Discovery Labs Reports Third Quarter 2012 Financial Results

         Discovery Labs Reports Third Quarter 2012 Financial Results

PR Newswire

WARRINGTON, Pa., Nov. 8, 2012

WARRINGTON, Pa., Nov.8, 2012 /PRNewswire/ --Discovery Laboratories, Inc.
(Nasdaq: DSCO), a specialty biotechnology company dedicated to advancing a new
standard in respiratory critical care, today reported financial results for
the third quarter ended September 30, 2012.

  oFor the third quarter of 2012, the Company reported an operating loss of
    $10.0 million with net cash outflows of $9.9million. As of September 30,
    2012, the Company had cash and cash equivalents of $36.1million.
  oThe Company has deployed its newly-hired field force to focus on the
    near-term objective of securing hospital formulary acceptance for
    SURFAXIN^® and adoption of AFECTAIR^®.
  oThe Company anticipates product availability for SURFAXIN early in the
    second quarter of 2013 and its initial AFECTAIR device for infants in
    December 2012.
  oThe Company remains focused on the development of AEROSURF^® and is on
    track for the potential initiation of a phase 2 clinical trial in the
    second half of 2013. To prepare for this effort, the Company plans to
    complete development and validation of its commercial scale manufacturing
    process for its lyophilized KL4 surfactant and a 'clinic ready' capillary
    aerosol generator (CAG) device by mid-2013.

For the quarter ended September 30, 2012, the Company reported a net loss of
$13.3 million ($0.31 per share) on 43.4 million weighted-average common shares
outstanding, compared to a net loss of $4.8million ($0.20 per share) on 24.1
million weighted-average common shares outstanding for the comparable period
in 2011. Included in the net loss is the change in fair value of certain
common stock warrants that are classified as derivative liabilities, resulting
in non-cash expense of $3.3 million for quarter ended September 30, 2012 and
non-cash income of $1.4 million for the quarter ended September 30, 2011.

The Company reported an operating loss of $10.0 million for the quarter ended
September 30, 2012 compared to an operating loss of $6.2 million for the
comparable period in 2011. The increase in the operating loss is primarily
due to investments in the Company's specialty commercial and medical affairs
organizations, including a field sales force, national accounts team and
medical science liaison team. These teams are focused primarily on gaining
hospital formulary acceptance for SURFAXIN and adoption of AFECTAIR.

Net cash outflows for the quarter ended September 30, 2012 were $9.9 million.
For the fourth quarter of 2012, the Company anticipates operating cash
outflows of $9.5 million, before taking into account financing activities.

As of September 30, 2012, the Company had cash and cash equivalents of
$36.1million. The Company had 43.5 million and 24.6 million shares of common
stock outstanding as of September 30, 2012 and December 31, 2011,
respectively.

As of September 30, 2012, the Company reported a common stock warrant
liability of $11.9 million, of which $11.4 million is related to five-year
warrants issued in February 2011. These warrants have been classified as
derivative liabilities in accordance with generally accepted accounting
principles because they contain anti-dilution provisions that adjust the
exercise price of the warrants in certain circumstances. The remaining
balance of $0.5 million is related to registered warrants issued in May 2009
and February 2010. These warrants state that, in the event a related
registration statement or an exemption from registration is not available for
the issuance or resale of the warrant shares upon exercise of the warrants,
the holder may exercise the warrants on a cashless basis. However, regardless
of the remote likelihood that an event would result in cash settlement, the
warrants have been classified as derivative liabilities in accordance with
generally accepted accounting principles because they do not expressly state
that there is no circumstance in which the Company will be required to settle
the warrants in cash.

Readers are referred to, and encouraged to read in their entirety, the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
2012 to be filed with the Securities and Exchange Commission, which includes
further detail on the above-referenced transactions and the Company's business
plans and operations, financial condition and results of operations.

ABOUT DISCOVERY LABS
Discovery Laboratories, Inc. is a specialty biotechnology company with one
focus – to advance a new standard in respiratory critical care. Discovery
Labs' novel proprietary KL[4] surfactant technology produces a synthetic,
peptide-containing surfactant that is structurally similar to pulmonary
surfactant and is being developed in liquid, lyophilized, and aerosolized
dosage forms. Discovery Labs is also developing its proprietary drug delivery
technologies to enable efficient delivery of aerosolized KL[4] surfactant and
other inhaled therapies. Discovery Labs believes that its proprietary
technologies make it possible, for the first time, to develop a significant
pipeline of products to address a variety of respiratory diseases for which
there frequently are few or no approved therapies. For more information,
please visit our website at www.Discoverylabs.com.

