UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
November 2, 2004
Date of Report (Date of earliest event reported)
Discovery Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 000-26422 94-3171943
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
350 Main Street, Suite 307
Doylestown, Pennsylvania 18901
(Address of principal executive offices)
(215) 340-4699
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On November 3, 2004, Discovery Laboratories, Inc. (the "Company"), and Quintiles
Transnational Corp. ("Quintiles"), mutually agreed to restructure their business
arrangements and terminate their commercialization agreements for Surfaxin(R),
the Company's lead product, in the United States. Pursuant to such
restructuring, the Company will now have full commercialization rights for
Surfaxin in the United States and the Company's obligation to pay to Quintiles a
commission on net sales in the United States of Surfaxin for the treatment of
respiratory distress syndrome (RDS) and meconium aspiration syndrome (MAS) for
10 years following launch is terminated.
In connection with the foregoing, on November 3, 2004, the Company and PharmaBio
Development Inc., Quintiles' strategic investment group ("PharmaBio"), amended
and restated the Loan Agreement dated as of December 10, 2001, between the
Company and PharmaBio. Pursuant to the Amended and Restated Loan Agreement, the
existing secured revolving credit facility of $8.5 million with PharmaBio will
remain available to the Company and the original maturity date of December 10,
2004, is now extended until December 31, 2006. Amounts to be drawn down under
the credit facility will remain available up to the date of the commercial
launch of Surfaxin. In addition, the Company and PharmaBio amended and restated
the Security Agreement dated as of December 10, 2001, between the Company and
PharmaBio in connection with the Loan Agreement and the Company issued a
Promissory Note to PharmaBio which replaces and supercedes the note dated as of
December 10, 2001, between the Company and PharmaBio.
Lastly, on November 3, 2004, the Company, Quintiles and PharmaBio entered into
an Agreement which provides for, among other things, a limited
preferred-provider arrangement.
The Company's press release announcing the restructured business arrangements
and the termination of the commercialization agreements for Surfaxin is attached
hereto as Exhibit 99.1.
ITEM 1.02. TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.
On November 3, 2004, in connection with the restructuring of the business
arrangements and termination of the commercialization agreements for Surfaxin
described in Item 1.01, the Company and Quintiles agreed to terminate the
Commercialization Agreement dated as of December 10, 2001, between the Company
and Quintiles, and the Investment and Commission Agreement dated as of December
10, 2001, between the Company and Quintiles.
The Company's press release announcing the restructured business arrangements
and the termination of the commercialization agreements for Surfaxin is attached
hereto as Exhibit 99.1.
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On November 4, 2004, the Company issued a press release to announce its
financial results for the third quarter of 2004. The full text of the press
release announcing such results attached hereto as Exhibit 99.2 hereto.
2
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
On November 3, 2004, in connection with the restructuring of the business
arrangements and termination of the commercialization agreements for Surfaxin
described in Item 1.01, the Company issued 850,000 warrants to QFinance, Inc., a
subsidiary of Quintiles, for no additional consideration, to purchase shares of
the Company's common stock, par value $0.001 per share, at an exercise price
equal to $7.19 per share. The warrants have a 10-year term and shall be
exercisable for cash only. Expected total cash proceeds to the Company if
exercised equal approximately $6 million. The warrants are exerciseable upon the
earlier to occur of the FDA Approval Date (as defined below) and May 2, 2005.
For purposes of the warrants, the FDA Approval Date means (i) the first date on
which the FDA approves an application to market Surfaxin for any and all
formulations and delivery mechanisms for the indications of RDS or MAS, or (ii)
the first date on which the Company receives an "approvable letter" from the FDA
with respect to the foregoing. The Company expects to take a charge against
earnings equal to approximately $4 million for the fourth quarter of 2004 in
connection with the issuance of such warrants. The warrants were issued to
PharmaBio in a private transaction exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
ITEM 8.01. OTHER EVENTS.
On November 2, 2004, the Company issued a press release to announce that
available funds under its existing capital lease financing facility with GE
Healthcare Financial Services ("GE") have been increased by up to $6.5 million.
