Two years after Sprout Pharmaceuticals sold itself, and its sex drive-boosting drug for women, to Valeant Pharmaceuticals in a $1 billion deal, the small company’s former owners are set to reacquire the drug for a fraction of the price.
Valeant (NYSE: VRX) announced Monday an agreement to sell Sprout back to its some of its former shareholders for a 6 percent royalty on sales of flibanserin (Addyi). Those royalties will kick in in 18 months. Valeant will also loan Sprout’s investors $25 million to get started.
Valeant’s financial reports don’t break out flibanserin sales. But the deal has been such a bust for Valeant that Sprout’s former owners—the company had been financially backed by wealthy individuals rather than venture capital firms—have sued the company arguing it hasn’t done enough to support the drug. In a suit filed last November, those shareholders claimed Valeant breached a contract when it didn’t commit at least $200 million to sell flibanserin. As part of the agreement between Valeant and the former Sprout shareholders, the litigation will end and Valeant will be free from all other obligations in the original deal.
In 2015, Raleigh, NC-based Sprout won FDA approval for flibanserin to treat hypoactive sexual desire disorder, or low libido, in women who have not yet reached menopause. The drug was the first ever approved for the condition, but the ruling was controversial. An advocacy group paid by Sprout lobbied hard for the drug’s approval in a slick marketing campaign to the public and in testimony to an FDA advisory panel. The FDA slapped a safety warning on the drug’s label stating that flibanserin can cause severe low blood pressure and loss of consciousness, risks that can be exacerbated with alcohol. Also, physicians and pharmacies must follow a strict drug-monitoring program to guard against the drug’s risks.
Despite the drug’s flaws, Valeant saw flibanserin, Sprout’s only product, as a potentially big seller. It bought Sprout just two days after flibanserin’s approval. SEC filings show the company paid approximately $530 million when the deal closed in October 2015, an additional $500 million in early 2016, and agreed to split the drug’s profits with Sprout’s shareholders. Sprout remained in Raleigh and operated as a Valeant subsidiary.
In a statement, Valeant CEO Joseph Papa characterized the Sprout sale as a streamlining of company operations. Valeant will now focus on “core businesses” including eye health, gastroenterology, and dermatology.
Valeant expects to complete the Sprout sale by the end of the year.