Ex-Valeant Executive Is Convicted of Bilking Drugmaker in Kickback Scheme

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A former executive at Valeant Pharmaceuticals International and the onetime head of a small mail-order pharmacy were convicted on Tuesday of using a secret kickback arrangement to defraud the drugmaker.

A federal jury in Manhattan found Gary Tanner, the former Valeant executive, and Andrew Davenport, at one time the chief executive of Philidor Rx Services, guilty on all charges, including wire fraud and conspiracy to commit money laundering.

Geoffrey S. Berman, the United States attorney in Manhattan, said in a statement after the verdict that the two men’s scheme was an exercise in bad faith.

Mr. Tanner, Mr. Berman said, “was entrusted by his employer to manage Valeant’s relationship with Davenport’s company,” and that Mr. Davenport had “exploited that trust by promising a massive kickback in exchange for betrayal.”

Valeant’s ties to Philidor drew intense scrutiny in October 2015, when the drugmaker disclosed that it had bought an option to acquire the mail-order business in 2014 without telling investors. Valeant was said to have steered customers to Philidor, which is now defunct, to increase sales and to evade insurers’ efforts to substitute cheaper generic versions for expensive Valeant medications.

The revelations about Valeant’s ties to Philidor, the company’s struggle to contend with $30 billion in debt and federal inquiries into its drug-pricing practices caused the drugmaker’s once-high-flying stock to plummet and, in May 2016, led to the departure of its chief executive, J. Michael Pearson, and a shake-up of its board.

A federal indictment announced several months later added a stunning twist, accusing Mr. Tanner, 50, of funneling Valeant business to Philidor without disclosing that he had financial ties to the pharmacy in the form of the kickback scheme.

Mr. Tanner and Mr. Davenport, 50, kept their arrangement secret, prosecutors said, by setting up shell companies and emailing each other using fake names, with Mr. Tanner going by “Brian Wilson.”

The men profited handsomely when Valeant exercised its option to buy Philidor, with Mr. Davenport getting $40 million and Mr. Tanner getting about $10 million, prosecutors said. Mr. Tanner also quietly killed potential deals with Philidor rivals contrary to the wishes of other Valeant executives, prosecutors said.

During the three-week trial, lawyers for Mr. Tanner and Mr. Davenport denied that their clients had done anything wrong and said that Valeant had profited from the arrangement, according to news reports.

On Tuesday, Howard M. Shapiro, a lawyer for Mr. Tanner, said, “We are of course disappointed by the verdict.” He also said his client planned to appeal. Lawyers for Mr. Davenport did not immediately respond to requests for comment.

In a statement, Valeant said, “We believe the jury’s verdict reflects the facts of the case.”

Joseph C. Papa, Mr. Pearson’s successor as Valeant’s chief executive, has moved to distance the company from its past problems and to rebuild its tarnished image. Valeant said this month that it would change its name to Bausch Health Companies in July, to reflect its better-known and more respected subsidiary, the eye care company Bausch + Lomb, which Valeant acquired in 2013.

Nonetheless, the company disclosed in a regulatory filing this month that it still faces multiple federal inquiries, including investigations into its patient-assistance programs, its drug-pricing policies and its sales and marketing practices.

Mr. Tanner and Mr. Davenport are to be sentenced on Sept. 19 by Judge Loretta A. Preska of Federal District Court in Manhattan. Each faces up to 65 years in prison, according to a Justice Department spokesman.

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