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
6, 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:
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
November 6, 2007, Discovery Laboratories, Inc. (the “Company”) issued a press
release announcing financial results for the third quarter ended September
30,
2007, and providing selected updates concerning Surfaxin® (lucinactant) for the
prevention of Respiratory Distress Syndrome (RDS) in premature infants and
the
completion of a new research and analytical laboratory in the Company’s
Warrington, PA headquarters. 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
November 6, 2007, the Company held a conference call to discuss the financial
results for the third quarter ended September 30, 2007. On the call, the
Company provided an estimate of aggregate cash outflows from operating and
investing activities for the fourth fiscal quarter of 2007 of approximately
$9.0-9.5 million.
2
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits
|
99.1
|
Press
release dated November 6, 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.
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 6, 2007
4
Discovery
Labs Reports Third Quarter 2007 Financial Results
Warrington,
PA — November 6, 2007 — Discovery Laboratories, Inc. (Nasdaq:
DSCO),
today
announced financial
results for the third quarter ended September 30, 2007. The Company will
host a
conference call today at 10:00 AM EST. The
call in number is 866-332-5218.
For
the
quarter ended September 30, 2007, the Company reported a net loss of $9.3
million (or $0.11 per share) on 84.6 million weighted average common shares
outstanding compared to a net loss of $8.0 million (or $0.13 per share) on
62.3
million weighted average common shares outstanding for the same period in
2006.
Included in the net loss is a charge of $1.1 million associated with stock-based
compensation as a result of our adoption of Financial Accounting Standards
No.
123(R) (“FAS 123(R)”). Additionally, the Company’s cash burn from operating
activities and debt service was $7.7 million in the third quarter of 2007.
As of
September 30, 2007, the Company had 84.7 million common shares
outstanding.
As
of
September 30, 2007, the Company had cash and marketable securities of $33.1
million. In October, the company completed a financing pursuant to its Committed
Equity Financing Facility (CEFF) resulting in proceeds of $5.0 million from
the
issuance of approximately 1.9 million shares of common stock. Under the CEFF,
the Company may, at its discretion, access capital through the issuance of
up to
approximately 5.2 million shares (not to exceed aggregate proceeds of $35.5
million). Use of the CEFF is subject to certain conditions, including that,
to
initiate a draw down, the volume weighted average price of the Company’s common
stock on the trading day immediately preceding the draw down must be at least
$2.00 per share.
Select
Company Updates:
|
·
|
The
Company recently submitted to the FDA its formal response to the
April
2006 Approvable Letter for Surfaxin®
for the prevention of Respiratory Distress Syndrome (RDS) in premature
infants (Approvable Letter). In addition, the Company announced
in October
that its new Surfaxin process validation batches demonstrated acceptable
stability at six-months under the Company’s comprehensive stability
testing protocol. The formal response includes the six-month stability
data on the new Surfaxin process validation batches and addresses
the
outstanding CMC (chemistry, manufacturing and controls) matters
identified
in the Approvable Letter. Assuming that the FDA accepts the submission
as
a complete response, the Company anticipates that the FDA will
designate
the formal response as a Class II submission, thereby allowing
for a
six-month review period with a target approval date in the second
quarter
of 2008.
|
|
·
|
In
October, the Company completed the construction of a new research
and
analytical laboratory in its Warrington, PA corporate headquarters.
The
new laboratory will consolidate the analytical and operational
activities
that are presently located in Doylestown, PA and Mountain View,
CA,
including analytical testing of raw materials and commercial and
clinical
drug product supply, as well as research and development of the
Company’s
aerosol SRT and other novel formulations. The consolidation of
scientific
and analytical resources into one facility will allow the Company
to
leverage professional and scientific expertise and improve both
operational efficiency and financial economics.
|
The
investment in the new laboratory will be $3.3M ($2.6M is reflected on the
balance sheet as property and equipment at September 30, 2007 with the remainder
anticipated in Q4). The Company anticipates that 95% of the total project
will
be financed utilizing: (i) the existing secured credit facility with Merrill
Lynch Capital; (ii) $650,000 from the State of Pennsylvania (includes a $500,000
Equipment Loan, and grants of up to $150,000 through the Opportunities Grant
Program and Customized Job Training Funds); and (iii) $400,000 of landlord
contributions under the Company’s existing lease agreement.
Robert
J.
Capetola, Ph.D., President and Chief Executive Officer of Discovery, commented,
“Surfaxin has the potential to raise the standard of care for premature infants
and, we believe, is the foundation on which to build an important respiratory
franchise. The Company’s top priority is to gain FDA approval of Surfaxin.
Filing of our response to the Approvable Letter and achieving six-months
stability on our new Surfaxin process validation batches are important
milestones towards achieving that goal.
Aerosurf™,
aerosolized SRT delivered through non-invasive methods, holds the promise
to
significantly expand the use of surfactants in neonatal and pediatric medicine.
