There likely wasn't a dry eye in the house Monday for Inspire Pharmaceuticals (NASDAQ:ISPH) stockholders, due to an obstacle in the approval of an important drug candidate. Inspire announced that the FDA has issued an approvable letter regarding its dry-eye treatment, diquafosol tetrasodium ophthalmic solution, but with the caveat that the company provide additional clinical trial data. The stock plunged as much as 24% in early morning trading.

The approvable letter from the regulatory agency means that the FDA will approve the medication, but only if the company comes up with clinical data to satisfy the agency's inquiry. Disappointing, to say the least, considering that the medication was hoped to be a blink away from the FDA green light.

In fact, an Inspire press release in July about the FDA's granting priority review to the new drug application revealed plans to ramp up a sales force hinged on a "potential first-quarter 2004 launch" of the treatment; Inspire's latest 10-Q disclosed expectations of generating revenues through product sales within the first half of 2004.

What seemed like such close proximity to approval made diquafosol so important to Inspire. The company, which is still operating at a loss, has four other candidates that are in various stages of clinical trials; none but diquafosol is under consideration by the FDA.

Inspire offered a glimmer of hope, though, saying that another clinical trial it conducted on diquafosol, completed after it had submitted its new drug application to the FDA, may provide the sought-after data. The company says it will meet with the FDA as soon as possible to see if this study will fulfill the requirement.

If it turns out Inspire's additional study does assuage the FDA, today's stock moves could look like needless panic. However, if the study doesn't satisfy the requirement, it will back up investors' fears that this product launch could be delayed for months or years. For investors who were hoping to see revenues start streaming in within the next six months, that's too long to wait.

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