Published: March 15, 2005
Discovery Labs Reports Fourth Quarter 2004 Financial Results and Business Progress
WARRINGTON, Pa., March 15, 2005 (PRIMEZONE) -- Discovery Laboratories, Inc. , today announced financial results for the fourth quarter and year ended December 31, 2004. The Company will host a conference call today at 10:30 AM EDT. The call in number is 800-665-0669.
For the quarter ended December 31, 2004, the Company reported a net loss of $20.1 million, or $0.42 per share, on 47.2 million weighted average common shares outstanding, compared to a net loss of $8.7 million, or $0.21 per share, on 42.4 million weighted average shares outstanding for the same period in 2003. Included in the fourth quarter 2004 results is a non-cash charge of $8.1 million, or $0.17 per share which is related to the restructuring of strategic partnerships with Quintiles Transnational Corp. (Quintiles) and Laboratorios del Dr. Esteve S.A. (Esteve). Net cash used for operating and investing activities in the fourth quarter of 2004 was $8.6 million.
For the twelve months ended December 31, 2004, the Company reported a net loss of $46.2 million, or $1.00 per share, on 46.2 million weighted average shares outstanding, compared to a net loss of $24.3 million, or $0.65 per share, on 37.4 million weighted average shares outstanding for the same period in 2003.
As of December 31, 2004, the Company had cash and marketable securities of $32.7 million, a net decrease of $0.8 million from the previous quarter. Additionally, in February 2005, the Company completed a registered direct public offering resulting in net proceeds to the Company of $27.5 million. The use of $8.6 million for operating and investing activities in the fourth quarter of 2004 was offset by $7.1 million of net proceeds from the use of the Company's Committed Equity Financing Facility (CEFF) and $0.7 million from the use of existing credit and capital lease facilities. As of December 31, 2004, $67.8 million was available, subject to certain conditions, under the CEFF.
As of December 31, 2004 approximately $2.4 million was outstanding under the Company's $9.0 million capital lease financing arrangement with General Electric Capital Corporation, and $5.9 million was outstanding under the Company's secured credit facility of $8.5 million with PharmaBio Development Inc., Quintiles strategic investment group. In association with the restructuring of the Company's business arrangements with Quintiles, the maturity date of this $8.5 million credit facility was extended until December 31, 2006. Additionally, in February 2005, the Company accessed the remaining $2.6 million available under the credit facility and currently the full $8.5 million is outstanding.
Discovery Reacquires Key Marketing Rights in Fourth Quarter of 2004 -- Building Specialty Commercial Organization for NICU Franchise
In November 2004, the Company reacquired its full United States commercialization rights for its lead product, Surfaxin(r) for the prevention of Respiratory Distress Syndrome (RDS) in premature infants, by restructuring its business arrangements with Quintiles, including terminating the pre-existing commercialization agreements. The Company is building its own specialty pulmonary United States sales and marketing organization to focus initially on opportunities in the Neonatal Intensive Care Unit (NICU) and, as products are developed, to expand to critical care and hospital settings. This initiative is intended to allow the Company to fully control its own sales and marketing operation, establish a strong presence in the NICU, and optimize company economics. In connection with the restructuring, the Company issued to PharmaBio Development 850,000 warrants to purchase shares of Discovery common stock at an exercise price equal to $7.19 per share. The Company incurred a $4.0 million charge against earnings in connection with the restructured business arrangements.
In December 2004, the Company regained full commercialization rights in key European markets, Central America and South America for its Surfactant Replacement Therapy (SRT), including Surfaxin for RDS and Acute Respiratory Distress Syndrome (ARDS) in adults by restructuring its strategic alliance with Esteve. Under the revised collaboration, Esteve will focus on the key Southern European markets, and now has development and marketing rights to a broader portfolio of the Company's potential SRT products. The Company incurred a $4.1 million charge against earnings, primarily in connection with the issuance of 500,000 shares of its common stock, at no cost to Esteve, in connection with regaining the commercial rights to these markets.
Robert J. Capetola, Ph.D., President and Chief Executive Officer of Discovery, commented, "Our proprietary surfactant technology represents a new paradigm that we believe will revolutionize the treatment of respiratory diseases. We believe our NICU pipeline could serve an addressable market estimated to be in excess of $500 million per year in potential revenue to the Company. The strategic initiatives we implemented in the fourth quarter are intended to allow Discovery to fully control our own sales and marketing operation in the United States, establish a strong presence and commitment to the NICU with the promise of multiple SRT products, and optimize company economics for our products worldwide.
