It's been a long time coming, but Discovery Laboratories
- Its first rejection was called an "approvable letter" -- this was before the FDA changed the name to a "complete response letter" … in 2008.
- Discovery labs got one of those too, back in 2009. In fact, there were in all four previous rejections of Surfaxin for various issues, mostly of the manufacturing sort. Fifth time's the charm, I guess.
- Premature babies that were treated in the pivotal clinical trial supporting the application are now in elementary school.
But that's all water under the bridge; current investors should be focused on the future.
Surfaxin is a synthetic surfactant that will compete with animal-derived surfactants to prevent RDS in premature babies. Synthetic or human-based products typically replace animal-based products because there's worry, however slight the chance, that animal based-products might introduce a foreign substance into the body.
But the conversion isn't necessarily quick. ZymoGenetics had a hard time getting past King Pharmaceuticals' cow-derived Thrombin-JMI and Johnson & Johnson's
Likewise Discovery Labs will be going up against a heavy hitter in Abbott Labs'
Because the drugs are used in hospital neo-natal units, it'll be relatively cheap to market Surfaxin. Together with Afectair, which Discovery Labs got approved last month, the company plans to spend just $12 million to $13 million annually to sell the two products.
Of course Discovery Labs had only $10 million at the end of the year, so it'll have to raise some cash to get the two products launched this year. The company has multiple potential sources -- exercising of warrants, a Committed Equity Financing Facility, an "at-the-market" program, a secondary offering -- all of which are dilutive to shareholders. There's also the potential to license the ex-U.S. rights to its products, although Discovery Labs wouldn't exactly be negotiating from a strong position given its financial conundrum.
Normally it's wise to wait to purchase shares until after a company's financing, but since we all know the dilution is coming, it looks to me like it's already priced in. Let's just hope Discovery Labs can turn a profit before those clinical trial kids hit high school.
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