EXHIBIT 10.2

                         REGISTRATION RIGHTS AGREEMENT


      This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July 7,
2004 (the "Effective Date"), is by and between DISCOVERY LABORATORIES, INC. (the
"Company"), and KINGSBRIDGE CAPITAL LIMITED (the "Investor").

      WHEREAS,  the Company and the  Investor  have  entered  into that  certain
Common Stock  Purchase  Agreement,  dated as of the  Effective  Date hereof (the
"Purchase Agreement"),  pursuant to which the Company may issue to the Investor,
from time to time, up to $75 million worth of shares of Common Stock as provided
for therein;

      WHEREAS,  pursuant to the terms of, and in partial  consideration  for the
Investor  entering into, the Purchase  Agreement,  the Company has issued to the
Investor  a  warrant,  exercisable  from  time to time  within  five  (5)  years
following the six-month  anniversary of the date of issuance (the "Warrant") for
the purchase of an aggregate of up to 375,000  shares of Common Stock at a price
specified in such Warrant;

      WHEREAS,  pursuant to the terms of, and in partial  consideration for, the
Investor's  agreement  to enter into the  Purchase  Agreement,  the  Company has
agreed to provide the Investor with certain  registration rights with respect to
the Registrable  Securities (as defined in the Purchase  Agreement) as set forth
herein;

      NOW,  THEREFORE,  in consideration of the premises,  the  representations,
warranties, covenants and agreements contained herein, in the Warrant and in the
Purchase Agreement,  and for other good and valuable consideration,  the receipt
and sufficiency of which is hereby  acknowledged,  intending to be legally bound
hereby,  the parties hereto agree as follows  (capitalized terms used herein and
not defined  herein shall have the respective  meanings  ascribed to them in the
Purchase Agreement):

                                   ARTICLE I

                              REGISTRATION RIGHTS

Section 1.1. REGISTRATION STATEMENT.

            (a) Filing of the Registration Statement. Upon the terms and subject
to the conditions set forth in this  Agreement,  the Company shall file with the
Commission,  within  forty-five  (45) calendar days after the Effective  Date, 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  for the
resale  by  the  Investor  of  the  Registrable  Securities  (the  "Registration
Statement").  For purposes of this  Agreement,  the "Filing Date" shall refer to
the date on which the Company files the Registration Statement.

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            (b) Effectiveness of the Registration  Statement.  The Company shall
use  commercially  reasonable  efforts  (i) to have the  Registration  Statement
declared effective by the Commission as soon as reasonably  practicable,  but in
any event no later than  forty-five (45) calendar days after the Filing Date, or
ninety (90) calendar days after the Filing Date in the event that the Commission
reviews the  Registration  Statement,  following the date that the  Registration
Statement is filed and (ii) to ensure that the Registration Statement remains in
effect  throughout  the term of this  Agreement  as set  forth in  Section  4.2,
subject to the terms and conditions of this Agreement.

            (c) Regulatory Disapproval.  The contemplated effective date for the
Registration  Statement as described in Section 1.1(b) shall be extended without
default or liquidated  damages hereunder or under the Purchase  Agreement in the
event that the Company's failure to obtain the effectiveness of the Registration
Statement  on a timely  basis  results  from (i) the failure of the  Investor to
provide the Company with  information  requested by the Company and necessary to
complete the  Registration  Statement by the Filing Date, (ii) the  Commission's
disapproval of the structure of the  transactions  contemplated  by the Purchase
Agreement,  (iii) the  Commission  failing to respond  within a  customary  time
period  to  the  filing  of  the  Registration  Statement  or  any  post  filing
communications from the Company, or (iv) events or circumstances that are not in
any way attributable to the Company; provided, that the Company has complied and
continues to comply with its obligation to use commercially  reasonable  efforts
to cause the Registration Statement to become effective.  In the event of clause
(ii) above,  the parties  agree to  cooperate  with one another in good faith to
arrive at a resolution acceptable to the Commission.