Including the $2.5 million currently employed under the existing arrangement,
the Company's lease line is now approximately $9 million. Under the terms of the
expanded financing arrangement, $5 million is immediately available to the
Company while an additional $1.5 million remains subject to FDA approval to
market the Company's lead product Surfaxin(R), for the prevention of Respiratory
Distress Syndrome (RDS) in premature infants. Subject to the terms of the lease
facility, GE will make the finances available for certain capital equipment
purchases including manufacturing, information technology systems, laboratory,
office and other related capital assets. The funds may be drawn down through
September 2005 and are payable over three or four years, depending on the
equipment. The full text of the press release is set forth in Exhibit 99.3
hereto.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits:
99.1 Press Release dated November 4, 2004.
99.2 Press Release dated November 4, 2004.
99.3 Press Release dated November 2, 2004.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
----------------------------------
Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive Officer
Date: November 4, 2004
4
Exhibit 99.1
DISCOVERY MAKES STRATEGIC MOVES TO PIONEER MEDICAL AND COMMERCIAL
OPPORTUNITIES OF SURFACTANT REPLACEMENT THERAPY
FOR NEONATOLOGY
BUILDING SPECIALTY U.S. SALES AND MARKETING ORGANIZATION - QUINTILES
COLLABORATION IS RESTRUCTURED --
COMMERCIALIZATION AGREEMENTS TERMINATED
INITIATING TWO PHASE 2 CLINICAL TRIALS -- SURFAXIN(R) FOR BRONCHOPULMONARY
DYSPLASIA AND AEROSOLIZED SURFACTANT TO
TREAT NEONATAL RESPIRATORY FAILURES
DOYLESTOWN, PA -- NOVEMBER 4, 2004 -- DISCOVERY LABORATORIES, INC. (NASDAQ:
DSCO) has undertaken a strategic initiative to optimize the inherent medical
benefits and commercial promise of its Surfactant Replacement Therapy (SRT) to
address the unmet need for respiratory therapies for the Neonatal Intensive Care
Unit (NICU). Discovery is today announcing the restructuring of its business
arrangements with Quintiles Transnational Corp., including the mutual
termination of the related commercialization arrangements. Discovery is building
its own specialty pulmonary United States sales and marketing organization to
focus initially on opportunities in the NICU and, as products are developed, to
expand to critical care and hospital settings. This strategic initiative, led by
the anticipated launch of Surfaxin(R), is intended to allow Discovery to fully
control its own sales and marketing operation, establish a strong presence in
the NICU, and optimize company economics.
To enhance the potential commercial and medical value of SRT by addressing the
most prevalent respiratory disorders in the NICU, Discovery is adjusting and
broadening its pipeline of NICU therapeutic programs. Discovery is initiating a
Phase 2 clinical trial for Neonatal Respiratory Failures utilizing aerosolized
SRT administered through nasal continuous positive airway pressure (nasal CPAP)
to reduce the need for invasive and costly mechanical ventilation and a Phase 2
clinical trial using Surfaxin to prevent Bronchopulmonary Dysplasia (BPD), a
form of chronic lung disease. These respiratory conditions are cited as some of
the most significant unmet medical needs for the neonatal community.
Additionally, Discovery is focusing its efforts on its prophylactic approach to
address meconium aspiration syndrome (MAS) which is being evaluated in a Phase 2
clinical trial and is discontinuing its Phase 3 clinical trial for the treatment
of severe MAS.
THE COMPANY WILL HOST A CONFERENCE CALL TODAY AT 11:00 AM EST. THE CALL IN
NUMBER IS 800-665-0669.
Robert J. Capetola, Ph.D., President and Chief Executive Officer of Discovery,
commented, "Our proprietary surfactant technology represents a new paradigm that
we believe will revolutionize the treatment of respiratory diseases. For the
first time, medical practitioners in the NICU can envision surfactant products
that are precisely engineered to address various life-threatening respiratory
diseases -- and a company capable of fulfilling a commitment to this community."
"We believe our NICU pipeline could serve an addressable market estimated to be
in excess of $500 million per year in potential revenue to the Company. Starting
with potential financial resources of approximately $120 million, we are
prepared to undertake this commitment while also advancing our critical care and
hospital programs, notably led by our ARDS and aerosol programs," continued Dr.
Capetola.
