Valeant Pharmaceuticals International said today it has agreed to sell its Sprout Pharmaceuticals subsidiary to its former shareholders, more than two years after the seller acquired the developer of female sexual dysfunction drug Addyi® (flibanserin) for $1 billion plus a share of future profits tied to milestones.

In return for the sell-off, Valeant said, it will collect a 6% royalty on global sales of Addyi starting 18 months from the signing of the sale agreement, as well as issue a $25 million loan to the spun-out company “to fund initial operating expenses.”

The former shareholders also agreed to end a lawsuit they filed against Valeant “with prejudice,” precluding a future refiling of the litigation. The shareholders sued Valeant in November 2016 in in the Court of Chancery of the State of Delaware (C.A. No. 12868), contending that the biotech failed to adequately commercialize Addyi, set too high a price for the drug at about $800 per month, and goaded Sprout into being acquired by Valeant days before the buyer faced accusations of fraud.

Also among points of contention in the suit: A provision in the merger agreement that Valeant spend no less than $200 million with respect to Addyi  for selling, general and administrative, marketing and research, and development expenses from January 1, 2016 through June 30, 2017.

“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 C. Papa said in a statement. “As we transform Valeant, we are focusing our resources on our core businesses to best serve our shareholders, customers, and patients. These areas include eye health, gastroenterology, and dermatology.”

The sell-off is expected to close before the end of 2017, subject to closing conditions that include approval of the former shareholders to amendments to their original deal with Valeant.

Valeant announced plans for its $1 billion-plus acquisition of Sprout on August 19, 2015—just a day after the FDA approved Sprout’s resubmitted New Drug Application (NDA) for Addyi, indicated for once-daily treatment of acquired, generalized hypoactive sexual desire disorder (HSDD) in premenopausal women.

The deal ultimately cost Valeant $1.447 billion plus contingent considerations representing payments to the former shareholders and former holders of vested stock appreciation rights of Sprout for a share of future profits, the company stated in its Form 10-K Annual Report for 2016, filed March 1 with the SEC.

Accusations of Sexism

The approval came 18 months after the FDA responded to the NDA with a second Complete Response Letter (CRL) that prompted Sprout and some women’s groups to accuse the agency of sexism: “We’ve now got 24 drugs for men for either testosterone replacement or erectile dysfunction, yet there are zero drugs for the most common form of sexual dysfunction in women,” Sprout’s then-COO Cindy Whitehead told the Associated Press in 2013.

Flibanserin has been one of several drugs being positioned by their developers as a “female Viagra,” with the goal of at least duplicating the male sexual dysfunction pill’s blockbuster sales in its early years.

Addyi was developed by Boehringer Ingelheim, which failed to win approval for the drug candidate when FDA’s Advisory Committee for Reproductive Health Drugs in 2010 voted 10 to 1 against recommending approval. The advisory panel contended that flibanserin had not shown a significant increase in women’s sexual desire compared to placebo and had shown significant side effects that included depression and dizziness. The FDA responded by sending its first CRL concerning the drug.

In 2012, Boehringer Ingelheim sold the rights to flibanserin to Sprout, which was founded a year earlier to focus on treatments for women’s sexual health. Within weeks, Sprout raised $20 million from 59 individual investors through an equity offering.

The sell-off of Sprout comes 18 months into Valeant’s turnaround effort under Papa. Since succeeding J. Michael Pearson in May 2016, Papa has worked to lift the troubled biotech out of a financial hole that followed a 73% plunge in its share price stemming from disclosures that it used specialty pharmacies to store inventory and record the transactions as sales.

The disclosures touched off investigations by the U.S. Department of Justice and a bipartisan probe by the U.S. Senate Special Committee on Aging. Pearson acknowledged before the committee that Valeant erred in pursuing acquisitions whose costs the company planned to more than recoup by sharply raising drug prices.

In January, Valeant agreed to sell its majority stake in Dendreon and several skincare brands in separate deals totaling more than $2 billion. Two months later, Pearson sued Valeant, contending that the company reneged on an exit agreement provision that he be given 580,676 restricted shares and 2.46 million performance shares which, at the time of his initial complaint, were worth a combined $32.8 million.

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