Discovery Labs Reports Fourth Quarter 2012 Financial Results

         Discovery Labs Reports Fourth Quarter 2012 Financial Results

PR Newswire

WARRINGTON, Pa., March 13, 2013

WARRINGTON, Pa., March 13, 2013 /PRNewswire/ --Discovery Laboratories, Inc.
(Nasdaq: DSCO), a specialty biotechnology company dedicated to advancing a new
standard in respiratory critical care, today reports financial results for the
fourth quarter ended December 31, 2012 and also provides certain program
updates. The Company will host a conference call this morning at 10:00 AM
ET. Conference call details are below.

Selected Financial Information (further details provided in the summary
financial results below):

  oFor the fourth quarter of 2012, the Company reported an operating loss of
    $12.4 million. Excluding a one-time charge of $2.0 million, the operating
    loss was $10.4 million. Net cash outflows for the quarter were
    $9.2million.
  oAs of December 31, 2012, the Company had cash and cash equivalents of
    $26.9million.
  oIn February 2013, the Company entered into two agreements that,
    collectively, may provide access to up to $55 million additional
    financing; a $30 million secured loan facility with Deerfield Management
    Company, L.P. (Deerfield); and an at-the-market equity sales program (ATM
    Program) with Stifel, Nicolaus & Company, Incorporated (Stifel), under
    which the Company may, at its discretion, from time to time, sell up to a
    maximum of $25million of its shares of common stock to support its
    business plans.

"We believe that our RDS product portfolio has the potential to become the new
standard of care for RDS and, over time, significantly expand the worldwide
surfactant market. With our recent financing transactions, we have
strengthened the financial position of our Company and continue to advance our
key priorities," commented John G. Cooper, President and Chief Executive
Officer at Discovery Labs. "As we anticipate the availability of SURFAXIN^®
drug product in the second quarter, our specialty field force has been focused
primarily on securing hospital formulary acceptance for SURFAXIN, as well as
adoption of AFECTAIR^®. We continue to make progress on our AEROSURF^®
development program and plan to initiate our phase 2 clinical program in the
fourth quarter of 2013."

Selected Program Updates:

SURFAXIN: SURFAXIN (lucinactant) intratracheal suspension is the first
synthetic, peptide-containing surfactant approved by the Food and Drug
Administration (FDA) and provides healthcare practitioners an alternative to
animal-derived surfactants to prevent respiratory distress syndrome (RDS) in
premature infants. In the third quarter of 2012, the Company determined that
one of the analytical chemistry methods used to assess SURFAXIN drug product
conformance to specifications required improvement and that an update to
product specifications was needed. As a result, the Company delayed the
commercial launch of SURFAXIN. The Company proactively communicated these
findings to the FDA, improved and validated the analytical chemistry method,
and submitted updated product specifications to the FDA. The planned
activities remain on track, and, pending confirmation from the FDA regarding
the updated product specifications; the Company believes that SURFAXIN will be
available for commercial sale in the second quarter of 2013. 

AEROSURF: ^The Company is developing AEROSURF as a drug/device combination
product to potentially allow neonatal practitioners to deliver aerosolized KL4
surfactant to premature infants without the need for invasive endotracheal
intubation. If efforts are successful, AEROSURF could enable the treatment of
a significantly greater number of premature infants at risk for RDS. The
Company is progressing with third-party medical device experts to optimize the
design of its capillary aerosol generator (CAG). Additionally, the Company
plans to use a lyophilized dosage form of KL4 surfactant in the AEROSURF
program and is working to complete the ongoing technology transfer of the
manufacturing process to a contract manufacturing organization (CMO) that has
expertise in lyophilization. The Company anticipates completion of both of
these activities in mid-2013, facilitating the initiation of the planned phase
2 clinical program in the fourth quarter of 2013.

