Inspire Pharmaceuticals has suffered a hefty blow after its lead product, a treatment for dry eye, failed to win the backing of the US Food and Drug Administration for a second time.

The FDA issued an ‘approvable’ letter for the drug, diquafosol tetrasodium ophthalmic solution, but said: “studies fail to demonstrate adequate replication of results for the efficacy endpoints and therefore are insufficient to establish efficacy.”

Inspire would be forced to carry out additional clinical testing to try to show that diquafosol was effective in treating dry eye using an endpoint known as corneal clearing. In February, Inspire reported disappointing data from a Phase III trial of diquafosol in dry eye, but said it would press ahead with filing for approval based on the corneal clearing data.

But the FDA said in its letter that "consistent findings of corneal clearing need to be demonstrated to support the efficacy of the drug product."

Shares in Inspire fell by more than a third to $4.90 on the news. Although the company said it still had faith in the project and chief executive Christy Shaffer said the company would meet with both the FDA and its partner Allergan to discuss its next steps.

Allergan supplied the drug delivery technology underlying the product and markets the only approved product in the USA for dry eye, called Restasis (cyclosporine). This product, which had third-quarter 2005 sales of $54 million dollars, is promoted by Inspire, and the two companies were keen to build the franchise by adding diquafosol to their line-up.

Scott Whitcup, executive vice president, R&D, at Allergan, said the company still believes that diquafosol ‘could potentially provide a valuable addition to the spectrum of treatments available to patients suffering from dry eye’.