United States v. Gurry

427 F.Supp.3d 166

UNITED STATES of America,

v.Michael J. GURRY, Richard M. Simon, Sunrise Lee, Joseph A. Rowan, and John Kapoor, Defendants.

Criminal Action No. 16-cr-10343-ADB

United States District Court, D. Massachusetts.

Signed November 26, 2019

David G. Lazarus, Elysa Q. Wan, Mark T. Quinlivan, Fred M. Wyshak, Jr., K. Nathaniel Yeager, United States Attorney's Office, Boston, MA, for United States of America

Megan A. Siddall, Tracy A. Miner, Miner Orkand Siddall LLP, William W. Fick, Daniel N. Marx, Fick & Marx LLP, Boston, MA, Patrick J. O'Toole, Jr., Weil, Gotshal & Manges, Michael Kendall, Alexandra I. Gliga, White & Case, LLP, Aaron M. Katz, Brien T. O'Connor, Ropes & Gray, Robert L. Sheketoff, Boston, MA, Eileen H Citron, Steven A. Tyrrell, Weil, Gotshal & Manges LLP, William M.R. Barrett, White & Case LLP, Alexandra M. Walsh, Andrew W Croner, Beth Wilkinson, Kosta S. Stojilkovic, Wilkinson Walsh LLP, Washington, DC, Peter C. Horstmann, Law Offices of Peter Charles Horstmann, Newton, MA, Giel Stein, Clark Hill, PLC, Chicago, IL, for Defendants

MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS FOR JUDGMENT OF ACQUITTAL AND FOR A NEW TRIAL

BURROUGHS, D.J.

TABLE OF CONTENTS

I. Evidence at Trial...176

II. Rule 29 Motions...182

A. Legal Standard...182

B. Controlled Substances Act...183

C. Honest Services Fraud...186

D. Mail Fraud and Wire Fraud...188

1. Application of Intracorporate Conspiracy Doctrine to Wire Fraud Predicate...189

2. General Challenge to Mail Fraud Predicate...191

3. Defendant Simon's Challenge to Mail and Wire Fraud Predicates...192

4. Defendant Lee's Challenge to Mail and Wire Fraud Predicates...193

5. Defendant Rowan's Challenge to Wire Fraud Predicate...195

III. Rule 33 Motions...196

A. Legal Standard...196

B. Prejudicial Spillover from CSA Predicate...196

C. Insufficient Evidence on Honest Services Fraud, Mail Fraud, and Wire Fraud Predicates...197

D. Rebuttal Argument...197

1. Waiver...197

2. "Loaded Gun" Metaphor...199

E. Evidentiary Issues...201

1. Patient Testimony (All Defendants)...202

2. Dr. Chun's Addiction...203

3. "Jess Strategy" Email...205

4. Simon / Andersson Text Messages...206

5. Paul Lara's Testimony Concerning Dr. Somerville's Suspension...207

6. Ty Rustin's Testimony Concerning Dr. Somerville's Suspension...207

IV. Individual Motions...208

A. Lee...208

B. Kapoor...210

C. Simon...212

1. Error to Deny Motion for Mistrial...212

2. Ineffective Assistance of Counsel...212

a. Whether Claim of Ineffective Assistance of Counsel Is Time-Barred...212

b. Merits of Ineffective Assistance of Counsel Claim...214

V. Conclusion...222

After a ten-week trial and nearly four weeks of deliberations, on May 2, 2019 a jury convicted Defendants Michael Gurry, Richard Simon, Sunrise Lee, Joseph Rowan, and John Kapoor (collectively, "Defendants") of conspiring to violate the Racketeer Influenced and Corrupt Organizations (RICO) statute, 18 U.S.C. § 1962(d). The jury found the predicate acts of illegal distribution of a controlled substance, honest services mail fraud, honest services wire fraud, mail fraud, and wire fraud proven against Defendants Simon, Lee, Rowan, and Kapoor and the predicate acts of mail fraud and wire fraud proven against Defendant Gurry. [ECF No. 841]. The charges and subsequent convictions arose out of Defendants' work as executives and managers at Insys Therapeutics, Inc. ("Insys"), a pharmaceutical company that manufactured, marketed, and sold a sub-lingual fentanyl spray called Subsys. Currently pending before the Court are Defendants' motions for judgment of acquittal and for a new trial, which were initially made following the close of the Government's evidence and were renewed following trial. [ECF Nos. 816, 817, 859, 860, 861, 862, 863, 864]. For the following reasons, Defendants' post-trial motions [ECF Nos. 816, 817, 859, 860, 861, 862, 863, 864] are GRANTED in part and DENIED in part.¹

I. EVIDENCE AT TRIAL

In reaching its verdict, the jury could have found the following facts, based on the evidence presented at trial.² This summary is intended to provide an overview of events and is supplemented as needed throughout the memorandum and order with information about specific Defendants.³