AFECTAIR:^ The Company is beginning the commercial introduction of its
AFECTAIR aerosol-conducting airway connector for infants receiving aerosolized
medication in neonatal or pediatric intensive care units with a user
experience program that is being conducted in select U.S. critical care
centers that represent approximately ten percent (10%) of target
institutions. This initial phase is intended to facilitate peer-to-peer
exchange among physicians and respiratory therapists and enable discussion
about the potential advantages and proper utilization of this novel device.
Upon anticipated completion of this phase in the second quarter of 2013, the
Company will initiate a broader introduction of AFECTAIR.

Summary Financial Results for the Fourth Quarter ended December 31, 2012

For the quarter ended December 31, 2012, the Company reported a net loss of
$6.8 million ($0.16 per share) on 43.5 million weighted-average common shares
outstanding, compared to a net loss of $4.3million ($0.18 per share) on 24.3
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 income of $5.6 million and $1.6 million for the quarters ended
December 31, 2012 and 2011, respectively.

The Company reported an operating loss of $12.4 million for the quarter ended
December 31, 2012 compared to an operating loss of $5.9 million for the
comparable period in 2011. The increase is primarily due to (i) investments
in the Company's specialty commercial and medical affairs organizations,
including a field sales force, national accounts and medical science liaison
teams, which are currently focused on gaining hospital formulary acceptance
for SURFAXIN and adoption of AFECTAIR; (ii) investments in the technology
transfer to a CMO of its manufacturing process for lyophilized KL4 surfactant
and the optimization of its CAG device, both for use in the planned AEROSURF
phase 2 clinical program; and (iii) a one-time $2.0 million charge associated
with certain contractual severance obligations related to the resignation of
its former Chief Executive Officer, including $0.8 million of non-cash
stock-based compensation charges.

Operating cash outflows for the quarter ended December 31, 2012 were $9.2
million. For the first quarter of 2013, the Company anticipates operating
cash outflows of approximately $10.5 million, before taking into account
financing activities.

As of December 31, 2012, the Company had cash and cash equivalents of
$26.9million. In February 2013, the Company secured access to up to $55
million in potential additional financing through a $30 million secured loan
facility with Deerfield (Deerfield Facility) and a $25 million ATM Program
with Stifel. Under terms of the Deerfield Facility, Deerfield advanced to the
Company $10 million upon execution of the agreement and agreed to advance an
additional $20 million upon the first commercial sale of SURFAXIN. Amounts
outstanding under the Deerfield Facility accrue interest at 8.75% and
principal repayments are payable on the fourth, fifth and sixth anniversary of
the agreement except that, if certain revenue or market capitalization
milestones are achieved, the fourth and fifth anniversary payments may be
deferred for one year. In conjunction with the $10 million advance, Deerfield
received warrants to purchase approximately 2.3 million shares of common stock
at an exercise price of $2.81. Upon disbursement of the $20 million advance,
Deerfield will receive additional warrants to purchase approximately 4.7
million shares of common stock at an exercise price of $2.81. All of the
warrants will expire on the sixth anniversary date of the Deerfield Facility.
Under the ATM Program, the Company may sell, at such times and amounts as it
deems appropriate, up to $25 million of shares of common stock to support its
business plans. The Company is not required to sell any shares at any time
during the term of the ATM Program.

The Company had 43.7 million and 24.6 million shares of common stock
outstanding as of December 31, 2012 and 2011, respectively.

As of December 31, 2012, the Company reported a common stock warrant liability
of $6.3 million, of which $6.2 million is related to five-year warrants issued
in February 2011. These warrants state that there is no circumstance in which
the Company shall be required to effect a net cash settlement; however, they
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.

Readers are referred to, and encouraged to read in their entirety, the Forms
8-K regarding the matters referred to herein, including any exhibits attached
thereto, and the Company's Annual Report on Form 10-K for the year ended
December 31, 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.

Conference Call and Audio Webcast Details
Discovery Labs will hold a conference call and audio webcast today at 10:00 AM
ET to discuss the foregoing. The call in number is (877) 215-0093. The
international call in number is (706) 679-3237. The passcode is 20394319.
This audio webcast will be available at
http://us.meeting-stream.com/discoverylaboratories_031313 and
www.discoverylabs.com. The replay number to hear the conference call is (855)
859-2056 or (404) 537-3406 using the same conference call password listed
above.

