There was a brief pop in share price following the approval in late April of in-licensed antibiotic eye drop AzaSite, but Inspire Pharmaceuticals (NASDAQ:ISPH)  has been trading down since then. Last week, the company reported first-quarter revenue of $7.2 million (up 31% year over year) and a net loss of $26.1 million. Increased operating expenses reflected an up-front $13 million payment to InSite Vision (AMEX:ISV) in February for AzaSite marketing rights in the U.S. and Canada.

Inspire expects to launch AzaSite in the United States during the third quarter and anticipates sales of $30 million to $45 million for 2008. The company also met with the Food and Drug Administration this year to discuss its dry-eye drug candidate, Prolacria. Inspire is conducting research to validate a key clinical endpoint so it can design and conduct another phase 3 trial for Prolacria and request a special protocol assessment from the FDA.

The company has already conducted four phase 3 clinical trials for Prolacria and has received two approvable letters from the FDA -- about additional data that is needed -- as it tries to enter the growing and lucrative market for the prescription-drug treatment of dry eye. Allergan (NYSE:AGN) reported that first-quarter 2007 net sales of Restasis were $78.4 million, a 19% increase over 2006. This is the only prescription dry-eye treatment that has been approved, and it's co-promoted by Inspire.

Last week, Inspire also announced positive results at higher doses in a phase 2 dose-ranging clinical trial comparing epinastine nasal spray and a placebo in patients with seasonal allergic rhinitis. The company has scheduled a meeting with the FDA in the third quarter to discuss its next steps in this program.

With shares of Inspire down about 10%, I still believe the company should acquire its drug development partner InSite Vision. If Inspire can make progress with Prolacria and outperform what appear to be overly conservative sales estimates for AzaSite, it would awaken interest in the shares.

Looking for more Foolish biotech coverage? Check out the market-beating Rule Breakers newsletter service, which scours the market for innovators of all stripes and types. See all of our recommendations, and get access to our message boards and exclusive content, with a 30-day free trial.

Fool contributor Mike Havrilla, R.Ph., B.S., Pharm.D., is a Rite Aid pharmacist who lives, writes, works, and enjoys running on the streets and trails in the small Pennsylvania town of Portage. He invites your comments and feedback. Mike owns shares of InSite Vision, but does not have a position in any other company mentioned in this article. The Fool has a disclosure policy.