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Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2012	May 04, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	DISCOVERY LABORATORIES INC /DE/
Entity Central Index Key	0000946486
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		43,371,562
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2012

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2012	Dec. 31, 2011
Current Assets:
Cash and cash equivalents	$ 54,802	$ 10,189
Prepaid expenses and other current assets	393	442
Total Current Assets	55,195	10,631
Property and equipment, net	2,143	2,293
Restricted cash	400	400
Total Assets	57,738	13,324
Current Liabilities:
Accounts payable	1,339	1,111
Accrued expenses	2,887	2,972
Common stock warrant liability	10,304	6,996
Equipment loans and capitalized leases, current portion	67	68
Total Current Liabilities	14,597	11,147
Equipment loans and capitalized leases, non-current portion	205	224
Other liabilities	703	689
Total Liabilities	15,505	12,060
Stockholders' Equity:
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.001 par value; 100,000 shares authorized; 43,382 and 24,603 shares issued, 43,361 and 24,582 shares outstanding respectively, at March 31, 2012 and December 31, 2011	43	25
Additional paid-in capital	452,680	401,713
Accumulated deficit	(407,436)	(397,420)
Treasury stock (at cost); 21 shares at March 31, 2012 and December 31, 2011	(3,054)	(3,054)
Total Stockholders' Equity	42,233	1,264
Total Liabilities & Stockholders' Equity	$ 57,738	$ 13,324

Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2012	Dec. 31, 2011
Stockholders' Equity:
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	5,000	5,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000	100,000
Common stock, shares issued (in shares)	43,382	24,603
Common stock, shares outstanding (in shares)	43,361	24,582
Treasury stock (at cost) (in shares)	21	21

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Consolidated Statements of Operations (Unaudited) [Abstract]
Grant Revenue	$ 0	$ 381
Expenses:
Research and development	4,533	4,620
General and administrative	2,047	1,820
Total expenses	6,580	6,440
Operating loss	(6,580)	(6,059)
Change in fair value of common stock warrant liability	(3,434)	2,228
Other income / (expense):
Interest and other income	2	4
Interest and other expense	(4)	(10)
Other income / (expense), net	(2)	(6)
Net loss	$ (10,016)	$ (3,837)
Net loss per common share - Basic and diluted (in dollars per share)	$ (0.37)	$ (0.21)
Weighted average number of common shares outstanding - basic and diluted (in shares)	27,162	18,114

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities:
Net loss	$ (10,016)	$ (3,837)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	288	324
Stock-based compensation and 401(k) match	542	316
Fair value adjustment of common stock warrants	3,434	(2,228)
Loss / (gain) on sale of equipment	0	9
Changes in:
Prepaid expenses and other current assets	49	(4)
Accounts Payable	228	188
Accrued expenses	(85)	79
Other assets	0	5
Other liabilities and accrued interest on loan payable	14	79
Net cash used in operating activities	(5,546)	(5,069)
Cash flows from investing activities:
Purchase of property and equipment	(138)	(25)
Net cash used in investing activities	(138)	(25)
Cash flows from financing activities:
Proceeds from issuance of securities, net of expenses	43,604	22,583
Proceeds from exercise of common stock warrants	6,713	0
Repayment of equipment loans and capital lease obligations	(20)	(37)
Net cash provided by financing activities	50,297	22,546
Net increase / (decrease) in cash and cash equivalents	44,613	17,452
Cash and cash equivalents - beginning of period	10,189	10,211
Cash and cash equivalents - end of period	54,802	27,663
Supplementary disclosure of cash flows information:
Interest paid	$ 4	$ 6

