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
July
28,
2006
Date
of
Report (Date of earliest event reported)
Discovery
Laboratories, Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
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000-26422
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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))
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Item
2.02. Results
of Operations and Financial Condition.
On
July
28,
2006, Discovery Laboratories, Inc. (the “Company”) issued a press release
announcing financial results for the
quarter
ended
June 30,
2006,
and providing selected updates on the Company’s progress since the end of the
first fiscal quarter in 2006. 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
9.01. Financial
Statements and Exhibits.
(d) Exhibits:
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99.1
|
Press
release dated July
28,
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.
2
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.
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Discovery
Laboratories, Inc.
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||
| |
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| By: | /s/ Robert J. Capetola | |
|
Robert J. Capetola, Ph.D. |
||
| President and Chief Executive Officer | ||
Date:
August
2,
2006
3
Exhibit
99.1
Discovery
Labs Reports Second Quarter 2006 Financial Results
Warrington,
PA — July 28, 2006 — Discovery Laboratories, Inc. (Nasdaq:
DSCO),
today
announced financial
results for the second quarter ended June 30, 2006. The Company will host a
conference call today at 10:00 AM EDT. The
call in number is 866-332-5218.
For
the
quarter ended June 30, 2006, the Company reported, on a GAAP basis, a net loss
of $14.7 million, or $0.24 per share, on 61.7 million weighted average shares
of
common stock outstanding. Included in the GAAP net loss for the quarter ended
June 30, 2006 is a restructuring charge of $4.8 million, or $0.08 per share,
related to the staff reductions and the close-out of certain commercial programs
as a result of the adjusted timeline for the regulatory approval and commercial
launch of Surfaxin®
for the
prevention of Respiratory Distress Syndrome (RDS) in premature infants. Also
included in the GAAP net loss for the quarter ended June 30, 2006 is a charge
of
$1.6 million (or $0.03 per share) associated with stock-based compensation
as a
result of our adoption of Financial Accounting Standards No. 123(R) (“FAS
123(R)”) on January 1, 2006. Excluding these charges, the net loss for the
quarter ended June 30, 2006 was $8.3 million (or $0.13 per share), compared
to a
net loss of $9.8 million (or $0.18 per share), on 53.6 million weighted average
shares outstanding for the same period in 2005. As of June 30, 2006, the Company
had 62.3 million shares outstanding.
For
the
six months ended June 30, 2006, the Company reported, on a GAAP basis, a net
loss of $30.5 million, or $0.50 per share, on 61.4 million weighted average
shares outstanding. Included in the GAAP net loss for the six months ended
June
30, 2006 is the second quarter restructuring charge of $4.8 million (or $0.08
per share) and a charge of $3.2 million (or $0.05 per share) associated with
FAS
123(R). Excluding these charges, the non-GAAP net loss for the six months ended
June 30, 2006 was $22.5 million (or $0.37 per share), compared to a net loss
of
$19.1 million (or $0.37 per share) on 52.0 million weighted average shares
outstanding for the same period in 2005.
As
of
June 30, 2006, the Company had cash and marketable securities of $27.3 million,
compared to $37.6 million as of March 31, 2006, a decrease of $10.3 million.
The
decrease is primarily due to net cash used in operating and investing activities
of $12.5 million, offset by $2.2 million of proceeds from a financing pursuant
to the Company’s Committed Equity Financing Facility (CEFF). Under the Company’s
$9.0 million capital lease financing arrangement with General Electric Capital
Corporation, $5.2 million is outstanding ($1.9 million classified as current
liabilities and $3.3 million as long-term liabilities) and $1.6 million remains
available for use. The Company’s $8.5 million secured revolving credit facility
with an affiliate of Quintiles Transnational Corp. is fully outstanding and
due
in December 2006.
Under
the
CEFF, the Company has up to $47.8 million potentially available to May 2009.
Use
of the CEFF is subject to certain conditions, including a share limitation
(currently approximately 10.6 million shares) and the volume weighted average
price of the Company’s common stock on each trading day must be at least
$2.00.
Robert
J.
