WARRANT

     

    THE
      SECURITIES EVIDENCED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE U.S.
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      OR
      ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON
      AN
      EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
      OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
      HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
      HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
      WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

     

    May
      22, 2008

     

    Warrant
      to Purchase up to 825,000 shares of Common Stock of Discovery Laboratories,
      Inc.
      (the “Company”).

     

    In
      consideration for Kingsbridge Capital Limited (the “Investor”)
      agreeing to enter into that certain Common Stock Purchase Agreement, dated
      as of
      the date hereof, between the Investor and the Company (the “Agreement”),
      the
      Company hereby agrees that the Investor or any other Warrant Holder (as defined
      below) is entitled, on the terms and conditions set forth below, to purchase
      from the Company at any time during the Exercise Period (as defined below)
      up to
      825,000 fully paid and non-assessable shares of common stock, par value $0.001
      per share, of the Company (the “Common
      Stock”)
      at the
      Exercise Price (as defined below), as the same may be adjusted from time to
      time
      pursuant to Section 6 hereof. The resale of the shares of Common Stock or
      other securities issuable upon exercise or exchange of this Warrant is subject
      to the provisions of the Registration Rights Agreement. Capitalized terms used
      herein and not otherwise defined shall have the meanings given them in the
      Agreement.

     

    Section
      1. Definitions.

     

    “Affiliate”
shall
      mean any Person that, directly or indirectly through one or more intermediaries,
      controls or is controlled by, or is under direct or indirect common control
      with
      any other Person. For the purposes of this definition, “control,”
when
      used with respect to any Person, means the power to direct the management and
      policies of such Person, directly or indirectly, whether through the ownership
      of voting securities, by contract or otherwise, and the term “controls”
and
      “controlled”
have
      meanings correlative to the foregoing.

     

    “Closing
      Price”
as
      of
      any particular day shall mean the closing price per share of the Company’s
      Common Stock as reported by the Principal Market on such day.

     

    “Exercise
      Period”
shall
      mean that period beginning six months after the date of this Warrant and
      continuing until the earlier of (i) the expiration of the five-year period
      thereafter or (ii) a Funding Default, subject in each case to earlier
      termination in accordance with Section 6 hereof.

     

    “Exercise
      Price”
as
      of
      the date hereof shall mean $2.506 .

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

      
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    “Funding
      Default”
shall
      mean a failure by Investor to accept a Draw Down Notice made by the Company
      and
      to acquire and pay for the Shares in accordance therewith within three (3)
      Trading Days following the delivery of such Shares to the Investor, provided
      such Draw Down Notice was made in accordance with the terms and conditions
      of
      the Agreement (including the satisfaction or waiver of the conditions to the
      obligation of the Investor to accept a Draw Down set forth in Article VII of
      the
      Agreement), provided further, that such failure was reasonably within the
      control of the Investor.

     

    “Per
      Share Warrant Value”
shall
      mean the difference resulting from subtracting the Exercise Price from the
      Closing Price on the Trading Day immediately preceding the Exercise
      Date.

     

    “Person”
shall
      mean an individual, a corporation, a partnership, a limited liability company,
      an association, a trust or other entity or organization, including a government
      or political subdivision or an agency or instrumentality thereof.

     

    “Principal
      Market”
shall
      mean the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ
      Capital Market, the American Stock Exchange or the New York Stock Exchange,
      whichever is at the time the principal trading exchange or market for the Common
      Stock.

     

    “SEC”
shall
      mean the United States Securities and Exchange Commission.

     

    “Trading
      Day”
shall
      mean any day other than a Saturday or a Sunday on which the Principal Market
      is
      open for trading in equity securities.

     

    “Warrant
      Holder”
shall
      mean the Investor or any permitted assignee or permitted transferee of all
      or
      any portion of this Warrant.

     

    “Warrant
      Shares”
shall
      mean those shares of Common Stock received or to be received upon exercise
      of
      this Warrant.

     

    Section
      2. Exercise.

