Anticipating a potential launch of its lead surfactant replacement product, Surfaxin, during the second quarter, Discovery Laboratories Inc. is acquiring manufacturing operations in New Jersey for $16 million in cash.

The Warrington, Pa.-based company, which signed a contract manufacturing agreement in 2003 with Laureate Pharma Inc., is taking over operations at Laureate's Totowa, N.J., facility, which has since been dedicated to the production of Surfaxin, said John Cooper, executive vice president and chief financial officer for Discovery.

"So this was ideal for us in many ways," he said of the acquisition. "We decided to just step in, acquire it, control it and basically get ready to take it over for the anticipated launch of Surfaxin," which received an approvable letter in February for the prevention of respiratory distress syndrome in premature infants. A response letter was accepted by the FDA in October, and Discovery expects a decision in April. (See BioWorld Today, Feb. 15, 2005.)

Through the asset purchase agreement, Discovery will pay $16 million at closing, expected in the next few days, in exchange for an assignment of an existing lease on the 21,000-square-foot facility. Discovery also plans to employ the majority of the 25-member staff at the Totowa facility. All told, the company expects an additional $17 million charge in research and development expenses during the fourth quarter.

"But we'd anticipated that," Cooper told BioWorld Today. "We had two small financings in the last couple of quarters."

The most recent financing, a $20 million direct offering, closed a week ago, and in September, Discovery issued 3 million shares to draw down $17 million from its committed equity financing facility.

"We believe strongly in controlling the key operational assets of a business, from clinical trials to manufacturing to commercialization," Cooper said. "We wanted to gain control, both operational and economically, of manufacturing."

The Totowa facility will be used primarily to manufacture commercial quantities of Surfaxin, but the company also plans to produce products for ongoing trials of other surfactant replacement therapies in its pipeline.

The company had signed in 2001 a commercialization deal with Quintiles Transnational Corp., of Research Triangle Park, N.C., for U.S. sales, but it was terminated in 2004.

The company has an ongoing Phase II trial of Surfaxin in bronchopulmonary dysplasia in premature infants, and the product has received orphan designation in that indication. A second Phase II study is evaluating the drug in adults with acute respiratory distress syndrome. Earlier this year, Discovery completed a pilot Phase II feasibility study of Aerosurf, an aerosolized SRT that is nasally administered for the treatment of premature infants at risk for respiratory distress syndrome.

"We're also planning several Phase II pilot trials in 2006," Cooper added. "So we'll use this manufacturing operation for our whole pipeline on top of the commercial requirements that we hope to need for Surfaxin."

To provide for additional formulation and aerosol development, Discovery expects to invest an additional $5 million toward manufacturing costs.

Discovery also named two executives who will be responsible for operations at the Totowa facility. Charles Katzer was appointed senior vice president of manufacturing and operations, and Gerald Orehostky was named vice president of quality operations.

Shares of Discovery (NASDAQ:DSCO) closed at $6.92 Wednesday, up 24 cents.