Discovery Labs plans to file request for hearing over Nasdaq delisting notification

Dec 3 2010

Discovery Laboratories, Inc. (Nasdaq:DSCO), announced today that, on November 30, 2010, the Company received a Staff Determination letter from The Nasdaq Stock Market indicating that the Company has not established compliance with Nasdaq Listing Rule 5550(a)(2) ("Minimum Bid Price Rule") because the Company's common stock did not maintain a minimum closing bid price of $1.00 per share over a period of 10 consecutive business days ending on or prior to November 29, 2010. As a result, the Company's common stock is subject to delisting from The NASDAQ Capital Market® (Nasdaq Capital Market).  The Company plans to request a hearing before a Nasdaq Listing Qualifications Panel to review the Staff Determination, which request will stay the delisting of the Company's common stock pending the Panel's decision. At the hearing, the Company will present a plan for achieving compliance with the Nasdaq listing requirements.  There can be no assurance that the Panel will grant the Company's request for continued listing on the Nasdaq Capital Market.

The Company is currently in compliance with all Nasdaq listing requirements other than the Minimum Bid Price Rule. In that regard, the Company has presented to its stockholders for approval at the upcoming Annual Meeting of Stockholders to be held on December 21, 2010, a proposal (Proposal 3) to provide the Company's Board of Directors with authority to effect a share consolidation, or reverse split, of the Company's common stock at a ratio of 1-for-15, on the terms described in the Company's proxy statement. In presenting Proposal 3 for approval, the Board considered, among other things:

• Effecting a reverse split would, at least initially, return the Company's stock price to well above $1.00 per share, which would support continued listing of the Company's common stock on the Nasdaq Capital Market.
• The Company believes that continued listing on the Nasdaq Capital Market would enhance the Company's prospects of securing capital necessary to achieve the Company's key business objectives, including potentially gaining U.S. Food and Drug Administration (FDA) approval in 2011 for the Company's lead product, Surfaxin® for the prevention of respiratory distress syndrome (RDS) in premature infants.
• The Company believes that current and prospective investors and potential strategic partners would view an investment in the Company's common stock more favorably if it were listed on the Nasdaq Capital Market than if it were traded on the Over-The-Counter ("OTC") Bulletin Board.
• If the Company's common stock were delisted from the Nasdaq Capital Market, the Company would no longer be eligible to effect financings with registration statements on Form S-3, which would make it more difficult and more expensive (i) to raise additional capital through limited primary and secondary offerings and (ii) to update and maintain the effectiveness of the available forms of registration statements going forward.

If Proposal 3 is not approved by the Company's stockholders at the Company's Annual Meeting of Stockholders, the Company may be unable to maintain the listing of its common stock on the Nasdaq Capital Market, which could jeopardize the Company's ability to continue to fund its operations, gain FDA approval for Surfaxin, and continue investing in its research and development programs, including Surfaxin LS™, a lyophilized (dry powdered) formulation, and Aerosurf®, the Company's initial aerosolized KL4 surfactant. Such a result could have a material adverse effect on the Company, its financial condition and its business operations.

If the Panel were to deny the Company's request for continued listing, the liquidity and marketability of the Company's common stock would be adversely affected. Following delisting, the Company's common stock would be eligible for quotation on the Over-The-Counter ("OTC") Bulletin Board, another over-the-counter quotation system or the "pink sheets," but only after a market maker, not the Company, made application for that purpose.