FDA hesitation fails to Inspire stock price.

• Author: Speizer, Irwin
• Position: Money Matters - Illustration

When it files statements with the Securities and Exchange Commission, Inspire Pharmaceuticals Inc. includes this disclaimer: "Our common stock price has been highly volatile, and your investment in our stock may decline in value."

No kidding. Since going public 3 1/2 years ago, Durham-based Inspire has taken investors on a bouncy ride, zooming to nearly $30 a share, then plunging to about $3 before bouncing back to $21--then sinking to around $16 in late 2003.

Before the year ended, the price tumbled again. The reason: The launch of Inspire's first product, a treatment for dry-eye disease, won't happen on schedule. The company had been confident that its most-promising compound, diquafosol tetrasodium, was on a fast track to approval by the Food and Drug Administration. Executives figured Inspire could start selling the drug in the first half of this year. But the FDA said in December that it still had questions.

That immediately dropped the price about $3 to $13.14, but it has been stable since. It ended January at $13--enough to show that investors still believe in the company.

But faith can erode quickly without reinforcement. Inspire, founded in 1993 with technology licensed from UNC Chapel Hill, is still a money pit. It lost 96 cents a share in 2002 on revenue of $4.8 million. Maged Shenouda, an analyst with New York-based J.P. Morgan Securities, estimated that Inspire's 2003 loss would be slightly higher--$1.13--on revenue of $5.2 million.

If approved, diquafosol should start moving Inspire toward profitability. Shenouda had initially estimated that its 2004 sales would reach $37.7 million, and that its losses would shrink to 52 cents a share. He had forecast that revenue would soar to $363 million in 2006.

But after the FDA issue surfaced, Shenouda slashed his 2004 revenue estimate to $7.9 million and boosted his loss estimate to $1.43 a share for the year, anticipating that the FDA questions would push back the launch date of diquafosol at least a year. Without the drug, most of Inspire's revenue comes from contract research and marketing.

The delay was serious enough for two analysts to lower their ratings in January. The big fear is that the FDA could ultimately reject diquafosol, dashing plans for immediate profitability. Investors might want to keep handy some treatments for suddenly moist eyes--just in case.

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