            (d) Failure to Maintain Effectiveness of Registration  Statement. In
the event the Company fails to maintain the  effectiveness  of the  Registration
Statement  throughout  the period set forth in Section 4.2, other than temporary
suspensions as set forth in Section 1.1(e) or 2.1(n), and the Investor holds any
Registrable Securities at any time during the period of such ineffectiveness (an
"Ineffective  Period"),  the Company  shall pay to the  Investor in  immediately
available  funds into an account  designated  by the  Investor an amount  (which
shall in no event  exceed  $2.5  million)  equal to the product of (x) the total
number of  Registrable  Securities  issued to the  Investor  under the  Purchase
Agreement and owned by the Investor at any time during such  Ineffective  Period
and (y) the result,  if greater than zero,  obtained by subtracting  the VWAP on
the Trading Day immediately  following the last day of such  Ineffective  Period
from the VWAP on the Trading Day immediately preceding the day on which any such
Ineffective Period began;  provided,  however, that the foregoing payments shall
not apply in respect of  Registrable  Securities  that (i) are otherwise  freely
tradable  by the  Investor,  including,  but not  limited  to,  under  Rule  144
promulgated  under the  Securities Act (as such rule may be amended from time to
time, "Rule 144") or (ii) the Company offers to repurchase from the Investor for
a per share  purchase  price equal to the VWAP on the  Trading  Day  immediately
preceding the day on which any such Ineffective Period began.

            (e) Deferral or Suspension  During a Blackout Period. If in the good
faith judgment of the Company,  following consultation with legal counsel (which
may be  internal  counsel),  it  would  be  detrimental  to the  Company  or its
stockholders  for the  Registration  Statement  to be  filed or for  resales  of
Registrable  Securities to be made pursuant to the Registration Statement due to
(i) the existence of a material  development or potential  material  development
involving  the Company  that the Company  would be  obligated to disclose in the
Registration  Statement,  which  disclosure  would  be  premature  or  otherwise
inadvisable at such time or would have a Material  Adverse Effect on the Company

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or  its  stockholders  or  (ii) a  proposed  filing  of or  use  of an  existing
registration  statement in connection with a  Company-initiated  registration of
any class of its equity  securities,  which,  in the good faith  judgment of the
Company, would adversely effect or require premature disclosure of the filing or
use  of  such  Company-initiated   registration  (notice  thereof,  a  "Blackout
Notice"),  the Company shall have the right to (A) immediately defer such filing
for a period  of not more than  sixty  (60)  days  beyond  the date on which the
Registration  Statement  was  otherwise  required  hereunder  to be filed or (B)
suspend use of the  Registration  Statement  by the Investor for a period of not
more than thirty (30) days (any such deferral or suspension  period, a "Blackout
Period").  The Investor  acknowledges that it would be seriously  detrimental to
the Company and its stockholders  for the Registration  Statement to be filed or
used, or remain in effect,  during a Blackout Period and therefore  essential to
defer such filing, or suspend the use or the effectiveness thereof,  during such
Blackout  Period  and  agrees  to  cease  any  disposition  of  the  Registrable
Securities  during such Blackout Period.  The Company may not utilize any of its
rights under this Section 1.1(e) to defer the filing of a Registration Statement
(or suspend its use or effectiveness) more than six (6) times in any twelve (12)
month period.  In the event that, within fifteen (15) Trading Days following any
Settlement  Date,  the Company  gives a Blackout  Notice to the Investor and the
VWAP on the Trading Day immediately  preceding such Blackout Period ("Old VWAP")
is greater than the VWAP on the first Trading Day following such Blackout Period
on which  the  Investor  may  sell its  Registrable  Securities  pursuant  to an
effective Registration Statement ("New VWAP"), then the Company shall pay to the
Investor,  by  wire  transfer  of  immediately  available  funds  to an  account
designated  by the  Investor,  the  "Blackout  Amount." For the purposes of this
Agreement, Blackout Amount means a percentage equal to: (1) seventy-five percent
(75%) if such Blackout  Notice is delivered prior to the fifth (5th) Trading Day
following such Settlement  Date; (2) fifty percent (50%) if such Blackout Notice
is delivered on or after the fifth (5th) Trading Day following  such  Settlement
Date, but prior to the tenth (10th) Trading Day following such Settlement  Date;
(3)  twenty-five  percent (25%) if such Blackout Notice is delivered on or after
the tenth (10th)  Trading Day following such  Settlement  Date, but prior to the
fifteenth  (15th)  Trading Day  following  such  Settlement  Date;  and (4) zero
percent  (0%)  thereafter  of:  the  product  of (i) the  number of  Registrable
Securities  purchased by the Investor  pursuant to the most recent Draw Down and
actually held by the Investor  immediately prior to the Blackout Period and (ii)
the result  obtained by  subtracting  the New VWAP from the Old VWAP;  provided,
however,  that (i) no Blackout  Amount in respect of any  Blackout  Period shall
exceed $2.5 million, (ii) no Blackout Amount shall be payable under this Section
1.1(e) in the event that the  Registrable  Securities  are  eligible  for resale
under Rule 144 during the Blackout  Period and (iii) no Blackout Amount shall be
payable  under  this  Section  1.1(e) in the event  that the  Company  offers to
repurchase from the Investor for a per share purchase price equal to the VWAP on
the  Trading Day  immediately  preceding  the day on which any such  Ineffective
Period began.

