪ ♪