WARRINGTON, Pa., Feb. 28, 2007 (PRIME NEWSWIRE) -- Discovery Laboratories, Inc. (Nasdaq:DSCO) today announced financial results for the fourth quarter and year ended December 31, 2006. The Company will host a conference call on Wednesday, February 28, 2007 at 10:00 AM EST. The call in number is 866-332-5218.
For the quarter ended December 31, 2006, the Company is reporting a net loss of $7.8 million (or $0.12 per share) on 66.2 million weighted average common shares outstanding compared to a net loss of $29.4 million (or $0.51 per share) on 57.8 million weighted average common shares outstanding for the same period in 2005. Included in the net loss for the fourth quarter of 2006 is a charge of $1.3 million (or $0.02 per share) associated with stock-based employee compensation resulting from the adoption of Financial Accounting Standards No. 123(R) (FAS 123(R)) in 2006. Included in the net loss for the fourth quarter of 2005 was a charge of $16.8 million (or $0.29 per share) for the purchase of our then contracted manufacturing operation in Totowa, New Jersey. Excluding these charges, the non-GAAP net loss for the quarters ended December 31, 2006 and 2005 were $6.5 million (or $0.10 per share) and $12.6 million (or $0.22 per share), respectively. As of December 31, 2006, the Company had 69.6 million common shares outstanding.
As of December 31, 2006, the Company had cash and marketable securities of $27.0 million and approximately 8.0 million shares available for issuance under the Company's Committed Equity Financing Facility (CEFF) for future financings (not to exceed $42.5 million). Cash and marketable securities increased by $7.3 million in the fourth quarter primarily due to: (i) aggregate cash outflows of $7.5 million used in operating and investing activities, (ii) a financing with one selected institutional investor resulting in gross proceeds of $10.0 million (net proceeds of $9.5 million) from the sale of approximately 4.6 million shares of common stock and issued a warrant with a five-year term exercisable for approximately 2.3 million shares of common stock at an exercise price of $3.18 per share; and (iii) two CEFF financings that generated proceeds of approximately $5.3 million from the issuance of approximately 2.6 million shares of common stock. Use of the CEFF is subject to certain conditions, including that the volume weighted average price of the Company's common stock during a draw down must be at least $2.00 per share.
As of December 31, 2006, the Company had $8.9 million outstanding (classified as a long-term liability - loan payable) under its loan with PharmaBio Development Inc. (PharmaBio), an investment group of Quintiles Transnational Corp. In the fourth quarter of 2006, the Company restructured this loan with PharmaBio to provide, among other things, that the principal amount of $8.5 million originally scheduled to mature on December 31, 2006 and all interest is now due on April 30, 2010. In connection with the restructuring, Discovery and PharmaBio entered into a Warrant Agreement, pursuant to which PharmaBio has the right to purchase during a seven-year term 1.5 million shares of the Company's common stock at an exercise price of $3.58 per share. Also as of December 31, 2006, the Company had $4.7 million outstanding under a capital lease financing arrangement with General Electric Capital Corporation (GECC), of which $2.0 million was classified as a current liability and $2.7 million as a long-term liability.
In addition, selected updates on the progress of regulatory and manufacturing activities associated with the Company's lead product, Surfaxin(r) (lucinactant) for the prevention of Respiratory Distress Syndrome (RDS) include:
* On December 21, 2006, at a meeting with the U.S. Food and Drug
Administration (FDA) the Company received guidance regarding the key
remaining steps necessary for potential approval of Surfaxin for the
prevention of RDS in premature infants. This guidance provides the
clarity and the defined pathway that the Company believes is
necessary to address key remaining issues identified in the April
2006 FDA Approvable Letter. The Company remains on-track to file its
formal response to the Surfaxin Approvable Letter in September or
October 2007, followed by an anticipated six-month review cycle by
the FDA for potential approval of the Surfaxin New Drug Application.
