Prosecutors in New York have charged two executives over a kickback scheme meant to inflate the value of a specialty pharmacy before it was sold to Valeant Pharmaceuticals.
This isn't over yet, but the charges filed so far are putting the focus on a man who worked for both Valeant and, briefly Philidor, the specialty pharmacy that was selling Valeant products directly to patients.
Gary Tanner was arrested early Thursday morning, along with Philidor CEO Andrew Davenport. Tanner and Davenport were charged with wire fraud, Travel Act Conspiracy, and paying kickbacks.
Valeant broke off its relationship with Philidor in October 2015, after it was exposed by the Southern Investigative Reporting Foundation and began to draw scrutiny from the government, insurance companies, and shareholders. In November, Tanner sought permission to open a new dermatology-focused pharmacy in Arizona, according to documents filed by the Arizona State Board of Pharmacy.
The charges allege that Tanner was integral to bolstering Valeant's relationship with Philidor, which ultimately led to Valeant purchasing a $100 million option to acquire Philidor and resulted in Tanner getting $10 million in kickbacks. It also alleges that he did this amid push-back from the executives he reported to who suspected he might have a financial interest in Philidor, and while under a code of conduct that prohibited him from having any conflicts of interest.
So who is Gary Tanner?
Tanner worked at Medicis from 2010, and moved to Valeant when it acquired Medicis in 2012. Tanner was in charge of the company's "alternative fill" strategy as part of the Access Solutions Team. That AF strategy was meant to help boost the number of prescriptions Medicis and later Valeant were able to fill in cases where insurers weren't willing to cover the drug (for example, if there was a much cheaper generic version available).
The criminal charges report that Valeant described Tanner as "key organization talent."
This isn't the first time Tanner's been in the spotlight. In November 2015, Congress wanted to call him and two other Valeant employees in for interviews.
"Mr. Tanner has been identified by former Philidor employees as 'a key figure in the pharmacy’s operations.' These former employees also report being directed to alter physician-written prescriptions so pharmacies would have to dispense Valeant drugs instead of cheaper generic versions in order to maximize Valeant’s profits," Rep. Elijah Cummings said in a letter at the time.
Tanner moved to Philidor in August (though the lawsuit alleges that he had been asked if he wanted to move before) after being terminated by Valeant.
How Tanner got involved
The criminal charges detail how Tanner allegedly used his position at Valeant to, alongside Davenport, engaged "in an illegal, concealed kickback scheme that they hoped would yield them tens of millions of dollars in personal profits."
Through his role overseeing the AF program, Tanner helped build up Philidor as a specialty pharmacy, even though Valeant already had a health care provider that was doing roughly the same thing. To start, that included a $2 million program with Philidor that would help support the pharmacy, which was new at the time.
"We both know that this endeavor would face a nearly insurmountable uphill struggle to succeed in the present Valeant environment without your confident support and the efforts of your team," Davenport said in an email to Tanner in August 2013. "I don't want you to think that fact will escape my mind for a moment as we continue to build and refine this business."
As that program grew, Tanner pushed back against executives who asked him to diversify the AF program so that Valeant wouldn't be solely reliant on Philidor. He was also asked to try to expand the AF program to other pharmacies, which he agreed to do. However, those didn't materialize, according to the charges.
Tanner invited Valeant employees to check out Philidor, which led to one executive questioning Tanner's close relationship with Philidor. This also led the executive to believe Tanner had equity in the company. Tanner denied having any equity in Valeant, and turned down opportunities to work directly at Philidor.
What went on behind the scenes
What Valeant didn't know, according to the charges, was that Tanner was communicating with Davenport on the sly. Tanner used a secret email where he went by "Brian Wilson," Tanner would communicate with Davenport.
The charges also allege that Tanner used his position to get competitive information for Philidor from competing pharmacies, which he then passed on to Davenport.
Tanner later helped organize Valeant's purchasing of an option in Philidor. With that agreement, Davenport made $40 million, of which Tanner got $10 million.
Tanner received that $10 million into an account titled "Befrielse Consolidation" (the word "befrielse," translated into Swedish means "exemption"). Tanner used this account for personal expenses, such as paying off debts and saving for retirement. He also spent $50,000 on a wine cellar, according to the complaint.
After that went through, Tanner continued to help Philidor out. The charges note a situation where Valeant wanted to collect $50 million from Philidor, in which Tanner was able to delay the payment by a week.
Davenport replied, to Tanner's Brian Wilson email account:
"They are too deep in our s**t. Can picture our butch and sundance ride into the sunset (or off the cliff as in the flick) as our wiggle room/ability to operate independently gets whittled down to nothing."
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