Forward-Looking Statements
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, including projections of future
cash balances and anticipated cash outflows, to differ materially from the
statements made. Examples of such risks and uncertainties are: risks relating
to Discovery Labs' efforts to successfully commercialize SURFAXIN and
AFECTAIR, including: (i)whether Discovery Labs' products will meet the
requirements to be included in the hospitals' purchasing lists of approved
drug products, medical devices and equipment, (ii) whether Discovery Labs'
products will gain market acceptance and healthcare professionals will
recognize the perceived advantages over the currently available products,
(iii)whether Discovery Labs will succeed in introducing its products using
its own commercial and medical affairs organizations; (iv) whether Discovery
Labs will be successful in completing development of, and introducing, its
planned second vial size for SURFAXIN and follow-on AFECTAIR devices; and (v)
even if Discovery Labs is successful in commercializing its products, whether
its products will be profitable and whether the revenues generated will be
sufficient to fund Discovery Labs' research and development activities and
support its operations; risks that Discovery Labs may be unable in a timely
manner, if at all, (i) to identify potential strategic partners or
collaborators to support development of its products and, if approved,
commercialize its products in markets outside the U.S., (ii) to access its
committed equity financing facility (CEFF), or (iii) to raise additional
capital to fund its activities, or that additional financings could result in
substantial equity dilution; risks related to Discovery Labs' research and
development activities, including time-consuming and expensive pre-clinical
studies, clinical trials, which may be subject to potentially significant
delays or regulatory holds, or fail, and the need for sophisticated and
extensive analytical methodologies; risks related to technology transfers to
contract manufacturers and problems, or delays encountered by Discovery Labs,
its contract manufacturers or suppliers in manufacturing drug products, drug
substances and other materials and ventilator circuit/patient interface
connectors and CAG devices on a timely basis and in an amount sufficient to
support Discovery Labs' development efforts and, if approved,
commercialization; risks relating to the rigorous regulatory requirements
required for approval of any drug, drug-device combination or medical device
products that Discovery Labs may develop, including that: (a) the U.S. Food
and Drug Administration (FDA) or other regulatory authorities may not agree
with Discovery Labs on matters raised during regulatory reviews or may require
Discovery Labs to conduct significant additional activities to potentially
gain approval of its product candidates, if ever, (b)the FDA or other
regulatory authorities may not accept or may withhold or delay consideration
of any of Discovery Labs' applications, or may not approve or may limit
approval of Discovery Labs' products to particular indications or impose
unanticipated label limitations, and(c)changes in the national or
international political and regulatory environment may make it more difficult
to gain FDA or other regulatory approval; the risk that Discovery Labs or its
strategic partners or collaborators will not be able to retain, or attract,
qualified personnel; the risk that Discovery Labs will be unable to maintain
compliance with The Nasdaq Capital Market listing requirements, which could
cause the price of Discovery Labs' common stock to decline; risks that
Discovery Labs may be unable to maintain and protect the patents and licenses
related to its products, or other companies may develop competing therapies
and/or technologies, or health care reform may adversely affect Discovery
Labs; risks of legal proceedings, including securities actions and product
liability claims; risks relating to health care reform; and other risks and
uncertainties 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.

 Condensed Consolidated Statement of Operations
 (in thousands, except per share data)
                        
                                                           Nine Months Ended
                        Three Months Ended
                        September 30,                      September 30
                        (unaudited)                        (unaudited)
                        2012             2011              2012      2011
  Revenue from                                             $      $   
  collaborative         $          $                     
  arrangement and         –                –          –      582
  grants
  ^Operating
  expenses: ^(1)
  Research and          5,743            3,981             15,482    13,216
  development
  Selling, general      4,255            2,189             9,912     5,975
  and administrative
  Total expenses        9,998            6,170             25,394    19,191
  Operating loss        (9,998)          (6,170)           (25,394)  (18,609)
  Change in fair
  value of common       (3,309)          1,422             (5,063)   1,957
  stock warrant
  liability ^(1)
  Other income /        (39)             (3)               (43)      (12)
  (expense), net
                        $              $             $      $   
  Net loss              (13,346)        (4,751)          (30,500)  
                                                                     (16,664)
  Net loss per common   $            $            $      $   
  share                 (0.31)          (0.20)                     
                                                           (0.80)    (0.75)
  Weighted avg.
  common shares         43,444           24,106            38,061    22,104
  outstanding
  (1) Material non-cash items include the change in fair value of certain
  outstanding warrants accounted for as derivative liabilities, and in
  operating expenses, depreciation and stock-based compensation. For the three
  and nine months ended September 30, 2012, the charges for depreciation and
  stock-based compensation were $0.8 million ($0.4 million in R&D and $0.4
  million in S,G&A) and $2.1 million ($1.2 million in R&D and $0.9 million in
  S,G&A), respectively. For the three and nine months ended September 30,
  2011, the charges for depreciation and stock-based compensation were $0.5
  million ($0.4 million in R&D and $0.1 million in S,G&A) and $1.5 million
  ($1.1 million in R&D and $0.4 million in S,G&A), respectively.



Condensed Consolidated Balance Sheets
(in thousands)
                                   September 30,       December 31,
                                   2012                2011
ASSETS                             (Unaudited)
Current Assets:
Cash and cash equivalents          $              $     
                                   36,064             10,189
Prepaid expenses and other current 1,293               442
assets
Total current assets               37,357              10,631
Property and equipment, net        1,995               2,293
Other assets                       400                 400
Total Assets                       $              $     
                                   39,752             13,324
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
 Accounts payable             $            $     
                                    208                1,111
 Accrued expenses             3,665               2,972
 Common stock warrant         11,923              6,996
liability
 Equipment loan and
capitalized leases, current        68                  68
portion
Total Current Liabilities          15,864              11,147
Long-Term Liabilities:
Equipment loan and capitalized
leases, non-current portion &      837                 913
other liabilities
Total Liabilities                  16,701              12,060
Stockholders' Equity               23,051              1,264
Total Liabilities and              $              $     
Stockholders' Equity               39,752             13,324

SOURCE Discovery Laboratories, Inc.

Website: http://www.discoverylabs.com
Contact: Media Relations, Michael Parks of Pitch360, +1-484-356-7105,
Michael@pitch360inc.com; Investor Relations, Michael Rice of LifeSci Advisors,
+1-646-597-6979, mrice@lifesciadvisors.com, or John G. Cooper, President and
Chief Financial Officer, +1-215-488-9490
 
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