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Allergan’s (AGN - Analyst Report) shares slipped 1.29% on news that Actavis plc (ACT - Analyst Report) has filed an Abbreviated New Drug Application (ANDA) for its generic version of Allergan’s eye drug, Restasis.

The paragraph IV filing is challenging U.S. patent number 8,629,111 which is slated to expire in Aug 2024. A method of use patent (patent number 8,633,162) for Restasis was issued recently by the United States Patent and Trademark Office – this patent, which has been submitted for listing in the Orange Book, is also slated to expire in Aug 2024.

Actavis had submitted the ANDA before the FDA had issued bioequivalence draft guidelines in Jun 2013 related to the approval of generic versions of Restasis. 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. These draft guidelines, if finalized, could make it easier for generic versions of Restasis to enter the market.

Since Actavis had submitted its ANDA before the issuance of the FDA guidelines, the FDA informed Actavis that it would not accept the ANDA filing. Actavis is currently in discussions with the agency regarding the status of its ANDA filing. Actavis also amended its ANDA in order to include a para IV certification regarding the recently issued patent ‘162.

Restasis posted sales of $662.4 million in the first nine months of 2013.

Our Take

Although Allergan’s shares slipped slightly on the news regarding Actavis’ ANDA, we do not expect generic competition to enter the market any time soon. The issuance of new patents should provide protection. Moreover, Allergan has submitted a Citizen Petition to the FDA regarding the agency’s draft guidance for Restasis. Also, there is lack of clarity on the filing status of Actavis’ ANDA.

While Actavis is a Zacks Rank #1 (Strong Buy) stock, Allergan is a Zacks Rank #2 (Buy) stock. Other stocks in the medical sector that look attractive include Impax Laboratories Inc. (IPXL - Snapshot Report) and H. Lundbeck A/S (HLUYY). Both are Zacks Rank #1 stocks.

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