February 15, 2011
– Comments (33)
It might be a good idea to add to your DSCO position today or tommorrow in extended trading, should you have one. Otherwise you might want to buy a first tranche ...
Discovery Labs Announces Proposed Public Offering of Common Stock and Warrants
DSCO shares are currently my second largest position (behind EMC shares/options). DSCO shares are also currently the largest position in my "fund" (706433 DSCO shares in the fund with break-even of around 3.24 USD (see here)).
porte - thanks for the tip! Do you have a spare $1M or so I could borrow?
after hours down to 2.60 (.1733 pre reverse split 15:1) Any thoughts about the new share offering? p.s. I enjoy your posts Porte
i will buy some more. last years highest convictionpick by you, which I bought simply on that reason with no due dilligence done by myself, was ATPG. I am up on the position nicely, mostly because I tripled down last summer, but it was a wild ride to say the least.
this year I am long DSCOD with no due dilligence by myself, so its all on you porte.
Seems risky to buy right now. They just announced an upcoming dilution but have not determined the offer price. What happens if they offer at $2.25/share?
Why not wait until the offer price is revealed?
are you planning on getting more?? or are you all done
seems a bit risky to have so much of your portfolio in one stock. this stock could easily go chapter 11. I picked up 1000 shares at 2.95 as a speculative bet a week ago but am not too sure I'd risk doubling up on this.
Why not wait until the offer price is revealed?
Agreed. Also doubling down doesn't really make sense for me personally b/c my break even price is currnetly $3.10. When I double down, I like it to be significantly lower not the ~15% or so that I'm down now.
While I think this pick does have a great risk/reward potential, Fools need to remember that this does come with a large amount of risk. So buy more shares accordingly!
Thanks for the update Port, +1!
We kind of knew dilution was coming when they went for the reverse split. So it is really no more risky now than before...
Eventually this stock could very well go to zero but the road between now and then will be filled with many ups and downs.
looks like you were the only buyer after-hours. according to the link you posted - only about 25000 shares traded hands after hours with 20000 being you. I can only imagine how low this could have gone if you weren't snapping up those shares.
I think #5 makes a good point. Wish all you longs good luck on this one. I have it on my watchlist now just not ready to dip the toe in.
I have to ask, Portefeuille what percentage of your portfolio is allocated to your EMC long position as opposed to DSCO?
Are we talking 10% EMC 5% DSCO or 25% EMC 20% DSCO? I think I remember you taking relatively concentrated positions in the past...
For due diligence, I would suggest listening to the last conference call from Discovery Labs:
Here is my major summary:
The Phase 3 trials of Surfaxin were deemed successful by all measures of the FDA. The major issue is that DSCO hadn't tested their product to a sufficient standard of quality over multiple batches. The FDA deemed that variability in samples over batches was too great, and wanted something better - but didn't describe what a standard of "better" would be. DSCO has reduced the variability to 40% among batches, and feels this could be ok because other companies have been approved in ranges from 15-70% variability.
DSCO has had make more batches of Surfaxin, and completed this in the spring of 2011 already. It sounds like all their data collection is already completed, but the assembly for submission won't still happen until Q3. Instead of further human trials for this testing, due to ethical concerns (no need to risk human lives for this level of question) the FDA asked them to use animal models. They've used a rabbit model currently, and lamb models previous. I couldn't quite follow this bit, but it seems like part of the concern is whether the FDA will feel that the tests done in one model translate to the other models and producing data enough to show that it does. This may be a hurdle.
DSCO believes FDA will deem this a "class 2 review", upon submission of all data in Q3 of 2011. A "class 2 review" takes on average 6 months for completion before the FDA will announce a result.
This places the major decision, ultimately determining if DSCO has a future or just more pain somewhere in spring of 2012. This is worth noting- we won't get results in Q3 of 2011, as I had thought. I had originally thought we might get results in Q1 of 2011!
I think having a new CEO is probably doing some good at DSCO. It seems like much of the pain for this process was avoidable, and is a quality concern that while is easier to criticise in hindsight, I am left to wonder if their researchers have performed enough diligence so far. This may likely have been due to bad leadership previously.
