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Ex-Valeant Executive Guilty of Taking Pharmacy CEO’s Bribe

May 22, 2018, 5:25 PM UTC
The headquarters of Valeant Pharmaceuticals International, Inc. stands in  Bridgewater Township, U.S., on Wednesday Nov. 04, 2015. Photographer: Michael Nagle/Bloomberg
Photograph by Michael Nagle — Bloomberg Finance

Former Valeant Pharmaceuticals International Inc. executive Gary Tanner was found guilty of accepting a $10 million bribe for manipulating the company’s takeover of a startup mail-order pharmacy in 2014.

Ex- Philidor Rx Services LLC Chief Executive Officer Andrew Davenport, who paid the kickback, was also convicted Tuesday after a three-week trial. The jury verdict in Manhattan federal court is the latest fallout from a scandal that shook the drugmaker three years ago.

Neither man showed any emotion as the verdict in the fraud and money laundering case was read in court. Sentencing is scheduled for Sept. 19. They face as long as 20 years behind bars on four counts including wire fraud and conspiracy to commit money laundering.

“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.

The case, filed in 2016, helped explain how Valeant became linked to Philidor, which the pharmaceutical giant secretly controlled and used to increase sales. Valeant disclosed the link in October 2015, beginning a long fall in the share price, sparking questions about its transparency and business model, and leading to accounting restatements and the exit of top management.

Lainie Keller, a spokeswoman for Valeant, didn’t immediately return a call for comment.

Secret Control

Tanner managed Valeant’s relationship with Philidor, which sold the company’s drugs. He was also was 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, the U.S. said, Tanner steered more of Valeant’s business 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 told jurors that Tanner was Davenport’s “man on the inside” at Valeant, a “double agent” who used an alias email account and bogus business cards to communicate with Davenport about the scheme and tip him off about his employer’s plans.

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. The deal gave Davenport a $40 million windfall, a quarter of which was secretly funneled to Tanner through offshore accounts the men set up, according to prosecutors.

Deal Options

Tanner never disclosed any conflicts-of-interest over Philidor, Seana Carson, Valeant’s chief compliance officer, testified. Tanner’s former financial adviser told jurors how her client had advised her he’d soon come into millions of dollars and didn’t want Valeant to know about a stake he had in another company.

Ex-Valeant official Laizer Kornwasser, Tanner’s former boss and the government’s star witness, testified that the drug maker’s then-CEO Michael Pearson didn’t heed his warning that Tanner may have had a secret stake in Philidor. Kornwasser, who said Tanner’s behavior made him suspicious about his loyalties, secretly recorded his 2014 warning to Pearson in a meeting in the CEO’s office; jurors heard a 15-second snippet.

The U.S. portrayed Laval, Quebec-based Valeant as a victim of Tanner and Davenport. But the defense challenged that, emphasizing that the company went ahead with the option deal and increased business with Philidor even after Kornwass.

Tanner was hired by Valeant in 2012 after the company acquired his employer, Arizona-based Medicis Pharmaceutical Corp. At Medicis, Tanner oversaw the company’s “alternative fulfillment” program, which was developed to encourage patients to fill prescriptions at specialty pharmacies that would help them in getting insurance coverage for Medicis-branded drugs and deter them from using generics.

Valeant Ex-CEO Wasn’t Swayed by Philidor Warning, Witness Says

Specialty pharmacies are common in the drug industry. They fill complex prescriptions, aid manufacturers with obtaining reimbursements from insurers and ship products to patients.

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 was supposed to help Philidor expand its business while staying loyal to Valeant and building other partnerships, the U.S. said.

The case is U.S. v. Tanner, 17-cr-00061, U.S. District Court, Southern District of New York (Manhattan).