Organization and Business	3 Months Ended
Organization and Business	Mar. 31, 2012
Organization and Business [Abstract]
Organization and Business	Note 1 - Organization and Business Discovery Laboratories, Inc. (referred to as "we," "us," or the "Company") is a specialty biotechnology company focused on creating life-saving products for critical care patients with respiratory disease and improving the standard of care in pulmonary medicine. Our proprietary drug technology produces a synthetic, peptide-containing surfactant (KL4 surfactant) that is structurally similar to pulmonary surfactant, a substance produced naturally in the lung and essential for normal respiratory function and survival. We are developing our KL4 surfactant in liquid, lyophilized and aerosolized dosage forms. We are also developing novel drug delivery technologies potentially to enable efficient delivery of inhaled therapies, including our aerosolized KL4 surfactant. We believe that our proprietary technologies make it possible, for the first time, to develop a significant pipeline of products to address a variety of respiratory diseases for which there frequently are few or no approved therapies. On March 6, 2012, the U.S. Food and Drug Administration (FDA) granted us marketing approval for SURFAXIN® (lucinactant) for the prevention of respiratory distress syndrome (RDS) in premature infants at high risk for RDS. SURFAXIN is the first synthetic, peptide-containing surfactant approved for use in neonatal medicine and provides healthcare practitioners with an alternative to the animal-derived surfactants that today are the standard of care to manage RDS in premature infants. We are implementing a plan that, if successful, is intended to result in the commercial introduction of SURFAXIN in the United States in the fourth quarter of 2012. Our strategy is initially to focus on the development of our KL4 surfactant and aerosol technologies to improve the management of RDS in premature infants. RDS is a serious respiratory condition caused by insufficient surfactant production in underdeveloped lungs of premature infants, and the most prevalent respiratory disease in the neonatal intensive care unit (NICU). RDS can result in long-term respiratory problems, developmental delay and death. Mortality and morbidity rates associated with RDS have not meaningfully improved over the last decade. We believe that the RDS market is presently underserved, and that our RDS programs, beginning with SURFAXIN and, if approved, SURFAXIN LS™ and AEROSURF®, have the potential to greatly improve the management of RDS and, collectively over time, to become the global standard of care for premature infants with RDS. SURFAXIN LS is our lyophilized (freeze-dried) dosage form of SURFAXIN that is stored as a powder and resuspended to liquid form prior to use. We are developing SURFAXIN LS with the objective of improving ease of use for healthcare practitioners, as well as potentially to prolong shelf life and eliminate the need for cold-chain storage. We are implementing a regulatory plan intended to gain marketing authorization for SURFAXIN LS in the United States and other major markets worldwide. AEROSURF is a drug/device combination product that combines our KL4 surfactant with our proprietary capillary aerosol generator (CAG) and our novel AFECTAIR® ventilator circuit / patient interface connectors. We are developing AEROSURF for premature infants with or at risk for developing RDS. Premature infants with RDS currently are treated with surfactants that can only be administered by endotracheal intubation supported with mechanical ventilation, both invasive procedures that may result in serious respiratory conditions and complications. As a consequence, neonatologists will not treat infants who could benefit from surfactant therapy unless the potential benefits of surfactant therapy outweigh the risks associated with such invasive administration procedures. AEROSURF potentially will provide practitioners with the ability to deliver surfactant therapy using a less-invasive method. For this reason, we believe that AEROSURF, if approved, potentially may enable the treatment of a significantly greater number of premature infants at risk for RDS who could benefit from surfactant therapy but are currently not treated. AFECTAIR, a series of disposable ventilator circuit / patient interface connectors, was initially developed for use in the NICU as part of our AEROSURF development program. AFECTAIR devices simplify the delivery of inhaled therapies (including our aerosolized KL4 surfactant) to critical-care patients requiring ventilatory support by introducing the inhaled therapy directly at the patient interface and minimizing the number of connections in the ventilator circuit. We initially developed a ventilator circuit / patient interface connector to be used with our CAG in the NICU. To benefit all critical care patients who require inhaled therapies and who are receiving ventilatory support, we are developing AFECTAIR devices in different sizes for use in NICUs, pediatric intensive care units (PICUs) and adult intensive care units (ICUs), and to be compatible with a variety of aerosol generating devices. In February 2012, we successfully registered our initial AFECTAIR device, which is intended for use with jet nebulizers and other aerosol generators, in the United States as a Class I, exempt medical device. We believe that AFECTAIR has the potential to become a new standard of care for the delivery of inhaled therapies to critical care patients. We are implementing a regulatory and manufacturing plan that, if successful, is intended to result in the commercial introduction of the initial AFECTAIR device for use in the NICU in the United States and the European Union in the fourth quarter of 2012, and a second AFECTAIR device, AFECTAIR® DUO, in mid-2013. We are preparing for the commercial introductions, beginning in late 2012, of SURFAXIN in the United States, and AFECTAIR in the United States, the European Union and thereafter in other markets worldwide. To accomplish our objectives, in the United States, we plan to build our own, in-house, specialty respiratory critical care commercial and medical affairs organization that will specialize in neonatal indications, beginning with SURFAXIN. We also expect that our commercial and medical affairs organization will be able to leverage the experience and relationships that we gain with the introduction of SURFAXIN to efficiently support the introductions of SURFAXIN LS and AEROSURF, if approved. In the future, our in-house organization may also work in a coordinated manner with a network of third-party distributors to support commercial distribution of the AFECTAIR devices. In major markets outside the United States, an important priority is to secure the strategic resources to support the continued development and commercial introduction of our RDS products. A key goal for us in late 2012, early 2013 is to secure one or more strategic alliances and/or collaboration arrangements potentially to share research and development expenses for our SURFAXIN LS and AEROSURF development programs, and, if approved, to support the commercial introduction of these products in markets outside the United States. We may also seek strategic alliances and/or collaboration arrangements to support the potential commercial introduction of SURFAXIN in countries where regulatory marketing authorization is facilitated by the recent approval of SURFAXIN by the FDA. We are engaged in discussions with potential strategic partners who could provide development and commercial expertise as well as financial resources (potentially in the form of upfront payments, milestone payments, commercialization royalties and a sharing of research and development expenses). There can be no assurance, however, that we will be successful in concluding any strategic alliance, collaboration or other similar transaction.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

