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
February
28, 2007
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:
[
] 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
2.02. Results
of Operations and Financial Condition.
On
February 28, 2007, Discovery Laboratories, Inc. (the “Company”) issued a press
release announcing financial results for the fourth quarter and fiscal year
ended December 31, 2006, and providing selected updates on the progress of
regulatory and manufacturing activities associated with the Company’s lead
product, Surfaxin® (lucinactant) for the prevention of Respiratory Distress
Syndrome (RDS) in premature infants. The press release is attached as 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
8.01. Other
Events.
On
February 28, 2007, the Company held a conference call to discuss the financial
results for the fourth quarter and fiscal year ended December 31, 2006. On
the
call, the Company provided an estimate of aggregate cash outflows from operating
and investing activities for the first fiscal quarter of 2007 of approximately
$8.5 million to $9.0 million. This figure represents an increase of
approximately $1.0 - $1.5 million from the fourth quarter of 2006, primarily
as
a result of activities associated with the development of Aerosurf™, the
Company’s aerosolized surfactant platform.
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits
|
99.1
|
Press
release dated February 28, 2007
|
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.
| Discovery Laboratories, Inc. | ||
| |
|
|
| By: | /s/ Robert J. Capetola | |
|
Name: Robert J. Capetola, Ph.D. |
||
| Title: President and Chief Executive Officer | ||
| Date: February 28, 2007 | ||
3
Exhibit
99.1
Discovery
Labs Reports Fourth Quarter 2006 Financial Results
Warrington,
PA — February 28, 2007 — Discovery Laboratories, Inc. (Nasdaq:
DSCO),
today
announced financial
results for the fourth quarter and year ended December 31, 2006. The Company
will host a conference call on Wednesday, February 28, 2007 at 10:00 AM EST.
The
call in number is 866-332-5218.
For
the
quarter ended December 31, 2006, the Company is reporting a net loss of $7.8
million (or $0.12 per share) on 66.2 million weighted average common shares
outstanding compared to a net loss of $29.4 million (or $0.51 per share) on
57.8
million weighted average common shares outstanding for the same period in 2005.
Included in the net loss for the fourth quarter of 2006 is a charge of $1.3
million (or $0.02 per share) associated with stock-based employee compensation
resulting from the adoption of Financial Accounting Standards No. 123(R) (FAS
123(R)) in 2006. Included in the net loss for the fourth quarter of 2005 was
a
charge of $16.8 million (or $0.29 per share) for the purchase of our then
contracted manufacturing operation in Totowa, New Jersey. Excluding these
charges, the non-GAAP net loss for the quarters ended December 31, 2006 and
2005
were $6.5 million (or $0.10 per share) and $12.6 million (or $0.22 per share),
respectively. As of December 31, 2006, the Company had 69.6 million common
shares outstanding.
As
of
December 31, 2006, the Company had cash and marketable securities of $27.0
million and approximately 8.0 million shares available for issuance under the
Company’s Committed Equity Financing Facility (CEFF) for future financings (not
to exceed $42.5 million). Cash and marketable securities increased by $7.3
million in the fourth quarter primarily due to: (i) aggregate cash outflows
of
$7.5 million used in operating and investing activities, (ii) a financing with
one selected institutional investor resulting in gross proceeds of $10.0 million
(net proceeds of $9.5 million) from the sale of approximately 4.6 million shares
of common stock and issued a warrant with a five-year term exercisable for
approximately 2.3 million shares of common stock at an exercise price of $3.18
per share; and (iii) two CEFF financings that generated proceeds of
approximately $5.3 million from the issuance of approximately 2.6 million shares
of common stock. Use of the CEFF is subject to certain conditions, including
that the volume weighted average price of the Company’s common stock during a
draw down must be at least $2.00 per share.
As
of
December 31, 2006, the Company had $8.9 million outstanding (classified as
a
long-term liability - loan payable) under its loan with PharmaBio Development
Inc. (PharmaBio), an investment group of Quintiles Transnational Corp. In the
fourth quarter of 2006, the Company restructured this loan with PharmaBio to
provide, among other things, that the principal amount of $8.5 million
originally scheduled to mature on December 31, 2006 and all interest is now
due
on April 30, 2010. In connection with the restructuring, Discovery and PharmaBio
entered into a Warrant Agreement, pursuant to which PharmaBio has the right
to
purchase during a seven-year term 1.5 million shares of the Company’s common
stock at an exercise price of $3.58 per share. Also as of December 31, 2006,
the
Company had $4.7 million outstanding under a capital lease financing arrangement
with General Electric Capital Corporation (GECC), of which $2.0 million was
classified as a current liability and $2.7 million as a long-term liability.
