John Kapoor’s journey from a refugee in Mumbai to a U.S. prison
February 18, 2022
In April 2021, John Kapoor, a serial bio-technology entrepreneur, began serving a 5 1/2 year sentence at a prison in Minnesota. A judge in Boston found Kapoor guilty of orchestrating a scheme to bribe doctors and nurses to prescribe Subsys, a fentanyl-based pain medication, to patients “often when medically unnecessary.” The medication, formulated by his company Insys Therapeutics, is a synthetic opioid, more than 80 times stronger than morphine.
Over the past decade, numerous media reports have exposed how patients, who were prescribed opioids to deal with pain after simple physical injuries or surgeries, ended up getting addicted to it. This has contributed to a major opioid crisis in the U.S. During a 12-month period that ended in April 2021, more than 100,000 Americans had died of opioid overdose, a nearly 30% increase from the previous 12 months. From 2012 to 2019, a study of FDA data found that more than 8,100 people had died while taking Subsys.
Now a book, The Hard Sell: Crime and Punishment at an Opioid Startup (2022), traces Kapoor’s journey from being a refugee in India to a founder of several bio-technology companies in America, which made him a billionaire, and his role in the opioid epidemic, which led to his prison sentence. The author is Evan Hughes, a freelance journalist in Brooklyn, New York, who has written for The New York Times, Wired and other publications.
In 2002, Kapoor co-founded Phoenix, Arizona-based Insys with fellow Indian-born immigrant George Kottayil. Kapoor put up $1 million for a 75% ownership of the company. Kottayil, as president, was tasked with overseeing the development of potential new drugs.
Kottayil left Insys in 2008 to become executive vice president at Revogenex, a pharmaceutical company based in suburban Atlanta. In 2014, he co-founded and became Chief Executive Officer of Grace Therapeutics, based in suburban New York. In 2021, Grace, a private company which focuses on drug delivery systems for rare diseases, was acquired by Acasti Pharma. Based in Quebec, Canada, Acasti is a public company listed on the Nasdaq stock exchange with a marktet value of $49 million.
Insys developed and got FDA approval for Subsys, a branded version of fentanyl, to ease the pain of cancer patients. While fentanyl has been around since 1960, Kapoor’s unique idea was spraying it under the tongue. As a result, the drug quickly eased devastating pain and improved lives, since as Hughes notes, it worked “close to the speed of IV drugs administered in a hospital.”
Subsys was an expensive drug though, costing several thousand dollars a month compared to $20 for generic opioid pills. In 2013, Kapoor listed Insys as a public company and the stock rose five-fold that year. In 2015, the company had an operating profit of $92 million on $331 million in sales, a highly lucrative 28% profit margin. Kapoor’s fortune grew rapidly, comprising of stakes in Insys and Akorn. For five years, in the 2010’s, he was on the Forbes Billionaires list. In 2016, his net worth was estimated to be $2.1 billion.
The FDA approved drugs like Subsys, also known as rapid-onset opioids, for use by cancer patients only. But the regulator gave doctors the latitude to use if off label, for other pain treatment. Drug companies, though, are prohibited from promoting such products for off label use.
In 2019, prosecutors charged Kapoor and six other Insys’ executives with paying bribes and kickbacks to doctors and other medical practitioners who wrote large numbers of Subsys prescriptions for patients, most of whom were not diagnosed with cancer and did not need such a strong painkiller. The executives were also charged with defrauding payers of the medication, including health insurance companies who were reluctant to approve payment for the drug when it was prescribed for non-cancer patients.
John Nath Kapoor, with his large glasses and wavy mop of graying hair, looked like a college professor. He was born in 1945 in Lahore, which is now part of Pakistan, where his grandfather was a judge. In 1947, following the partition of British India into India and Pakistan, Kapoor’s family fled to India as refugees. Growing up in Mumbai, Kapoor and his brother slept in an uncovered balcony of their apartment, covering themselves with plastic sheets when it rained.
