U.S. Attorney to Charge Two Valeant, Philidor Executives, Alleging 'Fraud and Kickback Scheme' -- 4th Update
November 17 2016 - 12:18PM
Dow Jones News
By Anne Steele and Jacquie McNish
Federal prosecutors 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 alleged the two men conspired to
promote Philidor to Valeant to win and control its business,
according a complaint. 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.
Both defendants were arrested in their homes early Thursday
morning, Mr. Tanner in Phoenix and Mr. Davenport in Pennsylvania,
the Federal Bureau of Investigation said.
The charges are the latest black eye for Valeant, once a Wall
Street highflier that has been battered by a slate of problems,
including accounting issues, a brush with a potential debt default
and investigations by Congress and federal regulators over drug
prices.
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."
Attempts to reach Messrs. Tanner and Davenport weren't
successful.
Mr. Davenport was a founding principle and a significant
shareholder in Philidor, which was founded in Hatboro, Pa., in 2013
as a pilot project to sell Valeant drugs, according to an April
letter from a lawyer for Philidor that was submitted to a Senate
committee. The pharmacy helped patients fulfill prescriptions and
sometimes obtain insurance coverage for certain Valeant drugs.
By 2015, Philidor was selling a portfolio of more than 50
Valeant drugs with the help of a network of pharmacies, according
to the letter. Valeant didn't discuss its relationship with the
pharmacy until the fall of 2015, following reports that revealed
the two companies' close ties.
Philidor's rapid growth was overseen by a small group of
employees Valeant inherited from its 2012 acquisition of Medicis
Pharmaceutical, the letter said. The team included Mr. Tanner, who
had worked on a similar pharmacy project at Medicis, the letter
said.
The complaint Thursday said Mr. Tanner reported to Valent's
former CEO Michael Pearson, who left the company in May.
Valeant severed its ties to Philidor in 2016, and Philidor's
operations have been shuttered.
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.
Valeant grew rapidly in recent years through acquisitions and
drug-price hikes. But the stock has lost more than 80% of its value
this year amid myriad issues facing the company. Shares fell 1.9%
Thursday to $17.53 and have recently traded near their lowest
levels in six years; Valeant's all-time closing high was $262.52,
set 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 and Jacquie McNish
at Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
November 17, 2016 12:03 ET (17:03 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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