     

    (a) Method
      of Exercise.
      This
      Warrant may be exercised in whole or in part (but not as to a fractional share
      of Common Stock), at any time and from time to time during the Exercise Period,
      by the Warrant Holder by surrender of this Warrant, with the form of exercise
      attached hereto as Exhibit A
      completed and duly executed by the Warrant Holder (the “Exercise
      Notice”),
      to
      the Company at the address set forth in Section 10.4 of the Agreement,
      accompanied by payment of the Exercise Price multiplied by the number of shares
      of Common Stock for which this Warrant is being exercised (the “Aggregate
      Exercise Price”).
      The
      later of the date on which an Exercise Notice or payment of the Exercise Price
      (unless this Warrant is exercised in accordance with Section 2(c) below) is
      received by the Company in accordance with this clause (a) shall be deemed
      an “Exercise
      Date.”

     

    (b) Payment
      of Aggregate Exercise Price.
      Subject
      to paragraph (c) below, payment of the Aggregate Exercise Price shall be
      made by wire transfer of immediately available funds to an account designated
      by
      the Company. If the amount of the payment received by the Company is less than
      the Aggregate Exercise Price, the Warrant Holder will be notified of the
      deficiency and shall make payment in that amount within three (3) Trading Days.
      In the event the payment exceeds the Aggregate Exercise Price, the Company
      will
      refund the excess to the Warrant Holder within five (5) Trading Days of
      receipt.

     

    
      
        
        

      

      
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    (c) Cashless
      Exercise.
      In the
      event that the Warrant Shares to be received by the Warrant Holder upon exercise
      of the Warrant may not be resold pursuant to an effective registration statement
      or an exemption to the registration requirements of the Securities Act of 1933,
      as amended (“Securities Act”), and applicable state laws, the Warrant Holder
      may, as an alternative to payment of the Aggregate Exercise Price upon exercise
      in accordance with paragraph (b) above, elect to effect a cashless exercise
      by so indicating on the Exercise Notice and including a calculation of the
      number of shares of Common Stock to be issued upon such exercise in accordance
      with the terms hereof (a “Cashless
      Exercise”).
      If a
      registration statement on Form S-3 under the Securities Act or such other form
      as deemed appropriate by counsel to the Company for the registration of the
      resale by the Warrant Holder of (x) the shares of Common Stock of the Company
      that may be purchased under the Agreement, (y) the Warrant Shares, or (z) any
      securities issued or issuable with respect to any of the foregoing by way of
      exchange, stock dividend or stock split or in connection with a combination
      of
      shares, recapitalization, merger, consolidation or other reorganization or
      otherwise, has been declared effective by the SEC and remains effective,
the
      Company may, in its sole discretion,
      require
      the Warrant Holder to pay the Exercise Price of the Warrant Shares being
      purchased by the Warrant Holder under this Warrant. The Company may, in its
      sole
      discretion, permit the Warrant Holder to effect a Cashless Exercise at any
      time.
      In the event of a Cashless Exercise, the Warrant Holder shall receive that
      number of shares of Common Stock determined by (i) multiplying the number
      of Warrant Shares for which this Warrant is being exercised by the Per Share
      Warrant Value and (ii) dividing the product by the average Closing Price of
      the Common Stock during the five (5) Trading Days immediately preceding the
      Exercise Date, rounded to the nearest whole share. The Company shall cancel
      the
      total number of Warrant Shares equal to the excess of the number of the Warrant
      Shares for which this Warrant is being exercised over the number of Warrant
      Shares to be received by the Warrant Holder pursuant to such Cashless
      Exercise.

     

    (d) Replacement
      Warrant.
      In the
      event that the Warrant is not exercised in full, the number of Warrant Shares
      shall be reduced by the number of such Warrant Shares for which this Warrant
      is
      exercised, and the Company, at its expense, shall forthwith issue and deliver
      to
      or upon the order of the Warrant Holder a new Warrant of like tenor in the
      name
      of the Warrant Holder, reflecting such adjusted number of Warrant
      Shares.

