Valeant Pharmaceuticals is in the news again, this time because its former CEO was accused of being involved in a “multi-million dollar fraud and kickback scheme.” This sort of behavior has become so commonplace, it hardly seems newsworthy, anymore – but now that the ultimate corporatist regime is preparing to take over, we think it’s important to shine as much of a spotlight as possible on such malfeasance at every opportunity.
The scheme involved the former head of Valeant Pharmaceuticals International, Gary Tanner, and Andrew Davenport, CEO of now-defunct Phildor Rx – a specialty pharmacy that wound up becoming an exclusive sales outlet for Valeant products. That by itself wasn’t the problem – the real issue is that Tanner held a major financial interest in Phildor, a fact that he concealed from the board at Valeant. Meanwhile, Davenport controlled Phildor through a “shell company” known as End Game LLC which was directly connected to his personal bank account.
According to U.S. Attorney Preet Bharara who brought the criminal charges, the two executives “concocted a fraudulent scheme to illegally use Philidor as a vehicle for personal profit and self-dealing … [the] alleged kickback scheme illegally converted Valeant shareholder money into their own personal nest eggs.”
That scheme put $10 million into Tanner’s pocket and $40 million into Davenport’s. It also resulted in one of the most dramatic stock collapses since the Enron fiasco of 2001.
Phildor was acquired by Valeant in 2013. Phildor’s purpose was to encourage physicians to prescribe Valeant brand medications rather than less expensive generic versions through rebates and expansion of patient insurance coverage. Meanwhile, Valeant was becoming the darling of Wall Street as it went on a spree of slashing operating costs by cutting jobs and reducing investment in research and development, taking over other pharmaceutical companies right and left then raising prices – and of course, avoiding taxes.
According to the criminal complaint, the Valeant Board of Directors had instructed Tanner to diversify sales and fulfillment outlets. Instead, Tanner – who concealed his own personal financial interests in Phildor from the board – and Davenport conspired to make Phildor the company’s exclusive distributor while lining their own pockets in the process. In exchange, Davenport handed Tanner back 20% of what he had been paid by Valeant. In an email to Tanner uncovered by investigators, Davenport wrote, “They are too deep in our sh*t…[I] can picture our Butch and Sundance ride into the sunset.”
That metaphor was more apt than Davenport realized. Anyone who has seen the 1969 film that starred Robert Redford and the late Paul Newman remember that the ending didn’t go so well for the two protagonists. Nor will this scheme end well for Tanner and Davenport, who will most likely be riding off to a federal penitentiary instead.
And so they should.
Valeant itself has been no model of good corporate citizenship. Instead of focusing on developing medications that will actually help patients, its strategy has been to take over as many other drug makers as possible, then raising the prices on life-saving drugs to astronomical levels. It is a strategy that Berkshire Hathaway Vice Chairman Charles Munger described as “deeply immoral,” comparing it to “the worst abuses in for-profit education.”
Valeant, like other Big Pharma players, is a prime breeding ground for vermin like Tanner and Davenport.