5
DISCOVERY BUILDING ITS OWN SALES AND MARKETING CAPABILITY -- BUSINESS
ARRANGEMENTS WITH QUINTILES ARE RESTRUCTURED AND COMMERCIALIZATION AGREEMENTS
TERMINATED
On November 3, 2004, Discovery and Quintiles mutually agreed to restructure
their business arrangements and terminate the commercialization agreements for
Surfaxin in the United States. The terms are as follows:
o Discovery will now have full commercialization rights for Surfaxin in the
United States. Under the agreement signed in 2001, Quintiles would have
provided commercialization services for seven years post-launch, with an
obligation to fund such services up to $10 million per year. Discovery's
obligation to pay a commission on net sales in the United States of
Surfaxin for the treatment of respiratory distress syndrome (RDS) and MAS
for 10 years following launch is terminated.
o In connection with obtaining full commercialization rights for Surfaxin,
Discovery has issued 850,000 warrants to PharmaBio Development Inc.,
Quintiles' strategic investment group, to purchase shares of Discovery
common stock at an exercise price equal to $7.19 per share. The warrants
have a 10-year term and shall be exercisable for cash only with expected
total proceeds to Discovery if exercised equal to approximately $6
million. Discovery expects to take a charge against earnings equal to
approximately $4 million for the fourth quarter of 2004 in connection with
the issuance of such warrants.
o The existing secured revolving credit facility of $8.5 million with
PharmaBio, will remain available to Discovery and the original maturity
date of December 10, 2004, is now extended until December 31, 2006.
Amounts to be drawn down under the credit facility will remain available
up to the date of the commercial launch of Surfaxin.
o Discovery and Quintiles have entered into a limited preferred-provider
arrangement.
Mark G. Osterman, Senior Vice President of Sales and Marketing of Discovery,
commented, "Discovery intends to create a premier pulmonary specialty sales and
marketing organization capable of delivering on the promise of SRT and with a
strong commitment to the neonatal medical community. We begin with Surfaxin,
which if approved, represents the first precision engineered surfactant with the
potential to become a new worldwide standard of care for the prevention and
treatment of RDS. Data from our Phase 3 RDS clinical trials demonstrated a
highly significant reduction in RDS related mortality and an improvement in
survival of infants without BPD. We plan to follow with novel, potentially
first-in-class, engineered Surfactant Replacement Therapies for areas of
critical unmet need."
DISCOVERY ADJUSTS AND BROADENS ITS PIPELINE FOR THE NICU
Dr. Fernando Moya, Richard W. Mithoff Professor of Pediatrics, Division of
Neonatal-Perinatal Medicine at The University of Texas Medical School at
Houston, a leading authority in neonatal medicine, stated, "Above and beyond the
treatment of RDS with animal-derived surfactants, the neonatal medical community
has long been challenged with means to adequately treat an array of other
respiratory problems that beset fragile premature infants. These include chronic
lung disease - also known as Bronchopulmonary Dysplasia (BPD), bronchiolitis,
transient tachypnea, pneumonia, and a range of other conditions that lead to
respiratory failure."
6
"Surfaxin, a precisely engineered surfactant with the most essential attributes
of natural human lung surfactant, has demonstrated clinical results that are
extremely encouraging for the medical community. Not only does this
peptide-based technology hold the promise of improving the standard of care for
treating RDS around the world, the medical community is clamoring to apply this
technology to help these very vulnerable babies," continued Dr. Moya.
Jay Greenspan, M.D., Professor & Vice Chairman of Pediatrics, Thomas Jefferson
University, commented, "BPD remains a significant medical problem and
demonstration that a surfactant therapy provides meaningful benefit for this
population would be an important medical advance. Additionally, an aerosolized
surfactant based therapy could transform the way surfactant is currently used.
No currently available surfactants address these unmet needs."
Discovery is adjusting its NICU pipeline in an effort to develop therapies that
address the most prevalent respiratory disorders in the NICU and enhance the
potential commercial and medical value of SRT in the following ways:
o Conducting a Phase 2 clinical trial for Surfaxin for the prevention
of Bronchopulmonary Dysplasia (BPD), a serious form of chronic lung
disease for which there is presently no approved drugs. This trial
is expected to be initiated in the first quarter of 2005. Surfaxin,
in its pivotal, landmark, multinational Phase 3 RDS prevention
clinical trial, was the first surfactant to show statistical benefit
in the reduction of BPD compared with another approved surfactant.
