Discovery Labs Reports First Quarter 2013 Financial Results

         Discovery Labs Reports First Quarter 2013 Financial Results

PR Newswire

WARRINGTON, Pa., May 7, 2013

WARRINGTON, Pa., May 7, 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
first quarter ended March 31, 2013 and also provides certain program updates.

Selected operational updates:

  oSURFAXIN^®: On April 15, 2013, the Company reported that it had received
    from the U.S. Food and Drug Administration (FDA) a response to a previous
    Company submission regarding an improved and revalidated analytical
    chemistry method and updated SURFAXIN drug product specifications. The FDA
    requested information and provided recommendations intended to clarify
    certain aspects of the revalidated analytical chemistry method and updated
    product specifications. The Company believes it can respond to the FDA by
    early-June. FDA procedure allows for up to four months for the FDA to
    review such submissions. If its plan is successful and the FDA agrees
    with its response, the Company expects to proceed with the commercial
    introduction of SURFAXIN in the fourth quarter of 2013.
  oAEROSURF^®: AEROSURF is a drug/device combination product that combines
    the Company's KL4 surfactant with its capillary aerosol generator (CAG)
    technology. The Company is developing AEROSURF with the goal of
    administering aerosolized KL4 surfactant to premature infants without
    having to use invasive endotracheal intubation. The Company believes that
    AEROSURF could enable the treatment of a significantly greater number of
    premature infants with respiratory distress syndrome (RDS). The Company,
    with the assistance of a third-party medical device expert, is advancing
    its efforts to optimize and manufacture its CAG for use in its planned
    phase 2 AEROSURF clinical program. The Company plans to use a lyophilized
    dosage form of its KL4 surfactant for AEROSURF and is also working to
    complete the technology transfer of its lyophilized manufacturing process
    to a contract manufacturing organization (CMO) with expertise in
    lyophilization. The Company plans to initiate its AEROSURF phase 2
    clinical program in the fourth quarter of 2013.
  oAFECTAIR^®: The Company has begun the commercial introduction of its
    AFECTAIR aerosol-conducting airway connector for infants receiving
    aerosolized medication in neonatal and pediatric intensive care units with
    a user experience program that is being conducted in select U.S. critical
    care centers representing approximately ten percent 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. This phase is expected to continue through the second quarter of
    2013, after which the Company plans to initiate the broader introduction
    of AFECTAIR.

Summary Financial Results for the First Quarter ended March 31, 2013

For the quarter ended March 31, 2013, the Company reported a net loss of $12.6
million ($0.29 per share) on 43.7 million weighted-average common shares
outstanding, compared to a net loss of $10.0million ($0.37 per share) on 27.2
million weighted-average common shares outstanding for the same period in
2012. 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 $0.2 million in 2013 and non-cash expense of $3.4 million
for the same period in 2012.

The Company reported an operating loss of $12.6 million for the quarter ended
March 31, 2013 compared to an operating loss of $6.6 million for the same
period in 2012. The increase in operating loss from 2012 to 2013 is primarily
due to (i) expenses of $2.7 million in the first quarter of 2013 related to
the Company's U.S. specialty respiratory critical care commercial and medical
affairs organizations that are experienced in neonatal/pediatric respiratory
critical care and are focused on gaining hospital formulary acceptance of
SURFAXIN and adoption of AFECTAIR; (ii) $1.6million of expenses in the first
quarter of 2013 to advance the AEROSURF development program, primarily the
optimization of the CAG and the technology transfer of the lyophilized KL4
surfactant manufacturing process to a CMO; and, (iii) a $1.3 million increase
in raw material purchases for drug product manufacturing in support of the

Operating cash outflows before financing activities for the quarter ended
March 31, 2013 were $10.4million. As of March 31, 2013, the Company had cash
and cash equivalents of $26.4 million. For the second quarter of 2013, the
Company anticipates operating cash outflows of approximately $10.0 million,
before taking into account financing activities.

In February 2013, the Company secured a $30 million loan facility with
Deerfield (Deerfield Facility). Upon execution of the agreement, Deerfield
advanced $10 million to the Company and agreed to advance an additional $20
million, conditioned upon the first commercial sale of SURFAXIN occurring on
or before December 31, 2013. Amounts outstanding under the Deerfield Facility
accrue interest at a rate of 8.75%, payable quarterly in cash, and principal
is due in three equal installments on the fourth, fifth and sixth
anniversaries of the agreement, except that, if the Company achieves certain
revenue or market capitalization milestones, the amounts due on the fourth and
fifth anniversaries of the agreement will be deferred for one year. Thus, if
the milestones are achieved on the fourth and fifth anniversaries of the
agreement, the principal amount under the Deerfield Facility will not be due
until the sixth anniversary of the agreement. There can be no assurance that
the condition for the $20million disbursement will be met or that the
milestones required to defer the first two installments of principal will be
achieved. 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. If the first SURFAXIN commercial sale occurs on or
before December 31, 2013, upon disbursement of the $20million 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.

Also in February 2013, the Company entered into an at-the-market equity sales
agreement (ATM Program) with Stifel, Nicolaus & Company, Incorporated
(Stifel). Under the ATM Program, at the Company's discretion and at such
times and amounts as it deems appropriate, Stifel may sell up to $25million
of the Company's common stock to support the Company's business plans. The
Company will pay Stifel a commission of 3% on the gross proceeds of all
sales. The Company is not obligated to effect any sales under the ATM
Program. The Company has not used the ATM Program in 2013.