     

    Section
      3. Ten
      Percent Limitation.
      The
      Warrant Holder may not exercise this Warrant such that the number of Warrant
      Shares to be received pursuant to such exercise aggregated with all other shares
      of Common Stock that are then beneficially owned or deemed to be beneficially
      owned by the Warrant Holder would result in (i) the Warrant Holder owning more
      than 9.9% of all of such Common Stock as would be outstanding on such Exercise
      Date, as determined in accordance with Section 13(d) of the Exchange Act or
      (ii) the Company being required to file any notification or report forms under
      the Hart Scott Rodino Antitrust Improvements Act of 1976, as
      amended.

     

    
      
        
        

      

      
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    Section
      4. Delivery
      of Warrant Shares.

     

    (a) Subject
      to the terms and conditions of this Warrant, as soon as practicable after the
      exercise of this Warrant in full or in part, and in any event within ten (10)
      Trading Days thereafter, the Company at its expense (including, without
      limitation, the payment by it of any applicable issue taxes) will cause to
      be
      issued in the name of and delivered to the Warrant Holder, or as the Warrant
      Holder may lawfully direct, a certificate or certificates for, or make deposit
      with the Depositary Trust Company via book-entry of, the number of validly
      issued, fully paid and non-assessable Warrant Shares to which the Warrant Holder
      shall be entitled on such exercise, together with any other stock or other
      securities or property (including cash, where applicable) to which the Warrant
      Holder is entitled upon such exercise in accordance with the provisions
      hereof.

     

    (b) This
      Warrant may not be exercised as to fractional shares of Common Stock. In the
      event that the exercise of this Warrant, in full or in part, would result in
      the
      issuance of any fractional share of Common Stock, then in such event the Warrant
      Holder shall receive the number of shares rounded to the nearest whole
      share.

     

    Section
      5. Representations,
      Warranties and Covenants of the Company.

     

    (a) The
      Warrant Shares, when issued in accordance with the terms hereof, will be duly
      authorized and, when paid for or issued in accordance with the terms hereof,
      shall be validly issued, fully paid and non-assessable.

     

    (b) The
      Company shall take all commercially reasonable action and proceedings as may
      be
      required and permitted by applicable law, rule and regulation for the legal
      and
      valid issuance of this Warrant and the Warrant Shares to the Warrant
      Holder.

     

    (c) The
      Company has authorized and reserved for issuance to the Warrant Holder the
      requisite number of shares of Common Stock to be issued pursuant to this
      Warrant. The Company shall at all times reserve and keep available, solely
      for
      issuance and delivery as Warrant Shares hereunder, such shares of Common Stock
      as shall from time to time be issuable as Warrant Shares.

     

    (d) From
      the
      date hereof through the last date on which this Warrant is exercisable, the
      Company shall take all steps commercially reasonable to ensure that the Common
      Stock remains listed or quoted on the Principal Market.

     

    Section
      6. Adjustment
      of the Exercise Price.
      The
      Exercise Price and, accordingly, the number of Warrant Shares issuable upon
      exercise of the Warrant, shall be subject to adjustment from time to time upon
      the happening of certain events as follows:

     

    (a) Reclassification,
      Consolidation, Merger, Mandatory Share Exchange, Sale or
      Transfer.

     

    (i) Upon
      occurrence of any of the events specified in subsection (a)(ii) below (the
      “Adjustment
      Events”)
      while
      this Warrant is unexpired and not exercised in full, the Warrant Holder may
      in
      its sole discretion require the Company, or any successor or purchasing
      corporation, as the case may be, without payment of any additional consideration
      therefor, upon surrender by the Warrant Holder of the Warrant to be replaced,
      to
      execute and deliver to the Warrant Holder a new Warrant providing that the
      Warrant Holder shall have the right to exercise such new Warrant (upon terms
      not
      less favorable to the Warrant Holder than those then applicable to this Warrant)
      and to receive upon such exercise, in lieu of each share of Common Stock
      theretofore issuable upon exercise of this Warrant, the kind and amount of
      shares of stock, other securities, money or property receivable upon such
      Adjustment Event by the holder of one share of Common Stock issuable upon
      exercise of this Warrant had this Warrant been exercised immediately prior
      to
      such Adjustment Event. Such new Warrant shall provide for adjustments that
      shall
      be as nearly equivalent as may be practicable to the adjustments provided for
      in
      this Section 6.

