Valeant has agreed to pay $ 1bn to acquire the owner of the first drug designed to boost a woman's libido, just two days after the controversial medicine — dubbed "female Viagra" — was approved by the US health watchdog.
The highly acquisitive Canadian company will pay $ 500m in cash upfront for Sprout Pharmaceuticals and the remainder early next year. Sprout's investors will also be entitled to a share of future profits pegged to sales of the drug, which will be sold under the brand name Addyi.
The acquisition crystallises a roughly 10-fold return for Cindy and Roger Whitehead, the husband and wife team who founded Sprout, as well as the 100 or so private individuals who invested a total of $ 100m in the company.
Most of that cash was raised at a time when the drug — twice rejected by regulators — appeared to have little chance of winning approval.
Valeant said it would use its global footprint to launch the drug in other countries. The company expects the once-a-day drug to go on sale in the US in the final quarter of the year and to cost roughly the same as Viagra, which is priced at about $ 300 a month.
Mike Pearson, Valeant's chief executive, said the group would eventually acquire other drugs aimed at females to build a women's health franchise under the Sprout brand.
"Right now we're focused on launching Addyi and registering it in other countries, but once we've built the infrastructure we can leverage that, just as we've done in dermatology and ophthalmology," said Mr Pearson, referring to the string of acquisitions the company has done in skincare and eyecare.
Ms Whitehead, Sprout's chief executive, will join Valeant and continue to run the business, which will remain headquartered in North Carolina. "I'm going to stick around for as long as they will have me. I'm in it for the long haul," she said on Thursday.
The US Food and Drug Administration on Tuesday approved the medicine for use in women suffering from hypoactive sexual desire disorder, a form of suppressed libido that cannot be explained by other problems such as relationship issues. Sprout estimates that roughly one in 10 women suffer from the disorder. Some doctors dispute the figure, but if the real number is anywhere near that amount, the drug has the potential to become a blockbuster.
Mr Pearson said: "We did a fair amount of market research of our own before the deal and we feel comfortable the market is quite large."
One of the doctors on an FDA panel who voted to approve the drug earlier this year expressed concern that it was being sold to Valeant, a company that has attracted criticism from some in the medical community because of its history of implementing steep price increases and cutting spending on research and development.
"I hope they approach this particular drug differently from the way they approach their dermatology products," said Dr Walid Gellad, pointing out that some of Valeant's other treatments were "lifestyle" products whereas Addyi was a niche medicine for a "rare and distressing condition".
Valeant makes a wide range of drugs, including treatments for prostate cancer and irritable bowel syndrome, but is best known for its skincare products and contact lenses sold under the Bausch & Lomb brand.
The FDA's decision to approve Addyi proved divisive among doctors, with some arguing it is only marginally effective, and even then in a very small subset of patients. These doctors say the benefits do not outweigh the considerable safety risks: low blood pressure, fainting spells and potentially dangerous interactions with alcohol and other prescriptions drugs.
The FDA responded to those concerns by implementing curbs designed to limit the number of prescriptions, including a certification process for doctors and pharmacies and a warning that the drug should not be prescribed to anyone who might use it while drinking alcohol.
Ms Whitehead said the company planned to revisit the restrictions at the end of the year. Mr Pearson said: "Delivering a first-ever treatment for a commonly reported form of female sexual dysfunction gives us the perfect opportunity to establish a new portfolio of important medications that uniquely impact women."
Addyi was first developed as an antidepressant in the 1990s by Boehringer Ingelheim, the German pharmaceuticals group, but failed to make it through clinical trials.
The company later sold the global rights to the drug to Sprout. The terms of that deal were not disclosed, although filings indicate that the company could not have paid much more than a few million dollars for the drug. Boehringer is also entitled to some further payments that are pegged to the drug's success, Ms Whitehead said.
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