Mar. 13--Discovery Laboratories Inc. today reported a loss of $8.54 million, or 8 cents a share, in the latest fourth quarter, and said if it can't raise additional capital it will likely not have sufficient cash flow and liquidity to fund business operations.

The Warrington biotechnology firm said it lost $39.1 million in 2008, or 40 cents a share, compared with a loss of $40 million, and 49 cents a share in 2007.

As of Dec. 31, the company had an accumulated deficit of $327.4 million.

Discovery disclosed in its annual report that its auditor, Ernst & Young LLP, has raised questions about Discovery's ability to continue as a going concern.

Ernst & Young said the company has "incurred recurring operating losses and has generated negative cash flows from operations since inception" in 1992 "and expects such results to continue for the foreseeable future," the company said in a Securities and Exchange Commission filing.

In addition, the accounting firm said, there is uncertainty as to Discovery's ability to raise additional capital to fund research and drug development and meet its obligations. "These conditions raise substantial doubt about the company's ability to continue as a going concern," auditors said.

Discovery said that, as of Dec. 31, it had cash and marketable securities of $24.8 million and was trying to raise capital from strategic business alliances with potential partners, equity and debt financings, and other similar opportunities.

Discovery Labs has been seeking Food and Drug Administration approval since April 2004 for its first product, Surfaxin, a respiratory treatment for premature infants.

The FDA has issued three "approvable" letters but not final approval, saying it needed more information about the chemistry and manufacturing.

The company has faced a string of setbacks, including a validation batch of the drug manufactured in summer 2005 that did not meet a six-month stability test.

The Food and Drug Administration is scheduled to complete its review of Surfaxin on April 17, the company said.

Surfaxin is a synthetic lung substance for premature babies who are born with insufficient natural surfactant in their lungs and are prone to life-threatening diseases. Surfactant is a critical substance that helps breathing and prevents tiny air sacs in the lungs from collapsing. Treatments for the disorder are limited.

Shares were down 5 cents, or 3.9 percent, to $1.22 on the Nasdaq.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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