            (f)  Liquidated  Damages.  (1) The Company and the  Investor  hereto
acknowledge  and agree that the amounts payable under Sections 1.1(d) and 1.1(e)
and the Blackout Shares  deliverable under Section 1.1(e) above shall constitute
liquidated damages and not penalties.  The parties further  acknowledge that (i)
the amount of loss or damages likely to be incurred by the Investor is incapable
or is  difficult  to  precisely  estimate,  (ii) the amounts  specified  in such
subsections  bear a  reasonable  proportion  and  are  not  plainly  or  grossly
disproportionate  to the probable loss likely to be incurred in connection  with
any  failure  by the  Company to obtain or  maintain  the  effectiveness  of the

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Registration  Statement,  (iii)  one of the  reasons  for  the  Company  and the
Investor  reaching an agreement as to such amounts was the  uncertainty and cost
of litigation  regarding the question of actual damages and (iv) the Company and
the Investor are  sophisticated  business  parties and have been  represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.

            (g) The  Company and the  Investor  agree and  acknowledge  that the
amounts payable under Sections 1.1(d) and 1.1(e), as applicable,  constitute the
Investor's  sole remedy with  respect to the  Company's  failure to maintain the
effectiveness  for the Registration  Statement or for any deferral or suspension
of the  Registration  Statement  during a Blackout  Period as  discussed in such
Sections. The Investor further agrees and acknowledges that assuming the payment
of any  amount by the  Company,  as set forth in such  Sections,  the  Company's
failure to maintain the  effectiveness of the Registration  Statement or for any
deferral or suspension of the  Registration  Statement during a Blackout Period,
as  applicable,  shall  not  constitute  a  material  breach or  default  of any
obligation of the Company to the Investor.

            (h)  Additional  Registration  Statements.  In the  event and to the
extent that the Registration  Statement fails to register a sufficient amount of
Common Stock necessary for the Company to issue and sell to the Investor and the
Investor to purchase  from the Company all of the  Registrable  Securities to be
issued,  sold and purchased  under the Purchase  Agreement and the Warrant,  the
Company  shall prepare and file with the  Commission an additional  registration
statement or statements in order to  effectuate  the purpose of this  Agreement,
the Purchase Agreement and the Warrant.

                                   ARTICLE II

                            REGISTRATION PROCEDURES

Section 2.1. FILINGS; INFORMATION. The Company shall use commercially reasonable
efforts to effect the  registration  with respect to the sale of the Registrable
Securities  by  the  Investor  in  accordance  with  the  intended   methods  of
disposition  thereof.  Without limiting the foregoing,  the Company in each such
case will use commercially  reasonable  efforts to perform the following acts as
expeditiously  as  possible,  but in no event later than the  deadline,  if any,
prescribed therefor in this Agreement:

            (a) Subject to Section  1.1(e),  the Company shall:  (i) prepare and
file with the  Commission  the  Registration  Statement;  (ii) use  commercially
reasonable efforts to cause such filed  Registration  Statement to become and to
remain  effective  (pursuant to Rule 415 under the Securities Act or otherwise);
(iii) prepare and file with the Commission  such  amendments and  supplements to
the Registration  Statement and the Prospectus used in connection therewith (the
"Prospectus")as  may be necessary to keep such Registration  Statement effective
for the time period  prescribed  by Section 4.2 and in order to  effectuate  the
purpose of this  Agreement,  the Purchase  Agreement  and the Warrant;  and (iv)
comply with the provisions of the Securities Act with respect to the disposition
of all securities  covered by such Registration  Statement during such period in
accordance with the intended methods of disposition by the Investor set forth in
such  Registration  Statement;  provided,  however,  that the Investor  shall be
responsible  for the  delivery  of the  Prospectus  to the  Persons  to whom the
Investor sells the Registrable Securities, and the Investor agrees to dispose of
Registrable  Securities in compliance with the plan of distribution described in
the Registration  Statement and otherwise in compliance with applicable  federal
and state securities or blue sky laws and regulations.

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            (b) If so requested by the Investor,  or if the Investor  determines
to engage an  underwriter  (other  than the  Investor)  in  connection  with the
offering of any Registrable Securities (an "Underwritten  Offering"), a managing
underwriter  or  underwriters,  the Company shall (i) promptly  incorporate in a
prospectus  supplement  or  post-effective  amendment  such  information  as the
managing  underwriters,  if any,  and the  Investor  agrees  should be  included
therein and (ii) make all  required  filings of such  prospectus  supplement  or
post-effective  amendment as soon as practicable  after the Company has received
notification of the matters to be incorporated in such prospectus  supplement or
post-effective  amendment;  provided,  however,  that the  Company  shall not be
required to take any action  pursuant to this Section  2.1(b)(ii) that would, in
the opinion of counsel for the Company, violate applicable law.

            (c) In the event of an Underwritten  Offering: (A) the Company shall
enter into such reasonable agreements and take all such other reasonable actions
in connection  therewith  (including those reasonably  requested by the managing
underwriters, if any) in order to expedite or facilitate the disposition of such
Registrable Securities, and in such connection, the Company shall: (i) make such
representations and warranties to the Investor and the underwriters with respect
to the business of the Company  (including  with respect to businesses or assets
acquired or to be  acquired by the  Company),  and the  Registration  Statement,
Prospectus and documents,  if any,  incorporated or deemed to be incorporated by
reference therein, in each case, in form,  substance (subject to such exceptions
as the Company may  disclose)  and scope as are  customarily  made by issuers to
underwriters in underwritten  offerings,  and confirm such  representations  and
warranties if and when requested; (ii) consent to indemnification provisions and
procedures in the  underwriting  agreement no less favorable to the Investor and
the  underwriters  than those set forth  herein (or such  other  provisions  and
procedures   acceptable   to  the   Company,   the  Investor  and  the  managing
underwriters);  and (iii)  deliver such  documents  and  certificates  as may be
reasonably requested by the Investor, its counsel and the managing underwriters,
if any,  to  evidence  the  continued  validity  of  their  representations  and
warranties made pursuant to clause (i) above and to evidence compliance with any
customary conditions contained in the applicable  underwriting  agreement,  this
Agreement, the Purchase Agreement or the Warrant.

                  (B) The Investor  will enter into and perform its  obligations
under an underwriting agreement, in usual and customary form, including, without
limitation,  customary  indemnification and contribution  obligations,  with the
managing  underwriter of such offering,  and will take such other actions as are
reasonably  required in order to expedite or facilitate  the  disposition of the
Registrable Securities,  unless the Investor has notified the Company in writing
of its  election  to  exclude  all  of  its  Registrable  Securities  from  such
Registration Statement;  provided, however, that the Investor shall consult with
the Company prior to any such Underwritten  Offering and defer such offering for
a reasonable period upon the commercially reasonable request of the Company.

