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
May
9, 2006
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
of
incorporation)
|
(Commission
File Number)
|
(IRS
Employer
Identification
Number)
|
2600
Kelly Road, Suite 100
Warrington,
Pennsylvania 18976
(Address
of principal executive offices)
(215)
488-9300
(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:
| o |
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
|
| o |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
| o |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
|
| o |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
|
Item
2.02. Results
of Operations and Financial Condition.
On
May
9,
2006,
Discovery Laboratories, Inc. (the “Company”) issued a press release announcing
financial results for the
quarter
ended
March 31,
2006,
and providing selected updates on the Company’s progress since the end of the
fiscal year 2005. The full text of the press release is set forth in Exhibit
99.1 hereto.
In
accordance with General Instruction B.2 of Form 8-K, the information in Item
2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto
shall
not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference
in
any filing under the Securities Act of 1933, as amended, or the Exchange
Act,
except as expressly set forth by specific reference in any such
filings.
Item
2.05. Costs
Associated with Exit or Disposal Activities.
On
May 4,
2006, the Company filed a Current Report on Form 8-K and issued a press release
announcing that,
in
connection with the recent delay in U.S. regulatory approval and commercial
launch of Surfaxin®,
it had
undertaken a staff reduction, with a primary emphasis on the commercial
infrastructure, in order to lower its cost structure and appropriately align
the
Company’s operations with its business priorities. The Company indicated that,
in the quarter ending June 30, 2006, it expects to take a one-time restructuring
charge of approximately $4.5 to $5.0 million, related to the staff reductions
and the wind-down of certain commercial programs. The Company expects that
approximately $2.5 million of the expected one-time charge will be comprised
of
one-time termination benefits related to the staff reduction and approximately
$2.0 to $2.5 million of the expected one-time charge will be related to
third-party contract termination costs associated with the wind-down of certain
commercial programs.
Item
8.01. Other
Events.
On
May
10, 2006, the Company held a conference call to provide an update on its
regulatory and manufacturing issues and to provide guidance with respect
to its
operating results and estimated cash burn in 2006. During the conference
call,
John G. Cooper, the Company’s Executive Vice President and Chief Financial
Officer provided the following guidance regarding the Company’s operations
through the remainder of fiscal year 2006:
| · |
in
the second quarter 2006, the Company expects (i) an operating loss
of
approximately $11 million to $12 million, excluding a charge for
stock-based compensation associated with the adoption by the Company
of
Financial Accounting Standards No. 123(R) (“FAS 123(R)”) and the expected
one-time charge associated with the recent staff reduction and
the
wind-down of certain commercial programs, and (ii) an estimated
cash burn
of approximately $12 million to $13
million;
|
2
| · |
in
each of the third and fourth quarters 2006, the Company expects
an
operating loss (excluding a charge for stock-based compensation
associated
with the adoption by the Company of FAS 123(R)) of approximately
$8
million to $9 million; and
|
| · |
the
Company expects an estimated cash burn of approximately $10 million
to $11
million in the third quarter 2006 and approximately $8 million
to $9
million in the fourth quarter 2006.
|
Item
9.01. Financial
Statements and Exhibits.
| (d) |
Exhibits:
|
|
99.1
|
Press
release dated May
9,
2006.
|
Cautionary
Note Regarding Forward-looking Statements:
To
the
extent that statements in this Current Report on Form 8-K 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 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 Current
Report are subject to certain risks and uncertainties that could cause actual
results to differ materially from the statements made. Such 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.
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 | |
|
Robert J. Capetola, Ph.D. |
||
| President and Chief Executive Officer | ||
Date: May 15, 2006
4
Exhibit
99.1
Discovery
Labs Reports First Quarter 2006 Financial Results
Warrington,
PA — May 9, 2006 — Discovery Laboratories, Inc. (Nasdaq:
DSCO),
today
announced financial
results for the first quarter ended March 31, 2006. The Company will host a
conference call on May 10, 2006 at 4:00 PM EDT. The
call in number is 866-332-5218.
For
the
quarter ended March 31, 2006, the Company reported, on a GAAP basis, a net
loss
of $15.8 million, or $0.26 per share, on 61.2 million weighted average common
shares outstanding, compared to a net loss of $9.3 million, or $0.18 per share,
on 50.8 million weighted average shares outstanding for the same period in
2005.
The GAAP net loss includes $1.7 million, or $0.03 per share, in stock-based
compensation expenses as a result of our adoption, on January 1, 2006, of
Financial Accounting Standards No. 123(R) (“FAS 123(R)”). Excluding this charge,
the non-GAAP net loss for the quarter ended March 31, 2006 was $14.1 million,
or
$0.23 per share. As of March 31, 2006, the Company had 61.2 million shares
outstanding.