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+ Details

Liquidity Risks and Management's Plans

3 Months Ended

Mar. 31, 2012

Liquidity Risks and Management's Plans [Abstract]

Liquidity Risks and Management's Plans

Note 2 - Liquidity Risks and Management's Plans

We have incurred substantial losses since inception, due to investments in research and development, manufacturing and potential commercialization activities and we expect to continue to incur substantial losses over the next several years. Historically, we have funded our business operations through various sources, including public and private securities offerings, draw downs under a series of Committed Equity Financing Facilities (CEFFs), capital equipment and debt facilities, and strategic alliances.

Our future capital requirements depend upon many factors, primarily the success of our efforts (i) to execute the commercial introduction of SURFAXIN and AFECTAIR in the United States and other markets, as planned, (ii) to secure one or more strategic alliances or other collaboration arrangements to support the development and, if approved, commercial introduction of SURFAXIN LS and AEROSURF in markets outside the United States, (iii) to advance the SURFAXIN LS and AEROSURF development programs to be in a position to initiate planned Phase 3 and Phase 2 clinical trials, respectively, and (iv) to procure the additional capital necessary and desirable to support our activities until such time as the net revenues from our approved products, from potential strategic alliance and other collaboration arrangements and from other sources, such as future warrant exercises, are sufficient to offset cash flow requirements.

As of March 31, 2012, we had cash and cash equivalents of $54.8 million. As of March 31, 2012, (i) holders of the 15-month warrants issued in February 2011 have exercised warrants to purchase 2,233,000 shares of our common stock at an exercise price of $2.94 per share, resulting in proceeds to us of $6.6 million; and (ii) holders of the five-year warrants we issued in February 2011 (February 2011 five-year warrants) have exercised warrants to purchase 46,250 shares of our common stock at an exercise price of $3.20 per share, resulting in proceeds to us of $148,000. In addition, on March 7, 2012, we delivered a sales notice under our ATM Program to sell shares of common stock. We terminated the offering on March 8, 2012. As a result of that offering, we issued an aggregate 350,374 shares of common stock at an aggregate purchase price of approximately $1.6 million, resulting in net proceeds to us of approximately $1.5 million, after deducting commissions due to the sales agent. On March 21, 2012, we completed a public offering of 16,071,429 shares of common stock for net proceeds to us (after underwriter fees and anticipated expenses) of approximately $42.1 million.

As of March 31, 2012, of the 100 million shares of common stock authorized under our Amended and Restated Certificate of Incorporation, we had available for issuance, and not otherwise reserved for future issuance, approximately 40.0 million shares of common stock.

