September 30, 2009 / 12:20 PM / 10 years ago

UPDATE 3-Discovery Labs says FDA agrees on lung drug program

* Says co, FDA establish path for potential drug approval

* Says to submit final protocol to FDA in mid-Q4

* Shares rise as much as 51 pct (Adds details, analyst comment; updates share movement)

By Anuradha Ramanathan

BANGALORE, Sept 30 (Reuters) - Drug developer Discovery Laboratories Inc DSCO.O said U.S. health regulators agreed upon the company’s proposed program to resolve questions about its experimental lung drug Surfaxin, sending its shares up as much as 51 percent.

Discovery said the U.S. Food and Drug Administration indicated that the program to optimize and validate a quality-control test was reasonable. It expects to finalize a protocol and submit it to the FDA in mid-fourth quarter.

The company has been trying to get the drug approved as a treatment for respiratory distress syndrome (RDS) in prematurely-born infants since April 2004, but has been rejected four times by the FDA.

“It still gives the drug hope for approval. It is supposedly a shorter trial to get approval,” Wedbush PacGrow LifeSciences analyst Kimberly Lee said.

In April, the FDA declined to approve the drug, raising questions on certain aspects of a biological activity test.

Investors had considered Surfaxin dead after the company in June said the drug was not likely to get approval in the near term and it would focus on other products, said analyst Lee, who has an “underperform” rating on the stock.

The company is also testing Surfaxin for the treatment of bronchopulmonary dysplasia, a chronic lung condition affecting newborn babies, and is developing an inhaled drug, Aerosurf, to treat infants with RDS.

According to the National Heart, Lung and Blood Institute website, RDS affects about 10 of every 100 premature infants, or about 40,000 babies, in the United States each year.

Brean Murray Carret & Co analyst Jonathan Aschoff said the prior refusals by the FDA and the present proposal, which is yet to be approved, leads him to question whether this attempt would be more fruitful than the previous efforts.

“I think the stock pops only because it has been beaten down so low,” said the analyst, who recently dropped coverage of Discovery after following it for six years.

Shares of the Washington, Pennsylvania-based company were trading up 43 cents at $1.54 Wednesday morning on Nasdaq. They touched a high of $1.68 earlier in the session. (Editing by Vinu Pilakkott and Aradhana Aravindan)

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