January
23, 2009
Securities
and Exchange Commission
Division
of Corporate Finance
Mail Stop
6010
100 F
Street, N.E.
Washington,
D.C. 20549
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Attn:
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Mr.
Jeffrey Riedler, Assistant Director
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Mr.
Bryan Pitko, Attorney
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Discovery Laboratories, Inc.
—
Registration Statement on
Form S-3 (SEC File No. 333-156237; filed December 17, 2008);
Dear
Messrs. Riedler and Pitko:
On behalf
of Discovery Laboratories, Inc. (the “Company”), we are
transmitting for electronic filing via EDGAR pursuant to the Securities Act of
1933, as amended, Amendment No. 1 (“Amendment No. 1”) to
the above-referenced registration statement (the “Registration
Statement”). We are also submitting a hard copy of this letter
and a marked version of Amendment No.1 to show the changes from the Registration
Statement as originally filed with the Securities and Exchange Commission (the
“Commission”)
on December 17, 2008, to the staff of the Division of Corporation Finance (the
“Staff”). We
are filing Amendment No. 1 in response to the comments of the Staff contained in
your letter to the Company dated January 9, 2009 (the “Comment Letter”),
regarding the Registration Statement. For the convenience of the
Staff, we have restated the contents of the Comment Letter and responded to the
comments in the order set forth therein. Page references in the text
of this letter correspond to the page numbers of the Prospectus contained in
Amendment No. 1.
Registration Statement on
Form S-3 (SEC File No. 333-156237)
Comment
1. Please disclose the percentage of your outstanding securities that
the shares being registered for resale represent in the forepart of your
registration statement.
Response: In response to
Comment 1 of the Comment Letter, the Company has revised the Registration
Statement through Amendment No.1 to disclose in the forepart of the Registration
Statement that the 15,675,000 shares being registered for resale represent 15.4%
of the Company’s shares of common stock that were issued and outstanding on
January 20, 2009.
Mr.
Jeffrey Riedler
Mr. Bryan
Pitko
January
23, 2009
Page
2
Comment
2. Please revise your registration statement to disclose that
Kingsbridge's obligations under the common stock purchase agreement are not
transferable and that the registration statement does not cover sales by
transferees of Kingsbridge.
Response: In
response to Comment 2, the Company has revised the Registration Statement such
that the description of the transaction now includes the following disclosure
(see page
2):
The
obligations of Kingsbridge under the Common Stock Purchase Agreement to purchase
shares of our common stock may not be transferred and the registration statement
does not cover sales of such shares by transferees of
Kingsbridge. The rights of Kingsbridge to purchase shares of our
common stock under the Warrant may not be assigned or transferred except, under
certain conditions, to an affiliate of Kingsbridge. If the Warrant is
transferred to an affiliate of Kingsbridge, the registration statement will
cover sales of any shares of our common stock that we issue to such affiliate of
Kingsbridge under the Warrant, but will not cover resale of shares of our common
stock by transferees of such affiliate of Kingsbridge.
Comment
3. Please expand your disclosure in the prospectus to discuss the
likelihood that you will receive, or will ever need, based on your disclosed
business plans, the full amount of proceeds available under the agreement. If
you are not likely to receive the full amount, please explain why you and
Kingsbridge chose the $25,000,000 amount of the equity line.
Response: In response to
Comment 3, to address the likelihood of the Company’s need to access the full
$25,000,000 amount of the Committed Equity Financing Facility (“CEFF”), the Company
has expanded its disclosure to include a discussion of the Company’s ongoing
plans to use equity and debt financing, including the use of equity lines, to
fund its operating activities. To address the Company’s likelihood of
receiving the full amount potentially available under the CEFF, the Company has
re-iterated that, because of the minimum pricing conditions and other
restrictions that apply, as well as the fluctuations in the price of the
Company’s stock price, the Company may not be able to fully draw down the new
CEFF. See page 3, which
includes the following added disclosure:
Mr.