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 KL4 surfactant technology produces a synthetic,
peptide-containing surfactant that is structurally similar to pulmonary
surfactant. Discovery Labs is also developing its proprietary drug delivery
technologies to enable efficient delivery of aerosolized KL4 surfactant and
other inhaled therapies.

Discovery Labs' strategy is initially focused on the development of its
technologies to improve the management of respiratory distress syndrome (RDS)
in premature infants. SURFAXIN is the first synthetic, peptide-containing
(KL4) surfactant approved by the FDA and the only alternative to
animal-derived surfactants. AEROSURF is a drug/device combination product
being developed to enable efficient delivery of aerosolized KL4 surfactant.
If approved, AEROSURF potentially will provide neonatologists with the ability
to deliver surfactant therapy using a less-invasive method and thereby enable
the treatment of premature infants who could benefit from surfactant therapy
but who are currently not treated. Discovery Labs believes that its RDS
product portfolio has the potential to become the new standard of care for RDS
and, over time, significantly expand the current worldwide RDS market.

For more information, please visit www.Discoverylabs.com.

About SURFAXIN
SURFAXIN (lucinactant) intratracheal suspension is intended for intratracheal
use only. The administration of exogenous surfactants, including SURFAXIN,
can rapidly affect oxygenation and lung compliance. SURFAXIN should be
administered only by clinicians trained and experienced with intubation,
ventilator management, and general care of premature infants in a highly
supervised clinical setting. Infants receiving SURFAXIN should receive
frequent clinical assessments so that oxygen and ventilatory support can be
modified to respond to changes in respiratory status.

Most common adverse reactions associated with the use of SURFAXIN are
endotracheal tube reflux, pallor, endotracheal tube obstruction, and need for
dose interruption. During SURFAXIN administration, if bradycardia, oxygen
desaturation, endotracheal tube reflux, or airway obstruction occurs,
administration should be interrupted and the infant's clinical condition
assessed and stabilized. SURFAXIN is not indicated for use in acute
respiratory distress syndrome (ARDS).

For more information about SURFAXIN, please visit www.surfaxin.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 and
expected results, to differ materially from the statements made. Examples of
such risks and uncertainties include risks that: in addition to revenues from
the sale of its commercial products, Discovery Labs  will require significant
additional capital to sustain its operations and development activities,
including planned clinical programs; Discovery Labs may not meet the
conditions for the $20 million disbursement under the Deerfield Facility, or
be unable to access its ATM Program or committed equity financing facility
(CEFF), or additional financings could result in substantial equity dilution,
or may be unable to secure additional capital when needed, from strategic
alliances; Discovery Labs may experience a significant delay beyond the second
quarter of 2013 in the commercial introduction of SURFAXIN and AFECTAIR in the
United States, or may not achieve the level of expected revenue; that
Discovery Labs may be unable to identify potential strategic partners or
collaborators or enter into strategic transactions to develop and
commercialize its products, if approved, in a timely manner, if at all;
Discovery Labs may be unable to manage its growth effectively and timely
modify its business strategy as needed to respond to developments in its
commercial operations, development activities, business and other factors;
Discovery Labs' sales and marketing organization may be unable to effectively
market SURFAXIN and AFECTAIR in the U.S. in a timely manner, if at all, and
may not succeed in developing market awareness of its products or its product
candidates will not gain market acceptance by physicians, patients, healthcare
payers and others in the medical community; that Discovery Labs will not meet
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)Discovery Labs and the U.S. Food and Drug
Administration (FDA) or other regulatory authorities will not be able to agree
on the matters raised during regulatory reviews, or Discovery Labs may be
required 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; Discovery Labs may be unable to develop and manufacture
drug products, AFECTAIR^® aerosol-conducting airway connectors and capillary
aerosol generator (CAG) devices for clinical studies, and, if approved, for
commercialization of drug and combination drug-device products and, if cleared
for marketing, medical device products, including risks of 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 aerosol-conducting airway
connectors and CAG devices on a timely basis or in an amount sufficient to
support Discovery Labs' development efforts and, if approved,
commercialization; Discovery Labs research and development activities may
involve (i)time-consuming and expensive pre-clinical studies, clinical trials
and other efforts, which may be subject to potentially significant delays or
regulatory holds, or fail, and (ii) the need for sophisticated and extensive
analytical methodologies; Discovery Labs or its strategic partners or
collaborators will not be able to retain, or attract, qualified personnel;
Discovery Labs may be unable to maintain compliance with The Nasdaq Capital
Market listing requirements; 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; Discovery Labs may be involved in legal
proceedings, including securities actions and product liability claims; and
health care reform may adversely affect Discovery Labs. These and other risks
and uncertainties are 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)
                        
