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Source: Valeant Pharmaceuticals

Concern Valeant Pharmaceuticals (NYSE:VRX) practice of buying and rebranding existing medications, often with much higher price tags, will lead to payer pushback that crimps sales and has caused the company's shares to be lambasted over the past two months.

Now, recent prescription volume trends suggesting that its newly acquired women's Viagra pill, Addyi, may be a dud could mean that management similarly miscalculated when it forked over $1 billion in August to acquire Addyi's drug developer, Sprout.

Effective...but risky
During clinical trials, women with hypo-active sexual desire disorder reported that taking Addyi led to more frequent and satisfying sexual events per month, but findings also uncovered some safety issues that could be keeping doctors from writing scripts.

Specifically, patients taking Addyi that drink alcohol could be at greater risk of losing consciousness. A study evaluating the interaction of Addyi and alcohol found that 17% of 25 patients that took Addyi and drank two five-ounce glasses of wine over a 10-minute period required therapeutic intervention, such as smelling salts.

Additionally, studies have shown that without alcohol, 0.4% of Addyi patients and 0.2% of placebo patients also required intervention.

Because of the risk of unconsciousness, Addyi's label includes a black box warning and the FDA requires participation in a risk mitigation strategy, or REMS, that mandates educating doctors and patients on Addyi's safety risks.

Addyi's safety profile has also kept some payers from adding Addyi to preferred tiers of their drug formularies, thereby limiting reimbursement for the drug.

For example, Addyi is in the third tier of Anthem's (NYSE:ANTM) drug formulary and that means that patients pay more for it than they do for generics or preferred brand drugs. Similarly, Express Scripts has Addyi listed as non plan preferred in its formulary, which suggests that Addyi is subject to the highest patient co-pay.

Nonexistent demand
Pfizer
ended up with a mega blockbuster on its hands with Viagra, but tepid early demand for Addyi suggests that Valeant may struggle to justify its billion dollar purchase.

Addyi has been on the market for only a few weeks and during this period, only 227 prescriptions have been written for it.

That's a far cry shy of the mammoth demand Pfizer's Viagra enjoyed when it launched In 1998. During Viagra's first month on the market, Pfizer reported a half million prescriptions.

Admittedly, these two drugs are very different from one another. Addyi targets brain chemistry to boost women's libido, while Viagra targets blood flow, and because they have different mechanisms of action, it's probably not too shocking that they have dissimilar safety profiles and thus, different stories of success following their launch.

Looking forward
The FDA REMS may be a big reason for Addyi's slow start. Getting certified to prescribe Addyi isn't a deal-breaker, but it can be time consuming and with absent demand from patients, doctors are likely focusing on more pressing matters.

Insurer reimbursement could also be a barrier that needs to be overcome, but insurers such as Anthem and Express Scripts aren't likely to improve reimbursement for the drug given that they're knee deep in trying to reduce drug expenditures and therefore, their focus is to reimburse at the lowest levels possible.

If the pathway to certification gets easier and insurers reimburse more willingly, perhaps Valeant can use direct-to-consumer advertising to increase sales, but I wonder if any of those developments would be enough to overcome Addyi's risks, and for that reason investors that are considering buying Valeant's shares might be better off ignoring any potential impact from Addyi. 

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Express Scripts and Valeant Pharmaceuticals. The Motley Fool recommends Anthem. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.