     

    
      
        
        

      

      
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    (ii) The
      Adjustment Events shall be (1) any reclassification or change of Common Stock
      (other than a change in par value, as a result of a subdivision or combination
      of Common Stock or in connection with an Excluded Merger or Sale) and (2) any
      consolidation, merger or mandatory share exchange of the Company with or into
      another corporation (other than a merger or mandatory share exchange with
      another corporation in which the Company is a continuing corporation and which
      does not result in any reclassification or change other than a change in par
      value or as a result of a subdivision or combination of Common Stock), other
      than (each of the following referred to as an “Excluded
      Merger or Sale”)
      a
      transaction involving (A) sale of all or substantially all of the assets of
      the Company or (B) any merger, consolidation or similar transaction where
      the consideration payable to the stockholders of the Company by the acquiring
      Person consists substantially of cash or publicly traded securities, or a
      combination thereof, or where the acquiring Person does not agree to assume
      the
      obligations of the Company under outstanding warrants (including this Warrant).
      In the event of an Excluded Merger or Sale, the Company shall deliver a notice
      to the Warrant Holder at least 10 days before the consummation of such Excluded
      Merger or Sale, the Warrant Holder may exercise this Warrant at any time before
      the consummation of such Excluded Merger or Sale (and such exercise may be
      made
      contingent upon the consummation of such Excluded Merger or Sale), and any
      portion of this Warrant that has not been exercised before consummation of
      such
      Excluded Merger or Sale shall terminate and expire, and shall no longer be
      outstanding.

     

    (b) Subdivision
      or Combination of Shares.
      If the
      Company, at any time while this Warrant is unexpired and not exercised in full,
      shall subdivide its Common Stock, the Exercise Price shall be proportionately
      reduced as of the effective date of such subdivision, or, if the Company shall
      take a record of holders of its Common Stock for the purpose of so subdividing
      its Common Stock, as of such record date, whichever is earlier. If the Company,
      at any time while this Warrant is unexpired and not exercised in full, shall
      combine its Common Stock, the Exercise Price shall be proportionately increased
      as of the effective date of such combination, or, if the Company shall take
      a
      record of holders of its Common Stock for the purpose of so combining its Common
      Stock, as of such record date, whichever is earlier.

     

    (c) Stock
      Dividends.
      If the
      Company, at any time while this Warrant is unexpired and not exercised in full,
      shall pay a stock dividend or other distribution in shares of Common Stock
      to
      all holders of Common Stock, then the Exercise Price shall be adjusted, as
      of
      the date the Company shall take a record of the holders of its Common Stock
      for
      the purpose of receiving such dividend or other distribution (or if no such
      record is taken, as at the date of such payment or other distribution), to
      that
      price determined by multiplying the Exercise Price in effect immediately prior
      to such payment or other distribution by a fraction: (i) the numerator of
      which shall be the total number of shares of Common Stock outstanding
      immediately prior to such dividend or distribution, and (ii) the
      denominator of which shall be the total number of shares of Common Stock
      outstanding immediately after such dividend or distribution. The provisions
      of
      this subsection (c) shall not apply under any of the circumstances for
      which an adjustment is provided in subsections (a) or (b).

     

    
      
        
        

      

