Shares in Inspire Pharmaceuticals plummeted more than 44 percent on Wednesday after the company disclosed the failure of another Phase III drug trial for a treatment of dry eye.

Before the markets opened Wednesday, Inspire (Nasdaq: ISPH) disclosed that a six-week study of diquafosol tetrasodium “failed to demonstrate statistically significant improvement as compared to placebo for the primary endpoint of the incidence of corneal clearing.” The trial involved 640 patients at 34 different sites in the United States.

The news triggered an immediate sell-off of the stock. Inspire had closed at $16 on Tuesday but it opened Wednesday at $9.49 and dropped throughout the day to close at $8.88, or a 44 percent loss. The slide continued in after-hours trading to $8.80 as of early Thursday morning.

The stock was also downgraded to “equal weight” from “overweight” from by analyst firm Morgan Stanley.

“As a result of these mixed findings, we held a preliminary discussion with the Food and Drug Administration regarding next steps. Based on this discussion, we intend to file a New Drug Application (NDA) amendment for diquafosol by the end of the second quarter 2005,” said Christy Shaffer, Inspire’s chief executive officer, in a statement.

Inspire has been seeking approval of diquafosol since June of 2003. Shaffer said the company is considering another test.

“While we continue to actively pursue approval of diquafosol for dry eye, we are also launching this month a pilot study for diquafosol in corneal wound healing,” she said.

Allergan, Inspire’s marketing partner for the drug, said was still hopeful it would win FDA approval.

“However, as we know from our own experience, the development of a pharmaceutical to treat chronic dry-eye disease can be extremely challenging,” said Scott Whitcup, Allergan executive vice president of research and development, in a statement.

Inspire: www.inspire pharm.com