Discovery Labs Awaits FDA Word on Surfaxin

Discovery doesn't have much cash on hand, so that doesn't help with the valuation much. In fact, expect the company to raise cash soon (perhaps diluting shareholders even more) if Surfaxin is approved.

The European market is a growth opportunity for Discovery, about the same size of the U.S., but the company has not yet sought approval there for the treatment.

Discovery also intends to expand Surfaxin's use into other respiratory diseases, and further develop its pipeline, which includes a synthetic surfactant that can be inhaled without the use of an intubation tube. All of these projects are potential value-expanders for Discovery, but they remain relatively long-term and risky, so investors aren't going to afford them much value today.

The best long-term plan for Discovery might just be to put the company up for sale, or find a partner willing to fork over big money on a bet that Surfaxin's long-term potential is worth much more.

Know What You Own: FDA decisions can swing a small-cap health stock like Discovery Lab severely to the up or downside. Just yesterday, micro-cap medical-device company NeuroMetrix NURO soared on marketing clearance for a nerve conduction product. The same day shares of small-cap biotech Medarex MEDX traded to a new 52-week low on news of regulatory delays for ipilimumab, an investigational immunotherapy it's developing with Bristol-Myers Squibb BMY for patients with advanced metastatic melanoma.

But even shares of larger drugmakers are often at the mercy of regulatory rulings. Just today, Merck MRK shares were sent reeling after the FDA rejected MK-0524A, the company's proposed new cholesterol treatment.