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Valeant Pharmaceuticals (VRX - Analyst Report) recently entered into an agreement with Actavis Inc. (ACT - Analyst Report). As per the agreement, effective immediately, Actavis will exclusively market and distribute an authorized generic of Valeant's Zovirax ointment. 

The agreement allows Actavis to record all the net sales of the generic ointment while Valeant will receive a share of the same. The other terms of the agreement were not disclosed.

Actavis will also have the exclusive rights to co-promote Zovirax cream to obstetricians and gynecologists in the US by using its existing Specialty Brands sales and marketing structure.

In return, Valeant gained exclusive right to co-promote Actavis’ Cordran Tape (flurandrenolide) in the US, which is indicated for treating inflammation and itching caused by skin allergic reactions, eczema and psoriasis.  

Valeant will co-promote the drug using its dermatalogy sales and marketing structure for a co-promotion fee on sales.

We note that Zovirax (ointment) is indicated for the management of initial genital herpes and limited non-life threatening mucocutaneous herpes simplex infections in immuno-compromised patients.

Zovirax cream is indicated for the treatment of recurrent herpes labialis (cold sores) in patients above 12 years.

We believe that Valeant is now making efforts to somewhat offset the adverse impact of Mylan’s (MYL - Analyst Report) recent launch of the first generic version of Zovirax ointment.

Mylan recently received approval from the US Food and Drug Administration (FDA) to sell the first generic version of Zovirax ointment.

Consequently, Valeant cuts its earnings guidance for 2013 as Zovirax accounted for 7% of Valeant’s total revenue in 2012. Valeant estimates the launch of Mylan’s generic version to adversely impact its bottom line on a cash basis by 30 to 40 cents in 2013.

Concurrent with the fourth quarter results in Feb 2013, Valeant reaffirmed its guidance provided in January. Earnings per share were then projected around $5.45 – $5.75.

Valeant intends to provide an updated guidance in May along with its first quarter 2013 results.

It remains to be seen if Valeant is able to shield its top-line growth following the entry of generics.

Valeant currently carries a Zacks Rank #3 (Hold). Right now, Avanir Pharmaceuticals Ltd. (AVNR - Snapshot Report) looks better positioned with a Zacks Rank #2 (Buy).

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