Discovery Laboratories Inc. (Nasdaq: DSCO) - Rejected but Not Giving Up!

Discovery Labs (Nasdaq: DSCO) seems to be slowly recovering after their stock plummeted nearly 50% on May 2, 2008. The company is in development of a new drug called Surfaxin. The drug should help to prevent respiratory distress syndrome usually evidenced in premature infants. The stock fall occurred after the Food and Drug Administration did not approve Surfaxin. The drug was still called approvable, however conditions under which that may happen were not disclosed.

While waiting for the approval of Surfaxin, Discovery continues to lose money. The company announced a net loss of $9.7 million for the first quarter of 2008. Such bad news however is offset by the fact that Discovery has $41.5 million in cash and marketable securities. Also the company has stated they will not require costly additional clinical trials to provide the FDA with requested additional information.

Discovery expects to complete the needed adjustments and file a response to FDA in the coming 6 - 8 weeks. The company's Vice Presicent and CFO, John G. Cooper expressed a strong belief that Surfaxin will be approved in 2008. Considering the expected cash burn rate or $9 to $10 million per quarter the company would have serious problems in 2009 if such expectations would not be fulfilled.

On the development of their other drug, Aerosurf, the company has modified their collaboration agreement with Chrystalis Technologies. Pursuant to the new agreement, the company will receive $4.5 million from Chrystalis to support the development however, Discovery will become fully responsible for the preparation of capillary aerosolization technology into devices for clinical and commercial application.

The company's stock has regained 30% on May 5, 2008, after Discovery's statement they will not require additional clinical trials. Naturally the slight downtrend can still be seen as the company keeps losing money. However, Discovery is currently not leveraged and seems to hold the right potential for future growth. It's just a question of their ability to get approval for Surfaxin before they run out of cash. Hopefully that will not happen.

The company shows further signs of progress, as on May 7, 2008, they have disclosed that research results have proven Surfaxin to display antimicrobial properties and induces no immune response in preclinical models. Such news might be followed by the positive stock move today as investors regain belief in company's potential.

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