BPD is a costly syndrome that is associated with the prolonged use
of mechanical ventilation and oxygen supplementation. BPD babies
suffer from abnormal lung development and typically have a need for
respiratory assistance -- oftentimes, for many months, as well as
comprehensive care spanning years. According to the 1998 Division of
Lung Disease and Office of Prevention Education and Control, the
overall cost of treating infants with BPD in the United States is
approximately $2.4 billion. There are estimated to be between 10,000
to 25,000 babies that suffer from BPD per year in the United States
alone, with the treatment of each patient costing up to $250,000.
o Initiating a Phase 2 clinical trial for Neonatal Respiratory
Failures utilizing aerosolized SRT via nasal CPAP in late fourth
quarter of 2004. We believe that this approach represents a
non-invasive surfactant-based therapy for premature infants and has
the potential to reduce the need for and complications from
mechanical ventilation, including lowering the risk of infection.
For the range of respiratory disorders experienced in the NICU for
which limited treatments exist, neonatologists make every effort to
avoid mechanically ventilating these patients. There is growing
recognition by the neonatal medical community for the potential
utility of a non-invasive method of delivering SRT to treat
premature infants suffering from respiratory disorders including
BPD, bronchiolitis, acute hypoxia, pneumonia, and transient
tachypnea.
o Continuing our on-going Phase 2 prophylactic trial of Surfaxin for
the treatment of MAS in full-term infants and discontinuing our
Phase 3 clinical trial for Surfaxin for the treatment of MAS.
7
We believe an effective and affordable surfactant prophylactic
therapy could significantly lower the risk to meconium-stained
infants of chronic respiratory conditions and reduce the need for
costly and invasive mechanical ventilation.
ABOUT DISCOVERY LABORATORIES
Discovery Laboratories, Inc. is a biopharmaceutical company developing its
proprietary surfactant technology as Surfactant Replacement Therapies (SRT) for
respiratory diseases. Surfactants are produced naturally in the lungs and are
essential for breathing. Discovery's technology produces a precisely engineered
surfactant that is designed to closely mimic the essential properties of natural
human lung surfactant. Discovery believes that through its technology, pulmonary
surfactants have the potential, for the first time, to be developed into a
series of respiratory therapies for patients in the neonatal intensive care
unit, critical care unit and other hospital settings, where there are few or no
approved therapies available.
Discovery has filed a New Drug Application with the FDA and a Marketing
Authorization Application with the EMEA for clearance to market Surfaxin, the
Company's lead product, for the prevention and treatment of RDS in premature
infants. Discovery is also conducting various clinical programs to address ARDS
in adults, BPD, a form of chronic lung disease in infants, Neonatal Respiratory
Failures in premature infants, severe asthma in adults, and MAS in full-term
infants.
More information about Discovery is available on the Company's Web site at
www.DiscoveryLabs.com.
To the extent that statements in this press release are not strictly historical,
including statements as to business strategy, outlook, objectives, future
milestones, plans, intentions, goals, future financial conditions, future
collaboration agreements, the success of the Company's product development,
events conditioned on stockholder or other approval, or otherwise as to future
events, such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements contained in this release are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the statements made. Among the factors which could affect the Company's
actual results and could cause results to differ from those contained in the
forward-looking statements contained herein are the risk that financial
conditions may change, risks relating to the progress of the Company's research
and development, the risk that the Company will not be able to raise additional
capital or enter into additional collaboration agreements (including strategic
alliances for our aerosol and Surfactant Replacement Therapies), risk that the
Company will not be able to develop a successful sales and marketing
organization in a timely manner, if at all, risk that the Company's internal
sales and marketing organization will not succeed in developing market awareness
of the Company's products, risk that the Company's internal sales and marketing
organization will not be able to attract or maintain qualified personnel, risk
of delay in the FDA's or other health regulatory authorities' approval of any
applications filed by the Company, risks that any such regulatory authority will
not approve the marketing and sale of a drug product even after acceptance of an
application filed by the Company for any such drug product, risks relating to
the ability of the Company's third party contract manufacturers to provide the
Company with adequate supplies of drug substance and drug products for
completion of any of the Company's clinical studies, other risks relating to the
8
lack of adequate supplies of drug substance and drug product for completion of
any of the Company's clinical studies, and risks relating to the development of
competing therapies and/or technologies by other companies. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials, even after obtaining promising earlier trial
results. Data obtained from tests are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. Those associated risks
and others are further described in the Company's filings with the Securities
and Exchange Commission including the most recent reports on Forms 10-K, 10-Q
and 8-K, and any amendments thereto.
