MONTREAL — Valeant Pharmaceuticals International Inc. shares got a lift Monday after it announced a deal to unload its US$1 billion female sexual dysfunction drug to the company’s former owners for next to nothing.
On the Toronto Stock Exchange, Valeant’s shares closed up 4.75 per cent to C$15.43 in Monday trading.
Under the deal, Valeant will receive a six per cent royalty on sales of Addyi starting 18 months from the signing of the sale agreement. The company declined to estimate how much it expects to realize.
The agreement also ends a legal dispute between Valeant and the former owners of Sprout Pharmaceuticals.
“Returning Sprout to its former owners will enable us to further streamline our portfolio and reduce complexity in our business,” Valeant chairman and CEO Joseph Papa stated in a news release issued a day before releases its third-quarter results.
He said the company’s turnaround efforts are focused on its core businesses, including eye health, gastroenterology and dermatology.
Valeant (TSX:VRX, NYSE:VRX) bought Sprout in 2015 for US$1 billion in cash, plus a share of future profits.
Addyi is used by premenopausal women to enhance their libidos and improve their sex lives. It comes with a hefty sales price of US$800 per month.
In connection with the sale, Valeant will provide a US$25-million loan to fund initial operating expenses. The sale is expected to close before the end of the year.
Douglas Miehm of RBC Capital Markets said the transaction isn’t overly surprising given the disappointing sales of Addyi since its launch in October 2015.
He estimates sales this year would be less than US$10 million, far less than Valeant’s earlier forecast of up to US$150 million that last year it said it couldn’t achieve.
“However, the company will need to write off a large part of the US$836MM in intangible asset value plus contingent consideration associated with the drug, making the optics particularly poor,” he wrote in a report.
Valeant shares have plunged since questions about its business model first emerged two years ago, when they traded for more than $300 per share.
The company has since faced a string of lawsuits, including one from its former chief executive, as well as swelling debt levels, losses of more than US$2.4 billion and scrutiny over its drug pricing practices.
With its recently announced US$125 million debt repayment, Valeant has reached its goal of repaying US$5 billion of debt about four months ahead of its February 2018 target, wrote Neil Maruoka of Canaccord Genuity.