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                  (C) The  Investor  may  not  participate  in any  underwriting
distribution  hereunder unless it (i) agrees to sell its Registrable  Securities
on the  basis  provided  in any  underwriting  agreements,  (ii)  completes  and
executes  all  questionnaires,  powers of  attorney,  indemnities,  underwriting
agreements  and  other  documents  reasonably  required  under the terms of such
underwriting  agreements and (iii) agrees to pay all underwriting  discounts and
commissions and other fees and expenses of investment bankers and any manager or
managers of such underwriting, and legal expenses of the underwriter, applicable
with respect to its Registrable Securities.

            (d) As early as practical prior to filing the Registration Statement
or  Prospectus,  or any amendment or supplement  thereto  (excluding  amendments
deemed  to  result  from the  filing  of  documents  incorporated  by  reference
therein),  the Company shall deliver to the Investor and to counsel representing
the Investor, in accordance with the notice provisions of Section 4.8, copies of
the Registration  Statement and the Prospectus,  together with exhibits thereto,
which documents will be subject to review by the Investor and such counsel,  and
thereafter  deliver to the Investor and such  counsel,  in  accordance  with the
notice  provisions  of Section  4.8,  such number of copies of the  Registration
Statement,  each  amendment and  supplement  thereto (in each case including all
exhibits thereto),  the Prospectus  (including each preliminary  prospectus) and
such other  documents or  information  as the Investor or counsel may reasonably
request in order to facilitate the disposition of the Registrable Securities.

            (e) The  Company  shall  deliver,  in  accordance  with  the  notice
provisions  of Section 4.8, to the Investor  such number of conformed  copies of
the Registration Statement and of each amendment and supplement thereto (in each
case  including  all exhibits and documents  incorporated  by  reference),  such
number of copies of the Prospectus  (including each  preliminary  prospectus and
any  summary   prospectus)  and  any  other  prospectus  filed  under  Rule  424
promulgated  under the  Securities  Act relating to the  Investor's  Registrable
Securities,  and such other documents,  as such seller may reasonably request to
facilitate the disposition of its Registrable Securities.

            (f) After the  filing of the  Registration  Statement,  the  Company
shall promptly notify the Investor of any stop order issued or threatened by the
Commission in connection therewith and take all commercially  reasonable actions
required to prevent the entry of such stop order or to remove it if entered.

            (g) The Company  shall use  commercially  reasonable  efforts to (i)
register or qualify the Registrable  Securities  under such other  securities or
blue sky laws and  regulations of each  jurisdiction in the United States as the
Investor may reasonably (in light of its intended plan of distribution)  request
and (ii) cause the  Registrable  Securities to be registered with or approved by
such other  governmental  agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all  other  customary  acts and  things  that  may be  reasonably  necessary  or
advisable  to  enable  the  Investor  to  consummate  the   disposition  of  the
Registrable Securities; provided, however, that the Company will not be required
to qualify  generally  to do  business  in any  jurisdiction  where it would not
otherwise be required to qualify but for this Section 2.1(g),  subject itself to
taxation in any such jurisdiction,  consent or subject itself to general service
of process in any such  jurisdiction,  change any existing  business  practices,
benefit plans or outstanding securities or amend or otherwise modify the Charter
or Bylaws.

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            (h) In the event of an  Underwritten  Offering,  the  Company  shall
enter into  customary  agreements  and take such other actions as are reasonably
required in order to expedite the disposition of such Registrable Securities.

