Last August, Sprout Pharmaceuticals had a new pill on its hands that quickly captured the nation’s imagination. The Food and Drug Administration had just approved its drug Addyi to treat low sex drive in women.
Late-night comedians joked about “female Viagra.” Wall Street analysts conjectured about blockbuster sales. In clinical trials, women reported a small, but statistically significant, uptick in the number of satisfying sexual experiences per month.
“This was just such a huge moment for women,” Cindy Whitehead, Sprout’s chief executive, told Fortune magazine at the time.
Things got even better for Sprout a day after the F.D.A. approval, when Valeant Pharmaceuticals International, a drug company whose deal-making acumen had made it a stock-market darling, bought Sprout for an astonishing $1 billion — twice its value just two months earlier.
What could go wrong? Well, just about everything.
Within weeks of the deal, Valeant went from investor idol to pariah as its business model of buying older drugs and raising the prices attracted international scorn. Since then, its stock has fallen 85 percent. On Monday, Valeant dismissed the entire sales force behind the drug and said it planned to reintroduce Addyi this year. Doctors had prescribed the drug fewer than 4,000 times as of February.
Interviews with former Sprout employees, analysts, investors and doctors who helped bring the drug to market suggest how a series of missteps after the deal, along with turbulence from aggressive accounting practices, unusual business relationships and big egos, derailed one of the most intriguing new pharmaceuticals in a generation.
Valeant’s purchase of Sprout turned out to be “a colossal failure,” said Vicki Bryan, an analyst at Gimme Credit, a debt analysis firm. “To have it fall apart in a couple of months? That’s very alarming.”
Despite the optimism, Addyi (pronounced ADD-ee) was never going to be an easy sell. There were questions about its effectiveness and convenience. Women, for instance, would need to take it every day and abstain from alcohol. Still, the dismal results have come as a surprise and underscore Valeant’s troubles.
Soon after Valeant took over, it doubled Addyi’s price and planned to sell it to patients through a mail-order pharmacy, Philidor Rx Services. But Valeant then announced it was severing ties with Philidor, leaving the drug without a distributor.
The company’s dealings with the pharmacy are now under federal investigation, as are its drug-pricing policies, which have been described by lawmakers as predatory.
Valeant has acknowledged that sales of Addyi have not lived up to expectations and that it plans to invest more in the drug. The company has defended its pricing practices.
A major figure in the Addyi saga is William A. Ackman, the hedge fund manager and one of Valeant’s biggest backers. His fund, Pershing Square Capital Management, became a top shareholder of Valeant when its shares were flying high.
Mr. Ackman also bought a personal stake in Sprout in June 2015, two months before its drug was approved by the F.D.A.
Until recently, Mr. Ackman had nothing but praise for J. Michael Pearson, Valeant’s chief executive and architect of its strategy. These days, though, Mr. Ackman is agitating for change and has secured his own board seat. Last month, days after Mr. Ackman suggested the company needed management changes, Valeant said it would replace Mr. Pearson.
Mr. Pearson declined to comment.
Mr. Ackman has spoken publicly about Valeant, but he declined to discuss his investment in Sprout on the record.
On Wednesday, in a call with Pershing Square investors, Mr. Ackman was upbeat. “We can restore value here very, very quickly,” he said of Valeant.
The stock rose on Mr. Ackman’s comments, but clearly, recouping the $1 billion the company paid for Addyi will take some time.
Addyi, known to scientists as flibanserin, is thought to work by changing the balance of certain brain neurotransmitters like dopamine and serotonin. It was originally conceived as an antidepressant. That didn’t work, but some early clinical trials did show an increase in sex drive among women.
But in 2010 and 2013, the F.D.A. rejected the drug for that use, saying the side effects, including nausea and dizziness, outweighed the benefits. In clinical trials, women taking the pink pill reported having about one more sexually satisfying experience per month than those taking a placebo.
Those doubts did not deter Robert and Cindy Whitehead, a husband-and-wife team who formed Sprout Pharmaceuticals and bought the drug in 2012. After the 2013 rejection, they initiated an aggressive lobbying and public relations campaign to frame the drug’s approval as an issue of feminism and fairness.
“I just suspected that there were higher barriers for something to treat women, a lot higher than were set up for the male drugs,” said Sally Greenberg, executive director of the National Consumers League, which campaigned for the drug. “Women, just like men, should be allowed with their health care provider to decide whether to take on a risk.”
The F.D.A. approved the drug after its third review, with major caveats.
Addyi would have to carry a “black box” warning, the most serious kind, stating that taking the drug with alcohol can cause dangerous drops in blood pressure or fainting. Doctors and pharmacists would need to pass a test to prescribe or dispense it.
Selling Viagra comes with fewer restrictions. It need only be taken before sex, not daily like Addyi. And Viagra, which can lead to side effects like dizziness and nausea, does not carry a black-box warning.
Sprout also pledged to refrain from advertising the drug directly to the public for 18 months. The company said it would instead focus on educating doctors about the drug and the condition it treats, hypoactive sexual desire disorder.
The multiple restrictions blunted some of the excitement around the drug’s approval, said Dr. Lauren F. Streicher, a Chicago gynecologist who specializes in sexual health. She said the limits of the drug were inappropriate and scared women off. “Women think, ‘Wow, this one must be really bad,’” she said.
Still, even with the roadblocks, some analysts predicted that millions of women would take the drug. Sprout built an ambitious sales apparatus ahead of F.D.A. approval. To help pay for it, they found some wealthy backers, including two Wall Street titans with ties to Valeant.