Now the question is, should any of us be investing now, so early - when it appears that we still have quite a long wait.
Some further background on my last post:
A class I review is usually processed within 60 days. A class II review takes 6 months.
I don't know why they feel that they will have the harder of the two routes where they need approval by an advisory committee. But it is worth putting into our calculations that the timeline is looking like 2012, not 2011.
I guess I am going to figure out how much money they will get from their share offer and determine how long that will pay their bills. It seems like it costs 18 million a year for them to operate right now.
#10 That was just my virtual fund. It is a simulation, so those are not real trades.
Since I think I was the one who started the DSCO ball rolling, I'm going to issue a clarification here. I've followed the company for four years, and I started buying last year at split-adjusted 8.25. I have about 6667 shares now with a cost basis of about 4.31.
My thesis for this being high reward relative to risk is listing heavily after the latest six month delay and dilution, so for the most part I'm shutting up about it. DSCO has failed to get Surfaxin approved three times and I have never recommended holding it through the PDUFA. It is a stock to buy at the height of pessimism and then hold with the assumption that eventually they will get their NDA resubmitted and accepted.
It is very dangerous to hold this without understanding the process. You might find yourself up 500% at one point and then down 50% the next day if you don't keep track of the PDUFA.
Discovery Labs Prices $23.5 Million Public Offering of Common Stock and Warrants
I just added to my position.
That's a large share dilution. DSCO only had 14 million shares prior to this offering of 10 million units of "10,000,000 units at a price to the public of $2.35 per unit for gross proceeds of $23.5 million. Each unit consists of (i) one share of common stock, (ii) a five-year warrant to purchase 0.50 of a share of common stock and (iii) a fifteen-month warrant to purchase 0.50 of a share of common stock."
Am I reading this correctly, that the share offering consists of 1 share now, and a warrant offer to buy 0.5 * 2x = 1 share later at the same price of 2.35?
It seems like the offering was a really good deal for anyone wanting to buy into DSCO. It looks open till Feb 18th, can we small investors buy this?
#19 it goes on like this.
The shares of common stock and warrants are immediately separable and will be issued separately such that no units will be issued. The five-year warrants are exercisable immediately upon issuance, have a five-year term and an exercise price of $3.20 per share. The fifteen-month warrants are exercisable immediately upon issuance, have a fifteen-month term and an exercise price of $2.94 per share. Net proceeds, after estimated underwriting discount and other estimated fees and expenses payable by Discovery Labs, and assuming the warrants are not exercised, will be approximately $21.6 million. The offering is expected to close on or about February 22, 2011, subject to satisfaction of customary closing conditions.
So, no, those warrents do not have $2.35 as their strike. Also see the relevant SEC filings here.
On February 16, 2011, Discovery Laboratories, Inc. (the "Company") entered into an Underwriting Agreement with Lazard Capital Markets LLC, as the sole book-running manager, and Boenning & Scattergood, Inc. and Global Hunter Securities, LLC, as the co-managers (collectively, the "Underwriters"), related to a public offering of (i) an aggregate of 10,000,000 shares of common stock, par value $.001 per share ("Common Stock"), (ii) five-year warrants to purchase an aggregate of 5,000,000 shares of Common Stock (the "Five-Year Warrants") and (iii) fifteen-month warrants to purchase an aggregate of 5,000,000 shares of Common Stock (the "Fifteen-Month Warrants" and together with the Five-Year Warrants, the "Warrants"). The shares of Common Stock and Warrants are being sold as units ("Units"), with each Unit consisting of (i) one share of Common Stock, (ii) a Five-Year Warrant to purchase 0.50 of a share of Common Stock and (iii) a Fifteen-Month Warrant to purchase 0.50 of a share of Common Stock, at a public offering price of $2.35 per Unit, less underwriting discount payable by the Company (the "Offering"). The Underwriters will purchase the Units at a discounted price of $2.1855 per Unit, representing seven percent (7.0%) of the public offering price.