      
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    (d) Liquidating
      Dividends, Etc.
      If the
      Company, at any time while this Warrant is unexpired and not exercised in full,
      makes a distribution of its assets or evidences of indebtedness to the holders
      of its Common Stock as a dividend in liquidation or by way of return of capital
      or other than as a dividend payable out of earnings or surplus legally available
      for dividends under applicable law or any distribution to such holders made
      in
      respect of the sale of all or substantially all of the Company’s assets (other
      than under the circumstances provided for in the foregoing subsections
      (a) through (c)), then the Warrant Holder shall be entitled to receive upon
      exercise of this Warrant in addition to the Warrant Shares receivable in
      connection therewith, and without payment of any consideration other than the
      Exercise Price, the kind and amount of such distribution per share of Common
      Stock multiplied by the number of Warrant Shares that, on the record date for
      such distribution, are issuable upon such exercise of the Warrant (with no
      further adjustment being made following any event which causes a subsequent
      adjustment in the number of Warrant Shares issuable), and an appropriate
      provision therefor shall be made a part of any such distribution. The value
      of a
      distribution that is paid in other than cash shall be determined in good faith
      by the Board of Directors of the Company. Notwithstanding the foregoing, in
      the
      event of a proposed dividend in liquidation or distribution to the stockholders
      made in respect of the sale of all or substantially all of the Company’s assets,
      the Company shall deliver a notice to the Warrant Holder at least 10 days before
      the date on which the Company shall take a record of the holders of its Common
      Stock for the purpose of receiving such dividend or other distribution (or
      if no
      such record is taken, at least 10 days before the date of such payment or other
      distribution), the Warrant Holder may exercise this Warrant at any time before
      such record date or the date of such payment or other distribution, as
      applicable, (and such exercise may be made contingent upon such payment or
      other
      distribution), and any portion of this Warrant that has not been exercised
      before such record date or the date of such payment or other distribution,
      as
      applicable, shall terminate and expire, and shall no longer be
      outstanding.

     

    (e) Adjustment
      for Spin Off.
      If, for
      any reason, prior to the exercise of this Warrant in full, the Company spins
      off
      or otherwise divests itself of a part of its business or operations or disposes
      all or a part of its assets in a transaction (a “Spin
      Off”)
      in
      which the Company does not receive compensation for such business, operations
      or
      assets, but causes securities of another entity (“Spin
      Off Securities”)
      to be
      issued to all or substantially all holders of Common Stock, then the Company
      shall cause (i) to be reserved Spin Off Securities equal to the number thereof
      which would have been issued to the Warrant Holder in the event that the entire
      unexercised portion of this Warrant outstanding on the record date (the
“Record
      Date”)
      for
      determining the number of Spin Off Securities to be issued to holders of Common
      Stock had been exercised by the Warrant Holder as of the close of business
      on
      the Trading Day immediately prior to the Record Date (the “Reserved
      Spin Off Shares”),
      and
      (ii) to be issued to the Warrant Holder on the exercise of all or any
      unexercised portion of this Warrant, such amount of the Reserved Spin Off Shares
      equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of
      which
      (I) the numerator is the unexercised portion of this Warrant then being
      exercised, and (II) the denominator is the aggregate amount of the unexercised
      portion of this Warrant. 

     

    
      
        
        

      

      
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    Section
      7. Notice
      of Adjustments.
      Whenever the Exercise Price or number of Warrant Shares shall be adjusted
      pursuant to Section 6 hereof, the Company shall promptly prepare a
      certificate signed by its Chief Executive Officer or Chief Financial Officer
      setting forth in reasonable detail the event requiring the adjustment, the
      amount of the adjustment, the method by which such adjustment was calculated
      (including a description of the basis on which the Company’s Board of Directors
      made any determination hereunder), and the Exercise Price and number of Warrant
      Shares purchasable at that Exercise Price after giving effect to such
      adjustment, and shall promptly cause copies of such certificate to be delivered
      to the Warrant Holder by a means set forth in Section 10.4 of the
      Agreement.

     

    Section
      8. No
      Impairment.
      The
      Company will not, by amendment of its Charter or Bylaws or through any
      reorganization, transfer of assets, consolidation, merger, dissolution or issue
      or sale of securities, willfully avoid or seek to avoid the observance or
      performance of any of the terms of this Warrant, but will at all times in good
      faith assist in the carrying out of all such terms and in the taking of all
      such
      action as may be necessary or appropriate in order to protect the rights of
      the
      Warrant Holder against wrongful impairment. Without limiting the generality
      of
      the foregoing, the Company (a) will not increase the par value of any
      Warrant Shares above the amount payable therefor on such exercise, and
      (b) will take all such action as may be reasonably necessary or appropriate
      in order that the Company may validly and legally issue fully paid and
      non-assessable Warrant Shares on the exercise of this Warrant. Notwithstanding
      the foregoing, nothing in this Section 8 shall restrict or impair the Company’s
      right to effect any changes to the rights, preferences, privileges or
      restrictions associated with the Warrant Shares so long as such changes do
      not
      affect the rights, preferences, privileges or restrictions associated with
      the
      Warrant Shares in a manner adversely different from the effect that such changes
      have generally on the rights, preferences, privileges or restrictions associated
      with all other shares of Common Stock.