COMPANY CONTACTS:
John G. Cooper, EVP and CFO
Kori Beer, IR & Communications
215-340-4699
9
Exhibit 99.2
DISCOVERY LABORATORIES REPORTS THIRD QUARTER 2004 FINANCIAL RESULTS
DOYLESTOWN, PA -- NOVEMBER 4, 2004 -- DISCOVERY LABORATORIES, INC. (NASDAQ:
DSCO), today announced financial results for the third quarter of 2004. The
Company will host a conference call today at 11:00 AM EST. The call in number is
800-665-0669.
For the quarter ended September 30, 2004, the Company reported a net loss of
$8.4 million, or $0.18 per share, on 47.1 million weighted average common shares
outstanding, compared to a net loss of $6.2 million, or $0.15 per share, on 41.1
million weighted average common shares outstanding for the same period in 2003.
For the nine months ended September 30, 2004, the Company reported a net loss of
$26.2 million, or $0.57 per share, on 45.8 million weighted average common
shares outstanding, compared to a net loss of $15.6 million, or $0.43 per share,
on 35.8 million weighted average common shares outstanding for the same
nine-month period in 2003.
As of September 30, 2004, the Company had cash and marketable securities of
approximately $33.5 million, a decrease of $7.8 million from the previous
quarter. The decrease is primarily due to the use of approximately $9.0 million
for operating and investing activities offset by $1.2 million of net proceeds
from the use of existing credit and capital lease facilities. Additionally, the
Company has a Committed Equity Financing Facility Agreement (CEFF) with
Kingsbridge Capital Limited in which Kingsbridge is committed, subject to
certain terms and conditions, to finance up to $75 million of capital to support
the Company's future growth. As of September 30, 2004, the Company had not
engaged in any financing using the CEFF. Regarding the Company's debt
facilities, as of September 30, 2004, approximately $1.9 million was outstanding
under the Company's $9.0 million capital lease financing arrangement with GE
Healthcare Financial Services and approximately $5.7 million was outstanding
under the Company's secured revolving credit facility of $8.5 million with
PharmaBio Development Inc., a subsidiary of Quintiles Transnational Corp.
Robert J. Capetola, Ph.D., President and Chief Executive Officer of the Company,
commented, "Our mission is to advance to market a pipeline of Surfactant
Replacement Therapies that we believe will revolutionize the treatment of
respiratory diseases. Our financing strategy has provided potential financial
resources of approximately $120 million to support this mission. Initially, we
will build a fully-integrated company and a broad therapeutic portfolio that can
address the most prevalent respiratory disorders experienced in the NICU."
"The recent major steps to terminate our collaboration with Quintiles, build our
own United States sales and marketing organization, and adjust our pipeline are
intended to enhance the commercial and medical value of our Surfactant
Replacement Therapies, beginning with the potential launch of Surfaxin which is
currently under review by the FDA and the European Medicines Evaluation Agency.
Our lead program for the critical care and hospital settings is our Phase 2
clinical program for ARDS in adults. We remain confident that our SRT lavage, or
lung wash, technique is the most scientifically sound approach to the treatment
of ARDS," continued Dr. Capetola.
10
REVIEW OF OPERATING RESULTS
The net loss of $8.4 million and $26.2 million for the three and nine months
ended September 30, 2004, represents an increase of $2.2 million and $10.6
million respectively, compared to the same periods last year. This increase in
the net loss is primarily due to:
(i) manufacturing activities (included in research and development) to support
the production of clinical and commercial drug supply, including
Surfaxin(R), the Company's lead product, for the Company's Surfactant
Replacement Therapies (SRT) programs in conformance with current Good
Manufacturing Practices (cGMPs). For the three and nine months ended
September 30, 2004, costs associated with these manufacturing activities
were $1.1 million and $4.6 million, a decrease of $0.2 million and an
increase of $2.8 million, respectively, compared to the same periods last
year;
(ii) research and development activities related to the advancement of the
Company's SRT pipeline, including, without limitation, regulatory filings
for the Company's lead product, Surfaxin, and clinical trial activities
related to the Phase 2b clinical trial for Acute Respiratory Distress
Syndrome (ARDS) in adults. For the three and nine months ended September
30, 2004 costs associated with these related activities increased $0.8
million and $3.0 million, respectively, compared to the same periods last
year;
(iii) pre-launch commercialization activities to support the potential approval
and launch of Surfaxin for Respiratory Distress Syndrome (RDS) (included
in general and administrative expenses). These activities include, without
limitation, sales and marketing management and medical affairs (including
medical science liaisons). For the three and nine months ended September
30, 2004, costs associated with pre-launch commercialization activities
were $1.3 million and $3.3 million, an increase of $1.0 million and $2.7
million, respectively, compared to the same periods last year. The
majority of such costs are financed through the Company's secured,
revolving credit facility with PharmaBio; and
(iv) general and administrative activities primarily related to financial and
information technology capabilities in preparation for the potential
approval and launch of Surfaxin for RDS, legal activities related to the
preparation and filing of patents in connection with the expansion of our
SRT pipeline, and corporate governance initiatives in compliance with the
Sarbanes-Oxley Act. For the three and nine months ended September 30, 2004
costs associated with these related activities increased $0.5 million and
$2.0 million, respectively, compared to the same periods last year.
