Ex-Valeant, Philidor execs face criminal charges
Two former pharmaceutical executives are facing federal criminal charges over what prosecutors described as a fraud and kickback scheme that netted them each millions of dollars from drugmaker Valeant Pharmaceuticals.
Former Philidor Rx Services CEO Andrew Davenport and former Valeant executive Gary Tanner were charged Thursday with multiple counts, including wire fraud and money laundering, according to the Department of Justice.
During their alleged scheme, the pair exchanged secret emails evoking images from Butch Cassidy and the Sundance Kid, with Davenport predicting they would "ride into the sunset" together, according to a federal complaint.
"As of today, that game is up," Preet Bharara, U.S. attorney for the Southern District of New York, told reporters. "They will not be riding into the sunset."
Instead, the Federal Bureau of Investigation said Davenport was arrested at 8 a.m. Thursday at his Philadelphia residence, while Tanner was arrested just after 7 a.m. at his home in Phoenix.
The FBI accused Davenport of paying Tanner about $10 million in kickbacks, plus promises of additional potential payments, for helping Davenport acquire more than $40 million from Valeant. The conspiracy spanned from about December 2012 through September 2015, according to the government.
The conspiracy included "others, known and unknown," FBI special agent Ryan Redel said in the complaint, without identifying any names. Bharara said the investigation is continuing and could lead to more charges.
Contact information for attorneys representing the defendants was not immediately available Thursday.
The indictment deepened an already turbulent period for Valeant, which has acknowledged it was facing a criminal probe and other investigations over its accounting and controversial pricing practices. And it marks a new low point for Philidor, a mail-order pharmacy business that went out of business in January.
Valeant shares briefly tumbled more than 5% Thursday before recovering as it became clear that the indictment presents the company as a victim of the scheme. Shares were flat at $17.86 at 12:24 p.m.
"The counts issued today include allegations that the charged parties engaged in actions to defraud Valeant as a company," Valeant said in a statement, noting that it had not been charged as a company and that its current employees had not been indicted. "Valeant continues to cooperate with all relevant authorities in this matter."
Bharara said Davenport and Tanner "illegally converted Valeant shareholders' money into their own personal nest eggs."
Tanner served as executive director of commercial analytics and then senior director of Valeant's "access solutions team" during his tenure at the company. Investigators accused him of leveraging his position to improperly promote Philidor to Valeant executives, including by backing his employer's proposed acquisition of Philidor.
Davenport used portions of his share of the proceeds to buy securities, pay down a mortgage and contribute $50,000 for installation of a custom wine cellar, according to the FBI.
"The kickback payments were made in secret and were laundered through a series of shell companies and transactions designed to conceal the illicit source, nature, ownership and control of the funds," according to the FBI complaint.
In fall 2015, Valeant accused Philidor of operating a "phantom" pharmacy network to boost sales and severed ties with the company. But in August 2016, mutual fund giant T. Rowe Price accused Valeant itself of perpetuating a secret pharmacy network, deceptive pricing and reimbursements and fictitious accounting to shield the company’s brand-name drugs from generic competitors and artificially inflate revenues and profits.
Thursday's indictment exposed new details about the allegedly secretive ties between Valeant and Philidor that have been the subject of much scrutiny.
In the complaint outlining the charges, Redel said, "I have learned that neither the nature of Valeant's relationship to Philidor, nor Valeant's increasing dependence on Philidor to achieve its sales and profitability goals, was disclosed to the public by Valeant until investor websites and news organizations revealed suspect aspects of Philidor's operations and Valeant's connection" around October 2015.
Contributing: Kevin McCoy and Kevin Johnson
Follow Paste BN reporter Nathan Bomey on Twitter @NathanBomey.