The scandals keep coming for Valeant: today, two high profile executives were arrested and charged with participating in a fraud and kickback scheme against the drug maker.
It’s been a rough year for Valeant Pharmaceuticals (NSYE:VRX, TSX:VRX), with shares falling close to 90 percent over the last 14 months. That’s thanks to scrutiny over the company’s drug pricing, billing practices and financial disclosures—not to mention a whole host of investor lawsuits. And the scandals keep coming: today, two high profile executives were arrested and charged with participating in a fraud and kickback scheme against the drug maker.
Gary Tanner, a former Valeant employee, and Andrew Davenport, the previous CEO of Philidor Rx Services, have been charged with conspiring to defraud Valeant through a multi-million dollar kickback scheme. The complaint alleges the pair intentionally misled Valeant about Philidor with the goal of maintaining an exclusive drug distribution agreement.
According to the suit, Valeant’s senior executive team instructed Tanner to diversify their fulfillment programs to avoid overdependence on Philidor—but Tanner did not comply. Instead, he actively promoted Philidor, while failing to disclose his own interest in the other company.
The suit further claims that Philidor used questionable means to sell Valeant products, winning Tanner and Davenport large payouts for hitting milestone targets. The scam netted the pair some $50 million dollars, according to the allegations.
“Their alleged kickback scheme illegally converted Valeant shareholder money into their own personal nest eggs,” US Attorney Preet Bharara said in an official statement. “As alleged, while purporting to be arms-length business counterparts, the two men were, in fact, partners in crime.”
Morning trade on the TSX has seen Valeant shares fall almost seven percent. In New York, stock price dropped close to five percent. And some experts don’t seem optimistic about the company’s ability to bounce back.
“We continue to believe that that many legal cases against Valeant and its business partners could turn out to be a major risk for Valeant and investors,” said Wells Fargo’s David Maris. “Several of these legal proceedings get underway in 2017 and we believe the mounting number of legal proceedings could pose significant financial risk to Valeant. We note that Valeant has not reserved for any potential legal liabilities.”
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Securities Disclosure: I, Chelsea Pratt, hold no direct investment interest in any company mentioned in this article.