To execute our business strategy and fund our operations over time, we anticipate potentially securing additional infusions of capital from a combination of some or all of the following sources:

Exercise of outstanding warrants:

●

In connection with our February 2011 public offering, we issued 15-month warrants to purchase five million shares of our common stock at an exercise price of $2.94 per share (15-month warrants) of which 2,233,000 warrants have been exercised through March 31, 2012. If the market price of our common stock should exceed $2.94 at any time prior to May 22, 2012 (the expiration date of these warrants), and if the holders determine (in their discretion) to exercise the remaining outstanding 15-month warrants and we have an effective registration statement covering the warrant shares, we potentially could raise up to an additional $8.1 million.

●

Also in connection with the February 2011 public offering, we issued the February 2011 five-year warrants to purchase five million shares of our common stock at an exercise price of $3.20 per share, of which 46,250 have been exercised through March 31, 2012. These warrants also contain anti-dilutive provisions that adjust the exercise price if we issue any common stock, securities convertible into common stock, or other securities (subject to certain exceptions) at a value below the then-existing exercise price. As a result of the March 2012 public offering, the exercise price of these warrants has been adjusted downward to $2.80 per share. Thus, if the market price of our common stock should exceed $2.80 at any time prior to February 2016 (the expiration date of these warrants), and if the holders determine (in their discretion) to exercise the remaining outstanding February 2011 five-year warrants, and we have an effective registration statement covering the warrant shares to be issued upon exercise of the warrants, we potentially could raise up to an additional $13.9 million.

Upfront and milestone payments and co-funding of development activities associated with potential strategic alliances or other similar transactions:

●

We are engaged in discussions with potential strategic partners who could provide development and commercial expertise as well as financial resources (potentially in the form of upfront payments, milestone payments, commercialization royalties and a sharing of research and development expenses) to support the development of SURFAXIN LS and AEROSURF and, if approved, the introduction of these products in the European Union and various markets outside the United States.

Secured debt arrangements to fund working capital and/or investment in capital assets:

●

In the future, if our efforts are successful, we believe that debt could potentially be a component of our capital structure and financing plans. We could potentially enter into capital equipment financing facilities, revolving working capital lines of credit, term loans and other similar transactions to satisfy our working capital requirements.

In appropriate circumstances, to secure additional capital and strengthen our financial condition, we will also consider equity public offerings and other financing transactions:

●

We have a CEFF with Kingsbridge Capital Ltd. (Kingsbridge) that could allow us, at our discretion, to raise capital (subject to certain conditions, including volume limitations) at a time and in amounts we deem suitable to support our business plans. Based on the closing market price of our common stock on May 4, 2012 ($2.71) and assuming that all available shares are issued, the potential availability under our CEFF is approximately $2.7 million.

●	In December 2011, we established an "at-the-market" program (ATM Program), which allows us, at our discretion and at such times that we may choose, to sell up to a maximum of $15 million of shares of common stock. As of March 31, 2012, $13.4 million remained available under the ATM Program.

●	We have agreed in connection with our March 2012 public offering that we will not issue or sell (with certain limited exceptions) securities, including under our CEFF and ATM Program, for a period of 90 days ending in June 2012.

There can be no assurance that the market price of our common stock will equal or exceed price levels that make exercise of outstanding warrants likely or that holders of outstanding warrants will choose to exercise any or all of their warrants prior to the warrant expiration date; that we will be successful in concluding any strategic alliance, collaboration or other financing transaction; that the CEFF will be available at any time, or, even if available, that we will utilize the CEFF prior to its expiration in June 2013; that we will issue any shares pursuant to the ATM Program, or that the entire amount provided under the ATM Program will be realized prior the expiration or earlier termination of the ATM Program; or that we will undertake any financings or similar transactions, on favorable terms or otherwise.

We believe, if we are successful in implementing our strategic business plan, that the anticipated net revenues from the sale of SURFAXIN and AFECTAIR, when combined with the other sources of anticipated capital outlined above, including from potential strategic alliances and collaboration arrangements to support the SURFAXIN LS and AEROSURF development programs, potentially could be sufficient to support our future operations. In that event, we would nevertheless continue to consider financings and similar transactions that would strengthen our financial condition and build value for our stockholders.