                                                     Twelve Months Ended
                        Three Months Ended
                        December 31,                 December 31
                        (unaudited)                  (unaudited)
                        2012        2011             2012        2011
    Revenue from        $                                     $   
    collaborative                $         $          
    arrangement and     195          –              195   582
    grants
    Operating
    expenses: ^(1)
    Research and        6,088       4,014            21,570      17,230
    development
    Selling, general
    and                 6,532       1,889            16,444      7,864
    administrative
    Total expenses      12,620      5,903            38,014      25,094
    Operating loss      (12,425)    (5,903)          (37,819)    (24,512)
    

    Change in fair      5,618       1,603            555         3,560
    value of common
    stock warrant
    liability ^(1)
    Other income /      (8)         (1)              (51)        (13)
    (expense), net
                        $        $            $        $   
    Net loss            (6,815)     (4,301)         (37,315)    
                                                                 (20,965)
    Net loss per        $        $           $       $   
    common share         (0.16)    (0.18)           (0.95)      
                                                                 (0.93)
    Weighted avg.
    common shares       43,521      24,309           39,396      22,660
    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 twelve months ended December 31, 2012, the charges for
    depreciation and stock-based compensation were $1.1 million ($0.1 million
    in R&D and $1.0 million in S,G&A) and $2.4 million ($0.5 million in R&D
    and $1.9 million in S,G&A), respectively. Included in non-cash charges
    for the three and twelve months ended December 31, 2012 are one-time
    charges of $0.8 million associated with stock based compensation
    modification charges related to the severance agreement with its former
    CEO. For the three and twelve months ended December 31, 2011, the charges
    for depreciation and stock-based compensation were $0.4 million ($0.1
    million in R&D and $0.3 million in S,G&A) and $0.9 million ($0.3 million
    in R&D and $0.6 million in S,G&A), respectively.

    
           Condensed Consolidated Balance Sheets
           (in thousands)
                                         December        December
                                         31,             31,
                                         2012            2011
ASSETS                                   (Unaudited)
Current Assets:
Cash and cash equivalents                $          $    
                                         26,892          10,189
Prepaid expenses and other               914             442
current assets
Total current assets                     27,806          10,631
Property and equipment, net              1,737           2,293
Other assets                             400             400
Total Assets                             $          $    
                                         29,943          13,324
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
 Accounts payable                   $          $    
                                            1,166       1,111
 Accrued expenses                   4,159           2,972
 Common stock warrant               6,305           6,996
liability
 Equipment loan and
capitalized leases, current              69              68
portion
Total Current Liabilities                11,699          11,147
Long-Term Liabilities:
Equipment loan and
capitalized leases,                      591             913
non-current portion & other
liabilities
Total Liabilities                        12,290          12,060
Stockholders' Equity                     17,653          1,264
Total Liabilities and                    $          $    
Stockholders' Equity                     29,943          13,324



SOURCE Discovery Laboratories, Inc.

Website: http://www.discoverylabs.com
Contact: Investor Relations: Michael Rice of LifeSci Advisors,
+1-646-597-6979; or John Tattory, Vice President of Finance of Discovery Labs,
+1-215-488-9418; Media Relations: Michael Parks of Pitch360, +1-484-356-7105,
Michael@pitch360inc.com
 
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