Kapoor excelled in high school, finishing at age 13. His family saw him, writes Hughes, as a ”boy with the promise to lift the family’s fortunes single-handedly.” Kapoor earned a pharmacy degree from Mumbai University, which he viewed as being trained to work in a factory and of little value for formulating and discovering drugs. So, he moved to the U.S. - he has said with only $5 in his pocket - after receiving a fellowship for a graduate degree at the State University of New York, Buffalo.
While in Buffalo, he met Editha Hillcock, a cheerleader at Niagara County Community college. They married in 1974, with two ceremonies, one Hindu and the other Catholic. The couple adopted four children from orphanages in India, with significant medical and physical challenges. Editha died in 2005, at age 54, after a long and intensely painful battle with cancer.
After his Ph.D, Kapoor worked in operations at a small drug company. While in his mid-30’s, he approached senior executives at Stone Container, a cardboard box maker, seeking to run Lypho-Med, its neglected Chicago-based generic drug subsidiary. Kapoor was hired as General Manager, with the warning that Stone planned to sell the drug business. Unfazed, he asked for right of first refusal when the company was to be sold.
In 1981, be bought Lypho-Med, with a loan from Northern Trust, a Chicago-based bank, and capital from investors. He invested only around $50,000, a small fraction of the purchase price. In the 1980’s, several major branded drugs from big drug companies were coming off patent, giving a boost to generic drug manufacturers.
Changing the name to Lyphomed, Kapoor expanded the business into selling hundreds of injectable medications to hospitals. His strategy was to be the first with a competing cheaper, generic copy, when a branded product made by a major drug manufacturer, went off patent. To get a time advantage over rivals, Kapoor’s generic versions of a drug were trucked at midnight on the day when a branded drug went off patent.
In a decade, Kapoor grew the company from 20 to about 800 employees, with sales rising more than 25-fold. In the 1980s, amidst the AIDS epidemic, Lyphomed had a near monopoly on pentamidine, an antibiotic to treat deadly pneumonia infections in AIDS patients. Protesters staged a “die-in” outside the company’s Chicago head office after Kapoor quadrupled the price of the drug.
Hughes points out early signs of Kapoor sidestepping rules and laws in his aggressive push to grow his business. Starting in 1987, the U.S. Food & Drug Administration (FDA) found that Lyphomed, under Kapoor as chief executive, had committed “serious violations” and, for years, had submitted false or misleading information in applications for new product approvals. In 1989, before the revelations seriously damaged the company, Kapoor sold Lyphomed to the Japanese company Fujisawa for nearly $1 billion. His share of the payment was $130 million, a massive gain on his tiny initial investment.
In 1992, Fujisawa filed an $806 million lawsuit against Kapoor, alleging that he concealed Lyphomed’s devastating problems with the FDA. Kapoor countersued and the legal battle continued for years. Fujisawa was a major shareholder of Lyphomed when Kapoor was in charge. Given such ownership, a judge ruled that, if Fujisawa officials didn’t know about the misconduct or “did not suspect Kapoor of deceit, they should have.”
Kapoor and Fujisawa later settled the case for a fraction of the amount in damages sought by Fujisawa, Hughes reports. Kapoor said the Fujisawa lawsuit was face-saving nonsense and that the questionable data sent to the FDA was merely a matter of “somebody not keeping good records.” Fujisawa recalled Lyphomed’s drugs, withdrew Lyphomed’s new applications for drugs and retired the Lyphomed name.
Kapoor, using the funds he got from the sale of Lyphomed, seeded dozens of startups and took major stakes in larger ventures. He was the largest shareholder in at least five bio-technology companies, mostly in the generic drugs business. They included Akorn, First Horizon and Neopharm, all of which faced financial and other problems.
David Enrich, reviewing Hard Sell in The New York Times, writes that the value of Hughes’ book lies “in exposing the world to the scummy underbelly of a powerful (drug) industry — especially one that has become the sudden object of so much public gratitude” due to the rapid introduction of effective vaccines and drugs to fight the ongoing COVID-19 pandemic.