The Five-Year Warrants to be issued in the Offering will generally be exercisable for a period of five years from the date of issuance at an exercise price of $3.20 per share. The Fifteen-Month Warrants to be issued in the Offering will generally be exercisable for a period of fifteen months from the date of issuance at an exercise price of $2.94 per share. The exercise price and number of shares of common stock issuable on exercise of the Warrants will be subject to adjustment in the event of any stock split, reverse stock split, stock dividend, recapitalization, reorganization or similar transaction, among other events as described in the Warrants. In addition, the Five-Year Warrants contain anti-dilution protection upon the issuance of any common stock, securities convertible into common stock, or certain other issuances at a price below the then-existing exercise price of the Five-Year Warrants, with certain exceptions.
The Offering is expected to close on February 22, 2011, subject to the satisfaction of customary closing conditions. The net proceeds to the Company are expected to be approximately $21.6 million, assuming no exercise of the Warrants and after deducting underwriting discount and estimated expenses payable by the Company associated with the Offering. The Offering is being made pursuant to a preliminary prospectus supplement dated February 15, 2011 and an accompanying prospectus dated June 11, 2010 pursuant to the Company's existing shelf registration statement on Form S-3 (File No. 333-151654), which was filed with the Securities and Exchange Commission (the "Commission") on June 13, 2008 and declared effective by the Commission on June 18, 2008.
Is DSCO your largest real life holding now?
#22 The value of my DSCO position is currently about as large as the combined value of my positions in EMC shares and EMC call options/warrants.
Is the value of DSCO + EMC greater than 30% of your portfolio?
Apologies for the nosy questioning.
So, before this offering, they had 13.78 million shares out, at a price of $2.94. This equates to a market cap of $40.5 million. Now they have issued another 10 million shares, which makes 23.78 million shares at $2.14/share. This equates to a new market cap of $50.9 million. I own 1500 shares at $2.87 and was considering adding to my position until I did this calculation, as the stock seems more expensive to me today even with this large drop. Are these calculations correct???
Also, since at best we are going to have to wait at least another year for this company to demonstrate success (i.e. earn money), then I think yet another share issuance is a probability sometime in the future. Comments?
This is being played more as a trade than an investment. Most I believe are planning on selling before the FDA decision. Re: the increase in market cap, you have to factor in the fact that the uncertainty regarding DSCO's finances to be able to last until the anticipated Q3 NDA resubmission and 2012Q1 PDUFA has been reduced with this dilutive offering. At least that is part of it IMO.
You probably could subtract some of the new cash on hand value from the cost of the shares. They now would have over 20 million cash on hand with a market cap of 50 million. 10 million will be used up within the next 6 months, so conservatively I would say that you should cut a 10 million dollar discount out of the cost of the shares. In which case, it is about $40 million to buy the company (with running costs figured in for the next 6 months).
In other words, I'd say its about evenly price now with it as before, though at least you know they will be able to keep running for the next year.
That makes sense. I knew I wasn't understanding something. Thanks for that.
Couldn't resist, doubled down today!
But this is still a tiny part of my RL holdings because as I said above, there is a lot of risk here.
Hey Port, do me a solid and check my blog. See if yout interested in the idea im proposing,
Discovery Labs' KL4 Surfactant Aerosolization Program Data to be Presented at the Pediatric Academic Societies Annual Meeting
The presentations at the upcoming PAS congress, internationally recognized as the most relevant medical meeting dedicated to pediatric research, are as follows:
Aerosolized KL4 Surfactant Dose-Response in the Spontaneously Breathing CPAP-Supported Preterm Lamb; Wolfson, et al.
Novel Ventilator Circuit Adaptor for Combined Delivery of CPAP and Aerosolized Drugs to Premature Infants; Mazela, et al.
Aerosolized KL4 Surfactant Improves Gas Exchange and Survival in Spontaneously Breathing Piglets With HCl Induced Acute Lung Injury; Lampland, et al.