            (i) The  Company  shall make  available  to the  Investor  (and will
deliver to  Investor's  counsel),  (A)  subject to  restrictions  imposed by the
United  States  federal  government  or any agency or  instrumentality  thereof,
copies of all public  correspondence  between  the  Commission  and the  Company
concerning  the  Registration   Statement  and  will  also  make  available  for
inspection  by the Investor and any attorney,  accountant or other  professional
retained by the Investor (collectively,  the "Inspectors"),  (B) upon reasonable
advance  notice during normal  business  hours all financial and other  records,
pertinent corporate documents and properties of the Company  (collectively,  the
"Records") as shall be reasonably necessary to enable them to exercise their due
diligence  responsibility,  and cause the  Company's  officers and  employees to
supply all information reasonably requested by any Inspectors in connection with
the Registration  Statement;  provided,  however,  that any such Inspectors must
agree in writing for the benefit of the Company not to use or disclose  any such
Records except as provided in this Section 2.1(i).  Any and all Records that the
Company  determines,  in good faith, to be confidential and that it notifies the
Inspectors  are  confidential  shall  be  treated  as  confidential  and  not be
disclosed by the Inspectors  unless the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories,  requests for
information  or documents or a subpoena or other order from a court of competent
jurisdiction or other judicial or governmental process; provided,  however, that
prior to any disclosure or release pursuant to the immediately preceding clause,
the Inspectors  shall provide the Company with prompt notice of any such request
or requirement so that the Company may seek an appropriate  protective  order or
waive such Inspectors'  obligation not to disclose such Records;  and, provided,
further,  that if failing the entry of a  protective  order or the waiver by the
Company  permitting the disclosure or release of such Records,  the  Inspectors,
upon advice of counsel,  are compelled to disclose such Records,  the Inspectors
may disclose that portion of the Records that counsel has advised the Inspectors
that the Inspectors are compelled to disclose;  provided, however, that upon any
such required  disclosure,  such Inspector  shall use his or her best efforts to
obtain reasonable  assurances that confidential  treatment will be afforded such
information.  The Investor  agrees that  information  obtained by it solely as a
result of such inspections (not including any information  obtained from a third
party who, insofar as is known to the Investor after reasonable  inquiry, is not
prohibited from providing such information by a contractual,  legal or fiduciary
obligation to the Company)  shall be deemed  confidential  and shall not be used
for any  purposes  other than as  indicated  above or by it as the basis for any
market  transactions  in the securities of the Company or its affiliates  unless
and until such  information  is made  generally  available  to the  public.  The
Investor  further  agrees that it will,  upon learning  that  disclosure of such
Records  is  sought in a court of  competent  jurisdiction,  give  notice to the
Company and allow the  Company,  at its expense but with the  assistance  of the
relevant  Inspectors,  to undertake  appropriate action to prevent disclosure of
the Records deemed confidential.

            (j) In the  event  of an  Underwritten  Offering  of the  resale  of
Registrable  Securities  pursuant  to the  Registration  Statement,  then to the
extent required by the managing  underwriters and reasonably necessary to effect
a  sale  of  Registrable  Securities  in  accordance  with  prevailing  business
practices at the time of any such  underwritten  sale of Registrable  Securities
pursuant to a Registration Statement,  the Company shall deliver to the Investor
a signed counterpart,  addressed to the Investor,  of (1) an opinion or opinions
of counsel to the Company and (2) a comfort  letter or comfort  letters from the
Company's  independent public  accountants,  each in customary form and covering
such matters of the type customarily  covered by opinions or comfort letters, as
the case may be, as the Investor therefor reasonably requests.

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            (k) The Company shall otherwise comply with all applicable rules and
regulations of the Commission,  including,  without limitation,  compliance with
applicable reporting requirements under the Exchange Act.

            (l) The Company shall appoint a transfer agent and registrar for all
of the Registrable  Securities covered by such Registration  Statement not later
than the effective date of such Registration Statement.

            (m) The Investor  shall  cooperate  with the Company,  as reasonably
requested by the Company,  in connection  with the preparation and filing of any
Registration  Statement  hereunder.  The Company  may  require  the  Investor to
promptly  furnish in writing to the Company such  information as may be required
in connection with such registration  including,  without  limitation,  all such
information  as may be  requested  by the  Commission  or the NASD or any  state
securities  commission  and all such  information  regarding the  Investor,  the
Registrable  Securities  held  by  the  Investor  and  the  intended  method  of
disposition of the Registrable  Securities.  The Investor agrees to provide such
information  requested  in  connection  with such  registration  within five (5)
business days after  receiving such written request and the Company shall not be
responsible for any delays in obtaining or maintaining the  effectiveness of the
Registration  Statement caused by the Investor's  failure to timely provide such
information.

