By Jonathan Stempel
WILMINGTON, Del. (Reuters) - Valeant Pharmaceuticals International Inc (TO:VRX) was sued on Wednesday on behalf of investors in Sprout Pharmaceuticals Inc, which it bought last year for $1 billion, over its alleged failure to market the female libido pill Addyi successfully.
According to a complaint filed in Delaware Chancery Court, Valeant neglected its obligations to market Addyi, sometimes dubbed "the female Viagra," and priced the drug at $800 per month, twice as high as the market could bear.
This led to disappointing sales, in part because insurers and pharmacy benefit managers refused to cover the drug at the "inflated" price, and made it unaffordable for millions of women facing an "unmet medical need," the complaint said.
"Valeant has abdicated its duty to use diligent efforts to develop and commercialise Addyi," depriving Sprout investors of their share of future sales and licensing revenue, the complaint said.
The complaint seeks unspecified damages and a requirement that Valeant live up to the merger agreement, including by hiring a 150-member sales force for Addyi and spending at least $200 million on marketing, research and development.
Valeant did not immediately respond to requests for comment.
The lawsuit adds to problems facing Laval, Quebec-based Valeant, whose stock has plunged more than 90 percent since August 2015 amid intense criticism over its pricing and business practices, and probes by U.S. regulators and Congress.
Bloomberg News said former Chief Executive Michael Pearson (LON:PSON) and former Chief Financial Officer Howard Schiller are targets of a U.S. criminal probe tied to Philidor Rx Services, a specialty pharmacy that helped Valeant boost sales.
Valeant is also trying to slash its roughly $30 billion debt load, and on Tuesday said it is in talks to sell its Salix stomach drug business.
Shares of Valeant were down $2.68, or 11.2 percent, at $21.18 in Wednesday afternoon trading in New York, after rising roughly one-third on Tuesday on the Salix news.
ABANDONING ADDYI
Analysts have said there could be a $2 billion global market for drugs treating low sexual desire in women. Pfizer Inc's (N:PFE) Viagra is used for erectile dysfunction in men.
According to the Delaware complaint, Valeant's plan to distribute Addyi through Philidor collapsed after short-seller Citron Research accused Valeant on Oct. 21, 2015, four days after Addyi's commercial launch, of using Philidor to fraudulently inflate sales.
The complaint said Valeant "jettisoned all of Sprout's preparatory work" and severed ties to Sprout's leadership despite having no marketing plan of its own.
It also said Pearson's replacement, Joseph Papa, decided not to spend any more on advertising this year, after telling Sprout advisers that Valeant intended to re-launch Addyi in September, which did not occur.
"Valeant's breach has not only damaged the former Sprout shareholders, but also deprived Valeant's shareholders and debtholders of a significant source of revenue," Jonathan Schiller, managing partner of Boies Schiller & Flexner, who represents the Sprout investors, said in a statement.
Palatin Technologies Inc (A:PTN), a New Jersey company developing a potential Addyi rival, bremelanotide, has hired investment bank Greenhill & Co to explore a sale or licensing pact, a person familiar with the matter said.
The case is Shareholder Representative Services LLC v Valeant Pharmaceuticals International et al, Delaware Chancery Court, No. 12868.