Aerosolized KL4 Surfactant Dose-Response in the Spontaneously Breathing CPAP-Supported Preterm LambMarla R. Wolfson, Jichuan Wu, Terrence L. Hubert, Jan Mazela, Timothy J. Gregory, Russell G. Clayton, Thomas H. Shaffer. Physiology, Pediatrics, and Medicine; Temple Lung Center, Temple Univ Sch Med, Phila., PA; Discovery Laboratories, Inc., Warrington, PA; Poznan University of Medical Sciences, Poznan, Poland; Nemours Lung Research Ct, A.I. duPont Hosp for Child, Wilmington, DE.BACKGROUND: Previously, we have successfully demonstrated a therapeutic effect of an aerosolized, peptide-containing, synthetic surfactant in spontaneously breathing CPAP-supported preterm lambs. As a next developmental step, dose-ranging studies are required to define the dose that produces the optimal physiologic and biomarker responses in this model as well as to guide clinical expectation and management.OBJECTIVE: To evaluate dose-responses to an aerosolized, peptide-containing, synthetic surfactant (KL4 surfactant), using lung mechanics, histomorphology and lung inflammation biomarkers in spontaneously breathing, CPAP-supported preterm lambs.DESIGN/METHODS: Following Cesarean section, lambs (n = 20; 130-132 days gestation) were anesthetized, instrumented, delivered, supported with 100% oxygen, CPAP, and caffeine then quasi-randomized to receive CPAP alone (controls) or CPAP plus aerosolized KL4 surfactant for up to 10, 20, 30 or 90 min using a novel capillary aerosol generator. Cardiopulmonary parameters were monitored for 4 hrs. Lung IL-8 and histomorphometry were measured.RESULTS: By 4 hrs. and in comparison to controls, lambs treated with CPAP plus aerosolized KL4 surfactant demonstrated a dose-dependent increase in compliance and decrease in lung IL-8; marked differences occurred with the 20 min dose and there were little further differences between the 20, 30 and 90 min. doses. Relative to controls, PaO2 was greater following the 10, 20 and 30 min. doses and trended towards control values with the 90 min. dose. Independent of the duration of aerosolized surfactant, gross inspection and lung histomorphometry demonstrated greater and more homogenous expansion compared to controls.CONCLUSIONS: Relative to treatment with CPAP alone, aerosolized KL4 surfactant improved gas exchange, pulmonary mechanics, lung structure integrity, and reduced lung inflammation in a dose-dependent manner in preterm lambs. These observations provide preliminary guidance for titrating dosing strategies designed to optimize peri-dosing functional responses and lung protective biomarker outcomes for the management of neonatal respiratory distress syndrome.(Discovery Laboratories, Inc; DURIP-ONR; NIH P20 RR 020173).Funded by: Discovery Laboratories, Inc.Session: Poster Session: Neonatal Pulmonology (10:00 AM - 2:00 PM)Date/Time: Tuesday, May 3, 2011 - 10:00 AM
Novel Ventilator Circuit Adaptor for Combined Delivery of CPAP and Aerosolized Drugs to Premature InfantsJan Mazela, Timothy J. Gregory, Christopher Henderson, Jan Wenstrup, Thomas H. Shaffer, Marla R. Wolfson. Discovery Laboratories, Inc., Warrington, PA; Neonatology, Poznan Univ of Med Sciences, Poznan, Poland; Nemours Lung Research Center, AI du Pont Hospital, Wilmington, DE; Physiology & Pediatrics, Temple Univ Sch of Med, Philadelphia, PA.BACKGROUND: Aerosolized drugs have been used for several decades. However, there is a paucity of data supporting efficacy of aerosols in the neonatal population treated with CPAP. Series of novel concentric, low dead space CPAP adaptors that connect the nebulizer/aerosol tube with the inspiratory/expiratory circuit arms and patient interface were developed. They direct undiluted aerosol to the patient and maintain CPAP throughout the breathing cycle.OBJECTIVE: To test novel CPAP adaptors designed to optimize delivery of aerosolized drugs to neonates.DESIGN/METHODS: To measure the effect of the adaptors on dilution, different O2 concentrations (100% O2 for aerosol flow path and 21% O2 for the CPAP flow path) and an O2 analyzer were used to determine the dilution factor. Adaptors were tested at different CPAP flows (4, 6, 8, 10, & 12 L/min), and different steady state with inspiratory flows (IF:∼1 & 3 L/min), CPAP at 5 cm H2O. Flow resistance was measured by manometry and pneumotachography to establish operational characteristic of the novel adaptors at two dynamic flow conditions (∼1 & 3 L/min).RESULTS: Of the three adaptors tested, CPAP adaptor 1 demonstrated the lowest dilution at the highest IF tested without increasing expiratory resistance.
