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CEO of controversial drug company Insys is out

Insys Therapeutics CEO Michael Babich has stepped down, with company chairman Dr. John Kapoor taking over as CEO.

The news comes as the company reported third quarter earnings on Thursday, and shortly after CNBC released an investigative piece on Wednesday on the company, which included allegations of fraud, kickbacks, and aggressive drug marketing behavior by some Insys employees.

Kapoor, who is the company's principal shareholder and founder, has taken the top post at the pharmaceutical company, which markets and sells an opioid painkiller called Subsys Fentanyl, which is administered by spray.

Sales of Subsys — which has attracted the attention of federal and state investigators — reached more than $91 million in the third quarter. Subsys sales were up 57 percent from third quarter last year, driving a beat of Wall Street expectations on both the top and bottom line, and representing all but $120,000 of the company's revenue.

The Southern Investigative Foundation's Roddy Boyd first broke the story on the departure of Babich.

As of March 1, 2015, Kapoor owned more than 21 million shares (approximately 59.9 percent) of the outstanding shares of Insys, according to the company's annual proxy filing. As a result of Kapoor's voting power, the company is deemed a "controlled company" and is granted exemptions under Nasdaq Listing Rules from requirements that there be (i) a majority of independent directors on the Board, (ii) independent director oversight of executive officer compensation and (iii) independent director oversight of director nominations.

Kapoor was also serving as a paid consultant to the company this year, receiving a consulting fee of $300,000, according to regulatory filings, before assuming the CEO post.

One of the company's first actions with Kapoor as CEO was to authorize a buyback program of up to $50 million in Insys shares. The stock is among the most heavily shorted on the Nasdaq. Short interest, or bets that the company's stock price will decline, has tripled since the beginning of the year. Insys shares are down from a 52-week high of more than $46 to $26 in Thursday mid-morning trading, and have fallen more than 40 percent in the past three months.

On Thursday, in response to the CNBC investigative report, Insys Therapeutics issued this company statement: "Insys takes patient safety very seriously and we are committed to working with health-care providers to help ensure the proper prescribing … of our products. Our compliance program … [is] designed with this is mind. We are cooperating with the governmental inquiries we have disclosed in our public filings."

Story updated to include Insys third quarter earnings results.