* Following the December 2006 FDA meeting and based on the progress the
Company has made in its comprehensive manufacturing investigation and
remediation activities to date, the Company recently completed the
manufacture of new Surfaxin process validation batches. These batches
are currently undergoing release and ongoing stability testing. This
stability data will support the Company's forthcoming formal response
to the Surfaxin Approvable Letter. Additionally, the FDA indicated
that Surfaxin shelf-life will be determined based upon comparative
stability data from historical Surfaxin batches, including previously
manufactured clinical, technology transfer, and investigational
batches, as well as the new process validation batches.
Review of Operating Results -- Three Months Ended December 31, 2006
The Company is reporting a net loss of $7.8 million for the quarter ended December 31, 2006 compared to a net loss of $29.4 million for the same period in 2005. Included in the net loss for the fourth quarter of 2006 is a charge of $1.3 million associated with stock-based employee compensation resulting from the adoption of FAS 123(R) on January 1, 2006. Included in the net loss for the fourth quarter of 2005 was a charge of $16.8 million for the purchase of our then contracted manufacturing operation in Totowa, New Jersey. Excluding these charges, the non-GAAP net loss for the quarters ended December 31, 2006 and 2005 were $6.5 million and $12.6 million, respectively, a decrease of $6.1 million. The primary components of the fourth quarter 2006 loss include:
i) manufacturing development expenses (included in research and
development expenses) for the quarter ended December 31, 2006 were
$2.2 million, a decrease of $2.2 million compared to the same period
in 2005. Manufacturing development includes (1) costs associated
with operating the Company's manufacturing facility in Totowa, New
Jersey (which the Company acquired from its then contract
manufacturer, Laureate Pharma, Inc. (Laureate), in December 2005),
to support the production of clinical and anticipated commercial
drug supply for the Company's SRT programs; (2) continued investment
in the Company's quality assurance and analytical chemistry
capabilities to ensure current good manufacturing practices (cGMP);
and (3) costs associated with the comprehensive investigation,
analysis and remediation of the April 2006 Surfaxin process
validation stability failure and related manufacturing issues.
Expenditures in the quarter ended December 31, 2005 primarily
represented manufacturing charges from Laureate, service charges and
costs for the manufacture of Surfaxin, as well as, approximately
$2.0 million of improvements and enhancements to the manufacturing
operation in New Jersey prior to the acquisition by the Company;
ii) research and development expenses (excluding manufacturing
development activities) for the quarter ended December 31, 2006 were
$2.4 million, a decrease of $0.6 million compared to the same period
in 2005. Expenditures in the fourth quarter of 2006 were primarily
associated with costs incurred for (1) regulatory activities related
to the April 2006 Approvable Letter for Surfaxin for the prevention
of RDS and the process validation stability failure; (2) engineering
and development activities (in conjunction with our strategic
alliance with Chrysalis Technologies, Inc., a division of Philip
Morris USA) related to Aerosurf(tm), the Company's proprietary SRT
in aerosolized form administered through nasal continuous positive
airway pressure (nCPAP), for the prevention and treatment of infants
at risk for respiratory failure; and (3) research and development
activities to explore improved formulations and expand the
application of the Company's technology in other respiratory
conditions; and
iii) general and administrative expenses for the quarter ended
December 31, 2006 were $2.0 million, a decrease of $3.3 million
compared to the same period in 2005. Expenses in the fourth quarter
of 2006 include, but are not limited to, the costs of executive
management, defense costs related to pending securities class
actions and derivative litigation, evaluation of various strategic
business alternatives, financial and legal management and other
administrative costs. Included in the fourth quarter of 2005 are
costs associated with building a United States commercial
infrastructure. The decrease compared to last year primarily
reflects the Company's decision, in response to the April 2006
Approvable Letter and the Surfaxin process validation stability
failure, to discontinue this commercial capability.
