Analyst sees future growth in Discovery Labs stock

Analyst rates Discovery Labs shares 'overweight,' sees room for future growth

Associated Press

Shares of Discovery Laboratories Inc. climbed Monday after an analyst said the drug developer's shares do not reflect the full value of the company's opportunity with Surfaxin, a recently launched respiratory drug.

THE SPARK: Piper Jaffray analyst David Amsellem started coverage of the Warrington, Pa., company with an "overweight" rating on the shares and a $6 price target.

THE BIG PICTURE: Discovery said Friday it had finally started the U.S. commercial launch of Surfaxin, which aims to prevent a condition called respiratory distress syndrome in premature infants. Respiratory distress syndrome occurs when children are born without enough pulmonary surfactant, a substance produced by the lungs that is essential for breathing.

The launch came after several delays. The FDA had approved Surfaxin in March 2012. At the time, Discovery Labs said it would start marketing the drug during the fourth quarter of the year. But it then said the launch would be delayed until this year's second quarter.

The company's stock then plunged in April, when it said the drug's launch would be delayed until the fourth quarter after the Food and Drug Administration asked for more information about the way it documents Surfaxin product specifications and a new analytical chemistry method.

Discovery then said last month that regulators had agreed to updated product specifications.

In August, the company said it lost $8.6 million during the second quarter. The drug developer will discuss its third-quarter results on Wednesday.

THE ANALYSIS: Amsellem said in the note that Surfaxin could become a "best-in-class" FDA-approved treatment.

"We believe that peak (annual) sales potential north of $100 million is realistic," the analyst wrote, adding that the company's lean U.S. sales force means it could reach profitability on Surfaxin alone.

SHARE ACTION: Up more than 14 percent, or 29 cents, to $2.30 Monday afternoon while broader indexes climbed slightly. The stock has traded between $1.50 and $3.05 over the past year.

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