CONCLUSIONS: A novel CPAP adaptor may reduce dilution of the aerosol by ventilator bias flow without increasing resistance above what is observed for a standard Y connector when combined with CPAP, thus improving inhaled drug delivery.
Session: Poster Session: Neonatal Pulmonology (10:00 AM - 2:00 PM)Date/Time: Tuesday, May 3, 2011 - 10:00 AM
Aerosolized KL4 Surfactant Improves Gas Exchange and Survival in Spontaneously Breathing Piglets with HCl Induced Acute Lung InjuryAndrea Lampland, Patricia Meyers, Marla Wolfson, Christopher Henderson, Timothy Gregory, Cathy Worwa, Brenda Plumm, Mark C Mammel. Pediatrics - Neonatology, University of Minnesota, Minneapolis, MN, United States; Infant Diagnostic & Research Center, Children's Hospitals and Clinics of Minnesota, St. Paul, MN, United States; Physiology, Temple University, Philadelphia, PA, United States; Discovery Laboratories, Inc., Warrington, PA, United States.
BACKGROUND: Surfactant therapy may be a useful treatment for acute lung injury (ALI) (Pediatric Pulmonol 2010;68:782). Use of aerosolized surfactant in ALI has not been investigated.OBJECTIVE: Evaluate aerosolized surfactant (KL4; lucinactant, Discovery Laboratories, Inc., Warrington, PA) in treating piglets with HCl-induced ALI.DESIGN/METHODS: ALI was induced in spontaneously breathing piglets with intratracheal 0.2N HCl until PaO2 was ≤ 350 torr at FIO2 1.0. Piglets were randomized to receive 5.8 ml/kg (175 mg/kg) of endotracheal KL4 (ET KL4) with extubation to CPAP; aerosolized KL4 (AERO KL4; 60 minutes; 22.5 mg/min) while on CPAP; or CPAP alone (CPAP/control). Piglets were monitored for 3 hours; blood gases obtained every 30 minutes. Lung tissue was analyzed for IL-8 and total protein by porcine-specific ELISA and Bradford with group differences analyzed by ANOVA. Physiologic data were analyzed using 2 way ANOVA with Tukey LSD post-hoc testing for p values <0.05.RESULTS: Both ET KL4 and AERO KL4 produced higher PaO2s (p<0.001) and improved survival (p<0.05) compared to CPAP. AERO KL4 was as effective as ET KL4, and produced the highest final PaO2 (p<0.05). IL-8/total protein ratios were lower in AERO KL4 versus CPAP (p<0.03).[table1][figure1]CONCLUSIONS: In spontaneously breathing piglets with ALI, AERO KL4 and ET KL4 resulted in better gas exchange and survival. AERO KL4 was as effective as ET KL4, and produced the highest final PaO2. AERO KL4 treated piglets had lower IL-8/total protein ratios than CPAP, suggesting less lung inflammation. This is the first successful use of aerosolized surfactant in an animal model of ALI.Session: Platform Session: Late Breaker Abstract Session: Neonatology (8:00 AM - 10:00 AM)Date/Time: Monday, May 2, 2011 - 9:00 AM
Aerosolized KL4 Surfactant Dose-Response in the Spontaneously Breathing CPAP-Supported Preterm Lamb
Novel Ventilator Circuit Adaptor for Combined Delivery of CPAP and Aerosolized Drugs to Premature Infants
Aerosolized KL4 Surfactant Improves Gas Exchange and Survival in Spontaneously Breathing Piglets with HCl Induced Acute Lung Injury