"Surfaxin is the cornerstone of our Surfactant Replacement Therapy pipeline that is based upon our precision-engineered surfactant technology. Surfaxin has the potential to become the new standard of care for the treatment of RDS in premature infants. We have in hand an Approvable Letter for Surfaxin from the FDA. The organization is committed to resolving the issues at our drug product contract manufacturer and preparing for commercial launch in the first quarter of 2006. The recent financing strengthens our financial resources so that we can execute our business strategy for Surfaxin while advancing our NICU and hospital pipeline."
Selected Updates on Discovery's SRT Pipeline:
Neonatal Intensive Care Unit Indications:
-- In February 2005, the Company received an Approvable Letter from
the FDA for Surfaxin for the prevention of RDS in premature
infants. Importantly, the FDA is not requiring any additional
preclinical or clinical trials for final approval. For
approval, the Company must address primarily manufacturing
issues raised by the FDA and finalize labeling details for the
product. The Company anticipates resolving the manufacturing
issues by July 2005, and launching Surfaxin in the first
quarter of 2006. In October 2004, the Company submitted a
Marketing Authorization Application (MAA) to the European
Medicines Evaluation Agency (EMEA) for Surfaxin for the
treatment and prevention of RDS. The Company anticipates
EMEA approval in the first quarter of 2006.
-- The Company broadened its SRT pipeline of therapeutic
programs to address the most prevalent respiratory disorders
with significant unmet medical needs for the neonatal
community. In January 2005, a Phase 2 clinical trial was
initiated to assess the safety and efficacy of delivering
multiple doses of Surfaxin during the first two weeks of life
for the prevention of Bronchopulmonary Dysplasia (BPD), a
serious, chronic lung disease of newborn infants. Results
from this trial are expected to be available in the first
quarter of 2006. Also in January 2005, a Phase 2 pilot study
was initiated to evaluate aerosolized SRT administered through
nasal continuous positive airway pressure (nCPAP) as a non-
invasive means to potentially treat the broad range of neonatal
respiratory failures that occur in the NICU. Results from this
trial are expected to be available in the third quarter of 2005.
Critical Care / Hospital Indications
-- In December 2004, the Company announced encouraging
preliminary data from its Surfaxin Phase 2 clinical trial for
the treatment of ARDS in adults. Based on this interim data
and in consultation with leading clinical advisors, the ARDS
Phase 2 protocol was modified to better establish the endpoint
signal in key clinical outcomes so as to properly power and
design a potential Phase 3 clinical trial. Results of the
Phase 2 trial are expected to be available in the first
quarter of 2006.
Review of Operating Results -- Fourth Quarter and Year-End 2004
The Company reported a net loss of $20.1 million and $46.2 million for the three and twelve months ended December 31, 2004, respectively. This represents an increase of $11.4 million and $21.9 million, respectively, compared to the same prior year periods. Excluding the $8.1 million charge in the fourth quarter of 2004 for the restructuring of strategic collaborations with Quintiles and Esteve, the net loss increased by $3.3 million and $13.8 million for the three and twelve months ended December 31, 2004, respectively, as compared to the same periods the prior year. This increase in the net loss is primarily due to:
(i) pre-launch commercialization activities to support the
potential approval and launch of Surfaxin for RDS (included
in general and administrative expenses). These activities
include, without limitation, sales and marketing management
and medical affairs (including medical science liaisons).
The Company is building its own specialty pulmonary United
States sales and marketing organization to focus initially
on the commercial and medical promise of its SRT to address
respiratory therapies for the NICU. For the three and twelve
months ended December 31, 2004, costs associated with pre-
launch commercialization activities were $2.6 million and
$5.9 million, an increase of $2.2 million and $4.9 million,
respectively, compared to the same prior year periods;
(ii) manufacturing activities (included in research and
development) to support the production of clinical and
commercial drug supply, including Surfaxin, for the
Company's SRT programs in conformance with current Good
Manufacturing Practices (cGMPs). For the three and twelve
months ended December 31, 2004, costs associated with these
manufacturing activities were $2.4 million and $7.0
million, an increase of $0.4 million and $2.7 million,
respectively, compared to the same prior year periods;
(iii) research and development activities related to the
management and advancement of the Company's SRT pipeline,
including, without limitation, clinical trial activities
and regulatory filings for Surfaxin for RDS, clinical trial
activities related to the Phase 2 clinical trial for ARDS in
adults, and product development and clinical trial
activities related to the Company's aerosol SRT programs.
