U.S. Attorney to Charge Two Valeant, Philidor Executives, Alleging 'Fraud and Kickback Scheme' -- 2nd Update

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 [e-mail]

(END) Dow Jones Newswires

November 17, 2016 11:27 ET (16:27 GMT)

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