As
of
March 31, 2006, the Company had cash and marketable securities of $37.6 million,
compared to $50.9 million as of December 31, 2005, a decrease of $13.3 million.
The decrease is primarily due to cash used in operating and investing activities
of $13.9 million, offset by $0.7 million of proceeds from the exercise of stock
options and warrants.
As
of
March 31, 2006, the Company had $47.6 million available under the 2004 Committed
Equity Financing Facility (the “2004 CEFF”), subject to certain conditions. On
April 19, 2006, the Company announced that it entered into a new CEFF (“2006
CEFF”) with Kingsbridge Capital, Ltd., in which Kingsbridge committed to finance
up to $50 million of capital to support the Company’s future growth through the
purchase of newly-issued shares of its common stock. The CEFF allows Discovery
to raise capital, subject to certain conditions, during a three-year period
once
the registration statement, which was filed on May 4, 2006, is declared
effective by the SEC. Upon effectiveness of the registration statement, the
Company’s 2004 CEFF will automatically terminate. The Company believes the 2006
CEFF provides potential advantages over the 2004 CEFF, including an adjusted
minimum stock purchase price and an extension of the term of the CEFF into
2009.
Under
the
Company’s $9.0 million capital lease financing arrangement with GECC, $6.5
million has been used to date, $4.7 million is outstanding ($1.7 million
classified as current liabilities and $3.0 million as long-term liabilities)
and
$2.5 million remains available for use. The Company’s $8.5 million credit
facility with PharmaBio Development, Inc., Quintiles strategic investment group,
is fully outstanding and due in December 2006.
Recent
Developments
In
April
2006, the Company received a second Approvable Letter from the FDA relating
to
its New Drug Application (NDA) for Surfaxin®
for
Respiratory Distress Syndrome (RDS). Issues contained in the second Approvable
Letter primarily focused on the Chemistry, Manufacturing and Controls (CMC)
section of the NDA and product labeling. The Company also announced that it
anticipates a potentially significant delay in the U.S. regulatory approval
for
Surfaxin because analysis of ongoing stability data from Surfaxin process
validation batches indicated that certain stability parameters had not been
achieved and, therefore, additional process validation batches will likely
have
to be produced. These process validation batches were previously manufactured
as
a requirement for the Company’s U.S. NDA regulatory approval and have been
undergoing periodic stability testing. This delay does not arise out of any
issues related to the clinical data from our multinational SELECT Study, which
demonstrates that Surfaxin was significantly more effective in the prevention
of
RDS and also improved survival (continuing through at least one year of life)
and other outcomes versus comparator surfactants.
On
May 4,
2006, the Company announced that it reduced its personnel from 160 to 105,
or
approximately 34% of the workforce, and reorganized corporate management in
order to lower its cost structure and appropriately align operations with
business priorities. These actions were based upon the potential financial
impact of a delay in the regulatory approval and commercial launch of Surfaxin
for RDS in premature infants. The Company expects to realize annual expense
savings of approximately $8.0 million from the reduction in workforce and
related operating expenses. Additionally, commercial program expenses totaled
approximately $5.0 million over the past two fiscal quarters (Q4 ’05 and Q1
’06), and these expenses will no longer be incurred. The Company expects to
take
a one-time restructuring charge of approximately $4.5 to $5.0 million in the
second quarter ending June 30, 2006 related to the staff reductions and the
wind
down of certain commercial programs.
On
May 9,
2006, with enrollment totaling approximately 130 patients, the Company
determined to conclude early its Phase 2 clinical trial of Surfaxin for the
prevention and treatment of Bronchopulmonary Dysplasia (BPD) in premature
infants. This
action is related to the potential financial impact of the Surfaxin
manufacturing issues that are anticipated to significantly delay the regulatory
approval of Surfaxin for RDS and may adversely affect the availability of
Surfaxin drug product for this trial. This
double-blind, controlled Phase 2 clinical trial was intended to enroll up to
210
very low birth weight premature infants born at risk for developing BPD. The
study’s objective is to determine the safety and tolerability of administering
Surfaxin for the prevention and treatment of BPD. The
Company plans to perform a comprehensive analysis of the clinical data from
this
trial, report top-line results, and submit these data for
publication.
Robert
J.