The recent consolidation of
our
labs will permit our scientific and development experts to collaborate more
efficiently in the management of our pipeline, specifically Aerosurf and
our
aerosolized SRT.”
Third
Quarter 2007 Operating Expenses:
Total
operating expenses for the quarter ended September 30, 2007 were $9.3 million
compared to $8.0 million for the same period in 2006. The increase in this
quarter compared to the same period last year is primarily due to investment
in:
(i) quality assurance and analytical chemistry capabilities to ensure compliance
with current good manufacturing practices (cGMP); (ii) costs associated with
preparation of the Company’s formal response to the Approvable Letter; and (iii)
costs associated with the Company’s recently initiated Phase 2 clinical trial to
evaluate the use of Surfaxin in children up to two years of age with Acute
Respiratory Failure. For the third quarter of 2007, the components of the
$9.3
million operating expense included:
|
·
|
manufacturing
development expenses (included in research and development expenses)
of
$3.1 million, including: (i) costs to operate the Company’s manufacturing
facility to support production of clinical and anticipated commercial
drug
supply for the Company’s Surfactant Replacement Therapies (SRT) programs;
(ii) continued investment in the Company’s quality assurance and
analytical chemistry capabilities to ensure compliance with cGMP;
(iii)
activities associated with developing data and other information
necessary
for the Company’s formal response to the Approvable Letter; and (iv)
activities to develop additional formulations of the Company’s
SRT;
|
|
·
|
research
and development expenses (excluding manufacturing development activities)
of $3.1 million associated with infrastructure development, including
clinical trial management, regulatory compliance, data management
and
biostatistics, and medical and scientific affairs activities as
well as
direct program expenses to advance the Company’s SRT pipeline, including:
(i) costs associated with developing data and other information
necessary
for the Company’s formal response to the Approvable Letter; (ii)
activities associated with the ongoing Phase 2 clinical trial to
evaluate
Surfaxin in
children up to two years of age with
Acute Respiratory Failure;
and (iii) development activities related to Aerosurf™,
the Company’s proprietary SRT in aerosolized form administered through
nasal continuous positive airway pressure (nCPAP), to address premature
infants at risk for respiratory failure;
and
|
|
·
|
general
and administrative expenses of $3.1 million, including costs associated
with executive management, evaluation of various strategic business
alternatives, financial and legal management and other administrative
costs.
|
|
·
|
$1.1
million, classified in the amounts above as $0.3 million in research
and
development and $0.8 million in general and administrative, is
associated
with stock-based employee compensation resulting from Financial
Accounting
Standards No. 123(R).
|
Debt
Arrangements at September 30, 2007:
The
Company had $9.5 million outstanding under its long-term loan with PharmaBio
Development Inc., a strategic investment group of Quintiles Transnational
Corp.
The outstanding principal and all accrued interest since July 1, 2006, is
due
and payable on April 30, 2010. The Company may repay this loan in whole or
in
part at any time prior to April 2010 without prepayment penalty or
premium.
The
Company has a $12.5 million secured credit facility with Merrill Lynch Capital
to finance capital expenditures, of which $9.0 million was initially immediately
available and up to $3.5 million will become available as the Company raises
new
capital through business development partnerships, stock offerings and other
similar financings. As of September 30, 2007, $4.9 million is outstanding,
of
which $2.1 million is classified as a current liability and $2.8 million
is
classified as a long-term liability. In the third quarter, the Company used
$1.3
million under this facility, primarily to finance the new laboratory. As
of
September 30, 2007, $3.5 million is currently available for use under this
facility.
Financial
Results for the Nine Months Ended September 30, 2007:
For
the
nine months ended September 30, 2007, the Company reported a net loss of
$28.0
million (or $0.35 per share) on 79.5 million weighted average common shares
outstanding compared to a net loss of $38.5 million (or $0.62 per share)
on 61.7
million weighted average common shares outstanding for the same period in
2006.
Included in the net loss for the nine months ended September 30, 2006 is
a
charge of $4.8 million (or $0.08 per share) associated with a corporate
restructuring following receipt of the Approvable Letter and the process
validation stability failure.
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 Labs’ technology produces a
precision-engineered surfactant that is designed to closely mimic the essential
properties of natural human lung surfactant. Discovery Labs believes that
its
proprietary SRT pipeline has the potential to advance respiratory medicine
and
address a variety of respiratory diseases affecting neonatal, pediatric and
adult patients.
Discovery
Labs’ 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
other neonatal and pediatric indications. Aerosurf™, Discovery Labs’ aerosolized
SRT, is being developed to potentially obviate the need for intubation and
conventional mechanical ventilation and holds
the
promise to significantly expand the use of surfactants in respiratory medicine.
For
more
information, please visit our website at www.Discoverylabs.com.
