Analysts: Discovery Labs sell-off overdone

Last month, the FDA requested more information on Surfaxin, a respiratory distress syndrome drug for premature infants, delaying regulatory approval. Discovery Labs said then it would respond to the FDA in six to eight weeks, but announced earlier Thursday that it now won't be able to file the information with the agency until September.

Shares dropped 46 cents, or 21.3 percent, to $1.70 in afternoon trading on heavy volume.

Brean Murray, Carret analyst Jonathan Aschoff said the stock reaction is "overdone."

"In our opinion, the FDA meeting provides better clarity to the route as well as a clearer timing for the potential approval of Surfaxin," he wrote in a note to clients. "Although additional preclinical data and information are requested, we believe the issues are easy to address and the company should be able to prepare a complete response within three months."

Aschoff continues to deem Surfaxin worthy of approval and thinks Discovery could assemble a salesforce in as little as two or three months, which could allow initial Surfaxin sales as soon as the 2009 first quarter. He reiterated a "Buy" rating and $5 price target on shares.

Jefferies & Co.'s Adam Walsh said the delay is disappointing, but he still expects the drug to be approved by the end of the year. He also reaffirmed a "Buy" rating.