In
addition, selected updates on the progress of regulatory and manufacturing
activities associated with the Company’s lead product, Surfaxin®
(lucinactant) for the prevention of Respiratory Distress Syndrome (RDS)
include:
| · |
On
December 21, 2006, at a meeting with the U.S. Food and Drug Administration
(FDA) the Company received guidance regarding the key remaining steps
necessary for potential approval of Surfaxin for the prevention of
RDS in
premature infants. This guidance provides the clarity and the defined
pathway that the Company believes is necessary to address key remaining
issues identified in the April 2006 FDA Approvable Letter. The Company
remains on-track to file its formal response to the Surfaxin Approvable
Letter in September or October 2007, followed by an anticipated six-month
review cycle by the FDA for potential approval of the Surfaxin New
Drug
Application.
|
| · |
Following
the December 2006 FDA meeting and based on the progress the Company
has
made in its comprehensive manufacturing investigation and remediation
activities to date, the Company recently completed the manufacture
of new
Surfaxin process validation batches. These batches are currently
undergoing release and ongoing stability testing. This stability data
will
support the Company’s forthcoming formal response to the Surfaxin
Approvable Letter. Additionally, the FDA indicated that Surfaxin
shelf-life will be determined based upon comparative stability data
from
historical Surfaxin batches, including previously manufactured clinical,
technology transfer, and investigational batches, as well as the new
process validation batches.
|
Review
of Operating Results - Three Months Ended December 31,
2006
The
Company is reporting a net loss of $7.8 million for the quarter ended December
31, 2006 compared to a net loss of $29.4 million for the same period in 2005.
Included in the net loss for the fourth quarter of 2006 is a charge of $1.3
million associated with stock-based employee compensation resulting from the
adoption of FAS 123(R) on January 1, 2006. Included in the net loss for the
fourth quarter of 2005 was a charge of $16.8 million for the purchase of our
then contracted manufacturing operation in Totowa, New Jersey. Excluding these
charges, the non-GAAP net loss for the quarters ended December 31, 2006 and
2005
were $6.5 million and $12.6 million, respectively, a decrease of $6.1 million.
The primary components of the fourth quarter 2006 loss include:
| (i) |
manufacturing
development expenses (included in research and development expenses)
for
the quarter ended December 31, 2006 were $2.2 million, a decrease of
$2.2
million compared to the same period in 2005. Manufacturing development
includes (1) costs associated with operating the Company’s
manufacturing facility in Totowa, New Jersey (which the Company acquired
from its then contract manufacturer, Laureate Pharma, Inc. (Laureate),
in
December 2005), to support the production of clinical and anticipated
commercial drug supply for the Company’s SRT programs; (2) continued
investment in the Company’s quality assurance and analytical chemistry
capabilities to ensure current good manufacturing practices (cGMP);
and
(3) costs associated with the comprehensive investigation, analysis
and
remediation of the April 2006 Surfaxin process validation stability
failure and related manufacturing issues. Expenditures in the quarter
ended December 31, 2005 primarily represented manufacturing charges
from
Laureate, service charges and costs for the manufacture of Surfaxin,
as
well as, approximately $2.0 million of improvements and enhancements
to
the manufacturing operation in New Jersey prior to the acquisition
by the
Company;
|
| (ii) |
research
and development expenses (excluding manufacturing development activities)
for the quarter ended December 31, 2006 were $2.4 million, a decrease
of
$0.6 million compared to the same period in 2005. Expenditures in the
fourth quarter of 2006 were primarily associated with costs incurred
for
(1) regulatory activities related to the April 2006 Approvable Letter
for
Surfaxin for the prevention of RDS and the process validation stability
failure; (2) engineering and development activities (in conjunction
with
our strategic alliance with Chrysalis Technologies, Inc., a division
of
Philip Morris USA) related to Aerosurf™,
the Company’s proprietary SRT in aerosolized form administered through
nasal continuous positive airway pressure (nCPAP), for the prevention
and
treatment of infants at risk for respiratory failure; and (3) research
and development activities to explore improved formulations and expand
the
application of the Company’s technology in other respiratory conditions;
and
|
| (iii) |
general
and administrative expenses for the quarter ended December 31, 2006
were
$2.0 million, a decrease of $3.3 million compared to the same period
in
2005. Expenses in the fourth quarter of 2006 include, but are not limited
to, the costs of executive management, defense costs related to pending
securities class actions and derivative litigation, evaluation of various
strategic business alternatives, financial and legal management and
other
administrative costs. Included in the fourth quarter of 2005 are costs
associated with building a United States commercial infrastructure.
The
decrease compared to last year primarily reflects the Company’s decision,
in response to the April 2006 Approvable Letter and the Surfaxin process
validation stability failure, to discontinue this commercial capability.
|
Financial
Results for the Year Ended December 31, 2006
For
the
twelve months ended December 31, 2006, the Company reported a net loss of $46.3
million (or $0.74 per share) on 62.8 million weighted average common shares
outstanding compared to a net loss of $58.9 million (or $1.09 per share) on
54.1
million weighted average common shares outstanding for the same period in 2005.
