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Valeant to buy female libido drugmaker Sprout for $1 billion

Valeant Pharmaceuticals announced on Thursday a $1 billion deal to buy the company that just won approval to sell "female Viagra."

Canada-based Valeant will make two $500 million payments in cash for Sprout Pharmaceuticals and its pink pills that will be sold under the brand name Addyi. That drug, which aims to boost a woman's libido, was approved by the U.S. Food and Drug Administration late Tuesday local time.

The first payment for Sprout will be made upfront and the second next year.

Valeant will acquire the North Carolina-based company on a debt-free basis and expects the deal to close some time in the current quarter, provided it receives regulatory approval.

Read More'Female Viagra' may only help limited patients: Doctor

Mike Pearson, Valeant's CEO, said Thursday the opportunity for Addyi is "quite large," and while the drug could certainly earn hundreds of millions, Valeant hopes it could raise billions in revenue.

More importantly, he added, is the chance to provide the first pharmaceutical treatment for hypoactive sexual desire disorder (HSDD), described as a lack of sexual appetite that causes emotional distress.

"This disease has been established for 30 years and there's been nothing out there, so finally there's an opportunity for women to address an unmet need. That's more important," he told CNBC's "Squawk Box."

Surveys estimate that 8 to 14 percent of women ages 20 to 49 have the condition, or about 5.5 million to 8.6 million U.S. women. However, the diagnosis is not universally accepted, and some psychologists argue that low sex drive should not be considered a medical problem.

Sprout co-founder and CEO Cindy Whitehead said she felt "really good" that insurers would cover Addyi and expected it to come with a copay on par with male impotence drugs such as Viagra.

"This is a big moment that we're recognizing the biology of sex for women," she told CNBC's "Squawk Box." "We certainly have recognized that for men as witnessed by countless medical treatment options and we've been paying for them through insurers for almost 17 years now."

Valeant will also take on all of Sprout's 25 employees, including its leadership team, as they complete preparations to begin sales of Addyi in October. Whitehead will lead the Valeant division responsible for the Addyi's launch and commercialization.

The deal fits with Valeant's unsuccessful effort to purchase Botox-maker Allergan, Barbara Ryan, partner at strategic adviser Clermont Partners, said Thursday. She called both Botox and Addyi "lifestyle drugs."

While Valeant has been criticized by some market watchers for driving growth through mergers rather than research and development, Ryan said she had no problem with the company's strategy.

"It is consolidator in the space. There are a lot of companies that spend a lot of money in R&D and don't generate a return, and if you do that for long enough you don't survive," she told CNBC's "Squawk Box."

However, as Valeant becomes bigger, it will become harder for individual deals to move the needle, she said.

The FDA's approval of Addyi on Tuesday was a milestone long sought by a pharmaceutical industry eager to replicate the blockbuster success of impotence drugs for men.

Read MoreFDA OKs first drug to boost sexual desire in women

But stringent safety measures on Addyi, a daily pill, mean it will probably never achieve the sales of Viagra, which has generated billions of dollars since the late 1990s.

The drug's label will bear a boxed warning—the most serious type—alerting doctors and patients that combining the pill with alcohol can cause dangerously low blood pressure and fainting. That same risk can occur when taking the drug with other commonly prescribed medications, including antifungals used to treat yeast infections.

Under a safety plan imposed by the FDA, doctors will only be able to prescribe Addyi after completing an online certification test demonstrating that they understand its side effects. Pharmacies will also have to be certified.

The FDA previously rejected the drug twice due to lackluster effectiveness and side effects.

Whitehead said she believed science had won the day and there is four decades of medical literature on HSDD.

"I think what happens is there is a little bit of confusion around normal low desire for women. Desire fluctuates." she said, adding HSDD "is a medical disorder and a diagnosis that's clearly existed. So it has been a wonderful day that women finally have the choice alongside their health-care provider for treatment."

In regard to the previous FDA rejections, Whitehead said the regulator had sought additional safety studies in the face of new data. "When the expert panel voted 18 to 6 in favor of approval, they were voting on a lot of new scientific information on the drug."

Tuesday's decision represented a compromise of sorts between two camps that have publicly feuded over the drug for years.

On one side, Sprout and its supporters have argued that women desperately need FDA-approved medicines to treat sexual problems. On the other side, safety advocates and pharmaceutical critics warn that Addyi is a problem-prone drug for a questionable medical condition.

The Associated Press contributed to this story.