On May 21, 2008, the District Court entered the Order from the U.S. Court of Appeals for the Third Circuit. The Appeals Court affirmed the March 15, 2007 dismissal of the action in District Court.
On June 15, 2006, the Court entered the Order signed by U.S. District Judge Stewart Dalzell granting the motion to consolidate several class actions. On July 25, 2006, the Court entered the Order granting the motion to appoint the Mizla Group as lead plaintiff and Chimicles & Tikellis LLP as lead counsel. On August 10, 2006, the lead plaintiff filed a Consolidated Amended Class Action Complaint. The defendants responded by filing a motion to dismiss the Consolidated Amended Complaint on September 14, 2006. On November 1, 2006, the Court entered the Memorandum and Order granting the defendants’ motion to dismiss with leave to file an amended complaint. On November 30, 2006, the lead plaintiff filed a Second Consolidated Amended Complaint. The defendants again responded by filing a motion to dismiss the Second Consolidated Amended Complaint on December 22, 2006. On March 15, 2007, Judge Dalzell again dismissed the Second Consolidated Amended Complaint. On April 10, 2007, the plaintiffs filed a Notice of Appeal.
The original Complaint charges Discovery Labs and its President and Chief Executive Officer with violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by issuing a series of materially false and misleading statements to the market during the Class Period. As alleged in the Complaint, defendants made misrepresentations and/or omissions regarding the progress of U.S. regulatory approval for its self-described "lead product" Surfaxin. Throughout the Class Period, defendants repeatedly represented that they anticipated FDA approval of Surfaxin in April 2006. On April 25, 2006, the Company revealed that Surfaxin's "stability" (its ability to be stored for long periods without any change in its efficacy or its chemical profile) had not been achieved and that such failure would cause a "significant delay in the U.S. regulatory process." The Company admitted that although it had been testing the "production validation batches" periodically for "stability," stability had never been achieved. The market reacted negatively to this shocking news. The price of Discovery Labs (Nasdaq:DSCO) common stock sank 53% to close at $2.20.