By Natalie Grover and Ankur Banerjee
(Reuters) - Canada's Valeant Pharmaceuticals International Inc (TO:VRX) (N:VRX) said on Thursday it would buy Sprout Pharmaceuticals, maker of the first approved treatment for low sexual desire in women, for about $1 billion plus milestone payments.
Sprout's controversial pink libido pill, Addyi, won approval from the U.S. Food and Drug Administration on Tuesday after being rejected twice over concerns about its effectiveness and side-effects.
Addyi, popularly called the "female Viagra", carries a strong warning about potentially dangerous low blood pressure and fainting, especially when taken with alcohol, raising some doubts about its commercial prospects.
There are also concerns that the FDA was pressured into approving Addyi, given that Viagra - the first treatment for male sexual dysfunction - was approved more than a decade ago.
Unlike Viagra, which affects blood flow to the genitals, Addyi is meant to activate sexual impulses in the brain.
Raghuram Selvaraju, managing director of brokerage H.C. Wainwright & Co, has estimated peak sales of $100 million a year for Addyi, while Len Yaffe, managing director of hedge fund Kessef Capital Management, expects sales of $300 million.
Viagra - a "blockbuster" in drug industry parlance - generated sales of about $1.7 billion in 2014.
"The fact is we don't know how big the market is for this condition," Selvaraju said, adding that "there is still a perception that this is not a real medical condition."
Valeant's U.S. shares fell 4 percent to $235 in morning trading, while its Toronto-listed shares dropped 3.9 percent to C$307.81.
Valeant had been in talks with Sprout for about three weeks, Chief Executive Michael Pearson (LONDON:PSON) said on CNBC.
Montreal-area based Valeant, Canada's biggest drug company, has grown rapidly through acquisitions.
In its biggest deal, it bought Salix Pharmaceuticals earlier this year for about $11 billion.
Sprout, based in Raleigh, North Carolina, was co-founded in 2011 by husband and wife Cindy and Robert Whitehead, after they sold Slate Pharmaceuticals, another small drugmaker they had founded. Sprout has 34 employees.
Valeant said it would pay $500 million upfront and make another installment next year for privately owned Sprout.
The drugmaker said it expected the deal to close in the third quarter of 2015 and Addyi to be available in the United States by the end of the year.
Skadden, Arps, Slate, Meagher & Flom served as Valeant's legal counsel. Sullivan & Cromwell was Sprout's legal adviser and Perella Weinberg Partners was its financial adviser.