            (n) Upon receipt of a Blackout Notice from the Company, the Investor
shall immediately  discontinue disposition of Registrable Securities pursuant to
the Registration  Statement  covering such Registrable  Securities until (i) the
Company  advises the Investor that the Blackout  Period has  terminated and (ii)
the  Investor  receives  copies of a  supplemented  or  amended  prospectus,  if
necessary.  If so directed by the  Company,  the  Investor  will  deliver to the
Company (at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's  possession (other than
a limited  number of file copies) of the  prospectus  covering such  Registrable
Securities that is current at the time of receipt of such notice.

            (o)  If  the  Investor  determines  to  engage  in  an  Underwritten
Offering,  the  Investor  will enter into and perform its  obligations  under an
underwriting  agreement,  in  usual  and  customary  form,  including,   without
limitation,  customary  indemnification and contribution  obligations,  with the
managing  underwriter of such offering,  and will take such other actions as are
reasonably  required in order to expedite or facilitate  the  disposition of the
Registrable Securities. The Investor shall consult with the Company prior to any
Underwritten   Offering  and  shall  defer  such  Underwritten  Offering  for  a
reasonable period upon the commercially reasonable request of the Company.

            (o) The  Investor  shall not take any  action  with  respect  to any
distribution  deemed to be made pursuant to the  Registration  Statement,  which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.

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Section  2.2.  REGISTRATION  EXPENSES.  The Company  shall pay all  registration
expenses   incurred  in  connection   with  the   Registration   Statement  (the
"Registration Expenses"),  including,  without limitation: (i) all registration,
filing,  securities  exchange  listing and fees  required by the NASD;  (ii) all
registration,  filing,  qualification  and other fees and expenses of compliance
with applicable  state  securities or blue sky laws and  regulations  (including
reasonable  fees and  disbursements  of  counsel  in  connection  with  blue sky
qualifications  of the  Registrable  Securities);  (iii)  all  word  processing,
duplicating,  printing,  messenger  and delivery  expenses;  (iv) the  Company's
internal expenses (including,  without limitation,  all salaries and expenses of
its officers and employees  performing legal or accounting duties); (v) the fees
and  expenses  incurred  by the  Company in  connection  with the listing of the
Registrable  Securities;  (vi) reasonable fees and  disbursements of counsel for
the Company and customary  fees and expenses for  independent  certified  public
accountants  retained  by the  Company  (including  the  expenses of any special
audits or comfort  letters or costs  associated with the delivery by independent
certified  public  accountants  of such  special  audit(s) or comfort  letter(s)
requested pursuant to Section 2.1(k) hereof); (vii) the fees and expenses of any
special experts retained by the Company in connection with such registration and
amendments and supplements to the Registration Statement and Prospectus;  (viii)
all  reasonable  fees and  expenses  of counsel  for the  Investor to the extent
incurred in connection with the review,  and assistance in  preparation,  of the
Registration  Statement,  correspondence  with the Commission and amendments and
supplements to the Registration Statement and Prospectus (but only to the extent
such  activities  were  conducted at the request of the Company or its counsel);
(ix) ongoing due diligence expenses of the Investor equal to $7,500 per calendar
quarter payable on the last day of each calendar quarter during the term of this
Agreement;  provided,  however,  that the payments set forth in this clause (ix)
shall no longer apply for calendar  quarters ending after the Company has issued
and sold shares of Common  Stock to the  Investor  for an aggregate in Draw Down
Amounts equal to or greater than  $10,000,000;  and (x) premiums and other costs
of the Company for policies of insurance against  liabilities arising out of any
public offering of the Registrable  Securities  being  registered.  Any fees and
disbursements of underwriters,  broker-dealers or investment bankers,  including
without limitation underwriting fees, discounts,  transfer taxes or commissions,
and any other fees or expenses,  including  legal fees and expenses  (other than
those  described  above)  if  any,  attributable  to  the  sale  of  Registrable
Securities, shall be payable by the Investor.