To
the extent that statements in this press release are not strictly historical,
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 risk factors which could affect Discovery Labs actual results and could
cause results to differ from those contained in these forward-looking statements
are the risks that: Discovery Labs may be unable to profitably develop and
market its products; financial market conditions may change; Discovery Labs
may
not be able to raise additional capital or enter into additional collaboration
agreements; Discovery Labs may not be able to attract or retain qualified
personnel or timely provide for successful sales and marketing activities;
Discovery Labs’ research and development efforts may not progress; Discovery
Labs may not be successful in the FDA or other regulatory agency review process
generally, including that such regulatory authority will not approve the
marketing and sale of a drug product even after accepting an application
or may
withhold, delay and/or limit marketing a drug product by indication or impose
other label limitations; Discovery Labs’ recently-submitted response to the
Approvable Letter may not satisfy the FDA; Discovery Labs or its third party
manufacturers and development partners may be unable to manufacture or provide
adequate supplies of drug substances and expertise to allow for completion
of
any of Discovery Labs clinical studies; Discovery Labs and its collaborators
may
be unable to develop, manufacture and successfully commercialize products
that
combine Discovery Labs drug products with innovative aerosolization
technologies; Discovery Labs may not be able to successfully manufacture
its
drug product candidates; Discovery Labs’ significant, time-consuming and costly
research, development, pre-clinical studies, clinical testing and efforts
to
gain regulatory approval for any products that it may develop (independently
or
in connection with collaboration arrangements) may not succeed; other companies
may develop competing therapies and/or technologies; reimbursement and health
care reform may adversely affect Discovery Labs; and Discovery Labs may become
involved in securities, product liability and other litigation. 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 Labs 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 Statement of Operations
(in
thousands, except per share data)
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
|
September
30,
|
September
30,
|
||||||||||||
|
(unaudited)
|
(unaudited)
|
||||||||||||
|
2007
|
2006
|
2007
|
2006
|
||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||
|
Operating
expenses:
|
|||||||||||||
|
Research
and development (1)
|
6,184
|
5,204
|
18,400
|
18,728
|
|||||||||
|
General
and administrative (1)
|
3,147
|
2,723
|
9,366
|
15,429
|
|||||||||
|
Restructuring
charge
|
--
|
--
|
--
|
4,805
|
|||||||||
|
Total
expenses
|
9,331
|
7,927
|
27,766
|
38,962
|
|||||||||
|
Operating
loss
|
(9,331
|
)
|
(7,927
|
)
|
(27,766
|
)
|
(38,962
|
)
|
|||||
|
Other
income / (expense)
|
(16
|
)
|
(71
|
)
|
(275
|
)
|
474
|
||||||
|
Net
loss
|
$
|
(9,347
|
)
|
$
|
(7,998
|
)
|
$
|
(28,041
|
)
|
$
|
(38,488
|
)
|
|
|
Net
loss per common share
|
$
|
(0.11
|
)
|
$
|
(0.13
|
)
|
$
|
(0.35
|
)
|
$
|
(0.62
|
)
|
|
|
Weighted
average number of common shares outstanding
|
84,642
|
62,312
|
79,485
|
61,703
|
|||||||||
(1)
Expenses include a charge for stock-based employee compensation in accordance
with the provisions of FAS 123(R), which the Company adopted on January
1, 2006.
For the three and nine months ended September 30, 2007, the charges associated
with FAS 123(R) were $1.1 million ($0.3 million in R&D and $0.8 million in
G&A) and $3.5 million ($1.1 million in R&D and $2.4 million in G&A),
respectively. For the three and nine months ended September 30, 2006,
the
charges associated with FAS 123(R) were $0.9 million ($0.3 million in
R&D
and $0.6 million in G&A) and $4.1 million ($1.2 million in R&D and $2.9
million in G&A), respectively.
|
Condensed
Consolidated Balance Sheets
(in
thousands)
|
|
September
30,
|
December
31,
|
||||||
|
2007
|
2006
|
||||||
|
ASSETS
|
|||||||
| Current Assets: | |||||||
|
Cash
and marketable securities
|
$ | 33,086 |
$
|
27,002 | |||
|
Prepaid
expenses and other current assets
|
298
|
565
|
|||||
|
Total
Current Assets
|
33,384
|
27,567
|
|||||
|
Property
and equipment, net
|
7,186
|
4,794
|
|||||
|
Other
assets
|
1,778
|
2,039
|
|||||
|
Total
Assets
|
$
|
42,348
|
$
|
34,400
|
|||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
$
|
6,819
|
$
|
5,953
|
|||
|
Capitalized
leases and other liabilities
|
2,146
|
2,015
|
|||||
|
Total
Current Liabilities
|
8,965
|
7,968
|
|||||
|
Long-Term
Liabilities:
|
|||||||
|
Loan
payable, including accrued interest
|
9,452
|
8,907
|
|||||
|
Capitalized
leases and other liabilities
|
3,663
|
3,203
|
|||||
|
Total
Liabilities
|
22,080
|
20,078
|
|||||
|
Stockholders'
Equity
|
20,268
|
14,322
|
|||||
|
Total
Liabilities and Stockholders' Equity
|
$
|
42,348
|
$
|
34,400
|