The expiration of a performance contract with a product-development partner eliminated a big part of the revenue stream at pSivida Corp. (NSDQ:PSDV) during early 2010 and helped send the ophthalmic care company to a $2.7 million net loss during the three months ended March 31.

Revenues fell to $515,000 during the company's fiscal third quarter, down from $3.2 million during the same period last year. The year-ago period included $3 million in payments from Alimera Sciences Inc. (NSDQ:ALIM), which is working with pSivida to develop and market Iluvien, a drug-delivery device to treat diabetic macular edema. That contract expired Dec. 31, 2009, leaving only a similar collaboration pact with drug-maker Pfizer Inc. (NYSE:PFE) as pSivida's lone source of incoming funds.

But the news is far from bad at Watertown, Mass.-based pSivida. Alimera last month paid off a $15 million note owed pSivida, plus interest, and the companies are expecting to file a new drug application for the synthetic hydrocortisone used with the Iluvien device by the end of June. Then, if the Food & Drug Administration approves the application, currently anticipated before the end of the year under a likely priority review, pSivida is in line for a $25 million milestone payment from Alimera.

Once on the market, pSivida is slated to receive a 20 percent royalty from Iluvien sales. As the name implies, DMA is a frequent symptom connected with diabetes. Small blood vessels like those in the eyes are prone to damage by higher levels of sugar in the blood and can eventually can leak fluid on to the surface of the retina, causing blurred vision or even blindness.

The collaboration with Alimera dates to pSivida's November 2005 acquisition of Boston-based Control Delivery Systems. The $104 million, all-stock transaction also was responsible for bringing in early models of many of the drug-delivery devices — including Iluvien (then known as Medidur) — now being prepped for the market by pSivida and its partners.

After receiving the $15 million note repayment, pSivida officials said they expect to complete its current fiscal year with about $17 million in cash on hand, up from $7 million in cash on June 30, 2009.