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Former Valeant, Philidor executives charged with fraud

| Friday, Nov. 18, 2016, 12:45 a.m.

Former executives of Val­eant Pharmaceuticals International and the specialty pharmacy Philidor Rx Services have been charged with fraud in what prosecutors allege was a multimillion-dollar scheme to create business ties between the two companies.

The charges, brought by the U.S. Attorney's Office for the Southern District of New York, were described in a complaint outlined Thursday at a press conference in New York.

“We allege these two men participated in a fraudulent scheme to illegally use Philidor as, essentially, a vehicle for personal profit and self-dealing.” U.S. Attorney Preet Bharara said. “As alleged, these two men purported to be arms-length business counterparts ... but they were in fact, we allege, partners in crime.”

Gary Tanner, a former Val­eant executive, was charged with Andrew Davenport, former chief executive of Phili­dor, for allegedly working together to defraud Valeant by fostering a deal that cost its shareholders nearly $300 million.

According to the complaint, Tanner promoted Philidor's business within Valeant and ultimately received payments from Philidor in return. He allegedly set up a fake email account under the name “Brian Wilson” in which he communicated with Davenport to exchange information on shell companies that were to be used to transfer millions of dollars for personal gain — as well as provide advice to Davenport.

Prosecutors allege Tanner used the money to invest $2 million in his retirement account, buy a home, pay off credit cards and student loans and fund his brokerage account. In total, $9.7 million was transferred by Davenport to a shell account controlled by Tanner, according to the complaint.

In emails obtained by Ryan Redel, a special agent of the Federal Bureau of Investigation, the two allegedly compared their partnership to the Western movie “Butch Cassidy and the Sundance Kid.”

“Can picture our butch and sundance ride into the sunset,” Davenport wrote to Tanner's alias email account as they anticipated a $25 million payment from Valeant, 80 percent of which would have gone to Davenport, according to the complaint. Tanner replied that the email “gave me a good chuckle when I just saw it. Will have to keep playing the game :).”

In the complaint, Redel said he believes the exchange meant Tanner would “keep pretending to act solely in Valeant's interest, while in fact advancing” their personal interests.

In a statement, Valeant said the charges targeted a single former executive who stopped working at the company in September 2015. It did not include the former chief executive and chief financial officer — both of whom have appeared at recent congressional hearings focused on drug prices.

“The counts issued today include allegations that the charged parties engaged in actions to defraud Valeant as a company,” the statement said.

Valeant and its relationship with Philidor, a mail-order pharmacy that has since closed, has been under intense scrutiny. The complaint provides rare insight into how the relationship between the companies possibly became so close — and shows that unnamed senior executives were concerned about Tanner's relationship with Philidor.

According to the complaint, Valeant executives asked Tanner, who was senior direct of the “Access Solutions Team,” if he had a financial interest, which he allegedly denied. They also asked him to expand the company's relationship beyond Philidor to other specialty pharmacies.

But Tanner failed to follow through on those requests, according to the complaint. He allegedly promoted Philidor to his bosses while also helping Davenport behind the scenes.

When Philidor was due to reach a $25 million milestone payment, for example, Daven­port forwarded an email to Tanner's alias account that said, “Let's get the wires loaded up and ready to launch!!!”

And when that payment was delayed, Davenport followed up with an email with the subject line “$$$,” apparently asking for advice on how to get final approval for the milestone payment, according to the complaint.

Bharara said the investigation is continuing and declined to expand on how the relationship between the two companies may have helped support high drug prices.

Peter Maybarduk, director of consumer advocacy group Public Citizen's Access to Medicines Program, said in an email that the charges were a win for consumers.

“The alleged Valeant-Phili­dor relationship is, like so much pharma fraud, a purposeful criminal strategy to keep our medication prices high,” Maybarduk said. “We applaud the Department of Justice for bringing charges against pharma executives who rip off consumers.”

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