Capetola, Ph.D., President and Chief Executive Officer of Discovery, commented,
“Based on recent events, we have taken steps to control costs and maintain the
human and capital resources to focus on the programs that potentially allow
patients to experience the benefit of this important new class of respiratory
medicine. Our highest priority is the actions necessary to gain Surfaxin
regulatory approval. We are focused on investigating and remediating the
Surfaxin manufacturing issues while maintaining the clinical and commercial
manufacturing capabilities for Surfaxin and our SRT pipeline. Just as important
is the development of our pipeline of SRT products, primarily our potentially
revolutionary aerosolized SRT, Aerosurf™ for neonatal respiratory disorders, as
well as exploring opportunities for strategic partnerships.”
The
Company reported, on a GAAP basis, a net loss of $15.8 million for the three
months ended March 31, 2006. Excluding a charge for stock-based compensation
associated with FAS 123(R) of $1.7 million ($0.4 million classified as research
and development and $1.3 million classified as general and administrative),
the
non-GAAP net loss for the 2006 quarter was $14.1 million, compared to $9.3
million for the same period last year, an increase of $4.8 million. This
increase is primarily due to:
| (i) |
pre-launch commercialization activities
(included in general and administrative expenses) related to the
Company
building a United States commercial infrastructure to market its
SRT to
address respiratory disorders in the Neonatal Intensive Care Unit
(NICU).
For the three months ended March 31, 2006, costs associated with
pre-launch commercialization activities were $4.7 million, an increase
of
$2.3 million compared to the same period in
2005;
|
| (ii) |
manufacturing
activities (included in research and development expenses) to support
the
production of clinical and commercial drug supply for the Company’s SRT
programs, including Surfaxin, other SRT formulations and aerosol
development capabilities, in conformance with current Good Manufacturing
Practices (cGMPs). For the three months ended March 31, 2006, costs
associated with these activities were $2.4 million, an increase of
$1.0
million compared to the same period in 2005. The increase in expenses
is
primarily associated with the ownership of our NJ manufacturing operations
which we purchased from Laureate Pharma, Inc. (our contract manufacturer
at that time) in December
2005;
|
| (iii) |
research
and development activities related to the advancement of the Company’s SRT
pipeline. For the three months ended March 31, 2006, costs associated
with
these activities, excluding manufacturing activities, were $4.8 million,
an increase of $1.1 million compared to the same period in 2005.
The
increase is primarily due to: (i) U.S. and European regulatory activities
associated with Surfaxin for RDS; (ii) clinical activities for the
Phase 2
trial for Acute Respiratory Distress Syndrome (ARDS) in adults and
the
Phase 2 trial for BPD in premature infants; and (iii) development
activities related to Aerosurf for Neonatal Respiratory Disorders;
and
|
| (iv) |
general
and administrative activities to support long-term business plans.
For the
three months ended March 31, 2006, costs associated with these activities,
excluding pre-launch commercialization activities, were $2.7 million,
an
increase of $0.8 million compared to the same period in 2005. The
increase
is predominantly due to legal activities (including the preparation
and
filing of patents in connection with our SRT pipeline and efforts
to
support business development for strategic collaborations) and corporate
governance initiatives to comply with the Sarbanes-Oxley Act.
|
Use of Non-GAAP Financial Measures
Discovery
adopted FAS 123(R) on January 1, 2006 using the modified prospective method,
which resulted in the recognition of stock compensation expenses in the
statement of operations during the quarter ended March 31, 2006 without
adjusting the prior year first quarter. Discovery uses non-GAAP net loss data
to
improve its analysis of operational results and trends. Discovery’s management
also uses these non-GAAP figures to make financial and operational decisions
as
these numbers exclude non-operational activities. These measures should not
be
considered an alternative to measurements required by GAAP, such as net loss
and
net loss per share, and should not be considered measures of our liquidity.
A
reconciliation between GAAP and non-GAAP financial measures is included in
a
footnote to the Statement of Operations accompanying this press
release.
About
Discovery Labs
Discovery
Laboratories, Inc. is a biotechnology 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 precision-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 address respiratory
diseases where there are few or no approved therapies available.
Discovery’s
lead product, Surfaxin®,
for the
prevention of Respiratory Distress Syndrome (RDS) in premature infants, has
received two Approvable Letters from the FDA and is under review for approval
in
Europe by the EMEA.
Our
proprietary SRT is also being developed in an aerosolized form under the name
Aerosurf™, for the treatment of neonatal respiratory failure. We are preparing
to conduct Phase 2 pilot studies with Aerosurf™, aerosolized SRT administered
through nasal continuous positive airway pressure (nCPAP). In addition, also
for
premature infants, we have recently concluded early a Phase 2 clinical trial
of
Surfaxin for the prevention and treatment of Bronchopulmonary Dysplasia (BPD),
also known as Chronic Lung Disease. The Company recently completed and announced
preliminary results of a Phase 2 clinical trial to address Acute Respiratory
Distress Syndrome (ARDS) in adults, and is also developing aerosol formulations
of SRT to potentially address Acute Lung Injury (ALI), cystic fibrosis and
other
respiratory conditions.
