Shares in the USA’s Discovery Labs have sunk nearly 50% after the company revealed that the country’s regulators have again rejected its respiratory drug Surfaxin.

Discovery said that it received a complete response letter from the US Food and Drug Administration for Surfaxin (lucinactant) for the prevention of respiratory distress syndrome in premature infants. In its letter, the agency “focuses primarily on certain aspects of a Surfaxin biological activity test”, the firm said, “that must be addressed” before the application can be approved.

Discovery believes “it has already submitted data necessary to respond to the questions raised by the FDA” and that its New Drug Application is sufficient to gain marketing approval. It stressed that at this time, there are no questions regarding Phase III trials, “no comments regarding drug substance impurities, and no issues related to the manufacturing process for Surfaxin”.

The company plans to seek an end of review meeting with the FDA to be scheduled as soon as possible and if the meeting is successful, Discovery anticipates that Surfaxin may be approved in 2009. This enthusiasm is not universally shared among investors however and the firm’s stock fell 49.4% to close at $0.91.

This is the fourth such letter Discovery has received from the FDA since 2004 for Surfaxin and the latest missive also indicated that the company needs to “tighten one drug product specification, which can be readily implemented”. The complete response letter also contained routine requests to update safety and other information in the NDA “as well as information requests about certain regulatory matters”.

Despite remaining upbeat, the delay has put Discovery in dire straits on the financial front. It is “analysing all aspects of its business with an immediate intention to conserve cash”. It is exploring strategic alternatives, including potential additional financings, alliances “and other similar opportunities”.