Although we currently believe that we will be successful in meeting our strategic planning goals, there can be no assurance that we will successfully fund and build our own commercial organization to support the commercial introduction of SURFAXIN and AFECTAIR; that we will successfully execute the launch of SURFAXIN and AFECTAIR within the anticipated time frame; that the revenues we may realize from the sale of SURFAXIN and AFECTAIR will be in line with current expectations; that we will successfully identify one or more strategic partners or collaboration arrangements to support development and, if approved, commercial introduction of the SURFAXIN LS and AEROSURF product candidates; or that the revenues, if any, that we generate in the future will be sufficient at any time to fund the further development of our research and development programs and support our operations. If we are unable to identify and enter into strategic alliances for the development of SURFAXIN LS and AEROSURF, and if approved, commercialization of SURFAXIN LS and AEROSURF in markets outside the United States, we may be unable to fund planned clinical trials, which would have a material adverse effect on our research and development programs.

Summary of Significant Accounting Policies	3 Months Ended
Summary of Significant Accounting Policies	Mar. 31, 2012
Summary of Significant Accounting Policies [Abstract]
Summary of Significant Accounting Policies	Note 3 - Summary of Significant Accounting Policies Basis of Presentation. The accompanying interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information in accordance with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normally recurring accruals) considered for fair presentation have been included. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. There have been no changes to our critical accounting policies since December 31, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 that we filed with the Securities and Exchange Commission (SEC) on March 30, 2012, as amended on April 27, 2012 (2011 Form 10-K). Readers are encouraged to review those disclosures in conjunction with this Quarterly Report on Form 10-Q. Inventory Inventories are determined at the lower of cost or market value with cost determined under the specific identification method. In connection with receipt of the FDA's approval of SURFAXIN and registration of our initial AFECTAIR device in the United States, we assessed the potential capitalization of inventory and the timing of when the related costs were expected to be recoverable through the commercialization of our products. Costs incurred prior to receipt of marketing authorization have been recorded in our statement of operations as research and development expense. Based on our assessment, there was no inventory qualifying for capitalization as of March 31, 2012. As a result, inventory balances and cost of revenue may reflect a lower average per-unit cost of materials for several quarters after we launch our products. Research and development expense Research and development expense consists primarily of expenses associated with our personnel, facilities, manufacturing operations, pharmaceutical and device development, research, clinical, regulatory, other preclinical and clinical activities and medical affairs. Research and development costs are charged to operations as incurred. For the quarter ended March 31, 2012, research and development expense includes a $0.5 million charge related to a milestone payment that became payable to Johnson & Johnson (J&J), in accordance with terms of the J&J licensing agreement, upon FDA approval of SURFAXIN. Net loss per common share Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the periods. As of March 31, 2012 and 2011, 13.2 million and 14.0 million shares of common stock, respectively, were potentially issuable upon the exercise of certain stock options and warrants. Due to our net loss, the shares potentially issuable upon the exercise of options and warrants were not included in the calculation of diluted net loss per share as the effect would be anti-dilutive, therefore basic and dilutive net loss per share are the same. Recent accounting pronouncements In May 2011, the FASB amended the accounting guidance for fair value to develop common requirements between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The amendments, which are effective for interim and annual periods beginning after December 15, 2011, require entities to (i) provide information about valuation techniques and unobservable inputs used in Level 3 fair value measurements, and (ii) provide a narrative description of the sensitivity of Level 3 measurements to changes in unobservable inputs. We adopted this guidance prospectively effective January 1, 2012 and the adoption had no impact on our consolidated financial statements. The potential future impact of the adoption of these amendments will depend on the nature of any new arrangements that we enter into in the future.