For
more
information, please visit our corporate website 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 Discovery’s product development, events
conditioned on stockholder or other approval, or otherwise as to future events,
all such statements are forward-looking, and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These
forward-looking statements 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 Discovery’s actual results and could cause
results to differ from those contained in these forward-looking statements
are
the risk that financial conditions may change, risks relating to the progress
of
Discovery’s research and development, the risk that Discovery will not be able
to raise additional capital or enter into additional collaboration agreements
(including strategic alliances for aerosol and Surfactant Replacement
Therapies), risk that Discovery will not be able to develop a successful sales
and marketing organization in a timely manner, if at all, risk that Discovery’s
internal sales and marketing organization will not succeed in developing market
awareness of Discovery’s products, risk that Discovery’s internal sales and
marketing organization will not be able to attract or maintain qualified
personnel, risk that approval by the FDA or other health regulatory authorities
of any applications filed by Discovery may be withheld, delayed and/or limited
by indications or other label limitations, 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 Discovery for any such drug product,
risks
that Discovery’s CMC will not satisfy the FDA, risk in the FDA review process
generally, risks relating to the ability of Discovery’s third party contract
manufacturers and development partners to provide Discovery with adequate
supplies of drug substance, drug products and expertise for completion of any
of
Discovery’s clinical studies, risks relating to drug manufacturing by Discovery,
risks relating to the integration of manufacturing operations into Discovery’s
existing operations, other risks relating to the lack of adequate supplies
of
drug substance and drug product for completion of any of Discovery’s clinical
studies, risks relating to the ability of the Company and its collaborators
to
develop and successfully commercialize products that will combine our drug
products with innovative aerosolization technologies, risks relating to the
significant, time-consuming and costly research, development, pre-clinical
studies, clinical testing and regulatory approval for any products that we
may
develop independently or in connection with our collaboration arrangements,
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
Discovery’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
215-488-9490
Lisa
Caperelli, Investor Relations
215-488-9413
Condensed
Consolidated Statement of Operations
(in
thousands, except per share data)
|
Three
Months Ended
March 31, (unaudited) |
|||||||
|
2006
|
2005
|
||||||
|
Revenues
from collaborative agreements
|
$
|
-
|
$
|
61
|
|||
|
Operating
expenses:
|
|||||||
|
Research
and development (1)
|
7,613
|
5,120
|
|||||
|
General
and administrative (1)
|
8,682
|
4,270
|
|||||
|
Total
expenses
|
16,295
|
9,390
|
|||||
|
Operating
loss
|
(16,295
|
)
|
(9,329
|
)
|
|||
|
Other
income / (expense)
|
500
|
13
|
|||||
|
Net
loss
|
$
|
(15,795
|
)
|
$
|
(9,316
|
)
|
|
|
Net
loss per common share
|
$
|
(0.26
|
)
|
$
|
(0.18
|
)
|
|
|
Weighted
average number of common shares outstanding
|
61,170
|
50,784
|
|||||
|
|
|||||||
| (1) |
Included
in expenses for the quarter ended March 31, 2006 is a charge
of $1.7
million ($0.4 million classified as research and development
and $1.3
million classified as general and administrative) associated
with
stock-based employee compensation in accordance with the provisions
of
SFAS No. 123(R), which the Company adopted on January 1,
2006.
|
Condensed
Consolidated Balance Sheets
(in
thousands)
|
March
31,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and marketable securities
|
$
|
37,569
|
$
|
50,908
|
|||
|
Prepaid
expenses and other current assets
|
876
|
560
|
|||||
|
Total
Current Assets
|
38,445
|
51,468
|
|||||
|
Property
and equipment, net
|
4,798
|
4,322
|
|||||
|
Other
assets
|
218
|
218
|
|||||
|
Total
Assets
|
$
|
43,461
|
$
|
56,008
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
8,168
|
$
|
7,540
|
|||
|
Credit
facility
|
8,500
|
8,500
|
|||||
|
Capitalized
leases and other liabilities, current portion
|
1,663
|
1,568
|
|||||
|
Total
Current Liabilities
|
18,331
|
17,608
|
|||||
|
Long-Term
Liabilities:
|
|||||||
|
Capitalized
leases and other liabilities, long-term
portion
|
3,282
|
3,562
|
|||||
|
Total
Liabilities
|
21,613
|
21,170
|
|||||
|
Stockholders'
Equity
|
21,848
|
34,838
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
43,461
|
$
|
56,008
|
|||