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Discovery Laboratories Gains Steam Ahead of NDA Resubmission

|Includes:Windtree Therapeutics, Inc. (WINT)

Discovery Laboratories (NASDAQ:DSCO) saw its shares rise more than 8.52% on Tuesday’s trading, making it one of the highest gainers on any major exchange for the day. The excitement comes following growing anticipation that they will file a request for hearing to maintain its listing on the NASDAQ exchange sooner rather than later, as well as move one step closer to its NDA resubmission of its flagship product, Surfaxin, during 1st quarter of 2011. It is important to note that the FDA granted Discovery Labs Orphan Drug designation for Surfaxin for the treatment of RDS in premature infants, and the EMEA granted Discovery Labs Orphan Drug designation for Surfaxin for the prevention and treatment of RDS in premature infants. An orphan drug is a pharmaceutical agent that has been developed specifically to treat a rare medical condition, the condition itself being referred to as an orphan disease.

Several sources have also indicated that a short squeeze could be taking place ahead of the pending catalyst. The company has more than 7.35 million shares short out of a total 158 million float, and of these the shorts have roughly seven days to cover.

FDA Timeline

Surfaxin, a synthetic peptide-containing lung surfactant, completed re-validation of Biological Activity Test (BAT) for quality control and stability in May 2010. Then, it was submitted via protocol to FDA which was a completed required preclinical program with written guidance from FDA that was received in June 2010. If approved, Surfaxin would be the first synthetic, peptide-containing surfactant for commercial use in neonatal medicine.

Dr. Russell Clayton, Vice President, Research and Development, Preclinical and Regulatory Affairs commented, “Discovery’s plan for the potential approval of Surfaxin continues to benefit from the FDA’s direction and their recent suggestions have been incorporated into our plan. Another positive aspect of the most recent communication is the FDA’s indicated willingness to continue to interact on our approach to gain potential Surfaxin approval.”

Positive Clinical Trials

Surfaxin has demonstrated clinically meaningful survival and morbidity-lessening advantages versus comparator surfactants (the current standard of care) in two Phase 3 clinical trials, SELECT and STAR.

The SELECT (Safety and Effectiveness of Lucinactant vs. Exosurf in a Clinical Trial) trial was Discovery Labs’ pivotal Phase 3 RDS prevention trial that enrolled 1294 patients. It was designed as a multinational, multi-center, randomized trial to demonstrate the safety and efficacy of Surfaxin in comparison with Exosurf, an approved, non-protein containing synthetic surfactant. Survanta, an animal-derived surfactant that is a US market leader served as a reference arm. An independent Data Safety Monitoring Board (DSMB) was responsible for monitoring the overall safety of the trial. Additionally, all key endpoints were fully adjudicated by a blinded panel of internationally recognized neonatology experts. Key results from the SELECT trial can be summarized as follows:

  • demonstrated a significant improvement in RDS related mortality profile through 14 days of life vs. Survanta (p ≤ .001) & Exosurf (p ≤ .01). 39
  • demonstrated a significant (p ≤ .01) improvement in RDS at 24 hours of life vs. Exosurf. No significant difference versus Survanta was observed. 39
  • significantly (p ≤ .05) improved survival without BPD and overall incidence of BPD vs. Exosurf. 39
  • treated infants required significantly fewer (p ≤ .05) re-intubations (insertion of endotracheal tube into the airway) vs. Survanta. 38
  • in a pharmacoeconomic assessment, demonstrated a reduction in total NICU days and patient days on ventilator vs. Survanta. 42
  • was generally safe and well tolerated. 39

Pipeline Overview

Discovery Labs is developing its novel, fully synthetic KL4 Surfactant platform with the intent to create a completely new therapeutic approach for the treatment of respiratory disease.

Technical Analysis

From a technical standpoint, if you are a penny stock investor, you couldn’t find a better setup than Discovery Laboratories which seems poised for big gains. There currently resides strong support directly underneath at $0.17, where we saw a strong bounce.Resistance begins around $0.22, after which if that is broken, we enter something dubbed by many expert traders as a “Blue Skies” breakout, or a “Vacuum Channel” due to the fact that there is little to no resistance hanging over. The next resistance would be found at the 50-day moving average of $0.37.

Relative Strength Index (RSI) has been in a constant downtrend for the last two years, a remarkable feet on its own which is not witnessed all too often. This offers tremendous opportunities for risk seekers should a rebound occur as it seems to be finally moving towards positive territory. An RSI reading below 50 marks a very oversold stock in which money is waiting on the sidelines to jump back in.

The bollinger bands have been in a tight channel for the last three months, with the lower portion being pierced recently, thus signalling an imminent rebound could take place. Slow stochastic further confirms the oversold conditions of the stock which are awaiting a catalyst to help spring them back to the normal average point of 50. When this takes place, as seen back in September 2009, a swift reversal could take place that sends the shares soaring.

Disclosure: I am long DSCO.
Stocks: WINT