Term Sheet -- Tuesday, November 7
THE LITTLE PINK PILL
Good morning, Term Sheet readers.
Yesterday, we noted that Valeant Pharmaceuticals is giving Addyi, the female libido drug dubbed ‘the female Viagra,’ back to its former owners. This is quite a big deal as Valeant bought Sprout Pharmaceuticals, the company behind the drug for a whopping $1 billion just over two years ago.
Here’s a quick summary of what happened: Sprout is a Raleigh, N.C.-based developer of a drug intended to treat hypoactive sexual desire disorder — a persistent lack of libido — in pre-menopausal women. Under then-Sprout CEO Cindy Whitehead’s leadership, the company raised nearly $100 million in venture funding and was approved by the FDA after two failed attempts. Days later, Valeant agreed to buy Sprout for $1 billion in cash.
And then things turned sour. Short seller firm Citron Research compared Valeant to Enron & the Securities and Exchange Commission opened an investigation into the pharma giant’s accounting methods. CEO Michael Pearson was ousted after a disastrous earnings report, and Sprout took a back seat.
Last March, Sprout’s investors filed a lawsuit against Valeant claiming it overcharged consumers for the pill and failed to successfully commercialize it. The complaint had said that sales of the pill may have totaled less than $10 million in 2016, far short of the $1 billion targeted by July, 2017. As Fortune reported last year, the drug’s sales flailed since many insurers denied coverage for the pill, and Addyi was facing criticism for its high price point and reportedly low efficacy rates.
This brings us to today. Valeant has, in essence, given up on “the little pink pill.” The embattled pharma giant is expected to hand over Sprout to its former owners without charging an upfront fee. According to the terms of the deal, Sprout’s shareholders would drop the pending lawsuit and Valeant would get a 6% royalty on global sales of Addyi. In turn, Valeant will loan the company $25 million to “fund initial operating expenses.”
“Returning Sprout to its former owners will enable us to further streamline our portfolio and reduce complexity in our business,” Valeant CEO Joseph C. Papa told Term Sheet in a statement.
Here’s where it gets interesting. We have yet to see whether Whitehead, who now invests in female-focused companies through her new venture The Pink Ceiling, will return as CEO of Sprout 2.0. Here are my thoughts:
• Though Whitehead is not named as one of the shareholders acquiring Sprout back from Valeant, she had privately owned the company with her then-husband Bob Whitehead before selling it in the summer of 2015. She declined to comment on the pending deal, but she tweeted shortly after the announcement was made yesterday: “It always seems impossible until it’s done.”
• It’s unclear whether Whitehead would step in as the chief executive of the newly-regained company. She’s currently the founder and CEO of The Pink Ceiling, a cross between VC fund, incubator, and consulting firm. However, after talking to her last week about her previous ambitions for Addyi, it’s very likely she’ll be involved with Sprout in some capacity.
• This is not something you see in M&A too often. As my colleague Jen Wieczner notes, “The deal marks a spectacular failure of Valeant’s onetime acquisition strategy, as well as an incredible win for Cindy Whitehead, who now stands to make even more from the sexual dysfunction treatment she helped create than the $1 billion she initially sold it for.”
This is a pretty sweet deal for the former shareholders and could turn into a huge opportunity. Sprout’s investors already got a big windfall from the billion-dollar acquisition, so in theory, they could double dip. If the company beefs up its business and gets sales off the ground, its investors could even see a second, potentially even bigger, exit.
Term Sheet interviewed Whitehead last week about Addyi, women’s sexual health, and sexual harassment. Read the full interview here.
THE LATEST FROM FORTUNE…
• Goldman Sachs says Bitcoin to hit near $8,000 next (by Jeff John Roberts)
• Google’s new phone comparison could be a threat (by David Meyer)
• Stephen Hawking: AI could be the worst event in history (by Hallie Detrick)
• People are now searching how to buy Bitcoin more than how to buy gold (by David Meyer)
Acquisition talks between Disney and 21st Century Fox are now dead. But Fox’s management may still think about going smaller. Weinstein hired spies to silence sexual assault allegations. Bridgewater paid over $1 million to push out a female employee who had a relationship with Dalio’s Protege. Trump’s tax plan is bad news for professional athletes. Dick Fuld is expanding into private equity. Lyft COO Rex Tibbens is stepping down.
• I.am+, a Los Angeles, Calif.-based wearable products startup founded by pop star and entrepreneur will.i.am, raised $117 million in funding, according to Reuters. The investors were not named, but its previous round was led by a group including Salesforce Ventures, Read more.
• CloudSense, a U.K.-based cloud company, raised $77 million in funding from Vector Capital.
• NousCom, a Switzerland-based oncology company, raised 42 million euro ($55 million) in Series B funding. Abingworth led the round, and was joined by investors including 5AM Ventures, LSP and Versant Ventures.
• Excelero, a Santa Clara, Calif.-based software-defined block storage company, raised $30 million in total venture funding. Investors include Qualcomm Ventures.
• Jitterbit, an Alameda, Calif.-based API transformation company, raised $25 million in Series C funding. KKR led the round.
• CargoX, a Brazil-based technology company that offers trucking services for corporations, raised $20 million in Series C funding. Goldman Sachs led the round, and was joined by investors including George Soros, Qualcomm Ventures, Agility Logistics, Valor Capital Group and Oscar Salazar.
• Optibus, an Israel-based provider of real-time operations and planning for city-wide mass transportation, raised $12 million in Series A funding. Pitango led the round, and was joined by investors including Verizon Ventures and Sir Ronald Cohen.
• ThirdChannel, a Cambridge, Mass.-based retail intelligence platform, raised $7 million in Series A funding. Fung Capital led the round.