     

    Section
      9. Rights
      As Stockholder.
      Except
      as set forth in Section 6 above, prior to exercise of this Warrant, the
      Warrant Holder shall not be entitled to any rights as a stockholder of the
      Company with respect to the Warrant Shares, including (without limitation)
      the
      right to vote such shares, receive dividends or other distributions thereon
      or
      be notified of stockholder meetings.

     

    Section
      10. Replacement
      of Warrant.
      Upon
      receipt of evidence reasonably satisfactory to the Company of the loss, theft,
      destruction or mutilation of the Warrant and, in the case of any such loss,
      theft or destruction of the Warrant, upon delivery of an indemnity agreement
      or
      security reasonably satisfactory in form and amount to the Company or, in the
      case of any such mutilation, on surrender and cancellation of such Warrant,
      the
      Company at its expense will execute and deliver, in lieu thereof, a new Warrant
      of like tenor.

     

    Section
      11. Choice
      of Law.
      This
      Warrant shall be construed under the laws of the State of New York.

     

    
      
        
        

      

      
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    Section
      12. Entire
      Agreement; Amendments.
      Except
      for any written instrument concurrent or subsequent to the date hereof executed
      by the Company and the Investor, this Warrant, the Agreement and the
      Registration Rights Agreement contain the entire understanding of the parties
      with respect to the matters covered hereby and thereby. No provision of this
      Warrant may be waived or amended other than by a written instrument signed
      by
      the party against whom enforcement of any such amendment or waiver is
      sought.

     

    Section
      13. Restricted
      Securities.

     

    (a) Registration
      or Exemption Required.
      This
      Warrant has been issued in a transaction exempt from the registration
      requirements of the Securities Act in reliance upon the provisions of
      Section 4(2) thereof and Regulation D promulgated thereunder, and/or upon
      such other exemption from the registration requirements of the Securities Act
      as
      may be available with respect to this Warrant. This Warrant and the Warrant
      Shares issuable upon exercise of this Warrant may not be resold except pursuant
      to an effective registration statement or an exemption to the registration
      requirements of the Securities Act and applicable state laws.

     

    (b) Legend.
      Any
      replacement Warrants issued pursuant to Section 2 and Section 10
      hereof and, unless a registration statement has been declared effective by
      the
      SEC and remains effective in accordance with the Securities Act with respect
      thereto, any Warrant Shares issued upon exercise hereof, shall bear the
      following legend:

     

    “THE
      SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      U.S.
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
      ACT”),
      OR
      ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON
      AN
      EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
      OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION
      HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
      HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION
      WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.”

     

    (c) No
      Other Legend or Stock Transfer Restrictions.
      No
      legend other than the one specified in Section 13(b) has been or shall be
      placed on the share certificates representing the Warrant Shares and no
      instructions or “stop
      transfer orders”
(so
      called “stock
      transfer restrictions”)
      or
      other restrictions have been or shall be given to the Company’s transfer agent
      with respect thereto other than as expressly set forth in this
      Section 13.

     

    (d) Assignment.
      Assuming the conditions of Section 13(a) above regarding registration or
      exemption have been satisfied, the Warrant Holder may sell, transfer, assign,
      pledge or otherwise dispose of this Warrant (each of the foregoing, a
“Transfer”),
      in
      whole or in part, but only to an Affiliate of the Warrant Holder. The Warrant
      Holder shall deliver a written notice to Company,
      substantially in the form of the Assignment attached hereto as Exhibit B,
      indicating the person or persons to whom the Warrant shall be Transferred and
      the respective number of Warrant Shares to be covered by the warrants to be
      Transferred to each assignee. The Company shall effect the Transfer within
      ten
      (10) days, and shall deliver to the Transferee(s) designated by the Warrant
      Holder a Warrant or Warrants of like tenor and terms for the appropriate number
      of shares. In connection with and as a condition of any such proposed Transfer,
      the Company may require
      (i)
      the
      Warrant Holder to provide an opinion of counsel to the Warrant Holder in form
      and substance reasonably satisfactory to the Company to the effect that the
      proposed Transfer complies with all applicable federal and state securities
      laws
      and (ii)
      any such Transferee to provide customary representations and warranties
      attendant to the acquisition of unregistered securities, including without
      limitation the transferee’s investment intent and status as an “accredited
      investor” within the meaning of Regulation D.