Stockholders' Equity	3 Months Ended
Stockholders' Equity	Mar. 31, 2012
Stockholders' Equity [Abstract]
Stockholders' Equity	Note 4 - Stockholders' Equity Registered Public Offerings On March 21, 2012, we completed a registered public offering of 16,071,429 shares of our common stock, at a price of $2.80 per share resulting in gross proceeds of $45.0 million ($42.1 million net). We also granted the underwriters a 30-day option to purchase up to an additional 2,410,714 shares of common stock at an offering price of $2.80 per share, which expired unexercised in April 2012. In connection with this offering, we also agreed not to issue or sell (with certain limited exceptions) securities, including under our ATM Program and CEFF, for a period of 90 days ending June 14, 2012. At-the-Market (ATM) Program We have an ATM Program with Lazard Capital Markets LLC (Lazard), under which Lazard, as our exclusive agent and at our discretion and at such times that we may determine from time to time, may sell up to a maximum of $15,000,000 of shares of our common stock over a two-year period ending in December 2013, subject to earlier termination as provided in the related agreement. We are not required to sell any shares at any time during the term of the ATM Program. We have agreed to pay Lazard a commission equal to 3.0% of the gross proceeds of any sales of shares. See, Note 10 - Stockholders' Equity - Registered Public Offerings and Private Placements - ATM Program, to the consolidated financial statements in our in our 2011 Form 10-K, for a detailed description of our ATM. On March 12, 2012, we completed an offering under our ATM Program of 350,374 shares of our common stock for an aggregate purchase price of approximately $1.6 million, resulting in net proceeds to us of approximately $1.5 million, after deducting commissions due to Lazard. As of March 31, 2012, $13.4 million remained available under the ATM Program. Committed Equity Financing Facility (CEFF) We have a CEFF with Kingsbridge Capital Limited (Kingsbridge), under which, for a period of up to three years ending June 11, 2013, Kingsbridge is committed to purchase, subject to certain conditions, newly-issued shares of our common stock. We are not obligated to issue any shares under the CEFF. Our ability to access the CEFF is subject to certain covenants and conditions, including stock price and volume limitations. See also, Note 10 - Stockholders' Equity - Registered Public Offerings and Private Placements - Committed Equity Financing Facility (CEFF), to the consolidated financial statements in our in our 2011 Form 10-K, for a detailed description of our CEFF. As of March 31, 2012, there were approximately 1.1 million shares potentially available for issuance (up to a maximum of $32.3 million) under the CEFF. Based on the closing market price of our common stock on May 4, 2012 ($2.71) and assuming that all available shares are issued, the potential availability under our CEFF is approximately $2.7 million. We have not utilized the CEFF in 2012.

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 5 - Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair Value on a Recurring Basis

The table below categorizes assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011:

	Fair Value		Fair value measurement using
	March 31, 2012		Level 1		Level 2		Level 3
Assets:
Money Market	$	47,377	$	47,377	$	-	$	-
Certificate of Deposit		400		400		-		-
Total Assets	$	47,777	$	47,777	$	-	$	-
Liabilities:
Common stock warrant liability	$	10,304	$	-	$	-	$	10,304

	Fair Value		Fair value measurement using
	December 31, 2011		Level 1		Level 2		Level 3
Assets:
Money Market	$	9,377	$	9,377	$	-	$	-
Certificate of Deposit		400		400		-		-
Total Assets	$	9,777	$	9,477	$	-	$	-

Liabilities:
Common stock warrant liability	$	6,996	$	-	$	-	$	6,996

The table below summarizes the activity of Level 3 inputs measured on a recurring basis for the three months ended March 31, 2012:

(in thousands)	Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)

Balance at December 31, 2011	$	6,996
Exercise of warrants (1)		(126	)
Change in fair value of common stock warrant liability		3,434
Balance at March 31, 2012	$	10,304

(1)See, Note 6 - Common Stock Warrant Liability.

The significant unobservable inputs used in the fair value measurement of the May 2009 and February 2010 common stock warrant are the historical volatility of our common stock market price, expected term of the applicable warrants, and the risk-free interest rate based on the U.S. Treasury yield curve in effect at the measurement date. In addition to the significant unobservable inputs noted above, the fair value measurement of the February 2011 five-year warrants also takes into account the closing price of our common stock on the measurement date, and an assumption of the likelihood and timing of the occurrence of an event that would result in an adjustment to the exercise price in accordance with the anti-dilutive pricing provisions in the warrant. Any significant increases or decreases in the unobservable inputs, with the exception of the risk-free interest rate, would result in significantly higher or lower fair value measurements.

