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Hatboro pharma exec charged in kickback scheme

The first salvo in multiple investigations of global pharmaceutical company Valeant was fired by federal prosecutors Thursday, who charged that a Valeant executive had colluded with the head of a Hatboro- based mail order pharmacy on a deal that cheated shareholders out of $300 million.

The criminal complaint, unveiled by the U.S. Attorney's office in Manhattan, charges that former Valeant executive, Gary Tanner, received $10 million in kickbacks from Andrew Davenport, then CEO of Philidor Rx  Services LLC of Hatboro.

Tanner had been instrumental in persuading other Valeant executives to purchase Philidor while failing to disclose his interest in the transaction, federal prosecutors said.

"Tanner was a senior executive at Valeant, as such he owed all of his duties to Valeant and its shareholders," said Preet Bharara, the U.S. Attorney in Manhattan. "In violation of those duties, however, Tanner secretly agreed with Davenport to puff up Philidor's business," and promote its sale to Valeant

Both men were arrested Thursday, Tanner in Phoenix and Davenport in Philadelphia.

Little more than a year ago, Valeant was one of the drug industry's hottest companies, its soaring stock price fueled by an ample drug pipeline and a strategy of aggressive price hikes. But its reputation began to tarnish after its secret relationship with Philidor was disclosed and multiple federal agencies probed allegations that the company employed clandestine tactics to substitute expensive brand name drugs for cheaper generics recommended by physicians. Since then, Valeant's stock has lost about 90 percent of its value.

Valeant stock rose 12 cent Thursday to $17.98.

Philidor, which went out of business earlier this year, focused its business on filling specialty prescriptions and an "alternative fulfillment" program that assisted patients in obtaining insurance company signoff on the use of more expensive brand name drugs in the place of generics.

According to the criminal complaint, Tanner and Davenport conspired to steer Valeant executives toward purchasing Philidor. Davenport was a 36.5 percent owner of the company, according to the complaint, and Tanner had a secret arrangement with him in which he would direct Valeant resources toward Philidor in an effort to make it a more attractive acquisition target. Once the purchase was concluded, Davenport reaped $40 million, kicking some of that back to Tanner.

In one email  from Davenport to Tanner, Davenport compared their activities to the western, "Butch Cassidy and the Sundance Kid" and remarked that the two would "ride into the sunset."

Although Philidor was ostensibly a separate company, Valeant was instrumental in its founding in 2013 by providing financing personnel and supervision, according to the complaint. Valeant, like other major drug makers, had concluded that it needed assistance in marketing and filling specialty pharmaceutical prescriptions and believed initially that Philidor would meet that need.

Tanner, who was a senior Valeant executive and was paid millions in salary, bonuses and stock options by Valeant, owed his allegiance to his employer, and had signed a company conflict of interest policy that barred him from engaging in transactions that would be harmful to Valeant, including transactions with customers.

He also was required to make a full disclosure of any outside activities that might pose a conflict of interest, although he never did, according to the complaint.

Valeant eventually entered into an option agreement with Philidor in 2014, agreeing to an upfront payment of $100 million and additional payments of more than $100 million provide the company meet certain performance milestones. Valeant also agreed to forgive financing it provided Philidor for purchases of Valeant drugs. The total loss to shareholders in the transaction approached $300 million, according to the complaint.

Tanner and Davenport set up shell companies to launder the kickback payments.