Discovery to acquire Laureate's manufacturing operations to make infant respiratory drug Surfaxin

By E. Janene Geiss

Philadelphia, Dec. 28 - Discovery Laboratories, Inc. said it has agreed to acquire the Totowa, N.J., manufacturing operations of Laureate Pharma Inc., a wholly owned subsidiary of Safeguard Scientifics Inc., for $16 million.

The acquisition is intended to provide Discovery with operational control and improved economics for the potential commercial and clinical production of Discovery's lead product, Surfaxin, and its pipeline of precision-engineered Surfactant Replacement Therapy products, according to a company news release.

The transaction is expected to close by the end of the year and the acquired manufacturing operations will thereafter be dedicated to Discovery's programs, officials said.

The company said it is preparing for the anticipated approval of Surfaxin in April and its commercial launch in the second quarter. The drug, used for the prevention of Respiratory Distress Syndrome in premature infants, has received an approvable letter from the FDA and is under review for approval in Europe by the EMEA.

"We believe our Surfactant Replacement Therapy pipeline, with Surfaxin as the cornerstone, holds the promise to revolutionize the treatment of respiratory diseases and it is strategically important to control key operations of a pharmaceutical business - from the conduct of clinical trials to the quality of manufacturing to commercializing our products," Robert J. Capetola, president and chief executive officer of Discovery, said in the release.

The company said it expects to complete the building of its U.S. commercial sales organization by the second quarter.

The manufacturing acquisition secures Discovery as a fully integrated biotechnology company, officials said.

Laureate's Totowa operation is located in 21,000 square feet of leased pharmaceutical manufacturing and development space that is specifically designed for the production of sterile pharmaceuticals in compliance with current good manufacturing practice requirements.

There are about 25 employees that are qualified in sterile pharmaceutical manufacturing.

Since 1997, more than $20 million has been invested into the development of the facility, including specialized engineering enhancements and equipment.

In October 2003, Discovery and Laureate entered into a contract manufacturing arrangement whereby Discovery's Surfaxin manufacturing know-how and dedicated equipment was transferred to this facility.

Transfer of the Surfaxin manufacturing process was completed in 2004 and, since that time, the facility has been predominantly dedicated to Surfaxin and the support of regulatory compliance requirements for Discovery's manufacturing operations.

In January 2005, as part of the review of the Surfaxin New Drug Application, the FDA issued a Form 483 to Laureate, citing observations during inspection related to basic quality controls, process assurances and documentation requirements that support the commercial production process necessary to comply with good manufacturing practices.

To address the observations, Discovery and Laureate have implemented improved quality systems and documentation controls believed to support the FDA's regulatory requirements for the approval of Surfaxin, officials said.

Related to the acquisition and other costs and expenses associated with the transaction, Discovery said it anticipates taking a $17 million charge to research and development expenses for the fourth quarter of 2005.

Discovery also said it intends to make $5 million in additional investments to the manufacturing operations next year to provide for additional formulation and aerosol development capabilities related to its future Surfactant Replacement Therapy pipeline plans.

After the transaction, the operations will be managed by Charles F. Katzer, Discovery's newly appointed senior vice president of manufacturing operations. Site quality operations will be managed by Gerald J. Orehostky, recently appointed vice president of quality operations.

Discovery Laboratories is a Warrington, Pa., biotechnology company developing its proprietary surfactant technology as Surfactant Replacement Therapies for respiratory diseases.

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