Jeffrey Riedler
Mr. Bryan
Pitko
January
23, 2009
Page
3
We have
no operating revenues and have funded our activities primarily through the
issuance of equity securities, debt and equipment financing
facilities. From time to time, when and to the extent available in
the past, we used our CEFFs to support our working capital needs and to maintain
cash availability. Recently, minimum price conditions have precluded
our accessing the Prior CEFFs. We entered into the New CEFF because
we were concerned that we may be unable to adequately fund our activities in the
current difficult market environment. If we are unable to secure
funding through CEFF draw downs or other means, such as financings, business
alliances, development partnerships or other similar opportunities, we may have
to reduce significantly the scope of, or discontinue, our planned research,
development and manufacturing activities, which could significantly harm our
financial condition and operating results. We believe that we may
support execution of our business plan activities by exercising our right to
draw down amounts under the New CEFF (and potentially the Prior CEFFs), when and
to the extent available, when we believe that sales of stock under the CEFF
provide an appropriate means of raising capital. There can be no
assurance, however, that we will be able to raise sufficient capital to fund our
planned activities when needed. Nor, in light of the minimum price
conditions, can there be any assurance that we will issue all of the 15 million
shares that are available for issuance under the New CEFF. In
addition, to draw down the total dollar amount available under the New CEFF, if
we were to issue all 15 million shares, the average purchase price per share for
the shares of common stock issued in all draw downs under the New CEFF taken in
the aggregate would have to equal at least $1.67 ($25 million divided by 15
million shares). As the closing price of our common stock on January
20, 2009 was $1.12, even if we issue all 15 million shares that are available
for issuance under the New CEFF, there can be no assurance that we will succeed
in drawing down an aggregate of $25 million under the New CEFF.
In
addition, the Company notes that the Registration Statement incorporates by
reference the Company’s periodic and quarterly filings that provide in-depth
disclosure regarding the Company’s most recent business plans, liquidity,
operating cash needs and uses of available financing, including the
CEFF.
Comment
4. Please fully discuss any securities or cash paid to Kingsbridge in
order to enter into the common stock purchase agreement and any additional fees
or commissions payable at the time the shares are put to Kingsbridge.
Specifically, please disclose whether the warrants issued to Kingsbridge were
provided as consideration for their entry into the common stock purchase
agreement.
Response: In response to
Comment 4, the Company has revised the Registration Statement to more
specifically disclose that, as consideration for the execution and delivery of
the common stock purchase agreement, the Company issued a warrant to purchase
675,000 shares of the Company’s common stock. See page 2 of
Amendment No. 1. The Company has also clarified that no fees or
commissions are payable to Kingsbridge under the common stock purchase agreement
in connection with the settlement of a draw down. See page
3.
Mr.
Jeffrey Riedler
Mr. Bryan
Pitko
January
23, 2009
Page
4
In
addition, the Plan of Distribution section of the Registration Statement
includes the following disclosure with respect to fees and expenses required to
be paid by the Company (see page
29):
We have
agreed to pay the expenses of registering the shares of common stock under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and certain legal and accounting fees, as well as
certain fees of counsel for the selling stockholder incurred in the preparation
of the CEFF agreements and the registration statement of which this prospectus
forms a part. The selling stockholder will bear all discounts,
commissions or other amounts payable to underwriters, dealers or agents, as well
as transfer taxes and certain other expenses associated with the sale of
securities.
Comment
5. Please enhance the description of your past transactions with
Kingsbridge. In particular, please describe the impact that these transactions
have had on the market price of the company's stock.
Response: In response to
Comment 5, the Company has revised the Registration Statement to include
enhanced discussions of the Company’s past CEFF transactions with
Kingsbridge. See pages 2, 5 and
6.
To
address the Commission’s request that the Company describe the impact of the
transactions on the market price of the Company’s stock, the Company added
disclosure as follows (see page
5):
Although
the number of shares of common stock that stockholders presently own will not
decrease, these shares will represent a smaller percentage of our total shares
that will be outstanding after any issuances of shares of common stock to
Kingsbridge. Such dilution may result in a decrease in the market
value of our common stock. Based on a review of the market price of
our common stock following draw downs under the Prior CEFFs, we cannot reliably
predict what effect, if any, draw-downs under the New CEFF will have on the
market value of our common stock. However, if we draw down amounts
under the New CEFF when our share price is decreasing, we will need to issue
more shares to raise the same draw-down amount than if our stock price was
higher. Such issuances will have a dilutive effect and may further
decrease our stock price. See, Risk Factors — “Our Committed Equity
Financing Facilities may have a dilutive impact on our
stockholders”.
