West Coast Editor

A year after filing the new drug application for Surfaxin, its treatment for respiratory distress syndrome (RDS) in premature infants, Discovery Laboratories Inc. has been sent a second approvable letter from the FDA, asking for more information.

The company's stock (NASDAQ:DSCO) tumbled 29.2 percent, closing Wednesday at $5.02, down $2.07.

Tightening specifications and controls related to the active ingredient in Surfaxin (lucinactant) is the agency's main concern, Discovery officials said in a conference call, and the letter contains no clinical or statistical comments. The company is arranging a sit-down with regulators, which should bring more clarity regarding timelines.

"We feel that we're rounding third base and coming into home," Robert Capetola, president and CEO of Warrington, Pa.-based Discovery, told investors. "If we can get this clarity that we need with the FDA, we're going to be there."

Capetola said he could not offer much beyond the contents of the company's press release, and Jonathan Aschoff, analyst with Brean Murray Carret & Co. LLC in New York, was skeptical.

Aschoff wrote in a research report after the conference call that approvable letters typically "disclose the FDA's requests in clear terms, and we therefore do not believe that Discovery needs 'clarity' as to what the agency is requesting."

Nor does the picture look especially bright for the company overall, Aschoff told BioWorld Today, and predicted "the next thing they say to investors [after the FDA meeting] will not be a stock-lifting event." Aschoff maintained his "hold" rating on the stock, and estimated "mid-2007, at best," for approval of Surfaxin, "their only drug," he noted.

"Problems that certain large pharma [firms] have had, of this ilk, took them a year to resolve, and they have a much bigger infrastructure," Aschoff said, adding that Discovery is "having these kinds of issues with clinical quantities, and commercial quantities are only more difficult to do."

Capetola, who touted the benefits of Surfaxin over currently used, animal-derived RDS therapies, said he would be "as open-book as we can with you" about the delay in its approval. Two analysts - Adam Walsh, with Jefferies & Co. Inc. in San Francisco, and Phil Nadeau, with SG Cowen in New York - asked whether the FDA's concerns in the second letter are the same as those in the first, and Capetola didn't answer.

"I thought it was a benign question," Aschoff said. Walsh quizzed Capetola specifically about "how open these lines are" between Discovery and the FDA, given the second approvable letter.

Just over a week ago, an approvable letter dealt a serious blow to another biotech firm. Encysive Pharmaceuticals Inc., of Houston, lost almost half its stock value on news that the FDA might insist on more clinical trials for the pulmonary arterial hypertension drug Thelin. The company had filed its new drug application in May. (See BioWorld Today, March 28, 2006.)

Capetola pointed out that the FDA letter to Discovery contained "not even a hint" that any new trials with Surfaxin for RDS would be needed. The company's reply to the first approvable letter were accepted by the FDA as a complete response in October, and two months later - anticipating Surfaxin's approval this month - Discovery bought for $16 million a manufacturing plant in Totowa, N.J., from Laureate Pharma Inc., which had been dedicated to making the drug. (See BioWorld Today, Feb. 15, 2005, and Dec. 29, 2005.)

Synthetically engineered to mimic natural human surfactant as a replacement therapy, and under review for approval in Europe as well for RDS, Surfaxin gained fast-track status from the FDA in January for the prevention and treatment of bronchopulmonary dysplasia in premature infants. No approved drugs for that condition exist.

Discovery ended last year with about $52 million in cash, and forecast a first-quarter burn rate of $14 million to $15 million. Given the latest developments, the cash position is "something we have to look at very closely," Capetola said.

In late 2004, Discovery regained full commercialization rights to Surfaxin from former partner Quintiles Transnational Corp., of Research Triangle Park, N.C., when the firms mutually decided to terminate their December 2001 agreement. (See BioWorld Today, Nov. 5, 2004.)