As the trial of former Valeant and Philidor executives Gary Tanner and Andrew Davenport rolls on, jurors heard testimony this week that Tanner's boss, Laizer Kornwasser, believed Tanner had a corrupt relationship with the mail-order pharmacy, according to a summary of courtroom proceedings by Bloomberg.
Even after Kornwasser took his concerns to Valeant's CEO at the time, J. Michael Pearson still authorized a $133 million option-purchase agreement with the pharmacy, according to the testimony, a move that helped lead to its financial downfall.
Valeant had already come under scrutiny for how it sharply generated income by dramatically raising prices on its drugs when Valeant's relationship with Philidor started making headlines in 2015, and the dominoes quickly started to fall for the companies. Since then, Valeant has weathered Congressional inquiries and federal investigations, and its share price has plunged more than 90%. Along the way, some of its largest investors—including hedge funder Bill Ackman—have walked. Ackman's loss alone was $4 billion.
Philidor is now shut down 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 contact opticals business.
In the case of Tanner and Davenport, U.S. authorities accuse the former executives of colluding to enrich each other to the detriment of their own companies and shareholders—Tanner worked for Valeant and Davenport for Philidor. They allege Tanner received a $9.7 million kickback after the Valeant investment in the mail-order pharmacy.
For their part, defense attorneys contend Kornwasser made up his suspicions to deflect from Valeant's business practices. Still, attorneys played a tape in court of Kornwasser telling Pearson he was suspicious of Tanner, according to Bloomberg; they didn't play Pearson's response.
To communicate with Davenport, Tanner used an email alias of "Brian Wilson," prosecutors say. In one exchange, Davenport wrote that he envisioned a “butch and sundance ride into the sunset (or off the cliff as in the flick)."
Tanner wrote back: “[G]ave me a good chuckle when I just saw it. Will have to keep playing the game :)," according to prosecutors. In another email detailed in court this week, the accused executives talked about how they wanted to "bury" a potential competitor to Philidor. But Kornwasser testified that he wanted Tanner to foster business with other mail-order pharmacies to reduce Valeant's dependency on Philidor.
Kornwasser said he never authorized the "Brian Wilson" alias, but he conceded that he didn't resign in protest after Valeant's option-purchase deal with Philidor, according to Bloomberg.
Once-high-flying Valeant ran into scrutiny in the fall of 2015 after short seller Citron Research detailed the drugmaker's relationship to Philidor. According to the government, more than 90% of Philidor's business came from Valeant drugs. The pharmacy was in charge of securing reimbursement and, allegedly, changing patient prescriptions from generics to Valeant brands.
Since then, Pearson has been replaced by former Perrigo CEO Joseph Papa, who's been working to reshape Valeant's image and pay down debt. The drugmaker grew through M&A for years and faced a debt load of more than $25 billion at the end of 2017.
Valeant shares peaked in the summer of 2015 at $257, but the stock is now trading at about $17 per share.