Existing
disclosure in the Company’s risk factors also discuss, among other things, that
(i) a draw down under the CEFFs results in dilution of stockholder interests,
(ii) draw downs in declining markets may cause a stock price decrease and may
increase the dilutive effect of a draw down, (iii) sales by Kingsbridge may
result in a decrease in the Company’s stock price, and (iv) the perceived risk
of dilution from sales by Kingsbridge may cause sales, including short sales,
resulting in a declining stock price (see pages
16-17).
Mr.
Jeffrey Riedler
Mr. Bryan
Pitko
January
23, 2009
Page
5
It should
be noted, however, that the Company cannot reliably separate the impact of CEFF
draw downs on its market price from other factors that may be affecting its
stock price at any given time. In the Company’s experience, CEFF
draws are not consistently followed by a predictable change in stock
price. Rather, the Company has observed that, following a CEFF draw,
the price may remain stable, may increase, or may decrease.
Comment
6. Please expand your risk factors to discuss the likelihood that you
will have access to the full amount under the equity line.
Response: In response to
Comment 6, the Company has revised the Registration Statement to add the
following discussion to its risk factors (see page
16):
We
currently expect to consider supporting our activities by exercising our right
to draw down amounts under the New CEFF and the Prior CEFFs, if available, when
we believe that sales of stock under a CEFF provide an appropriate means of
raising capital. However, if conditions, including minimum price
limitations, under a CEFF are not met, we may be unable to raise sufficient
capital to execute our business strategy. There can be no assurance,
that we will be able to utilize the CEFFs to raise sufficient capital to fund
our planned activities when needed. Nor can there be any
assurance that we will issue all of the 15 million shares that are available
under the New CEFF or the remaining shares that are available under the Prior
CEFFs. In addition, if the market value of our common stock does not
increase over time, even if we issue all shares available for issuance under the
New CEFF and Prior CEFFs, there can be no assurance that we will succeed in
drawing down an aggregate $25 million under the New CEFF or the balance of
funds that are available under the Prior CEFFs.
The
Company has also added the sentence underlined below to the risk factor that
discusses CEFF dilution (see page
17):
If we are
unable to meet the conditions provided under the CEFFs, we may not be able to
issue any portion of the shares potentially available for issuance for future
financings, subject to the terms and conditions of the CEFFs. Moreover, even if we are
able to issue all shares available for issuance, if the VWAP of our common stock
during any CEFF draw is at or near the minimum price requirement, we may be
unable to realize the full dollar value potentially available under each
CEFF.
Mr.
Jeffrey Riedler
Mr. Bryan
Pitko
January
23, 2009
Page
6
***
If the
proposed changes to the Registration Statement are acceptable, we expect to seek
to have the Registration Statement declared effective by the Commission as soon
as practicable, and will submit an appropriate request to do so once the
comments are cleared or the Staff indicates that we may do so.
In
addition, please note that the Company has authorized us to inform you that it
acknowledges that it is responsible for the adequacy and accuracy of the
disclosure in the filings; that Staff comments or changes to the disclosure in
response to Staff comments in the filings do not foreclose the Commission from
taking any action with respect to the filing, and the Company may not assert
Staff comments as a defense in any proceeding initiated by the Commission or any
person under the federal securities law of the United States.
Please do
not hesitate to contact me ((212) 277-6686) or my colleague, Stuart J. van
Leenen ((212) 277-6590), should you wish to discuss any matter
further.
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Very
truly yours,
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/s/ Ira L. Kotel
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Ira
L. Kotel
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(212)
277-6686
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koteli@dicksteinshapiro.com
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Copy
to:
David L.
Lopez, CPA, Esq.
Executive
Vice President, General Counsel
Discovery
Laboratories, Inc.
2600
Kelly Road, Suite 100
Warrington,
PA 18976