U.S. Attorney to Charge Two Valeant, Philidor Executives, Alleging 'Fraud and Kickback Scheme' -- Update

By Anne Steele 

Federal prosecutors on Thursday said they would charge 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.

Federal prosecutors have been investigating whether the Canadian pharmaceutical defrauded insurers by shrouding its ties to a mail-order pharmacy that boosted sales of its drugs.

U.S. Attorney for the Southern District of New York Preet Bharara was slated to announced the charges at press conference at noon.

The company didn't immediately respond to a request for comment.

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 stock, 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 were down about 5% Thursday morning at $16.90; its 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 [e-mail]

(END) Dow Jones Newswires

November 17, 2016 10:15 ET (15:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.