Financial Results for the Year Ended December 31, 2006
For the twelve months ended December 31, 2006, the Company reported a net loss of $46.3 million (or $0.74 per share) on 62.8 million weighted average common shares outstanding compared to a net loss of $58.9 million (or $1.09 per share) on 54.1 million weighted average common shares outstanding for the same period in 2005. Included in the net loss for the twelve months ended December 31, 2006 is a charge of $5.5 million (or $0.09 per share) for stock-based compensation associated with FAS 123(R), which the Company adopted effective January 1, 2006, and a restructuring charge of $4.8 million (or $0.08 per share) related to the staff reductions and the close-out of certain commercial programs following receipt of the April 2006 Approvable Letter and the Surfaxin process validation stability failure. Included in the net loss for the twelve months ended December 31, 2005 is a charge of $16.8 million (or $0.31 per share) for the purchase of our manufacturing operation in Totowa, New Jersey. Excluding these charges, the non-GAAP net loss for the twelve months ended December 31, 2006 was $36.0 million (or $0.57 per share) compared to $42.1 million (or $0.78 per share) for the same period in 2005.
Use of Non-GAAP Financial Measures
Discovery adopted FAS 123(R) on January 1, 2006 using the modified prospective method, which resulted in the recognition of stock compensation expenses in the statements of operations for the three and twelve months ended December 31, 2006 without adjusting the same prior year periods. Discovery uses non-GAAP net loss data to improve its analysis of operational results and trends. Discovery's management also uses these non-GAAP figures to make financial and operational decisions as these numbers exclude non-operational activities. Discovery believes that presentation of results excluding non-cash compensation expense and restructuring charges may provide meaningful supplemental information to both management and investors. These measures should not be considered an alternative to measurements required by GAAP, such as net loss and net loss per share, and should not be considered measures of our liquidity. A reconciliation between non-GAAP financial measures and GAAP financial measures is included in a footnote to the Statement of Operations accompanying this press release.
About Discovery Labs
Discovery Laboratories, Inc. is a biotechnology company developing Surfactant Replacement Therapies (SRT) for respiratory diseases. Surfactants are produced naturally in the lungs and are essential for breathing. Discovery's technology produces a precision-engineered surfactant that is designed to closely mimic the essential properties of natural human lung surfactant. Discovery believes that its proprietary SRT pipeline has the potential to advance respiratory medicine and address a variety of respiratory diseases affecting premature infants, children and adults.
Discovery's lead product candidate, Surfaxin(r), is the subject of an Approvable Letter from the FDA for the prevention of Respiratory Distress Syndrome in premature infants. Surfaxin is also being developed for the prevention and treatment of Bronchopulmonary Dysplasia in premature infants. Aerosurf(tm), Discovery's aerosolized SRT, is being developed initially to treat premature infants suffering from respiratory disorders and is intended to obviate the need for intubation and conventional mechanical ventilation. Discovery's SRT pipeline also includes programs potentially addressing Acute Lung Injury, Acute Respiratory Failure, Cystic Fibrosis, Acute Respiratory Distress Syndrome, and other respiratory conditions. For more information, please visit our corporate website at www.Discoverylabs.com.