     

    
      
        
        

      

      
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      Execution
        Copy

       

    

    (e) Investor’s
      Compliance.
      Nothing
      in this Section 13 shall affect in any way the Investor’s obligations under
      any agreement to comply with all applicable securities laws upon resale of
      the
      Common Stock.

     

    Section
      14. Notices.
      All
      notices, demands, requests, consents, approvals, and other communications
      required or permitted hereunder shall be given in accordance with
      Section 10.4 of the Agreement.

     

    Section
      15. Miscellaneous.
      This
      Warrant and any term hereof may be changed, waived, discharged or terminated
      only by an instrument in writing signed by the party against which enforcement
      of such change, waiver, discharge or termination is sought. The headings in
      this
      Warrant are for purposes of reference only, and shall not limit or otherwise
      affect any of the terms hereof. The invalidity or unenforceability of any
      provision hereof shall in no way affect the validity or enforceability of any
      other provision.

     

    Section
      16. Company
      Call Right.

     

    (a) If
      a
      Funding Default occurs, the Company shall have the right to demand the surrender
      of this Warrant or any remaining portion thereof, Warrant Shares and/or cash
      from the Investor as follows (the “Call
      Right”):

     

    (i) If
      the
      Investor has not previously exercised this Warrant in full, then the Company
      shall have a right to demand the surrender of this Warrant, or remaining portion
      thereof, from the Investor without compensation, and the Investor shall promptly
      surrender this Warrant, or remaining portion thereof. Following such demand
      for
      surrender, this Warrant shall automatically be deemed to have been canceled
      and
      shall have no further force or effect.

     

    (ii) If,
      prior
      to receiving a Call Right Notice (as defined below), the Investor has previously
      exercised this Warrant with respect to some or all of the Warrant Shares, and
      the Investor has not previously sold such Warrant Shares, then the
      Company
      shall have a right to purchase from the Investor that number of shares of Common
      Stock equal to the number of shares of Common Stock issued in connection with
      the exercise(s) of the Warrant, at a repurchase price per share equal to the
      price per share paid by the Investor in connection with such exercise(s). For
      greater certainty, (a) if Warrant Shares were exercised for cash, the
      purchase price per share under the Call Right shall be equal to the Exercise
      Price, (b) if Warrant Shares were exercised in a Cashless Exercise, the
      purchase price per share for such Warrant Shares under the Call Right shall
      be
      zero, and (c) if such Warrant Shares were exercised on both a cash and
      Cashless Exercise basis, the purchase price per share under the Call Right
      shall
      be equal to the total amount of cash paid in connection with such cash
      exercise(s) divided by the total number of shares of Common Stock issued in
      connection with all exercises of the Warrant (whether on a cash or Cashless
      Exercise basis).

     

    
      
        
        

      

      
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      Execution
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    (iii) If,
      prior
      to receiving a Call Right Notice, the Investor has previously exercised this
      Warrant with respect to some or all of the Warrant Shares, and the Investor
      subsequently sold such Warrant Shares, then the Investor shall remit to the
      Company the excess, if any, of (x) the proceeds received by Investor through
      the
      sale of such Warrant Shares, over (y) the aggregate Exercise Price for such
      Warrant Shares. In the event that the Investor obtained such Warrant Shares
      through a Cashless Exercise, then the Investor shall instead remit to the
      Company all proceeds received by the Investor through the sale of such Warrant
      Shares. For the avoidance of doubt, in the event that the Investor has sold
      some
      or all of the Warrant Shares prior to receiving a Call Right Notice, then the
      right set forth in this paragraph (iii) shall constitute the sole Call
      Right of the Company with respect to such Warrant Shares which have been
      sold.