In early 2012, the FDA approved Subsys, a sub-lingual fentanyl spray for use in patients seeking relief from breakthrough cancer pain.⁴ The term "breakthrough cancer pain" refers to short-lived spikes in pain that occur in patients with cancer who are dealing with constant pain.⁵ The indication for breakthrough cancer pain meant that all other uses of the medication would be considered "off-label." Subsys' label instructed that "[t]he initial dose of Subsys to treat episodes of breakthrough cancer pain is always 100 micrograms,"⁶ and warned that the product contained fentanyl, "a Schedule II controlled substance with abuse liability similar to other opioid analgesics."⁷ Because of the risk for misuse, abuse, addiction, and overdose, Subsys could only be prescribed through a program called Risk Evaluation and Mitigation Strategy ("REMS") under the Transmucosal Immediate Release Fentanyl ("TIRF") REMS Access Program.⁸ TIRF REMS was a program put into place by the FDA that required patients, prescribers, and pharmacists to sign disclosures stating they understood the risks presented by this class of drugs.⁹

Shortly after obtaining FDA approval, in March 2012 Subsys launched to the market.¹⁰ Subsys joined several TIRF drugs, or rapid-onset opioids, that were already on the market, including Fentora, Abstral, Lozanda, and Actiq, which was the generic.¹¹ At launch, Shawn Simon was the Vice-President of Sales, Matthew Napoletano was the Vice-President of Marketing, Michael Babich was the CEO, and Defendant Kapoor was Chairman.¹² Sales representatives, also known as specialty sales professionals, were hired throughout the country and were given lists of prescribers categorized into deciles based on their history of prescribing opiates.¹³ The majority of these prescribers were pain management physicians, not oncologists, despite Subsys' indication for cancer-related pain.¹⁴ Sales representatives were told to target only "high-decile" prescribers and were taught to employ a "switch strategy" wherein they asked prescribers to switch patients off competitor drugs and onto Subsys.¹⁵

While some Insys employees were positive about the launch, Defendant Kapoor described it to colleagues as the "worst f[***]ing launch in pharmaceutical history [that] he'[d] ever seen."¹⁶ The company was able to track each prescription of Subsys written because it paid for daily REMS data, which was analyzed regularly for Defendant Kapoor¹⁷ and routinely circulated to sales representatives.¹⁸ One of the company's major post-launch concerns was that a majority of patients who started on Subsys were not refilling the drug after the initial month.¹⁹ Patients' failure to continue using Subsys was thought to be due to the fact that patients were not interested in taking an expensive drug that was not covered by insurance.²⁰ Further, patients who started on Subsys at a 100mcg or 200mcg dose were more likely to discontinue use of the drug.²¹

By fall 2012, Insys began changing its leadership and its sales and marketing tactics. In September and October 2012, Insys hosted both a national sales meeting and a national sales call to regroup and train its sales force on new messaging.²² Alec Burlakoff, who had started at the company just months earlier as a manager in the southeast region, was promoted to Vice-President of Sales and Shawn Simon was fired.²³ At the direction of Defendant Kapoor, Mr. Burlakoff rolled out a new marketing program designed to increase sales, including a switch program, a voucher program, and a new effective dose message for sales representatives.²⁴ The switch program allowed patients who were switching from a competitor drug to receive a voucher for free Subsys for as long as they needed it or until it was covered by insurance.²⁵ The voucher program, which varied over time, was another program through which Insys provided free product to patients.²⁶ The effective dose message sought to inform prescribers that 100mcg or 200mcg doses were not effective for patients, despite the labeling that supported these doses. Sales representatives were informed each time a healthcare practitioner wrote a prescription for a 100mcg or 200mcg dose and were required to report back to headquarters within 24 hours as to why the practitioner had prescribed the low dose and how he or she planned to titrate the patient up to an effective dose.²⁷ Sales representatives were also incentivized to push for higher dose prescriptions by their bonus structure, which calculated bonuses as a percentage of what the company netted from a prescription.²⁸ The bonus percentages varied, but, as an example, at one time it was 10% for dosages from 100mcg to 800mcg and 12 or 12.5% for dosages from 1200mcg to 1600mcg.²⁹ Sales representatives recouped a larger bonus on larger doses due to the higher percentage allocation, but also because the higher doses were more expensive.³⁰

There were several other changes around the fall of 2012. Defendant Lee, who met Mr. Burlakoff through her work in the entertainment industry, was hired as a regional manager for the Mid-Atlantic region, and Defendant Simon was hired as a regional manager for the Midwest region. ³¹

Defendant Rowan, who knew Mr. Burlakoff from working with him at another pharmaceutical company, was promoted into Mr. Burlakoff's former role just months after joining Insys in July 2012.³² Becky Gamble, who had been the Vice-President for Managed Markets when Subsys launched to the market, was replaced by Defendant Gurry.³³

In addition to these leadership changes, the company launched the Insys Speaker Program ("ISP") in August 2012, which was run by Mr. Napoletano.³⁴ The program, which began as a pilot program primarily in the southeast region, was intended as a peer-to-peer program to educate physicians who could...