Drug-price gouging case leads to 2 arrests

LOWER MANHATTAN (WABC) -- Two former drug company executives were arrested as part of a federal investigation into drug price gouging.

Ex-Philidor Rx Services CEO Andrew Davenport, and Gary Tanner, a former executive at Valeant Pharmaceuticals, will appear in federal court Thursday.

Federal prosecutors have been investigating accounting fraud charges related to Valeant's hidden ties to Philidor, a specialty pharmacy company that the federal government believes Valeant secretly controlled.

The collusion case goes to the heart of why drug prices are so expensive.

Valeant, once a darling of Wall Street, has drawn scrutiny in recent years for its practice of acquiring drugs and dramatically increasing its prices. As allegations of questionable company practices have emerged, the price of the stock has dropped.

It was later learned that Valeant had offered Philidor executives tens of millions of dollars in incentives to sell its products at a time when the relationship between the companies was still secret, according to hundreds of pages of evidence released by U.S. Senate investigators.

Valeant was Philidor's only client, according to a class-action lawsuit. Valeant ultimately acknowledged its financial control of Philidor, disclosing it recorded $58 million in revenue from Philidor earlier than it should have.

U.S. Attorney Preet Bharara will hold a noon news conference in Lower Manhattan.