Valeant Returns $1bn Female Libido Drug For Free
Executive Summary
At first glance, giving back Addyi to the original owners for next to nothing looks like a complete disaster but investors are relieved debt-ridden Valeant has managed to offload another asset.
Just over two years after buying Sprout Pharmaceuticals Inc. and its controversial female sexual dysfunction drug Addyi (flibanserin) for $1bn, Valeant Pharmaceuticals International Inc. has decided the deal was indeed a dud and is giving the pill back to the previous owners for next to nothing.
The Canadian drugmaker has decided to cut its considerable losses and sell the subsidiary and Addyi to "a buyer affiliated with former shareholders of Sprout" in exchange for a 6% royalty on global sales of the drug. In addition to not receiving any cash, Valeant is actually providing a $25m loan to fund the buyer's initial operating expenses.
Sprout acquired flibanserin from Boehringer Ingelheim GMBH in 2011 after it had been rejected by the US Food and Drug Administration the year before. Despite being resubmitted in June 2013 with additional safety and efficacy data, the agency issued another complete response letter five months later, citing side effects.
The drug, a multifunctional serotonin agonist and antagonist, was resubmitted yet again by Sprout which claimed that in three Phase III trials of premenopausal women with a mean age of 36 years, flibanserin demonstrated a statistically significant difference compared with placebo on three primary endpoints – an increase of sexual desire, a decrease in distress from the loss of desire and an increase in the frequency of satisfying sex. Despite concerns from its own staffers about safety and efficacy, the FDA stunned many observers by approving Addyi in August 2015 and two days later Valeant acquired Sprout. (Also see "Valeant Buyout Brings Marketing Clout To Sprout And Addyi" - Pink Sheet, 20 Aug, 2015.)
However, the once-a-day pill had hardly any commercial impact, with payers baulking at a price tag in the region of $800 for 30 tablets and things turned sour very quickly. Sprout's founders, Cindy and Bob Whitehead, took Valeant to court in November 2016, accusing the firm of a botched launch.
While the whole episode looks at first glance as a complete disaster for Valeant, its shares rose on the news of the sale as investors saw the benefits of the company dumping Addyi. First up, the aforementioned lawsuit has been dropped and the sale also means Valeant will be released from obligations of the original transaction to split future profits with the former shareholders, or cover certain marketing and other expenditures.
Getting rid of Addyi is the latest move by Valeant to rebuild its business following the turbulent times it suffered during the tenure of previous chief executive Michael Pearson. The company had been embroiled in scandals about its high drug prices, including a questionable relationship with the specialty pharmacy Philidor Rx Services and accounting procedures that led to legal and regulatory investigations. (Also see "Valeant: Another Fine Mess" - Scrip, 2 Mar, 2016.)
The present management, led by CEO Joseph Papa, has been selling off assets to ease the more than $30bn debt burden they were left with by the previous bosses' acquisition sprees. Earlier this year, L'Oreal SA paid Valeant $1.3bn in cash for three skincare brands - CeraVe, AcneFree and AMBI – while the Dendreon Corp. unit was sold to closely-held Chinese conglomerate Sanpower Group Co. for about $820m. (Also see "Valeant On Track With Debt-Reduction Goals, But Will It Be Enough?" - Scrip, 9 May, 2017.)
Last month, Valeant completed the sale of iNova Pharmaceuticals Pty. Ltd. to a company jointly owned by funds managed by Pacific Equity Partners and The Carlyle Group for $930m in cash. It is also in the process of selling its Obagi Medical Products Inc. subsidiary to Haitong International Zhonghua Finance Acquisition Fund for $190m in cash. (Also see "Deal Watch: Valeant Continues Divestment Spree By Selling Obagi At A Loss" - Scrip, 25 Jul, 2017.)
Better-Than-Expected Earnings In Q3
Indeed it seems that Valeant's fortunes have taken a turn for the better and on Nov.7, the company unveiled better-than-expected earnings for the third quarter.
Net income was $1.30bn compared with a loss of $1.22bn for the like, year-earlier period, although that included a tax benefit of about $1.4bn. Revenues fell 10.5% to $2.22bn.
Valeant said in a statement that it had reduced total debt by about $6bn since the end of the first quarter of 2016, reducing the total to around $27bn. Papa claimed, "Valeant is a very different company today than it was a year ago. Under a new management team, we have strengthened our balance sheet and stabilized the company by simplifying our business and allocating resources more efficiently. We realize there is more progress to be made, and we will continue to hold ourselves accountable for delivering on our commitments."
There were a number of bright spots in the financials, notably from the Bausch + Lomb eye care business, which inched up 1% to $1.25bn, and its Salix Pharmaceuticals unit, driven by the irritable bowel syndrome drug Xifaxan (rifaximin). Valeant maintained its forecast for full-year adjusted earnings before interest, taxes, depreciation, and amortization of $3.60-$3.75bn, despite its asset divestitures.