Discovery Labs Reports Second Quarter Financial Results and Provides an Update on Lead Pipeline Programs Warrington, PA

Discovery Labs Reports Second Quarter Financial Results and

Provides an Update on Lead Pipeline Programs

Warrington, PA - August 3, 2011 - Discovery Laboratories, Inc. (Nasdaq: DSCO), a specialty biotechnology company dedicated to improving the standard of respiratory critical care through its KL4 surfactant and aerosol drug delivery technologies, today reports financial results for the second quarter ended June 30, 2011 and provides an update on lead pipeline programs. The Company will host a conference call this morning at 10:00 AM EDT. Conference call details are below.

Selected highlights, discussed in greater detail below, include:

"We have made great progress on a number of key development initiatives that we believe fundamentally strengthen our Company's pipeline." said W. Thomas Amick, Chairman of the Board and Chief Executive Officer, Discovery Labs. "With both AFECTAIR and SURFAXIN potentially arriving on the market in 2012, we are making great progress toward our goal of improving the standard of respiratory critical care."

Selected Pipeline Updates:

Summary Financial Position and Results for the Quarter ended June 30, 2011

For the quarter ended June 30, 2011, the Company reported a net loss of $8.1 million ($0.34 per share) on 24.0 million weighted-average common shares outstanding, compared to a net loss of $0.8 million ($0.07 per share) on 10.7 million weighted-average common shares outstanding for the same period in 2010. Included in the net loss is the change in fair value of certain common stock warrants that are classified as derivative liabilities, resulting in non-cash expense of $1.7 million for the quarter ended June 30, 2011 and non-cash income of $5.5 million for the quarter ended June 30, 2010.

The Company reported an operating loss of $6.4 million for the quarter ended June 30, 2011 compared with $6.2 million for the quarter ended June 30, 2010. Excluding non-cash items related to depreciation and stock-based compensation, the operating loss was $5.9 million for the quarter ended June 30, 2011, compared with $5.5 million for the quarter ended June 30, 2010. The increase in the operating loss in 2011 is principally due to activities related to the filing of the SURFAXIN Complete Response and the comprehensive assessment of the operational, regulatory and commercial requirements for AFECTAIR, offset by $0.2 million of revenue recognized in 2011 under our grant from the National Institutes of Health (NIH) to support the development of the Company's program for aerosolized KL4 surfactant for RDS.

As of June 30, 2011 the Company had cash and cash equivalents of $21.5 million. Additionally, the Company currently has its 2010 Committed Equity Financing Facility (CEFF) that, subject to certain conditions, including price and volume limitations, may allow the Company in the future to raise additional capital to support its business plans. Under the CEFF (which expires in June 2013), there are 1.3 million shares available for potential future issuance. Additionally, in connection with a public offering conducted in February 2011, the Company issued fifteen-month warrants (expiring May 2012) to purchase 5.0 million shares of common stock at an exercise price of $2.94. If the market price of the Company's common stock should exceed $2.94 at any time prior to May 2012, the Company may realize up to an additional $14.7 million in proceeds from the potential exercise of the fifteen month warrants.

Net cash outflows for the second quarter of 2011 were $6.1 million. For the second half of 2011, the Company anticipates net cash outflows of approximately $12 million, before taking into account any potential financing activities.

As of June 30, 2011, the Company reported a common stock warrant liability of $10.0 million, as compared to $8.3 million as of March 31, 2011. The increase of $1.7 million represents the change in fair value of certain outstanding common stock warrants accounted for as derivative liabilities, due primarily to an increase in the price of the Company's common stock as of June 30, 2011 as compared to March 31, 2011. The balance of the common stock warrant liability predominantly relates to the issuance, in February 2011, of five-year warrants that qualify for liability accounting due to certain price-related, anti-dilution provisions. These warrants may be exercised for cash only and expressly state that there is no circumstance in which the Company shall be required to settle the warrants in cash; however, due to the nature of the anti-dilution provisions, to comply with applicable accounting guidelines (Accounting Standards Codification Topic 815), these warrants were classified as derivative liabilities and reported as of June 30, 2011 at an estimated fair value of $8.7 million using a trinomial valuation model.

The Company had 24.2 million, 24.1 million and 13.8 million common shares outstanding as of June 30, 2011, March 31, 2011 and December 31, 2010, respectively.

Readers are referred to, and encouraged to read in their entirety, the Forms 8-K regarding the matters referred to herein, including any exhibits attached thereto, and the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 to be filed with the Securities and Exchange Commission, which includes further detail on above-referenced transactions and the Company's business plans and operations, financial condition and results of operations.

SURFAXIN, SURFAXIN LS, AEROSURF and the Company's other aerosolized KL4 surfactant drug product candidates are investigational medications and are not approved by the FDA or any other world health regulatory authority for use in humans. AFECTAIR, the Company's proprietary patient interface adapter, is an investigational device and not approved by the FDA or any other world health regulatory authority for use in humans.

