Valeant hands Sprout back to former owners
- Valeant Pharmaceuticals Inc. will sell a women's sexual health company it bought for $1 billion two years ago back to its previous owners following a tumultuous launch of its main drug, Addyi.
- Deal terms hold that an affiliate of former Sprout Pharmaceuticals Inc. shareholders will take ownership of the company and receive a $25 million loan from Valeant to get operations up and running. Valeant, meanwhile, will receive a 6% royalty on global sales of Addyi for the first 18 months after the parties sign off on the transaction.
- Additionally, all litigation between Sprout's former shareholders and Valeant is now kaput. Shareholder Representative Services LLC, on behalf of Sprout's prior investors, filed a lawsuit in the Court of Chancery of the State of Delaware last year claiming Valeant breached contractual obligations of the merger agreement related to Addyi marketing efforts.
Valeant shelled out two installments of $500 million across 2015 and 2016 to get its hands on Sprout and, more importantly, Addyi (flibanserin), which had just received Food and Drug Administration approval as a treatment for women with hypoactive sexual desire disorder (HSDD).
Dubbed the "female Viagra," Addyi came with high expectations. Some predicted the drug's peak annual sales would hit between $100 million and $300 million. Yet with few products for women's sexual desire on the market, others anticipated much higher returns. For its part, Valeant agreed to spend at least $200 million on marketing, R&D and selling, general and administrative expenses for Addyi from Jan. 1 2016 to June 30, 2017.
And at the time of Addyi's launch in late 2015, the company had already devoted 148 sales reps and eight medical science liaisons to bolster Addyi's launch in late 2015.
Addyi's rollout and performance, however, haven't exactly panned out. Valeant disbanded the drug's sales force in the first half of 2016 amid a wider restructuring, according to Bloomberg. What's more, the drug's pricing and questionable efficacy appeared to stifle revenues. In early 2016, the company revealed it had significantly cut guidance that held Addyi would yield $110 million to $115 million that year.
Though Valeant had maintained optimism in Addyi's potential for a time, it's clear the drug has become more of a headache than it's worth. Keeping royalty rights while also eliminating an unnecessary legal battle looks to be a necessary compromise for the beleaguered drugmaker, and allows it to focus on more central businesses.
Still, it's a shockingly poor return on a $1 billion investment and raises questions about the initial decision to buy. Valeant CEO Joseph Papa has put in work to rebuild the company after a disastrous few years but, as selling Sprout shows, it will take time to escape the shadow of previous decisions.
"Returning Sprout to its former owners will enable us to further streamline our portfolio and reduce complexity in our business," Papa said in a Nov. 6 statement. "As we transform Valeant, we are focusing our resources on our core businesses to best serve our shareholders, customers and patients. These areas include eye health, gastroenterology and dermatology."
Valeant doesn't report Addyi sales, according to a company spokesperson, but the drug is included in the company's Branded Rx division. Branded Rx brought in $636 million for Valeant during the second quarter, down from $653 million during the same period in 2016.
- Valeant Pharmaceuticals Inc. Press release
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