Staff Writer

Shares in Discovery Laboratories Inc. spiraled downward nearly 50 percent Monday on news that the FDA has again delayed action on Surfaxin (lucinactant) for the prevention of respiratory distress syndrome in premature infants.

For the fourth time the agency has taken issue with an aspect of the Surfaxin approval submission. This time, the agency has indicated in a complete response letter that the company needs to confirm a biological activity test of the drug's stability and release.

The FDA also indicated that Discovery Labs needs to tighten one drug product specification, which the company said can be readily implemented. The complete response letter also contained routine requests to update safety and other information in the new drug application as well as information requests about certain regulatory matters.

Warrenton, Pa.-based Discovery Labs said it believes that its tests for monitoring Surfaxin's shelf life are adequate, and it plans to seek an end-of-review meeting with the FDA to be scheduled as soon as possible. If the meeting is successful, Discovery Labs anticipates that Surfaxin may be approved in 2009.

Discovery Labs CEO Robert Capetola said in a conference call that although the company is disappointed by the fourth review cycle, "we are buoyed by the fact that we think we understand what the issue is and the way forward." He said that the company hopes to have a face-to-face meeting with FDA in 30-75 days.

But if the FDA and Discovery Labs still can't reach an agreement, the company is likely "to resort to dispute resolution procedures rather than accept a longer approval timeline involving preclinical work," Jonathan Aschoff, an analyst with Brean, Murray, Carret & Co., wrote in a research note, recapping Capetola's remarks.

Aschoff said the "clinical data for Surfaxin is worthy of approval and the biological activity test appears to be the last hurdle before approval." He noted that the FDA did not raise any issue with the clinical trials or manufacturing of the product. But nevertheless, Aschoff downgraded the stock to hold from buy over concern "that the assays to determine stability have still not been formally agreed upon with the FDA, despite stability having been a front-and-center issue for several years."

Appeals of FDA decisions have paid off in some instances, such as with the Vasovist submission by EPIX Pharmaceuticals Inc. that ultimately was approved after a series of appeals. But in other cases, appeals have been less fruitful, as with Genta Inc.'s application for the anticancer drug Genasense. In the case of Genasense, the agency had outright denied approval of that drug for chronic lymphocytic leukemia. Genta appealed the decision in April 2007, and it was again rebuffed by the agency.

But that wasn't the end of the story. Genta sought a review of the FDA's determination later that year. The agency did accept an amended application for Genasense, but approval ultimately was denied. (See BioWorld Today, Dec. 18, 2006, July 15, 2008, and Dec. 4, 2008.)

Shares in Discovery Labs (NASDAQ:DSCO) lost 89 cents, or 49 percent, closing at 91 cents on Monday.