pSivida Corp and Alimera Sciences Inc said they would try a fourth time to get approval for an eye treatment for diabetes patients, sending the shares of both companies soaring.
Alimera Sciences shares jumped 88 percent and pSivida stock climbed 62 percent in premarket trade.
The drug-device combination, Iluvien, is a sustained-release eye implant used to treat vision loss associated with chronic diabetic macular edema (DME).
It has been rejected by U.S. health regulators three times, most recently in October due to safety concerns.
PSivida said the companies would resubmit a U.S. marketing application for an eye treatment in the first quarter of next year.
PSivida said its partner Alimera, which has the rights to sell the treatment, planned to respond to the latest rejection addressing manufacturing concerns raised by the regulator, along with safety data from patients receiving the treatment in Germany and the United Kingdom.
Alimera, which is currently in discussions with the FDA about treatment details to go on the label if the treatment is approved, does not need to conduct additional trials prior to approval, pSivida said.
"We believe the fact that labeling discussions are being held could likely indicate that an agreement can be reached for a label with a favorable risk/benefit for DME patients," Ladenburg Thalmann analyst Juan Sanchez wrote in a note.
"Therefore, we believe the probability of Iluvien approval in 2014 is high", Sanchez said raising his price target on the stock to $6 from $2.75.
The U.S. Food and Drug Administration (FDA) told Alimera that an advisory committee meeting scheduled to review the treatment in January was no longer necessary, pSivida said.
PSivida sold the rights to Iluvien to Alimera in 2005 but will receive 20 percent share of net profit from any sales.
Sanchez estimates U.S. sales of about $250 million for Iluvien, if it is approved.
Iluvien is already in use in Germany and Britain and has won approval in Austria, Portugal, Spain and France.
DME, a type of swelling brought on by diabetes, can eventually lead to blindness.
Alpharetta, Georgia-based Alimera Sciences closed at $2.55 on the Nasdaq on Wednesday. Watertown, Massachussets-based pSivida closed at $2.97.
(Reporting by Natalie Grover in Bangalore)