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Discovery Labs Receives $30 Million Funding Commitment From Deerfield Management

WARRINGTON, Pa., Feb. 13, 2013 /PRNewswire/ -- Discovery Laboratories, Inc. (NASDAQ: DSCO), a specialty biotechnology company dedicated to advancing a new standard in respiratory critical care, today announced that it has entered into a secured loan facility with Deerfield Management Company, L.P. ( Deerfield) for up to $30.0 million in financing.  Deerfield is a leading healthcare investment firm with more than $3.5 billion of assets currently under management. 

"We are encouraged by Deerfield's confidence in the potential of our transformative technology and business strategy," commented John G. Cooper, President and Chief Executive Officer at Discovery Labs.  "After considering a variety of financing options, we worked with Deerfield to structure a facility that aligns with our near-and long-term strategy to achieve important commercial, development and strategic milestones."

"We believe that SURFAXIN ® and AEROSURF ® could represent meaningful improvements in the care of premature infants with respiratory distress syndrome," commented William Slattery, Partner at Deerfield Management.  "Our goal with this facility is to strengthen Discovery Labs' financial position in a minimally dilutive way, and build a long-term relationship that helps advance these important programs for neonatal medicine."

Under terms of the facility, Deerfield committed to advance $30 million in 2013: $10 million immediately following execution of the facility agreement and $20 million upon the first commercial sale of SURFAXIN.  The loan matures six years from the date of the facility agreement and may be prepaid in whole or in part without penalty at any time.  The principal amount of the loan is payable in three equal annual installments on the fourth, fifth and sixth anniversaries of the facility agreement, except that, if Discovery Labs achieves certain revenue or market capitalization targets, the principal payments due on the fourth and fifth anniversaries could be deferred for one year.  Accordingly, if the milestones are achieved, payment of the principal amount could be deferred until the maturity date of the loan in 2019.  The outstanding principal amount of the loan at any time will accrue interest at a rate of 8.75% per annum, payable quarterly in cash.  The facility agreement contains customary terms and conditions but does not require Discovery Labs to meet minimum financial and revenue performance covenants.  In connection with each advance, Deerfield will receive a transaction fee equal to 1.5% of the amount disbursed.  In connection with the initial advance, Deerfield will receive warrants to purchase 2.3 million shares of common stock, par value $.001 per share (Common Stock), at an exercise price of $2.81 per share, which represents a premium of 24% over the closing price of the Company's common stock preceding the execution of the facility agreement.  Upon disbursement of the $20 million advance, Deerfield will receive warrants to purchase an additional 4.7 million shares of Common Stock at the same exercise price per share of Common Stock.  All of the warrants will expire on the sixth anniversary date of the facility agreement .

Additional information about the facility and the terms of the related agreements is included in a Current Report on Form 8-K that is expected to be filed today with the Securities and Exchange Commission.

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