Capetola, Ph.D., President and Chief Executive Officer of Discovery, commented,
“The highest priority for Discovery Labs is to gain U.S. regulatory approval
for
Surfaxin. Our focus is on remediating the Surfaxin manufacturing issues to
achieve this goal. Based upon what we have learned to date from our
comprehensive investigation, including the manufacture of two Surfaxin
investigation batches, we believe we are on target to meet with the FDA and
manufacture new process validation batches in the fourth quarter of 2006. Of
equal importance is the development of our pipeline of SRT products, primarily
Aerosurf™, our potentially revolutionary aerosolized SRT for neonatal
respiratory disorders, as well as other novel formulations and the exploration
of various strategic alternatives.”
Review
of Operating Results - Three and Six Months Ended June 30,
2006
The
Company reported, on a GAAP basis, a net loss of $14.7 million and $30.5 million
for the three and six months ended June 30, 2006, respectively, an increase
of
$4.9 million and $11.4 million compared to the same prior year periods. Included
in the GAAP net loss is a charge for stock-based compensation associated with
FAS 123(R) of $1.6 million and $3.2 million for the three and six months ended
June 30, 2006, respectively. Excluding these charges, the non-GAAP net loss
for
the three and six months ended June 30, 2006 was $13.1 million and $27.3
million, respectively, an increase of $3.3 million and $8.2 million compared
to
the same prior year periods. This change is primarily due to:
|
(i)
|
a
restructuring charge of $4.8 million in the second quarter of 2006
associated with staff reductions and the close-out of certain commercial
programs as a result of the Company receiving a second Approvable
Letter
and experiencing manufacturing issues that adjusted the timeline
for the
regulatory approval and commercial launch of Surfaxin for the prevention
of RDS in premature infants. This charge includes $2.5 million of
severance and benefits related to staff reductions and $2.3 million
for
the termination of certain commercial programs;
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(ii)
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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, SRT formulations and aerosol development
capabilities, in conformance with current Good Manufacturing Practices
(cGMPs). For the three and six months ended June 30, 2006, costs
associated with these activities were $2.7 million and $5.1 million,
respectively, no change and an increase of $1.1 million compared
to the
same prior year periods. The increase in expenses is primarily associated
with the ownership of our manufacturing operation in Totowa, New
Jersey,
which we purchased in December 2005;
and
|
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(iii)
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general
and administrative expenses, primarily Surfaxin pre-launch commercial
activities to build a United States commercial infrastructure in
preparation for the previously anticipated commercial launch of Surfaxin
in the second quarter of 2006. For the three and six months ended
June 30,
2006, costs associated with these activities were $0.8 million and
$5.5
million, respectively, a decrease of $1.3 million and an increase
of $1.0
million, compared to the same prior year periods. In April 2006,
in
connection with the second Approvable Letter and failure of Surfaxin
process validation batches to achieve certain stability parameters,
which
resulted in an adjusted timeline for regulatory approval of Surfaxin,
the
Company discontinued pre-launch and commercial activities, resulting
in a
restructuring of the commercial infrastructure. The cost associated
with
the discontinuance of such activities are a component of the Q2 2006
restructuring charge.
|
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 for the three and six months ended June 30, 2006 without
adjusting the same prior year periods. 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. Discovery believes that
presentation of results excluding non-cash compensation expense and
restructuring charges may provide meaningful supplemental information to both
management and investors. 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
non-GAAP financial measures and 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 proprietary 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
its proprietary pulmonary surfactant platform has the potential to address
a
variety of respiratory diseases where there are few or no approved therapies
available.
Discovery’s
lead product, Surfaxin®,
has
received two Approvable Letters from the FDA for the prevention of Respiratory
Distress Syndrome (RDS) in premature infants. In addition, Discovery recently
concluded patient enrollment for its Phase 2 clinical trial of Surfaxin for
the
prevention and treatment of Bronchopulmonary Dysplasia (BPD) in premature
infants.
