Discovery Labs setback exacerbated by potential cash crunch (DSCO)
Discovery Laboratories Inc . (Nasdaq: DSCO) shares are down 50% on roughly 5 times normal volume after the company said its Surfaxin candidate targeting respiratory distress syndrome (RDS) was not likely to get FDA approval soon — particularly disappointing news for a company facing a potential pending cash crunch.
The news follows an FDA decision in April in which the agency declined to approve Surfaxin to treat RDS in premature infants.
Discovery Labsended the first quarter with about $19 million in cash and securities. Given its current burn rate, that might not be enough to last the company until the fourth quarter without the need for a cash infusion from a partner, or from some sort of offering.
Discovery labs does have access to a credit facility, but it is only accessible if the company’s stock price stays above 60 cents; it’s currently near 50 cents a share.
The low stock price may complicate efforts to raise capital using its stock.
The FDA suggested that additional studies be run on Surfaxin for RDS, but Discovery Labs plans to focus on earlier stage programs including its Phase II trial of Surfaxin LS.
It appears that the FDA unexpectedly changed the rules on Discovery Labs’ trial. The company said it believed data already submitted to the FDA supported its approval. Yet the agency is now applying a newly defined standard that would require the company to demonstrate the same relative changes over time it already showed in previous research.
If resources were unlimited, perhaps Discovery Laboratories would continue with its Surfaxin trial in RDS. But given the cash situation, that doesn’t appear to be the case — Mike Tarsala.