     

    (b) The
      Company
      may exercise the Call Right by delivering a notice (the “Call
      Right Notice”)
      to the
      Investor within thirty (30) days after the occurrence of a Funding Default.
      On
      the tenth (10th)
      business day
      following delivery of the Call Right Notice to the Investor, the
      Company
      shall tender the purchase price, if any, and the Investor shall tender shares
      of
      Common Stock, if any, to be sold to the
      Company
      pursuant to the Call Right Notice, immediately following which the
      Company
      and
      the
      Investor
      shall consummate such purchase and sale. The Call Right shall survive both
      the
      assignment of the Warrant by the Investor and the disposition of the Warrant
      Shares by the Investor following exercise of the Warrant.

     

    [Remainder
      of Page Intentionally Left Blank. Signature Page Follows.]

     

    
      
        
        

      

      
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    Execution
      Copy

     

    IN
      WITNESS WHEREOF, this Warrant was duly executed by the undersigned, thereunto
      duly authorized, as of the date first set forth above.

     

    
      	 	 	 
	 	
              DISCOVERY
                LABORATORIES, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ John G. Cooper
	 	
              

              Name:
                John G. Cooper

            
	 	Title:
              Executive Vice President and Chief Financial
              Officer


    

     

    Investor
      acknowledges and agrees to the terms and conditions of this
      Warrant.

     


      
      


    
      	 	 	 
	 	
              KINGSBRIDGE
                CAPITAL LIMITED

            
	 
 	 
 	 
 
	 	By:  	/s/ Tony Gardner-Hillman
	 	
              

              Tony
                Gardner-Hillman 

            
	 	
              Director

            


    

     

    
      
        
        

      

      
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    EXHIBIT
      A TO THE WARRANT

     

    EXERCISE
      FORM

     

    DISCOVERY
      LABORATORIES, INC.

     

    The
      undersigned hereby irrevocably exercises the right to purchase _______________
      shares of Common Stock of Discovery Laboratories, Inc., a Delaware corporation
      (the “Company”),
      evidenced by the attached Warrant, and (CIRCLE EITHER (i) or (ii))
      (i) tenders herewith payment of the Aggregate Exercise Price with respect
      to such shares in full, in the amount of $__________, in cash, by certified
      or
      official bank check or by wire transfer for the account of the Company or
      (ii) elects, pursuant to Section 2(c) of the Warrant, to convert such
      Warrant into shares of Common Stock of the Company on a cashless exercise basis,
      all in accordance with the conditions and provisions of said
      Warrant.

     

    The
      undersigned requests that stock certificates for such Warrant Shares be issued,
      and a Warrant representing any unexercised portion hereof be issued, pursuant
      to
      this Warrant, in the name of the registered Warrant Holder and delivered to
      the
      undersigned at the address set forth below.

     

    Dated:_______________________________________

    


    
      	    
	 
	
              Signature
                of Registered Holder

            	 
	  
	 
	
              Name
                of Registered Holder (Print)

            	 
	  
	 
	
              Address

            	 


    


    
      
        
        

      

      
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    EXHIBIT
      B TO THE WARRANT

     

    ASSIGNMENT

     

    (To
      be
      executed by the registered Warrant Holder desiring to transfer the
      Warrant)

     

    FOR
      VALUED RECEIVED, the undersigned Warrant Holder of the attached Warrant hereby
      sells, assigns and transfers unto the persons below named the right to purchase
      _______________ shares of Common Stock of Discovery Laboratories, Inc. (the
      “Company”)
      evidenced by the attached Warrant and does hereby irrevocably constitute and
      appoint _______________ attorney to transfer the said Warrant on the books
      of
      the Company, with full power of substitution in the premises.

     

    Dated:_____________________

    


    
      	 	 
	
              Signature

            	 
	 
	
              Fill
                in for new Registration of Warrant:

            
	  
	 
	
              Name

            	 
	  
	 
	
              Address

            	 
	  
	 
	
              Please
                print name and address of assignee (including zip code
                number)

            


    

     

    
      
        
        

      

      
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