Acquisition happy Valeant to buy female Viagra maker Sprout Pharma for $1bn

Canada's Valeant Pharmaceuticals International Inc, fresh from six other deals this year, is set to buy female libido enhancer Sprout Pharma for $1bn (£637,416, €889,991), barely days after the US Food and Drug Administration gave the pink pill the green light.

The news however did not sit well with Wall Street, with Valeant shares closing down 6.47% as questions abound whether the purchase is too risky. Valeant Chief Executive Michael Pearson however thinks otherwise, saying in an interview: "What we're counting on is it will be a multi-hundred million dollar product."

Addyi received the FDA's approval on 18 August. It has proven to be only marginally effective in clinical trials and carries a strong warning on potentially dangerous low blood pressure and fainting, especially when taken with alcohol.

Pearson however believes that because Addyi is the first drug of its kind to win approval, it will avoid competition.

"There is no better way to enter a specialty space than with a unique product that has such great interest," Pearson said, noting that with a global company like Valeant, Addyi could enter markets outside the US more quickly, boosting sales even further.

He said that Valeant would probably make other women's health acquisitions after Sprout is integrated.

Valeant will pay $500m now for the purchase and $500m early next year in cash. The deal is expected to close this quarter and Valeant hopes the pill will be available in the US by the end of the year.

Pearson said in the interview that Addyi could be approved in Canada within a year but approval in Europe, which will be based on completed European studies could take "a little longer."

While estimates are for peak annual Addyi sales to hit $100m to $300m, Pearson highlighted that many analysts had underestimated Viagra's sales potential before its introduction in 1998. Viagra sales hit $1.7bn (£1.08bn, €1.51bn) last year.

"People don't appreciate the inherent demand out there" for drugs to treat female sexual disorders, Pearson said.

This latest acquistion will effectively delay Valeant's plans to reduce its debt following $18.2bn in deals done so far this year. Purchases so far this year include $800m for Egypt's biggest drug maker Amoun Pharmaceutical, in July and $11bn for Salix Pharmaceuticals, Moody's Investors Service said.

Under the deal, Sprout will be eligible for a share of future profits based on the achievement of certain milestones.

The Wall Street Journal said the Canadian company will also take onboard Sprout's leadership team as they complete preparations to start the sales of the drug later this year. Sprout will become a unit of Valeant and will retain its headquarters in Raleigh, North Carolina.

Concerns over Addyi's sales prospects

Although Addyi's price has not been set yet, Sprout Chief Executive Cindy Whitehead said it is expected to be roughly in line with the $400-$500 monthly cost of Viagra and Cialis.

She said insured patients should expect to see out-of-pocket costs of $30 to $75 a month, similar to that of the other erectile dysfunction drugs' co-pay costs.

Some analysts however are not too positive about Addyi. "Although the drug has a potentially large addressable patient population and will benefit from the marketing scale of Valeant's sales force, acceptance of this product may ultimately be limited," Morningstar Research analyst Michael Waterhouse said, according to Reuters.

Further health insurers may not cover the drug, he added. These sentiments were echoed by Raghuram Selvaraju, managing director of brokerage Wainwright & Co who said that Addyi's prospects were anything but certain.