For the three and twelve months ended December 31, 2004,
costs associated with research and development activities,
excluding manufacturing activities, were $4.6 million and
$18.8 million, a decrease of $0.2 million and an increase
of $3.3 million, respectively, compared to the same prior
year periods;
(iv) general and administrative activities primarily related to
financial and information technology capabilities in
preparation for the potential approval and launch of
Surfaxin for RDS, executive management and support
infrastructure, legal activities related to the preparation
and filing of patents in connection with the expansion of
our SRT pipeline, facilities related costs to accommodate
current and prepare for future growth, and corporate
governance initiatives in compliance with the Sarbanes-Oxley
Act. For the three and twelve months ended December 31,
2004, costs associated with these related activities were
$2.4 million and $7.4 million, an increase of $0.7 million
and $2.7 million, respectively, compared to the same prior
year periods; and
(v) non-cash charges incurred due to the modification of stock
options held by a former executive officer of the Company
and the vesting of certain stock options held by employees
and consultants under the Company's Amended and Restated
1998 Stock Option Plan. For the three and twelve months
ended December 31, 2004, these charges were $0.8 million
(of which $0.6 million was included in research and
development and $0.2 million was included in general and
administration) and $1.3 million (of which $0.8 million
was included in research and development and $0.5 million
in general and administration), respectively.
About Discovery Labs
Discovery Laboratories, Inc. is a biopharmaceutical company developing its proprietary surfactant technology as Surfactant Replacement Therapies (SRT) for respiratory diseases. Surfactants are produced naturally in the lungs and are essential for breathing. Discovery's technology produces a precisely engineered surfactant that is designed to closely mimic the essential properties of natural human lung surfactant. Discovery believes that through its technology, pulmonary surfactants have the potential, for the first time, to be developed into a series of respiratory therapies for patients in the neonatal intensive care unit, critical care unit and other hospital settings, where there are few or no approved therapies available.
Discovery has received an Approvable Letter from the FDA for Surfaxin, the Company's lead product, for the prevention of Respiratory Distress Syndrome (RDS) in premature infants, and has filed a Marketing Authorization Application with the EMEA for clearance to market Surfaxin in Europe. Discovery is also conducting various clinical programs to address Acute Respiratory Distress Syndrome (ARDS) in adults, Bronchopulmonary Dysplasia (BPD) in premature infants, Neonatal Respiratory Disorders in premature infants, severe asthma in adults, and Meconium Aspiration Syndrome (MAS) in full-term infants.
More information about Discovery is available on the Company's Web site 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 conditioned on 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 our aerosol and Surfactant Replacement Therapies), risk that Discovery will not be able to develop a successful sales and marketing organization in a timely manner, if at all, risk that Discovery's internal sales and marketing organization will not succeed in developing market awareness of Discovery's products, risk that Discovery's internal sales and marketing organization will not be able to attract or maintain qualified personnel, risk of delay in the FDA's or other health regulatory authorities' approval of any applications filed by Discovery, risks 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 relating to the ability of Discovery's third party contract manufacturers to provide Discovery with adequate supplies of drug substance and drug products for completion of any of Discovery's clinical studies, other risks relating to the lack of adequate supplies of drug substance and drug product for completion of any of Discovery's clinical studies, 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.
Consolidated Statement of Operations
(in thousands, except per share data)
Three Months Ended
December 31, Year Ended
(unaudited) December 31,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenues from
collaborative
agreements $ 134 $ 183 $ 1,209 $ 1,037
Operating expenses:
Research and
development 7,037 6,799 25,793 19,750
General and
administrative 4,958 2,043 13,322 5,722
Corporate
partnership
restructuring
charges 8,126 -- 8,126 --
-------- -------- -------- --------
Total expenses 20,121 8,842 47,241 25,472
Operating loss (19,987) (8,659) (46,032) (24,435)
Other income /
(expense) (65) (48) (171) 155
-------- -------- -------- --------
Net loss $(20,052) $ (8,707) $(46,203) $(24,280)
======== ======== ======== ========
Net loss per common
share $ (0.42) $ (0.21) $ (1.00) $ (0.65)
Weighted average
number of common
shares
outstanding 47,236 42,391 46,179 37,426
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2004 2003
------- -------
ASSETS
Current Assets:
Cash, cash
equivalents, and
marketable
securities $32,654 $29,422
Prepaid expenses
and other current
assets 688 668
------- -------
Total Current
Assets 33,342 30,090
Property and
equipment, net of
depreciation 4,063 2,414
Other assets 232 211
------- -------
Total Assets $37,637 $32,715
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Credit facility,
current portion $ -- $ 2,436
Accounts payable
and accrued
expenses 8,823 4,593
------- -------
Total Current
Liabilities 8,823 7,029
Credit facility,
non-current portion 5,929 --
Capitalized lease and
deferred revenue 1,788 1,383
------- -------
Total Liabilities 16,540 8,412
------- -------
Shareholders' Equity 21,097 24,303
------- -------
Total Liabilities
and Shareholders'
Equity $37,637 $32,715
======= =======
CONTACT: Discovery Laboratories, Inc.
John G. Cooper, EVP and CFO
(215) 488-9490
Lisa Caperelli, Investor Relations
(215) 488-9413
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