NEW YORK (Reuters) - A federal prosecutor told jurors in Manhattan on Thursday that a former Valeant Pharmaceuticals International Inc executive and the former head of mail order pharmacy Philidor Rx Services defrauded Valeant through a multimillion-dollar kickback scheme.
Lawyers for the two defendants countered that their clients were working in Valeant’s best interest.
The opening statements kicked off a trial that could shed light on the relationship between Valeant and the now-defunct Philidor, which drew concern from investors and regulators.
Philidor was founded in 2013 with Valeant’s help, and the vast majority of the drugs it dispensed were Valeant’s. Valeant has denied wrongdoing related to Philidor.
Prosecutors allege that Valeant was the victim of a scheme between one of its senior directors, Gary Tanner, and Andrew Davenport, formerly chief executive officer of Philidor. Assistant U.S. Attorney Amanda Kramer told jurors that Tanner passed inside information to Davenport in order to bolster Philidor’s business as Valeant’s primary pharmacy partner.
At times using the fake name “Brian Wilson,” Tanner sabotaged potential deals between Valeant and other pharmacies, she said.
“Valeant relied on him,” she said. “Thought it could trust him.”
In exchange for Tanner’s help, Kramer said, Davenport paid Tanner nearly $10 million when Valeant exercised an option to buy Philidor, taking $40 million for himself.
Lawyers for Tanner and Davenport painted a very different picture. They said the close relationship between Tanner and Philidor was always by design, and made Valeant hundreds of millions of dollars.
“Gary accomplished precisely what Valeant expected him to,” said Brendan McGuire, Tanner’s lawyer.
He acknowledged that Tanner violated Valeant policy by not disclosing the payment he received from Davenport, but said that was not a crime.
“Gary is not on trial here for a violation of the employee handbook,” he said.
Davenport’s lawyer, Jonathan Rosen, similarly said that both men were working to help both companies, and said the payment to Tanner was motivated by “generosity.”
“A rising tide lifts all boats,” he said.
Valeant’s stock fell sharply in October 2015 after it disclosed it had been subpoenaed by U.S. prosecutors over various business practices. Later that month, a short selling firm published a report claiming Valeant hid its ties to Philidor and used the pharmacy to artificially inflate sales in order to drive up prices.
“Our company has cooperated with the authorities throughout the course of the investigation, and now, trial,” said Valeant spokesman Lanie Keller.
Reporting by Brendan Pierson New York; Editing by Matthew Lewis