• QLess, a Pasadena, Calif.-based provider of data-driven customer experience and productivity solutions, raised $5.5 million in funding. Investors include Palisades Growth Capital and Act One Ventures.
• Powerful, a Miami-based food and beverage company offering all-natural, high-protein products, raised $4 million in Series B funding. River Hollow Partners led the round.
• Opendorse, a Lincoln, Neb.-based athlete marketing platform, raised $3.5 million in Series A funding. Serra Ventures led the round, and was joined by investors including Flyover Capital.
• Heyday, a New York-based custom facials company, raised $3 million in seed funding. Lerer Hippeau led the round.
• Mojiworks, a U.K.-based games creator for chat and messaging platforms, raised 2.1 million pounds ($2.8 million) in Series A funding. Balderton Capital led the round, and was joined by investors including Lifeline Ventures and Sunstone Capital.
• NuID, Inc. a blockchain security and digital identity startup, raised $1.64 million in seed funding. Investors include Jemison Investment Company and 8VC.
• Bravely, a New York-based resource for confidential coaching for employees facing stress and issues at work, raised $1.5 million in seed funding. Investors include Primary Venture Partners, Brooklyn Bridge Ventures, Correlation Ventures and Trail Mix Partners.
• SmartMEI, a Brazil-based fintech startup and mobile platform, raised seed funding of an undisclosed amount, from Accion Venture Lab.
PRIVATE EQUITY DEALS
• Madison Dearborn Partners agreed to acquire a majority stake in AmTrust Financial Services’ U.S-based fee businesses. The enterprise value of the deal is $1.15 billion. At the closing, AmTrust, a multinational insurance holding company, will receive gross cash proceeds of about $950 million and retain a 49% stake in the business.
• ISA TanTec, which is backed by Navis Capital Partners, acquired a majority stake in Scabrenta, an Italy-based tannery. Financial terms weren’t disclosed.
• Stonepeak Infrastructure Partners agreed to acquire a majority stake in euNetworks, a London-based bandwidth infrastructure provider. According to terms of the deal, euNetworks will secure up to $500 million in growth funding.
• Tally Energy Services acquired Premier Directional Drilling, a Houston, Texas-based platform in directional drilling. Financial terms weren’t disclosed.
• TorQuest Partners made an investment of an undisclosed amount in the TEAM Companies, a Burbank, Calif.-based payroll, business affairs and technology provider for the advertising and entertainment communities. Financial terms weren’t disclosed.
• Magnitude Software, which is backed by Audax Private Equity, acquired Agility Multichannel Ltd, a U.K.-based provider of product information management software. Financial terms weren’t disclosed.
• Shore Group Associates, a portfolio company of ClearPoint Investment Partners, acquired LabSpot, a division of Research Connection, Inc. Financial terms weren’t disclosed.
• irth Solutions acquired Bytronics, Inc., a Rochester, N.Y.-based software solutions company. Financial terms of the transaction were not disclosed.
• Canuelas Mill, a Buenos Aires, Argentina-based food company, said it plans to raise $302 million in an PIO of 19.5 million ADSs(50% insider) between $14 to $17 a piece. In 2016, the company posted sales of $2 billion on earnings on $53 million. J.P. Morgan and UBS are joint global coordinators in the deal, with HSBC and Itau BBA as joint bookrunners.The company plans to list on the NYSE as “MOLC.”
• Erytech Pharma, a Lyon, France biotech developing cancer treatments, said it would raise $100 million in an offering of 4.26 million ADSs between $23 and $24 a piece. In 2016, the company, posted revenue of $4.9 million and loss of $25.7 million. Baker Bros Advisors(15.4% pre-offering) and Auriga Partners (9.8%) back the company. Jefferies, Cowen & Company, and Oddo BHF are joint bookrunners in the deal. The firm plans to list on the Nasdaq as “ERYP.”
• scPharmaceuticals, a Burlington, Mass.-based company seeking to commercialize intravenous treatments, said it plans to raise $96 million in an offering of 6.4 million shares between $14 to $16 a piece. The company posted loss of $24.4 million in 2016. Backers include 5AM Ventures(23.2% pre-offering), Lundbeckfond Invest A/K(22.6%), OrbiMed(23%), and Sun Pharmaceuticals(16.2%). Jefferies, Leerink Partners, and BMO Capital Markets are underwriters in the deal. THe company plans to list on the Nasdaq as “SCPH.”
• Hexindai, a Beijing, China-based consumer lending firm, said it raised $50 million in an offering of 5 million shares at $10 a piece. The company posted revenue of $22.9 million in the 12 months ending March 2017 and income of $7.5 million. Network 1 Financial Securities is underwriter in the deal. The company plans to list as “HX.”
• Arsanis, a Waltham, Mass.-based clinical stage biopharmaceutical company focused on monoclonal antibodies, said it plans to raise $50 million in an offering of 3.1 million shares between $15 to $17 a piece. The company posted loss of $23 million in 2016. Polaris Ventures (17.8% pre-offering), SV Life Sciences(17.8%), OrbiMed(17.8%), NeoMed Management(7.4%), and the Bill and Melinda Gates Foundation (9.4%) back the company. Citigroup, Cowen, and Piper Jaffray are underwriters in the deal. The company plans to list on the NAsdaq as “ASNS.”
• Proofpoint will acquire Cloudmark, a San Francisco-based firm that provides security protection for messaging services, for $100 million, according to TechCrunch. Cloudmark previously raised $39 million in venture funding. Read more.
FIRMS + FUNDS
• Tusk Ventures, a New York-based venture capital firm, raised $36 million for its debut fund.
• Peter Weed joined Lumia Capital as a general partner.
• Pritzker Group Private Capital promoted Chris Trick to principal.