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Allergan, Inc.’s (AGN - Analyst Report) shares slipped 11.6% following the issuance of bioequivalence draft guidelines by the FDA for the company’s eye drug, Restasis (cyclosporine). According to the draft guidelines, companies wanting to make a generic version of Restasis have two options – an in vitro study or an in vivo study.

The first option implies that no clinical trial will be needed for a generic company to get its product approved provided certain criteria are met. According to the agency, the generic must be shown to be qualitatively and quantitatively similar to Restasis.

The comparative physicochemical characterization of the generic and Restasis should also be acceptable. Moreover, the comparative study should be conducted on at least three lots of the generic as well as Restasis. Some of the parameters that need to be measured include globule size distribution, viscosity, pH, zeta potential, osmolality, and surface tension.

Population bioequivalence has to be performed separately for each peak in the globule size distribution of Restasis.

As far as the second option is concerned, only one study needs to be conducted. In fact, the agency said that conducting a bioequivalence study with clinical endpoint for Restasis may not be feasible or reliable considering the product’s modest efficacy. Moreover, the study protocol will need to be approved by the FDA.

Our Take

Currently, we have low visibility on whether any company is seeking approval for its generic version of Restasis. We expect Allergan to issue a statement during the comment period regarding the draft guidelines.

These draft guidelines, if finalized, could make it easier for generic versions of Restasis to enter the market. Restasis, which posted sales of $792 million in 2012, is slated to lose exclusivity in the US next year. Allergan expects Restasis sales of $850 million - $890 million in 2013. With the drug accounting for about 13.9% of total product net sales (as of 2012), the entry of generic versions would be a major setback for Allergan.

Allergan currently carries a Zacks Rank #3 (Hold). At present, companies like Novo Nordisk (NVO - Analyst Report), Santarus, Inc. and Salix Pharmaceuticals (SLXP - Analyst Report) look well-positioned. While Santarus and Salix are Zacks Rank #1 (Strong Buy) stocks, Novo Nordisk is a Zacks Rank #2 (Buy) stock.

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