Shares of opthalmic drug maker ISTA Pharmaceuticals (NASDAQ:ISTA) vaulted over 23% in pre-market trading today and continued that trend once the market opened. Yet, the jump came on seemingly ho-hum news. The Food and Drug Administration accepted its second Vitrase drug NDA for filing. So?

My usual cynical reaction would be to fault a development-stage company's overactive PR department, but not necessarily here. There's actually more than meets the... eye.

In the arcane federal drug regulatory world, acceptance of an NDA -- the New Drug Application a company files to ask the FDA for the green light to market the drug in the United States -- is actually important. The FDA sometimes decides that an application is so deficient that it cannot even be accepted for review. That's what happened to ImClone Systems' (NASDAQ:IMCL) Erbitux application in Dec. 2001. Not good.

Vitrase is Ista's lead drug and best near-term hope for any significant product revenues for the development-stage company. In April, the FDA issued an approvable letter for the first Vitrase NDA for vitreous hemorrhage, meaning "If we can work these little details, you're good to go" -- though "little" and "details" can be otherwise.

On Aug. 5, Ista filed a second NDA for Vitrase for a different indication (drugspeak for "use of the drug"), enhancing the dispersion of other drugs. Just two weeks later, the FDA awarded Priority Review, a promising development that promises a decision within six months.

Ista has three other drugs in development, all related to the compound in Vitrase and all acquired in the last year. Two are in phase 3 trials, the last stage before filing the NDA for FDA approval, and the third, once-daily glaucoma treatment Istalol, received an FDA approvable letter. The company expects to qualify an alternative manufacturing site for the drug and launch it next year.

Still, there is no product approved or on the market yet. Regardless of Ista's progress for late-stage drugs for very significant eye markets -- glaucoma treatments alone reportedly cost $1.1 billion a year -- investors until today awarded Ista only a $100 million market cap. This may be due to the cash burn, leaving about one year of cash at current levels, and that came after a cash crunch last fall that led to desperate refinancing and a 1:10 reverse stock split.

Investors know well what happens to newer drug companies whose hopes for survival depend on a few lead drugs. Regeneron Pharmaceuticals (NASDAQ:REGN) shares bungeed down in March and back up, but yesterday lost 21% after it announced that data from phase 2 trials of its rheumatoid arthritis hopeful (Aside: What drug company is not testing a candidate for this condition?) showed effects that could have been due to chance. The drug, developed by Regeneron and big pharma partner Novartis (NYSE:NVS), targets the same IL-1 protein as Amgen's (NASDAQ:AMGN) on-the-market Kineret, and the partners had hoped that their brand would exceed Kineret's middling potency.

Regeneron has about two years of cash at its current burn rate, and the phase 2 data is not, according to some, the hangman's noose for the drug. But as Jeff Hwang wrote last month, the company's new pact with European-based big pharma Aventis (NYSE:AVE), with its potential for $512 million in future revenue, gives investors much more confidence than in Ista.

When smaller drug companies give away slices of their drug candidate property in exchange for an alliance with a big pharma partner, it's considered a good sign, because a company that struggles to hold on to 100% of its rights and shoulder development and future marketing alone decreases its odds for survival. It's a battle to find the middle ground to survive and prosper.

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