SELECTED COMPANY UPDATES
GE HEALTHCARE FINANCIAL SERVICES - The Company's available funds under its
existing capital lease financing facility with GE Healthcare Financial
Services have been increased in November by up to $6.5 million. Including
the $2.5 million currently employed under the existing arrangement,
Discovery's lease line is now approximately $9 million. Subject to the
terms of the lease facility, GE will make the finances available for
certain capital equipment purchases including manufacturing, information
technology systems, laboratory, office and other related capital assets.
The funds may be drawn down through September 2005 and are payable over
three or four years, depending on the equipment.
11
QUINTILES U.S. COMMERCIALIZATION ARRANGEMENTS - Effective November 3,
2004, the Company terminated its arrangement with Quintiles to
commercialize Surfaxin in the United States. In addition, Discovery is
building its own specialty pulmonary United States sales and marketing
organization to focus initially on opportunities in the Neonatal
Intensive Care Unit (NICU) and, as products are developed, to expand to
critical care and hospital settings.
o Discovery will now have full commercialization rights for
Surfaxin in the United States. Under the agreement signed in
2001, Quintiles would have provided commercialization services
for seven years post-launch, with an obligation to fund such
services up to $10 million per year. Discovery's obligation to
pay a commission on net sales in the United States of Surfaxin
for the treatment of RDS and MAS for 10 years following launch
is terminated.
o In connection with obtaining full commercialization rights for
Surfaxin, Discovery has issued 850,000 warrants to PharmaBio
to purchase shares of Discovery common stock at an exercise
price equal to $7.19 per share. The warrants have a 10-year
term and shall be exercisable for cash only with expected
total proceeds to Discovery if exercised equal to
approximately $6 million. Discovery expects to take a charge
against earnings equal to approximately $4 million in the
fourth quarter of 2004 in connection with the issuance of such
warrants.
o The existing secured revolving credit facility of $8.5 million
with PharmaBio, will remain available to Discovery and the
original maturity date of December 10, 2004, is now extended
until December 31, 2006. Amounts to be drawn down under the
credit facility will remain available up to the date of the
commercial launch of Surfaxin.
ABOUT DISCOVERY LABORATORIES
Discovery Laboratories, Inc. is a biopharmaceutical company developing its
proprietary surfactant technology as Surfactant Replacement Therapies (SRT) for
respiratory diseases. Surfactants are produced naturally in the lungs and are
essential for breathing. Discovery's technology produces a precisely engineered
version of natural human lung surfactant that is designed to closely mimic the
essential properties of human surfactant. Discovery believes that through its
technology, pulmonary surfactants have the potential, for the first time, to be
developed into a series of respiratory therapies for patients in the neonatal
intensive care unit, critical care unit and other hospital settings, where there
are few or no approved therapies available.
Discovery has filed a New Drug Application with the FDA and a Marketing
Authorization Application with the EMEA for clearance to market Surfaxin, the
Company's lead product, for the prevention and treatment of Respiratory Distress
Syndrome in premature infants. Discovery is also conducting various clinical
programs to address Acute Respiratory Distress Syndrome in adults,
Bronchopulmonary Dysplasia (BPD) in infants, Neonatal Respiratory Disorders in
premature infants, severe asthma in adults, and Meconium Aspiration Syndrome in
full-term infants.
More information about Discovery is available on the Company's Web site at
www.DiscoveryLabs.com.
