U.S. Attorney to Charge Two Valeant, Philidor Executives, Alleging 'Fraud and Kickback Scheme' -- 2nd Update
November 17 2016 - 11:42AM
Dow Jones News
By Anne Steele
Federal prosecutors on Thursday filed charges against former
Valeant Pharmaceuticals International Inc. executive Gary Tanner
and former Philidor Rx Services LLC Chief Executive Andrew
Davenport, alleging they engaged in a multimillion-dollar fraud and
kickback scheme.
The U.S. attorney's office has been investigating whether the
Canadian pharmaceutical defrauded insurers by shrouding its ties to
a mail-order pharmacy that boosted sales of its drugs.
According to the complaint, Messrs. Tanner and Davenport
conspired to promote Philidor to Valeant in order to win and
control its business. Mr. Davenport allegedly paid Mr. Tanner $10
million in kickbacks in exchange for his promotion of Philidor's
business, including by facilitating transactions that helped Mr.
Davenport gain more than $40 million -- and potentially tens of
millions of additional dollars -- from Valeant.
The complaint alleges the two worked without Valeant executives'
knowledge to shut out other mail-order pharmacies from getting
Valeant business and helped persuade Valeant to buy an option in
Philidor.
U.S. Attorney for the Southern District of New York Preet
Bharara was slated to announced the charges at press conference at
noon.
In a statement, Valeant pointed out its former CEO Michael
Pearson, former CFO Howard Schiller, and current executives haven't
been charged. The company said Mr. Tanner's employment ended Sept.
13, 2015, and Mr. Davenport has never been an employee there.
"The counts issued today include allegations that the charged
parties engaged in actions to defraud Valeant as a company," it
said in the statement. "Valeant continues to cooperate with all
relevant authorities in this matter."
Mr. Tanner and Mr. Davenport weren't able to be reached.
The lawyers in the U.S. attorney's office in Manhattan were
pursuing an unusual legal theory, The Wall Street Journal had
reported in August, that Valeant and closely linked
mail-order-pharmacy Philidor allegedly defrauded insurers by hiding
their close relationship.
The investigation -- which was expected to be the most serious
Valeant faces -- was to probe whether Philidor, now defunct, made
false statements to insurers about its ties to Valeant, people
familiar with the matter told the Journal this summer. Philidor
helped patients get insurance coverage for higher-priced Valeant
drugs, for example for toenail fungus or acne treatment, instead of
cheaper alternatives. At issue was whether insurers thought
Philidor was neutral rather than in the service of Valeant.
The investigation was also examining some of Philidor's business
practices, including rebates and other compensation provided by the
pharmacy to customers who used Valeant products, as well as
Philidor's efforts to seek reimbursement from insurers, the people
said.
Valeant, once a highflying Wall Street darling, grew sharply
through acquisitions and drug-price hikes. But the stock has lost
more than 80% of its value this year amid a slate of concerns,
including accounting problems, a brush with a potential debt
default and investigations by Congress and federal regulators over
drug prices. Shares fell 4.3% Thursday to $17.09 and have recently
traded near their lowest levels in six years; Valeant's all-time
closing high was $262.52 on August 5, 2015.
Earlier this month, Valeant cut its annual forecast again as the
drug company, struggling to remake its business after a series of
missteps, signaled its turnaround may take longer than
expected.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
November 17, 2016 11:27 ET (16:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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