Conference Call Details

Discovery Labs will hold a conference call today at 10:00 AM EDT to further discuss the foregoing. The call in number is (866) 332-5218. The international call in number is (706) 679-3237. This audio webcast will be available through a live broadcast on the Internet at http://us.meeting-stream.com/discoverylaboratories_080311 and www.discoverylabs.com. The replay number to hear the conference call is (855) 859-2056 or (404) 537-3406. The passcode is 85213033.

About Discovery Labs

Discovery Laboratories, Inc. is a specialty biotechnology company with one focus - to create life-saving products for patients with respiratory disease and improve the standard of care for pulmonary medicine. Discovery Labs' novel proprietary KL4 surfactant technology produces a synthetic, peptide-containing surfactant that is structurally similar to pulmonary surfactant and is being developed in liquid, lyophilized and aerosol formulations. Discovery Labs is also developing its proprietary drug delivery technologies - capillary aerosol generator and novel patient interface adapters - to enable efficient, targeted upper respiratory or alveolar delivery of aerosolized KL4 surfactant. Discovery Labs believes that its proprietary technology makes it possible, for the first time, to develop a significant pipeline of surfactant products to address a variety of respiratory diseases for which there frequently are few or no approved therapies. For more information, please visit our website at www.Discoverylabs.com.

Forward-Looking Statements

To the extent that statements in this press release are not strictly historical, all such statements are forward-looking, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the statements made. Examples of such risks and uncertainties are: risks relating to the rigorous regulatory requirements required for approval of any drug or drug-device combination products that Discovery Labs may develop, including that: (a) Discovery Labs and the U.S. Food and Drug Administration (FDA) or other regulatory authorities will not be able to agree on the matters raised during regulatory reviews, or Discovery Labs may be required to conduct significant additional activities to potentially gain approval of its product candidates, if ever, (b) the FDA or other regulatory authorities may not accept or may withhold or delay consideration of any of Discovery Labs' applications, or may not approve or may limit approval of Discovery Labs' products to particular indications or impose unanticipated label limitations, and (c) changes in the national or international political and regulatory environment may make it more difficult to gain FDA or other regulatory approval; risks relating to Discovery Labs' research and development activities, including (i) time-consuming and expensive pre-clinical studies, clinical trials and other efforts, which may be subject to potentially significant delays or regulatory holds, or fail, and (ii) the need for sophisticated and extensive analytical methodologies, including an acceptable biological activity test as well as other quality control release and stability tests to satisfy the requirements of the regulatory authorities; risks relating to Discovery Labs' ability to develop and manufacture drug products, and capillary aerosol generators and patient interface systems for clinical studies, and, if approved, for commercialization of drug and combination drug-device products, including risks of technology transfers to contract manufacturers and problems or delays encountered by Discovery Labs, its contract manufacturers or suppliers in manufacturing drug products, drug substances and other materials and capillary aerosol generators and patient interface systems on a timely basis or in an amount sufficient to support Discovery Labs' development efforts and, if approved, commercialization; the risk that Discovery Labs may be unable to identify potential strategic partners or collaborators to develop and commercialize its products, if approved, in a timely manner, if at all; the risk that Discovery Labs will not be able in a changing financial market to raise additional capital or enter into strategic alliances or collaboration agreements, or that the ongoing credit crisis will adversely affect the ability of Discovery Labs to fund its activities, or that additional financings could result in substantial equity dilution; the risk that Discovery Labs will not be able to access credit from its committed equity financing facility (CEFF), or that the minimum share price at which Discovery Labs may access the CEFF from time to time will prevent Discovery Labs from accessing the full dollar amount potentially available under the CEFF; the risk that Discovery Labs or its strategic partners or collaborators will not be able to retain, or attract, qualified personnel; the risk that Discovery Labs will be unable to maintain compliance with The Nasdaq Capital Market listing requirements, which could cause the price of Discovery Labs' common stock to decline; the risk that recurring losses, negative cash flows and the inability to raise additional capital could threaten Discovery Labs' ability to continue as a going concern; the risks that Discovery Labs may be unable to maintain and protect the patents and licenses related to its products, or other companies may develop competing therapies and/or technologies, or health care reform may adversely affect Discovery Labs; risks of legal proceedings, including securities actions and product liability claims; risks relating to health care reform; and other risks and uncertainties described in Discovery Labs' filings with the Securities and Exchange Commission including the most recent reports on Forms 10-K, 10-Q and 8-K, and any amendments thereto.

Contact Information:

John G. Cooper, President and Chief Financial Officer

Condensed Consolidated Statement of Operations

(in thousands, except per share data)

Condensed Consolidated Balance Sheets