To the extent that statements in this press release are not strictly historical,
including statements as to business strategy, outlook, objectives, future
milestones, plans, intentions, goals, future financial conditions, future
collaboration agreements, the success of the Company's product development,
events conditioned on stockholder or other approval, or otherwise as to future
12
events, such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements contained in this release are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the statements made. Among the factors which could affect the Company's
actual results and could cause results to differ from those contained in the
forward-looking statements contained herein are the risk that financial
conditions may change, risks relating to the progress of the Company's research
and development, the risk that the Company will not be able to raise additional
capital or enter into additional collaboration agreements (including strategic
alliances for our aerosol and Surfactant Replacement Therapies), risk that the
Company will not be able to develop a successful sales and marketing
organization in a timely manner, if at all, risk that the Company's internal
sales and marketing organization will not succeed in developing market awareness
of the Company's products, risk that the Company's internal sales and marketing
organization will not be able to attract or maintain qualified personnel, risk
of delay in the FDA's or other health regulatory authorities' approval of any
applications filed by the Company, risks that any such regulatory authority will
not approve the marketing and sale of a drug product even after acceptance of an
application filed by the Company for any such drug product, risks relating to
the ability of the Company's third party contract manufacturers to provide the
Company with adequate supplies of drug substance and drug products for
completion of any of the Company's clinical studies, other risks relating to the
lack of adequate supplies of drug substance and drug product for completion of
any of the Company's clinical studies, and risks relating to the development of
competing therapies and/or technologies by other companies. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials, even after obtaining promising earlier trial
results. Data obtained from tests are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. Those associated risks
and others are further described in the Company's filings with the Securities
and Exchange Commission including the most recent reports on Forms 10-K, 10-Q
and 8-K, and any amendments thereto.
COMPANY CONTACTS:
John G. Cooper, EVP and CFO
Kori Beer, IR & Communications
215-340-4699
13
DISCOVERY LABORATORIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, 2004 September 30, 2004
2004 2003 2004 2003
-------- -------- -------- --------
Revenues from
collaborative agreements $ 236 $ 198 $ 1,075 $ 855
Operating expenses:
Research and Development 5,673 5,096 18,757 12,950
General and Administrative 2,908 1,375 8,363 3,679
-------- -------- -------- --------
Total expenses 8,581 6,471 27,120 16,629
Operating loss (8,345) (6,273) (26,045) (15,774)
Other income (expense) (37) 54 (106) 201
-------- -------- -------- --------
Net loss $ (8,382) $ (6,219) $(26,151) $(15,573)
======== ======== ======== ========
Net loss per common share $ (0.18) $ (0.15) $ (0.57) $ (0.43)
Weighted average number of
common shares outstanding 47,133 41,084 45,778 35,809
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2004 2003
------- -------
ASSETS
Current assets:
Cash, cash equivalents, and marketable securities $33,483 $29,422
Prepaid expenses and other current assets 1,385 668
------- -------
Total current assets 34,868 30,090
Property and equipment, net of depreciation 2,916 2,414
Other assets 1,807 211
------- -------
Total Assets $39,591 $32,715
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit facility with corporate partner $ 5,683 $ 2,436
Other current liabilities 4,861 4,593
------- -------
Total current liabilities 10,544 7,029
Deferred revenue 269 672
Capitalized lease 1,334 711
------- -------
Total liabilities 12,147 8,412
------- -------
Stockholders' equity 27,444 24,303
------- -------
Total Liabilities and Stockholders'
Equity $39,591 $32,715
======= =======
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Exhibit 99.3
DISCOVERY LABORATORIES EXPANDS ITS CAPITAL LEASE FINANCING FACILITY
WITH GE HEALTHCARE FINANCIAL SERVICES TO APPROXIMATELY $9 MILLION
DOYLESTOWN, PA --NOVEMBER 2, 2004 -- DISCOVERY LABORATORIES, INC. (NASDAQ: DSCO)
today announced that available funds under its existing capital lease financing
facility with GE Healthcare Financial Services have been increased by up to $6.5
million. Including the $2.5 million currently employed under the existing
arrangement, Discovery's lease line is now approximately $9 million.
Under the terms of the expanded financing arrangement, $5 million is immediately
available to Discovery while an additional $1.5 million remains subject to FDA
approval to market the company's lead product Surfaxin(R), for the prevention of
Respiratory Distress Syndrome (RDS) in premature infants. Subject to the terms
of the lease facility, GE will make the finances available for certain capital
equipment purchases including manufacturing, information technology systems,
laboratory, office and other related capital assets. The funds may be drawn down
through September 2005 and are payable over three or four years, depending on
the equipment.
