Discovery Laboratories Inc. (NASDAQ: DSCO)

Discovery Laboratories Inc. (DSCO) is a biotechnology company engaged in the development of novel Surfactant Replacement Therapies (SRTs) for the treatment of respiratory disorders and disease. The Company’s product platform addresses respiratory deficiencies and disease, including respiratory distress syndrome (RDS), bronchopulmonary dysplasia (BPD), acute respiratory failure (ARF) and acute lung injury (ALI). The Company’s precision-engineered, peptide-containing pulmonary surfactant technology mimics pulmonary surfactant functions in humans.

Founded in 1992, the Company is headquartered in Warrington, Pennsylvania.

Source: Reuters.com, SEC Filings.

Financial Summary

Analyst Consensus

One analyst polled by Thomson Reuters rates shares of DSCO a “Sell.”

Analyst Recommendations and Revisions

Source: Reuters.com

Consensus Estimate Analysis

Source: Reuters.com

Historical Surprises

Source: Reuters.com

Investment Highlights

Overview

DSCO is a biotechnology company engaged in the development of novel Surfactant Replacement Therapies (SRTs) for the treatment of respiratory disorders and disease. The Company’s product platform addresses respiratory deficiencies and disease, including respiratory distress syndrome (RDS), bronchopulmonary dysplasia (BPD), acute respiratory failure (ARF) and acute lung injury (ALI). The Company’s precision-engineered, peptide-containing pulmonary surfactant technology mimics pulmonary surfactant functions in humans.

Product Technologies

Surfaxin^TM

DSCO’s products include Surfaxin, the first product based upon the Company’s KL4 technology, is a liquid instillate to treat Respiratory Distress Syndrome (RDS) and other respiratory conditions. The Food and Drug Administration has granted an “approvable letter” for Surfaxin for the treatment of RDS in premature infants, and was granted Orphan Drug Status for Surfaxin for this purpose. The Company anticipates full FDA approval for Surfaxin.

Aerosurf ^TM

The Company’s offers a lucinactant for inhalation, called Aerosurf ^TM, a delivery system to administer relevant dosages of SRT without an intubation tube or mechanical ventilation device. Aerosurf is presently in phase II to evaluate safety and tolerability of its delivery of SRT in premature babies suffering from various levels of RDS. Clinical trials have shown efficacy and safety of the product during phase II.

Market

Following rapid growth rates from 2004 to 2008, drug sales of respiratory related conditions are expected to reach $23 billion by 2018, according to The Datamonitor Group, while the most recent statistics for the global market potential of the Company’s KL4 Surfactant drug therapy could be administered to approximately 45,000 children suffering from RDS in the United States; outside the states, the potential market could reach more than 100,000.

If approved by the U.S. Food and Drug Administration (FDA), the market for the Company’s drug candidate Surfaxin could reach more than $1 billion at its market saturation. Surfaxin has cleared phase III clinical trials, with the prospects of reaching commercialization reaching approximately 90% following final approval from the FDA.

Pharmaceutical companies with revenue of more than $1 billion but less than $2 billion include Cephalon, Inc. (Nasdaq: CEPH), which trades at a market capitalization of $4.02 billion, and King Pharmaceuticals (Nasdaq: KG), which trades at a market capitalization of $2.58 billion. As of October 23, the Company trades at a market capitalization of $100.08 million.

Some analysts suggest that the Company will be a target of a takeover following an FDA approval of the Company’s Surfaxin.

Most Recent News

On September 30, the Company announced that its meeting with the FDA resulted in an understanding that the Company’s optimized quality-control test of lung drug Surfaxin is a “reasonable” approach toward approval. The FDA also offered guidance to the Company regarding its proposed limited clinical trial design.

“As a result of the meeting, Discovery Labs believes that it has reached an understanding with the FDA and is confident that it will be able to optimize [a quality-control test] to the satisfaction of the FDA,” the Company said in a press release.

The news sent shares soaring 23% on heavy volume Wednesday afternoon.

Technical Analysis

Source: http://finance.yahoo.com

DSCO trades below its 13-day moving average. This bearish sign is significant because the 13-day moving average is trending downwardly.

The MACD for DSCO currently indicates a bearish signal. The MACD is below the signal line, a 9-day moving average. The MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower. Overall, the chart is bearish.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

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