Discovery
is also developing Aerosurf™, its proprietary SRT administered in aerosolized
form, for the treatment of premature infants with multiple respiratory
disorders. Discovery is preparing to initiate Phase 2 clinical studies with
Aerosurf administered through nasal continuous positive airway pressure (nCPAP),
potentially obviating the need for intubation and conventional mechanical
ventilation. Discovery is also developing its SRT to potentially address Acute
Lung Injury (ALI), Acute Respiratory Distress Syndrome (ARDS), cystic fibrosis
and other respiratory conditions.
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), the risk that Discovery will not be able to develop or otherwise
provide for a successful sales and marketing organization in a timely manner,
if
at all, the 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, the risk 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 the Chemistry, Manufacturing and Controls (CMC) section of
Discovery’s
New Drug Application will not satisfy the FDA, risk in the FDA or other
regulatory agency review process generally, risks relating to the ability of
Discovery or Discovery’s third party contract manufacturers and development
partners to manufacture or 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 Discovery and its collaborators to
develop, manufacture and successfully commercialize products that combine
Discovery’s 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 Discovery’s
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.
For
more information, please visit our corporate website at www.Discoverylabs.com.
Company
Contact:
Lisa
Caperelli, Investor Relations
215-488-9413
|
Condensed
Consolidated Statement of
Operations
|
||||||||||||||||||
|
(in
thousands, except per share data)
|
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
June
30,
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June
30,
|
||||||||||||
|
(unaudited)
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(unaudited)
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
Revenues
from collaborative agreements
|
$
|
-
|
$
|
24
|
$
|
-
|
$
|
85
|
|||||
|
Operating
expenses:
|
|||||||||||||
|
Research
and development (1)
|
5,911
|
5,864
|
13,524
|
10,984
|
|||||||||
|
General
and administrative (1)
|
4,024
|
4,095
|
12,706
|
8,365
|
|||||||||
|
Restructuring
charge
|
4,805
|
--
|
4,805
|
--
|
|||||||||
|
Total
expenses
|
14,740
|
9,959
|
31,035
|
19,349
|
|||||||||
|
Operating
loss
|
(14,740
|
)
|
(9,935
|
)
|
(31,035
|
)
|
(19,264
|
)
|
|||||
|
Other
income / (expense)
|
45
|
109
|
545
|
122
|
|||||||||
|
Net
loss
|
$
|
(14,695
|
)
|
$
|
(9,826
|
)
|
$
|
(30,490
|
)
|
$
|
(19,142
|
)
|
|
|
Net
loss per share
|
$
|
(0.24
|
)
|
$
|
(0.18
|
)
|
$
|
(0.50
|
)
|
$
|
(0.37
|
)
|
|
|
Weighted
average number of shares outstanding
|
61,652
|
53,587
|
61,411
|
52,029
|
|||||||||
| (1) |
Included
in expenses for the three and six months ended June 30, 2006 are
charges
of $1.6 million ($0.5 million classified as research and development
and
$1.1 million classified as general and administrative) (or $0.03
per
share) and $3.2 million ($0.9 million classified as research and
development and $2.3 million classified as general and administrative)
(or
$0.05 per share), respectively, 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)
|
|
June
30,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
(unaudited)
|
||||||
|
Current
Assets:
|
|||||||
|
Cash
and marketable securities
|
$
|
27,289
|
$
|
50,908
|
|||
|
Prepaid
expenses and other current assets
|
348
|
560
|
|||||
|
Total
Current Assets
|
27,637
|
51,468
|
|||||
|
Property
and equipment, net
|
4,583
|
4,322
|
|||||
|
Other
assets
|
217
|
218
|
|||||
|
Total
Assets
|
$
|
32,437
|
$
|
56,008
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
7,203
|
$
|
7,540
|
|||
|
Credit
facility
|
8,500
|
8,500
|
|||||
|
Capitalized
leases and other liabilities, current portion
|
1,883
|
1,568
|
|||||
|
Total
Current Liabilities
|
17,586
|
17,608
|
|||||
|
Long-Term
Liabilities:
|
|||||||
|
Capitalized
leases and other liabilities, long-term portion
|
3,961
|
3,562
|
|||||
|
Total
Liabilities
|
21,547
|
21,170
|
|||||
|
Stockholders'
Equity
|
10,890
|
34,838
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
32,437
|
$
|
56,008
|
|||