- A former executive at Valeant Pharmaceuticals allegedly conspired with the ex-CEO of Philidor RX Services, a mail-order pharmacy at the heart of Valeant's accounting scandal, to defraud the embattled pharma company of tens of millions of dollars over several years, federal prosecutors said Thursday.
- Gary Tanner, who managed Valeant's relationship with Philidor, and former Philidor CEO Andrew Davenport were arrested Thursday in Phoenix and Philadelphia and charged with wire fraud and money laundering.
- Tanner allegedly helped Davenport secure a favorable acquisition of Philidor by Valeant and together the two set up several shell companies to route kickback payments to Tanner, according to a complaint filed by the U.S. Attorney's Office for the Southern District of New York.
Suspicion of Valeant's close business relationship with Philidor, first raised in October 2015, was the first domino to fall in a disastrous year for the once-lauded Canadian pharma. Valeant's misstatement of revenue tied to products delivered to and sold through Philidor erupted into a full-blown accounting scandal, delaying financial reporting and triggering infighting among company leadership.
In the spotlight, Valeant came under fire for its aggressive pricing tactics and chief executive Michael Pearson, along with much of the board of directors, were unceremoniously ousted from the company. A near-default and a wide array of state and federal investigations only added to the chaos, which sunk Valeant stock by over 90%.
A concealed kickback scheme
Now, the charges brought by federal prosecutors, reveal an even more complicated picture. Over several years, Tanner and Davenport worked together to install Philidor as a major conduit of Valeant drug sales, particularly for branded products with generic alternatives. Their efforts culminated with Valeant's decision to enter into an option agreement with Philidor that gave Valeant the right to acquire Philidor at no cost in the future.
As part of the option agreement, Davenport personally received over $40 million from Valeant as a beneficial owner of Philidor. Davenport then channeled nearly $10 million of those funds through a series of shell companies to Tanner, who continued to work as an employee of Valeant.
In the years prior to the option agreement, Tanner had worked to promote Philidor to Valeant leadership, pushing the company into closer and closer ties with the mail-order pharmacy. As head of Valeant's access solutions team, Tanner focused much of his efforts on boosting Philidor's business and relaying information to Davenport on how to secure further business.
In fact, Tanner and his staff spent much of their time working directly in Philidor's offices in Pennsylvania, helping boost the pharmacy's performance and, in turn, promoting that performance to Valeant senior leadership.
Tanner's support for Philidor was so effective, the complaint alleges, that over the pharmacy's existence more than 90% of drugs dispensed were Valeant-branded drugs.
Valeant's the victim?
Valeant comes out looking like the victim, defrauded of tens of millions of dollars and unwittingly pushed into closer business ties with a company that would eventually would become its undoing.
But the complaint also paints a picture of Valeant in which senior leadership failed to follow up on initial suspicions or adequately monitor a sales channel that accounted for hundreds of millions in sales. It also gives a more full accounting of just how close the relationship was between Valeant and Philidor, even when the two were supposed to be independent, at-arms-length business partners.
Tanner's employment at Valeant was terminated in August 2015. But he was quickly hired by Philidor before that company went under in the wake of the accounting scandal and evaporation of Valeant's business.
Both he and Davenport face four federal charges, some of which carry maximum sentences of twenty years in prison.
In a statement on the charges, Valeant said it continues to cooperate with the authorities, emphasizing that the company, its former CEO and CFO and any current employees had not been charged at this time.