Allergan shares up slightly a day after steep drop

NEW YORK (AP) -- Shares of Allergan Inc. rebounded slightly Tuesday, a day after dropping by double digits on news that a generic version of one of its key drugs might face an easier-than-expected path for getting regulatory approval.

THE SPARK: The FDA said Friday afternoon that a generic version of Restasis could be accepted for approval without a requirement for testing in humans, essentially if the drug's composition is similar enough to Allergan's Restasis eye treatment.

THE BIG PICTURE: Sales of brand-name drugs often drop sharply once cheaper generic competition enters the market.

Restasis is used to treat chronic dry eye by increasing the eye's ability to produce tears. Allergan expects sales of between $850 million and $890 million this year from the drug, making it one of the company's biggest sellers.

Irvine, Calif.-based Allergan also sells breast implants, Botox anti-wrinkle injections and other cosmetic treatments.

Allergan shares closed down 4 percent on Friday. In their first full day of trading after the news broke, the shares lost another 12 percent of their value.

THE ANALYSIS: Canaccord analyst Randall Stanicky cut his price target for Allegan by $13 to $98, but backed his "Hold" rating, saying that price following the selloff makes the stock enticing.

Stanicky said he thinks the effects of the generic drug introduction are now priced into the stock. He added that the company has some flexibility in its costs that can offset the potential hit to its profits, and that those benefits have yet to be priced into the shares.

THE SHARES: Up $2.410, or 2.9 percent, to $84.40 in afternoon trading, after peaking at $84.75 earlier in the session. Over the past 52 weeks, the company's shares have traded between $81.28 and $116.45.