Included in the net loss for the twelve months ended December 31, 2006 is a
charge of $5.5 million (or $0.09 per share) for stock-based compensation
associated with FAS 123(R), which the Company adopted effective January 1,
2006,
and 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 following
receipt of the April 2006 Approvable Letter and the Surfaxin process validation
stability failure. Included in the net loss for the twelve months ended December
31, 2005 is a charge of $16.8 million (or $0.31 per share) for the purchase
of
our manufacturing operation in Totowa, New Jersey. Excluding these charges,
the
non-GAAP net loss for the twelve months ended December 31, 2006 was $36.0
million (or $0.57 per share) compared to $42.1 million (or $0.78 per share)
for
the same period in 2005.
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
statements of operations for the three and twelve months ended December 31,
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 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 SRT pipeline has the potential to advance respiratory medicine
and
address a variety of respiratory diseases affecting premature infants, children
and adults.
Discovery’s
lead product candidate, Surfaxin®,
is the
subject of an Approvable Letter from the FDA for the prevention of Respiratory
Distress Syndrome in premature infants. Surfaxin is also being developed for
the
prevention and treatment of Bronchopulmonary Dysplasia in premature infants.
Aerosurf™, Discovery’s aerosolized SRT, is being developed initially to treat
premature infants suffering from respiratory disorders and is intended to
obviate the need for intubation and conventional mechanical ventilation.
Discovery’s SRT pipeline also includes programs potentially addressing Acute
Lung Injury, Acute Respiratory Failure, Cystic Fibrosis, Acute Respiratory
Distress Syndrome, 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
potentially conditioned upon 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 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 related 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 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 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.
Company
Contact:
Lisa
Caperelli, Investor Relations
215-488-9413
|
Condensed
Consolidated Statements of Operations
(in
thousands, except per share data)
|
|
Three
Months Ended
|
|||||||||||||
|
December
31,
|
Twelve
Months Ended
|
||||||||||||
|
(unaudited)
|
December
31,
|
||||||||||||
|
2006
|
2005
|
2006
|
2005
|
||||||||||
|
Revenues
from collaborative agreements
|
$
|
--
|
$
|
29
|
$
|
--
|
$
|
134
|
|||||
|
Operating
expenses:
|
|||||||||||||
|
Research
and development (1)
|
4,988
|
7,477
|
23,716
|
24,137
|
|||||||||
|
General
and administrative (1)
|
2,957
|
5,323
|
18,386
|
18,505
|
|||||||||
|
Restructuring
charge
|
--
|
--
|
4,805
|
--
|
|||||||||
|
In-process
research & development
|
--
|
16,787
|
--
|
16,787
|
|||||||||
|
Total
operating expenses
|
7,945
|
29,587
|
46,907
|
59,429
|
|||||||||
|
Operating
loss
|
(7,945
|
)
|
(29,558
|
)
|
(46,907
|
)
|
(59,295
|
)
|
|||||
|
Other
income / (expense)
|
100
|
202
|
574
|
391
|
|||||||||
|
Net
loss
|
$
|
(7,845
|
)
|
$
|
(29,356
|
)
|
$
|
(46,333
|
)
|
$
|
(58,904
|
)
|
|
|
Net
loss per common share
|
$
|
(0.12
|
)
|
$
|
(0.51
|
)
|
$
|
(0.74
|
)
|
$
|
(1.09
|
)
|
|
|
Weighted
average # of common shares outstanding
|
66,195
|
57,843
|
62,767
|
54,094
|
|||||||||
|
|
|||||||||||||
| (1) |
Included
in expenses for the three and twelve months ended December 31,
2006 are
charges of $1.3 million ($0.4 million classified as research and
development and $0.9 million classified as general and administrative)
(or
$0.02 per share) and $5.5 million ($1.6 million classified as research
and
development and $3.9 million classified as general and administrative)
(or
$0.09 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)
|
|
December
31,
|
December
31,
|
||||||
|
2006
|
2005
|
||||||
|
ASSETS
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and marketable securities
|
$
|
27,002
|
$
|
50,908
|
|||
|
Prepaid
expenses and other current assets
|
565
|
560
|
|||||
|
|
|||||||
|
Total
Current Assets
|
27,567
|
51,468
|
|||||
|
Property
and equipment, net
|
4,794
|
4,322
|
|||||
|
Other
assets
|
2,039
|
218
|
|||||
|
Total
Assets
|
$
|
34,400
|
$
|
56,008
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
5,953
|
$
|
7,540
|
|||
|
Loan
payable
|
--
|
8,500
|
|||||
|
Capitalized
leases and other liabilities
|
2,015
|
1,568
|
|||||
|
Total
Current Liabilities
|
7,968
|
17,608
|
|||||
|
Long-Term
Liabilities:
|
|||||||
|
Loan
payable, including accrued interest
|
8,907
|
--
|
|||||
|
Capitalized
leases and other liabilities
|
3,203
|
3,562
|
|||||
|
Total
Liabilities
|
20,078
|
21,170
|
|||||
|
Stockholders'
Equity
|
14,322
|
34,838
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
34,400
|
$
|
56,008
|
|||