Significant Unobservable Input Assumptions of Level 3 Valuations	March 31, 2012			December 31, 2011

Historical Volatility		89% - 113	%		98% - 116	%
Expected Term (in years)		2.1 - 3.9			2.4 - 4.2
Risk-free interest rate		0.33% - 0.78	%		0.31% - 0.60	%

Common Stock Warrant Liability

3 Months Ended

Mar. 31, 2012

Common Stock Warrant Liability [Abstract]

Common Stock Warrant Liability

Note 6 - Common Stock Warrant Liability

We account for common stock warrants in accordance with applicable accounting guidance provided in Accounting Standards Codification (ASC) Topic 815 - "Derivatives and Hedging - Contracts in Entity's Own Equity," either as derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.

The registered warrants that we issued in our May 2009 and February 2010 public offerings generally provide that, in the event a related registration statement or an exemption from registration is not available for the issuance or resale of the warrant shares upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. Notwithstanding the availability of cashless exercise, under generally accepted accounting principles, these registered warrants are deemed to be subject to potential net cash settlement and must be classified as derivative liabilities because (i) under the federal securities laws, it may not be within our absolute control to provide freely-tradable shares upon exercise of the warrants in all circumstances, and (ii) the warrant agreements do not expressly state that there is no circumstance in which we may be required to effect a net cash settlement of the warrants (all other outstanding registered warrants that we have issued contain this language). The applicable accounting principles do not allow for an evaluation of the likelihood that an event would result in a cash settlement. Accordingly, the May 2009 and February 2010 warrants have been classified as derivative liabilities and reported, at each balance sheet date, at estimated fair value determined using the Black-Scholes option pricing model.

The February 2011 five-year warrants expressly provide that under no circumstances will we be required to effect a net cash settlement of these warrants. However, these warrants contain anti-dilutive provisions that adjust the exercise price if we issue any common stock, securities convertible into common stock, or other securities (subject to certain exceptions) at a value below the then-existing exercise price of the February 2011 five-year warrants. Due to the nature of the anti-dilution provisions, to comply with ASC Topic 815, these warrants have been classified as derivative liabilities and reported, at each balance sheet date, at estimated fair value determined using a trinomial pricing model.

Selected terms and estimated fair value of warrants accounted for as derivative liabilities at March 31, 2012 are as follows:

						Fair Value of Warrants (in thousands)
Issuance Date	Number of Warrant Shares Issuable		Exercise Price		Warrant Expiration Date	Issuance Date		March 31, 2012

5/13/2009		466,667	$	17.25	5/13/2014	$	3,360	$	119
2/23/2010		916,669		12.75	2/23/2015		5,701		896
2/22/2011		4,953,750		2.80	2/22/2016		8,012		9,289

During the quarter ended March 31, 2012, holders of the February 2011 five-year warrants exercised warrants to purchase 46,250 shares of common stock for total proceeds of $148,000. In addition, as a result of our March 2012 registered public offering, the exercise price of the February 2011 five-year warrants was adjusted downward from $3.20 per share to $2.80 per share, in accordance with the anti-dilution provisions of the warrant.

Changes in the estimated fair value of warrants classified as derivative liabilities are reported in the accompanying Consolidated Statement of Operations as the "Change in fair value of common stock warrants."

Stock Options and Stock-Based Employee Compensation

3 Months Ended

Mar. 31, 2012

Stock Options and Stock-Based Employee Compensation [Abstract]

Stock Options and Stock-Based Employee Compensation

Note 7 - Stock Options and Stock-Based Employee Compensation

We recognize in our financial statements all stock-based awards to employees and non-employee directors based on their fair value on the date of grant, calculated using the Black-Scholes option pricing model. Compensation expense related to stock-based awards is recognized ratably over the vesting period, which is typically three years for employees.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses weighted-average assumptions noted in the following table.

	March 31,
	2012			2011

Weighted average expected volatility		113	%		112	%
Weighted average expected term	4.8 years			4.9 years
Weighted average risk-free interest rate		1.08	%		1.47	%
Expected dividends		-			-

The total employee stock-based compensation for the three ended March 31, 2012 and 2011 was as follows:

(in thousands)	Three Months Ended
	March 31,
	2012		2011

Research and development	$	120	$	63
General and administrative		278		118
Total	$	398	$	181

As of March 31, 2012, there was $2.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our 2011 Long-Term Incentive Plan. That cost is expected to be recognized over a weighted-average vesting period of 2.5 years for stock options.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 50
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 40
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

+ Details