To the extent that statements in this press release are not strictly historical, including statements as to business strategy, outlook, objectives, future milestones, plans, intentions, goals, future financial conditions, future collaboration agreements, the success of Discovery's product development, events potentially conditioned upon stockholder or other approval, or otherwise as to future events, 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 to differ materially from the statements made. Among the factors which could affect Discovery's actual results and could cause results to differ from those contained in these forward-looking statements are the risk that financial conditions may change, risks relating to the progress of Discovery's research and development, the risk that Discovery will not be able to raise additional capital or enter into additional collaboration agreements (including strategic alliances for Surfactant Replacement Therapies), the risk that Discovery will not be able to develop or otherwise provide for a successful sales and marketing organization in a timely manner, if at all, the risk that approval by the FDA or other health regulatory authorities of any applications filed by Discovery may be withheld, delayed and/or limited by indications or other label limitations, the risk that any such regulatory authority will not approve the marketing and sale of a drug product even after acceptance of an application filed by Discovery for any such drug product, risks that the Chemistry, Manufacturing and Controls (CMC) section of Discovery's New Drug Application will not satisfy the FDA, risk in the FDA or other regulatory agency review process generally, risks relating to the ability of Discovery or Discovery's third party contract manufacturers and development partners to manufacture or provide Discovery with adequate supplies of drug substance, drug products and expertise for completion of any of Discovery's clinical studies, risks related to the ability of Discovery and its collaborators to develop, manufacture and successfully commercialize products that combine Discovery's drug products with innovative aerosolization technologies, risks relating to drug manufacturing by Discovery, risks relating to the integration of manufacturing operations into Discovery's existing operations, other risks relating to the lack of adequate supplies of drug substance and drug product for completion of any of Discovery's clinical studies, risks relating to the significant, time-consuming and costly research, development, pre-clinical studies, clinical testing and regulatory approval for any products that we may develop independently or in connection with Discovery's collaboration arrangements, and risks relating to the development of competing therapies and/or technologies by other companies. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising earlier trial results. Data obtained from tests are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. Those associated risks and others are further described in Discovery's 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 Statements of Operations
(in thousands, except per share data)
Three Months Ended
December 31, Twelve Months Ended
(unaudited) December 31,
-------- -------- -------- ---------
2006 2005 2006 2005
-------- -------- -------- ---------
Revenues from
collaborative
agreements $ -- $ 29 $ -- $ 134
Operating expenses:
Research and
development (1) 4,988 7,477 23,716 24,137
General and
administrative (1) 2,957 5,323 18,386 18,505
Restructuring charge -- -- 4,805 --
In-process research
& development -- 16,787 -- 16,787
-------- -------- -------- --------
Total operating
expenses 7,945 29,587 46,907 59,429
-------- -------- -------- --------
Operating loss (7,945) (29,558) (46,907) (59,295)
Other income/
(expense) 100 202 574 391
-------- -------- -------- --------
Net loss $ (7,845) $(29,356) $(46,333) $(58,904)
======== ======== ======== ========
Net loss per common
share $ (0.12) $ (0.51) $ (0.74) $ (1.09)
Weighted average
number of common
shares outstanding 66,195 57,843 62,767 54,094
(1) Included in expenses for the three and twelve months ended
December 31, 2006 are charges of $1.3 million ($0.4 million
classified as research and development and $0.9 million classified
as general and administrative) (or $0.02 per share) and $5.5
million ($1.6 million classified as research and development and
$3.9 million classified as general and administrative) (or $0.09
per share), respectively, associated with stock-based employee
compensation in accordance with the provisions of SFAS No. 123(R),
which the Company adopted on January 1, 2006.
Condensed Consolidated Balance Sheets
(in thousands)
Dec. 31, Dec. 31,
2006 2005
-------- --------
ASSETS
-------
Current Assets:
Cash and marketable securities $ 27,002 $ 50,908
Prepaid expenses and other
current assets 565 560
-------- --------
Total Current Assets 27,567 51,468
Property and equipment, net 4,794 4,322
Other assets 2,039 218
-------- --------
Total Assets $ 34,400 $ 56,008
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued
expenses $5,953 $ 7,540
Loan payable -- 8,500
Capitalized leases and other
liabilities 2,015 1,568
-------- --------
Total Current Liabilities 7,968 17,608
Long-Term Liabilities:
Loan payable, including
accrued interest 8,907 --
Capitalized leases and other
liabilities 3,203 3,562
-------- --------
Total Liabilities 20,078 21,170
Stockholders' Equity 14,322 34,838
-------- --------
Total Liabilities and
Stockholders' Equity $34,400 $ 56,008
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