Valeant Pharmaceuticals, Inc. has had a bumpy three years due to allegations of executive bribes and mismanagement. The most recent piece to the saga happened on Tuesday, May 22, 2018, when former company executive Gary Tanner was found guilty of accepting a $10 million bribe for manipulating the company’s takeover of a mail order pharmacy – Philidor Rx Services, LLC – in 2014.
The CEO of the mail order company who paid the kickback – Andrew Davenport – was also convicted.
The two-week trial of Tanner and Davenport put a spotlight on the relationship between Valeant and Philidor, which had drawn concern from investors and regulators. To summarize the background, Philidor was founded in 2013 with help from Valeant, and most of the drugs it dispensed were Valeant’s.
Davenport and Tanner began talking about creating a specialty pharmacy in late 2012, prosecutors said, and soon Tanner approached his bosses at Valeant with a plan to open one with Valeant financing. Tanner and others at Valeant helped Davenport create Philidor, committing $2 million as well as personnel and supervision to the Hatboro, Pennsylvania-based company. While Valeant kept its relationship with Philidor under wraps, the drug manufacturer said it always intended to spread its business around to other mail-order pharmacies.
Tanner managed Valeant’s relationship with Philidor, and he was also tasked with finding other mail-order pharmacies with which Valeant could do business, to prevent the drug manufacturer from relying too heavily on Philidor. Instead, however, Tanner steered more product to Philidor’s Pennsylvania facility from 2013 to 2014 and worked with Davenport to secretly block the efforts of other mail-order pharmacies to get a share of Valeant’s business.
Prosecutors claimed that Valeant was the victim of a scheme in which Tanner passed inside information to Davenport to bolster Philidor’s business as Valeant’s primary pharmacy partner. The alleged scheme increased the value of Philidor to Valeant, which agreed in in December 2014 to pay more than $100 million for the option to buy Philidor in 10 years. Then, in exchange for Tanner’s help, Davenport paid Tanner nearly $10 million when Valeant exercised an option to buy Philidor, taking $40 million for himself.
Seana Carson, Valeant’s chief compliance officer, testified that Tanner never disclosed any conflicts-of-interest over Philidor. A financial adviser also told jurors how Tanner advised her that he’d soon come into millions of dollars and he didn’t want Valeant to know about a stake he had in another company.
The defendants’ lawyers argued there was nothing illegal about the dealings between the two men, or between the two companies. They said Tanner was hired by Valeant to help Philidor grow and that the companies’ close relationship made Valeant hundreds of millions of dollars.
“We are, of course, disappointed in the verdict, but we look forward to addressing the many legal and evidentiary issues on appeal,” Tanner’s lawyer, Howard Shapiro, said in a statement. Davenport and his lawyer, Jonathan Rosen, declined to comment.
Sentencing is scheduled for September 19th. They each face up to twenty years in prison on four counts, including wire fraud and conspiracy to commit money laundering.
Philidor is no longer in operation and Valeant is working to move past its problems. Part of that effort involves changing its name in July to Bausch Health Companies, leaning on the goodwill of its Bausch & Lomb optical business.