Although Discovery Laboratories Inc. has plenty of financial resources for near-term operations, the Doylestown, Pa.-based company secured a $75 million equity facility that it can access over the next three years.
The company intends to draw down the funds in different tranches, up to $18.75 million at a time, following the achievement of key milestones that boost the stock. Discovery's stock (NASDAQ:DSCO) rose 47 cents on Friday to close at $9.30.
"The wonderful thing behind this is I have all the flexibility in the world, and we can use this facility whenever we want to," said John Cooper, executive vice president and chief financial officer at Discovery. "I have no obligation to use it, and we have three years to use this facility."
With several milestones expected over the next two years concerning its surfactant-replacement therapies for respiratory diseases, the money will help fund the company's future growth and pipeline development.
Kingsbridge Capital Ltd. has committed to buy newly issued shares of Discovery common stock. Discovery will determine the exact timing of any transactions. Without the facility, the company has access to $45 million in cash and other existing credit lines. Discovery's burn rate is running between $7 million and $8 million a quarter, Cooper told BioWorld Today.
The committed equity financing facility (CEFF) agreement with Kingsbridge offers a favorable cost of capital with fewer expenses than those seen in PIPEs and secondary offerings, Cooper said, but does not preclude Discovery from conducting traditional financings.
Kingsbridge, a Discovery shareholder for the past two years, will purchase shares at discounts ranging from 6 percent to 10 percent of the average market price during a 15-day financing period. If the stock is between $9.01 and $14, a discount of 8 percent will apply, while the discount will drop to 6 percent if the stock runs at more than $14. Kingsbridge is restricted from engaging in any transaction intended to reduce its economic risk of owning Discovery's shares.
Cooper said they designed the agreement to eliminate any negative connotations of "short selling" or "hedging" associated with those types of financing vehicles.
"There are no minimum commitments, no penalties," he said.
In connection with the CEFF, Discovery issued a five-year warrant to Kingsbridge to purchase up to 375,000 shares of common stock at $12.07 per share. The term begins six months after the closing date of the agreement, and the warrant must be exercised for cash, except in limited circumstances.
Discovery's technology produces an engineered version of natural human lung surfactant that is designed to mimic the essential properties of human lung surfactant. Surfactants are natural compositions produced in the lungs that are needed for breathing.
"There's a whole series of events that will be happening throughout the course of the next couple of years," enabling the company to hit important milestones, Cooper said. "The beauty behind the platform we have, the technology we have, is that we have already shown in clinical trials its safety and efficacy."
In April, the company filed a new drug application with the FDA to market its lead product, Surfaxin, to prevent respiratory distress syndrome in premature infants. An FDA decision is expected in February 2005, Cooper said. (See BioWorld Today, April 15, 2004.)
In addition, Discovery should present data later this year upon completion of a Phase II trial of Surfaxin for acute respiratory distress syndrome in adults. The company also is conducting Phase II and Phase III trials for meconium aspiration syndrome in full-term infants.
And using aerosolized surfactant formulations, the company plans to begin later this year a Phase II trial for asthma with DSC-104, as well as a Phase II trial for respiratory dysfunction in premature infants.
Cooper said Discovery's products also might have potential applications in chronic obstructive pulmonary disease and acute lung injury.
Phase III data have demonstrated Surfaxin's superiority to Exosurf (GlaxoSmithKline plc), a non-protein-containing synthetic surfactant. Another trial showed its non-inferiority to Curosurf (Dey LP), a pig-derived surfactant. In all trials, Surfaxin has shown a mortality benefit in premature infants with respiratory distress syndrome. If approved, Quintiles Transnational Corp., of Research Triangle Park, N.C., would sell the product in the U.S., while Esteve SA, of Barcelona, Spain, would market it in Europe. The current surfactant market in the U.S. and Western Europe totals about $200 million.
Discovery last raised $24.2 million in March through the private sale of 2.2 million common shares. (See BioWorld Today, March 31, 2004.)