One was Viking Global Investors, a hedge fund with $45 billion under management. The other was Mr. Ackman, a billionaire who had worked with Ms. Greenberg years earlier on his crusade against Herbalife, the supplements company.
“I don’t have connections with many hedge fund guys,” said Ms. Greenberg, adding that she had not received money for making the connection. “He may be the only billionaire who I’ve ever had contact with.”
In June, Mr. Ackman made a personal $7 million investment. His stake doubled when Valeant bought the company.
Six former Sprout employees said the money helped pay for two national sales directors, including one who had sold Viagra when it went on sale in 1998. Sprout also added 12 regional managers and nearly 150 sales representatives. The former employees would speak only on the condition of anonymity either because they had signed nondisclosure agreements or because they feared that being identified would jeopardize their future in the industry.
In addition, Sprout prepared pamphlets and other marketing materials and enlisted doctors as expert speakers for Addyi.
Sprout also settled on a price: $400 for a month of pills, or about the cost of a month’s worth of erectile dysfunction pills. Insurers would have difficulty denying coverage, company executives reasoned, if their product was the same price as the men’s pills. Sure enough, after the drug was approved, Anthem, one of the nation’s largest insurers, said it would cover the drug at the $400 price.
If patients were willing, Sprout was ready.
Mr. Pearson, Valeant’s chief executive, looked distracted when he took the stage in mid-October at a party meant to energize the Addyi sales team, a description the company denies. Doctors spoke about the drug’s benefits. Patients shared their stories.
But when Mr. Pearson took the stage, he forgot the names of the patients who had just spoken. And he joked that Valeant had overpaid for Addyi, according to several of the former employees who had attended the meeting. He left the room a few minutes later, in spite of having promised to stay for the day.
One possible explanation for Mr. Pearson’s performance emerged two days later, when Valeant disclosed that it had received subpoenas from federal prosecutors asking for information about its business practices, including its drug pricing decisions.
Pressure mounted elsewhere, too. Analysts were questioning Valeant’s business model. Congress was asking about its pricing policy. And a vocal investment research firm that had bet against Valeant’s shares published a report criticizing the company’s accounting.
After years of Valeant being an investor favorite, the winds had reversed.
At the same time, decisions made by Valeant were undermining Addyi, the former employees said. Once Valeant owned the drug, for example, it doubled the price, to $800.
Laurie Little, a spokeswoman for Valeant, said financial assistance programs were available for people without insurance coverage. Insurance companies, she said, would most likely receive discounts to make the drug cost less than $800.
In reality, insurance companies balked. CVS/Caremark, the pharmacy benefits manager, notified Valeant several weeks before the pill’s introduction that it would not cover Addyi at the $800 price, according to a letter Sprout shareholders sent to Valeant in March.
Graphic | How Valeant Is Performing on Wall Street
As price became an issue, so did distribution. Before the Valeant buyout, Sprout had lined up Cardinal Health, one of the nation’s largest drug distributors. But when Valeant took over, it ended this arrangement, former employees said, handing over that crucial job to Philidor, which was out of business.
Now Sprout shareholders, in their letter to Valeant, say that relying on Philidor to distribute Addyi was a crucial mistake.
Former Sprout employees say that the changes in marketing strategy complicated their efforts to sell doctors on the pill. They also say they did not have access to many of their standard sales tools, including basic promotional materials like wall posters and brochures. Valeant also halted a planned speakers’ program, in which doctors explained the drug to their colleagues.
Ms. Little of Valeant said distribution of the materials had been delayed while they were being reviewed by the F.D.A. She said the company was preparing a speakers’ program.
As weeks passed, several members of the sales team began to suspect that Valeant was either not interested or incapable of effectively selling Addyi, according to the former employees. Near the end of 2015, Ms. Whitehead departed, and sales representatives began leaving. When they left, their positions were not filled. The company is dismissing the rest of the sales force this month.
Dr. James A. Simon, a member of Valeant’s scientific advisory board for Addyi, said the company seemed out of its depth. The company’s experience was in selling older products with a well-established market, not new drugs.
“They didn’t home-grow things at Valeant,” said Dr. Simon, who served as the chief medical officer at Sprout from 2012 to 2013. “This is a product that needed to be homegrown.”
In their letter to Valeant, angry Sprout shareholders asked the company to explain its actions. Jonathan D. Schiller, who represents the Sprout shareholders, said in a statement that Valeant was not meeting the obligations it agreed to with Sprout, “to the detriment of Sprout shareholders, Valeant’s own shareholders, its debt holders and the millions of women who would benefit from Addyi.”
The Valeant spokeswoman said the company intended to fulfill its obligations under the deal.
Today, as Addyi struggles, Valeant’s broader difficulties could limit its ability to invest in the drug’s marketing effort. Dr. Streicher, the Chicago gynecologist, said she had prescribed the drug to only about 10 patients, to mixed reviews. “I see a lot of patients,” she said, “and at the end of the day, it’s not like they’re lining up for it.”
Others say Addyi’s struggles are for the best. “It wasn’t a very good product,” said Susan F. Wood, an associate professor of health policy at George Washington University, who opposed the drug’s approval. “I’m happy that for once, the idea that this was going to be the female blockbuster drug didn’t pan out.”
Ms. Greenberg, Addyi’s early champion, remains unbowed. She thought the F.D.A. approval would be the main hurdle, she said, not the financial and marketing mess that ensued.
“We have millions of women who arguably would like access to this drug, but who can’t get it,” she said. “It’s incredibly frustrating.”