Former executive's fraud trial dredges up a scandal Valeant would love to forget

justice
The feds said former exec Gary Tanner received nearly $10 million in kickbacks through shell companies and shell bank accounts after Valeant purchased Philidor, a deal he helped coordinate. (Pixabay)

The murky relationship between Valeant and now-defunct specialty pharmacy Philidor is set to play out in court, spotlighting a not-so-flattering chapter in its recent history. Executives hauled before Congress, federal investigations and more made Valeant a poster child for pricing and marketing misdeeds.

Former Valeant exec Gary Tanner and former Philidor CEO Andrew Davenport face charges of honest services wire fraud, money laundering and more. Their trial started this week with jury selection, and the testimony will reveal details behind Valeant's storied downfall back in 2015 and 2016. 

Federal prosecutors charged the former executives in 2016 with using their companies for personal gain at the expense of shareholders. While purporting to be "arms-length business counterparts," the two were engaged in an illegal scheme to enrich one another, former U.S. attorney Preet Bharara said in a previous statement. 

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The executives pleaded not guilty, and more than a year of proceedings has brought the case to trial. 

RELATED: Feds hit former Valeant, Philidor execs with multimillion-dollar fraud and kickback charges 

According to authorities, Tanner promoted Philidor's interests while working for Valeant, partly by sending more and more business to the pharmacy—to the point at which Valeant increasingly relied on the specialty pharmacy to pump up sales of its new products. The feds said Tanner himself received nearly $10 million in kickbacks through shell companies and shell bank accounts after Valeant purchased Philidor, a deal he helped coordinate. 

Tanner allegedly used an alias, "Brian Wilson," when conducting business on Valeant's behalf, according to the government. In a reference to their scheme, Davenport wrote in an email to the Valeant exec that he envisioned a “butch and sundance ride into the sunset (or off the cliff as in the flick)." 

According to prosecutors, Tanner wrote back: “[G]ave me a good chuckle when I just saw it. Will have to keep playing the game :).”   

RELATED: Valeant employees closely involved with Philidor operations: Reuters 

As pharma watchers know, Valeant ran into intense 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. 

As the scandal played out, former CEO J. Michael Pearson stepped aside in 2016 and has been replaced by former Perrigo CEO Joseph Papa.  

Aside from the Philidor scrutiny, Valeant also faced a firestorm over drug price hikes that contributed to an industrywide pricing controversy that's still brewing. For years, the company grew through M&A and, by the end of 2017, faced a deal-fueled debt load of more than $25 billion. 

Valeant shares peaked in the summer of 2015 at $257, but the stock is now trading at about $17 per share.