John G. Cooper, Executive Vice President and Chief Financial Officer of
Discovery commented, "The continued support from GE Healthcare Financial
Services secures an important component of our financing strategy. Our business
plan for 2005 includes the potential commercial launch of our lead product,
Surfaxin for Respiratory Distress Syndrome in premature infants, and advancing
the clinical development of our Acute Respiratory Distress Syndrome and key
aerosol Surfactant Replacement Therapy programs. This capital lease financing
facility will be used to invest in additional information technology systems
such as sales, materials requirements planning and medical safety monitoring to
support potential commercialization, and manufacturing capabilities for planned
commercial and clinical requirements."
ABOUT DISCOVERY LABORATORIES
Discovery Laboratories, Inc. is a biopharmaceutical company developing its
proprietary surfactant technology as Surfactant Replacement Therapies (SRT) for
respiratory diseases. Surfactants are compositions produced naturally in the
lungs and essential for breathing. Discovery's technology produces an engineered
version of natural human lung surfactant that is designed to closely mimic the
essential properties of human lung surfactant. Discovery believes that through
its technology, pulmonary surfactants have the potential, for the first time, to
be developed into a series of respiratory therapies for patients where there are
few or no approved therapies available. Discovery has filed a New Drug
Application with the FDA and a Marketing Authorization Application with the EMEA
for clearance to market Surfaxin, the Company's lead product, for the prevention
and treatment of Respiratory Distress Syndrome in premature infants.
More information about Discovery is available on the Company's Web site at
www.DiscoveryLabs.com.
ABOUT GE HEALTHCARE FINANCIAL SERVICES, LIFE SCIENCE FINANCE
GE Healthcare Financial Services, a unit of GE Commercial Finance, is the
premier provider of capital, financial solutions and related services for the
global healthcare market. With $13 billion in assets, GE Healthcare Financial
Services offers a full range of financing capabilities from equipment leasing
and real estate financing to working capital lending, vendor programs and
acquisition financing. The Life Science Finance group delivers innovative and
flexible financing solutions to help customers preserve their cash and
liquidity. For over a decade, GE Healthcare Financial Services has assisted life
science companies large and small, from the first venture round to post-IPO.
With a portfolio exceeding $400 million, GE has partnered with over 300
companies throughout the United States, Canada and Europe. For more information,
visit www.GEHealthcareFinance.com.
15
To the extent that statements in this press release are not strictly historical,
including statements as to business strategy, outlook, objectives, future
milestones, plans, intentions, goals, future financial conditions, future
collaboration agreements, the success of the Company's product development,
events conditioned on stockholder or other approval, or otherwise as to future
events, such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements contained in this release are subject to certain
risks and uncertainties that could cause actual results to differ materially
from the statements made. Among the factors which could affect the Company's
actual results and could cause results to differ from those contained in the
forward-looking statements contained herein are the risk that financial
conditions may change, risks relating to the progress of the Company's research
and development, the risk that the Company will not be able to raise additional
capital or enter into additional collaboration agreements (including strategic
alliances for our aerosol and Surfactant Replacement Therapies), risk of delay
in the Company's preparation and filing of applications for regulatory approval,
risk of delay in the FDA's or other health regulatory authorities' approval of
any applications filed by the Company, risks that any such regulatory authority
will not approve the marketing and sale of a drug product even after acceptance
of an application filed by the Company for any such drug product, risks relating
to the ability of the Company's third party contract manufacturers to provide
the Company with adequate supplies of drug substance and drug products for
completion of any of the Company's clinical studies, other risks relating to the
lack of adequate supplies of drug substance and drug product for completion of
any of the Company's clinical studies, and risks relating to the development of
competing therapies and/or technologies by other companies. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in advanced clinical trials, even after obtaining promising earlier trial
results. Data obtained from tests are susceptible to varying interpretations,
which may delay, limit or prevent regulatory approval. Those associated risks
and others are further described in the Company's filings with the Securities
and Exchange Commission including the most recent reports on Forms 10-K, 10-Q
and 8-K, and any amendments thereto.
COMPANY CONTACTS:
John G. Cooper, EVP and CFO
Kori Beer, IR & Communications
215-340-4699
16