As of March 31, 2013, the Company had approximately $7 million of accounts
payable and accrued expenses and $10 million of debt under the Deerfield
Facility, which has been reported as long-term debt, net of $3.9 million of

As of March 31, 2013, the Company reported a common stock warrant liability of
$6.1 million, predominantly related to five-year warrants issued in February
2011. The terms of these Warrants provide that no cash settlement by the
Company shall be required; however, the Warrants are 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 Company had 43.8 and 43.7 million shares of common stock outstanding as of
March 31, 2013 and December 31, 2012, respectively.

Readers are referred to, and encouraged to read in their entirety the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013
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.

Discovery Laboratories, Inc. is a specialty biotechnology company focused on
advancing 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 neonatology and improving the
management of respiratory distress syndrome (RDS) in premature infants.
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 the Company's website at

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 include: risks that
Discovery Labs will be unable to secure significant additional capital as
needed, and may be unable in a timely manner, if at all, to identify potential
strategic partners to support product development and, if approved,
commercialize products in markets outside the U.S., or access its Deerfield
Facility or other debt or equity financings, which could result in substantial
equity dilution; risks related to the delay in commercial availability of
SURFAXIN, including (a)Discovery Labs' plan to maintain its commercial and
medical affairs capabilities and continue its investments in the AEROSURF^®
program limits its ability to reduce cash outflows, (b)it may be unable to
timely respond to the FDA's recent correspondence, or the FDA may not review
the response within four months or may not agree with the response, which
could further delay or prevent the commercial introduction of SURFAXIN, and
(c)it may lose access to $20 million under the Deerfield Facility if the
delay extends beyond December 31, 2013; risks relating to efforts to
commercialize SURFAXIN and AFECTAIR, including (1)whether Discovery Labs'
commercial and medical affairs organizations will succeed in introducing the
products, (2) whether the products will be approved by hospitals and will gain
market acceptance and be preferred by healthcare providers over current
products, (3)whether the products will generate revenues sufficient to fund
Discovery Labs' research and development activities and support its
operations, and (4) whether Discovery Labs will successfully develop a planned
second vial size for SURFAXIN and follow-on AFECTAIR devices; risks related to
development programs, including time-consuming and expensive pre-clinical
studies and 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,
contract manufacturers or suppliers in manufacturing drug products, drug
substances, aerosol-conducting airway connectors, CAG devices and other
materials on a timely basis and in sufficient amounts; risks relating to
rigorous regulatory requirements, including that: (i) the FDA or other
regulatory authorities may not agree with Discovery Labs on matters raised
during regulatory reviews, may require significant additional activities, or
may not accept or may withhold or delay consideration of applications, or may
not approve or may limit approval of Discovery Labs' products,
and(ii)changes in the national or international political and regulatory
environment may make it more difficult to gain regulatory approvals; other
risks, including those related to (1)continued compliance with The Nasdaq
Capital Market listing requirements, (2) Discovery Labs' efforts to maintain
and protect the patents and licenses related to its products, (3) whether it
or its strategic partners will be able to attract and retain qualified
personnel, (3) other companies' competing products, (3) legal proceedings, and
(4) 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

Discovery Laboratories, Inc
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
                                        Three Months Ended
                                        March 31,
                                        2013               2012
Grant revenue                           $           $         
                                         72               –
Operating expenses: ^(1)
 Research and development            8,472              4,533
 Selling, general and administrative 4,220              2,047
 Total expenses                  12,692             6,580
Operating loss                          (12,620)           (6,580)
 Change in fair value of common      162                (3,434)
stock warrant liability
 Other income / (expense), net       (177)              (2)
Net loss                                $               $    (10,016)
Net loss per common share               $             $      (0.37)
Weighted avg. common shares outstanding 43,657             27,162
(1) Includes non-cash charges for depreciation and stock-based compensation
the three months ended March 31, 2013 and 2012 of $0.6 million ($0.4 million
in R&D and $0.2 million in SG&A) and $0.7 million ($0.4 million in R&D and
$0.3 million in SG&A), respectively.

Discovery Laboratories, Inc
Condensed Consolidated Balance Sheets
(in thousands)
                                         March 31,               December 31,
                                         2013                    2012
ASSETS                                   (Unaudited)
Current Assets:
Cash and cash equivalents                $      26,370     $     
Inventory                                –                       195
Prepaid expenses and other current       621                     719
Total current assets                     26,991                  27,806
Property and equipment, net              1,660                   1,737
Restricted cash and other assets         511                     400
 Total Assets                      $      29,162     $     
Current Liabilities:
 Accounts payable                   $       1,825    $      
 Accrued expenses                   4,974                   4,159
 Common stock warrant liability     6,143                   6,305
 Equipment loan and capitalized     70                      69
leases, current portion
Total Current Liabilities                13,012                  11,699
Long-Term Liabilities:
Long-term debt, net of discount of $3.9
million in 2013 and $0 in 2012,          6,083                   –
Equipment loan, non-current portion &    610                     591
other liabilities
Total Liabilities                        19,705                  12,290
Stockholders' Equity:                    9,457                   17,653
Total Liabilities and Stockholders'      $      29,162      $     
Equity                                                           29,943

SOURCE Discovery Laboratories, Inc.

Contact: Media Relations, Michael Parks, Pitch360: 484.356.7105 or; Investor Relations, Michael Rice, LifeSci Advisors:
646.597.6979 or; Company, John Tattory, Vice
President, Finance: 215.488.9418
Press spacebar to pause and continue. Press esc to stop.