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How The Creator Of The "Female Viagra" Sold Her Business For $1 Billion, Then Got It Back For Free

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Cindy Whitehead

At The Value Builder System™, we’ve worked with more than 30,000 businesses to help them improve their value leading up to an exit, and virtually every one of those founders would like an all-cash deal when they sell their business. Unfortunately, that’s not realistic.

When you sell your business, there will likely be a cash payment up front and some sort of “structured” payment on the back end. This could take the form of an “earn-out”, stay bonus or a royalty from the sale of your product in the hands of your acquirer.

Structuring this second tranche of “at risk” cash can be tricky. An acquirer will want lots of freedom to market your product to their customers as they see fit and you will likely want assurances that they will financially support your company as a division of theirs.

The Female Viagra

For example, I recently interviewed Cindy Whitehead on Built to Sell Radio. Whitehead started Sprout Pharmaceuticals, the maker of the drug ADDYI, which has become known as the “female Viagra”.

After years of fundraising to finance clinical trials and research, Whitehead finally got ADDYI approved by the Food & Drug Administration (FDA) in the United States. With legal authorization to market the drug, Whitehead became the darling of the pharmaceutical industry and quickly received three competing offers from large pharmaceutical companies to buy her business.

In 2015, Whitehead agreed to be acquired by Valeant, who paid $1 billion dollars in cash for Whitehead’s company along with a royalty stream from the sale of ADDYI post acquisition.

Whitehead is a savvy entrepreneur and ensured that the deal to buy her company had some specific language around what Valeant was going to do to market ADDYI. Valeant lawyers started the negotiation by saying that Valeant would make their “best efforts” to sell ADDYI but Whitehead pushed for more details and insisted they commit to spending a specific amount on sales and marketing to launch ADDYI.

Valeant Under Criticism

Weeks after they closed on their acquisition of Sprout, Valeant started to come under criticism for allegedly hiking the price of some of their potentially life-saving drugs. In the wake of the negative publicity, the company’s stock price plummeted more than 90%. Valeant retrenched and decided not to launch ADDYI so there were no royalties paid.

Whitehead and her investors sued Valeant for the lost royalty stream.

On November 6, Valeant announced they had reached a deal with Whitehead and her backers. The original investors in Sprout would get the drug back (even though they were allowed to keep the $1 billion in cash) in return for a 6% royalty stream on future sales. Further, Valeant agreed to give the original investors a $25 million loan to cover start-up expenses associated with selling ADDYI as a stand-alone product.

Whitehead and her investors would likely not have had a legal leg to stand on had she not pushed for specificity on Valeant’s obligations post sale—a good lesson for any entrepreneur contemplating a sale.