Risk & Compliance

Ex-Valeant, Philidor Execs Accused of Kickback Scheme

The defendants “illegally converted Valeant shareholder money into their own personal nest eggs," a federal prosecutor alleges.
Matthew HellerNovember 18, 2016
Ex-Valeant, Philidor Execs Accused of Kickback Scheme

The former CEO of Philidor Rx Services has been charged with paying a former Valeant Pharmaceuticals executive $10 million in kickbacks in return for promoting Philidor’s mail-order pharmacy services to the drugmaker’s management.

Both Andrew Davenport, the ex-Philidor CEO, and former Valeant executive Gary Tanner were arrested Thursday for engaging in what federal prosecutors called a “multimillion-dollar fraud and kickback scheme” that used the now-defunct Philidor as “a vehicle for personal profit and self-dealing.”

Davenport allegedly pocketed at least $40 million in 2014 from Valeant’s payment of $100 million for an option to buy Philidor and secretly kicked back $10 million of the proceeds to Tanner for his efforts to steer Valeant’s business to Philidor.

By the time Valeant acquired the option, almost all of its revenue came from sales of Valeant products, according to a criminal complaint accusing Davenport and Tanner of conspiracy and wire fraud.

“Their alleged kickback scheme illegally converted Valeant shareholder money into their own personal nest eggs,” Manhattan U.S. Attorney Preet Bharara said in a news release.

As Reuters reports, Valeant’s stock has plunged more than 90% since August 2015 amid intense criticism of its drug pricing practices and investigations into its ties to Philidor. The pharmacy terminated its operations in January.

Tanner allegedly promoted using Philidor’s services as a way to support Valeant’s efforts to incentivize doctors to prescribe its branded products rather than generic alternatives. “We both know that this endeavor would face a nearly insurmountable uphill struggle to succeed in the present Valeant environment without your confident support and the efforts of your team,” Davenport told Tanner in one email.

Their ultimate goal, prosecutors said, was to consummate a purchase option agreement between their companies.

At a news conference, Bharara cited another email in which Davenport compared his partnership with Tanner to Butch Cassidy and the Sundance Kid, saying they would “ride into the sunset (or off the cliff as in the flick).”

“As of today, that game is up. They will not be riding off into the sunset to live in luxury off of the spoils of their fraudulent scheme,” Bharara said.