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Discovery Labs Holds Out Hope for Surfaxin

Discovery Laboratories (DSCO - Get Report) tried Monday to put a sunny face on the most recent regulatory setback for its infant lung drug Surfaxin, but in reality, there are few reasons for investors to smile.

In an update Monday, Discovery said that it believes it can respond to questions posed by the U.S. Food and Drug Administration within six to eight weeks, and that another Surfaxin review -- the FDA's fourth -- might only take 60 days to complete.

Discovery's optimism appears to be based on its own assessment of the Surfaxin approvable letter sent by the FDA Friday. The company also acknowledged Monday, however, that it hasn't met with regulators to go over the details of the approvable letter.

To believe in the best-case scenario laid out by Discovery management means having faith in a company that has failed, after three tries over several years, to gain U.S. regulatory approval for Surfaxin, a synthetically derived lung surfactant for the treatment of premature infants with respiratory distress syndrome.

Is there any reason to give Discovery the benefit of the doubt?

Discovery shares were gaining 33% in Monday trading after losing half their value Friday when the company announced that it failed again to convince the FDA that Surfaxin should receive final approval.

Manufacturing and quality control issues, particularly the latter, appear to be the continuing reason for the FDA's concerns. Monday, Discovery said it believes the company can reach an agreement with the FDA on some new tests to verify the stability and purity of Surfaxin.

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