                                  ARTICLE III

                                INDEMNIFICATION

Section 3.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold  harmless the  Investor,  its partners,  affiliates,  officers,  directors,
employees and duly  authorized  agents,  and each Person or entity,  if any, who
controls the Investor  within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively,  the "Controlling Persons"),  from
and  against any  Damages,  joint or several,  and any action or  proceeding  in
respect  thereof to which the  Investor,  its  partners,  affiliates,  officers,
directors, employees and duly authorized agents, and any Controlling Person, may
become subject under the Securities  Act or otherwise,  as incurred,  insofar as
such Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon (i) any untrue  statement or alleged  untrue  statement of a material
fact contained in any Registration  Statement, or in any preliminary prospectus,
final prospectus,  summary  prospectus,  amendment or supplement relating to the
Registrable Securities or (ii) any omission or alleged omission to state therein

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a  material  fact  required  to be  stated  therein  or  necessary  to make  the
statements  therein under the circumstances not misleading,  and shall reimburse
the Investor, its partners, affiliates,  officers, directors, employees and duly
authorized  agents,  and each such Controlling  Person,  for any legal and other
expenses  reasonably  incurred  by  the  Investor,  its  partners,   affiliates,
officers,  directors,   employees  and  duly  authorized  agents,  or  any  such
Controlling  Person, as incurred,  in investigating or defending or preparing to
defend against any such Damages or actions or  proceedings;  provided,  however,
that the Company  shall not be liable to the extent that any such Damages  arise
out of the Investor's  (or any other  indemnified  Person's)  failure to send or
give a  copy  of  the  final  prospectus  or  supplement  (as  then  amended  or
supplemented)  to the persons  asserting an untrue  statement or alleged  untrue
statement  or  omission  or  alleged   omission  at  or  prior  to  the  written
confirmation  of the  sale of  Registrable  Securities  to such  person  if such
statement or omission  was  corrected in such final  prospectus  or  supplement;
provided,  further,  that the Company shall not be liable to the extent that any
such  Damages  arise out of or are based  upon an untrue  statement  or  alleged
untrue  statement  or omission  or alleged  omission  made in such  Registration
Statement,  or  any  such  preliminary  prospectus,  final  prospectus,  summary
prospectus,  amendment or supplement  in reliance  upon and in  conformity  with
written information  furnished to the Company by or on behalf of the Investor or
any other person who  participates  as an underwriter in the offering or sale of
such securities,  in either case, specifically stating that it is for use in the
preparation thereof. In connection with any Registration  Statement with respect
to which the Investor is  participating,  such Investor will  indemnify and hold
harmless,  to the  same  extent  and in the  same  manner  as set  forth  in the
preceding paragraph, the Company, each of its directors,  officers, each Person,
if any,  who  controls  the  Company  within  the  meaning  of Section 15 of the
Securities  Act or Section 20 of the Exchange  Act (each a "Company  Indemnified
Person") against any Damages to which any Company  Indemnified Person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
Damages  arise out of or are based upon any  (a)(i)untrue  statement  or alleged
untrue statement of a material fact contained in any Registration  Statement, or
in any preliminary prospectus, final prospectus,  summary prospectus,  amendment
or supplement relating to the Registrable Securities or (ii) omission or alleged
omission  to state  therein a material  fact  required  to be stated  therein or
necessary to make the statements  therein under the circumstances not misleading
in reliance upon and in  conformity  with written  information  furnished to the
Company  by the  Investor  or on behalf  of the  Investor  expressly  for use in
connection with such Registration Statement or other document or (b) any failure
by  the  Investor  to  comply  with  prospectus  delivery  requirements  of  the
Securities  Act,  the  Exchange  Act  or any  other  law  or  legal  requirement
applicable to sales under the Registration Statement.

Section   3.2.   CONDUCT  OF   INDEMNIFICATION   PROCEEDINGS.   All  claims  for
indemnification  under  Section 3.1 shall be asserted and resolved in accordance
with the provisions of Section 10.02 and 10.03 of the Purchase Agreement.

Section  3.3.  ADDITIONAL  INDEMNIFICATION.   Indemnification  similar  to  that
specified  in the  preceding  paragraphs  of this  Article  3 (with  appropriate
modifications)  shall be given  by the  Company  with  respect  to any  required
registration or other qualification of securities under any federal or state law
or regulation of any  governmental  authority other than the Securities Act. The
provisions  of this  Article  III shall be in  addition  to any other  rights to
indemnification,  contribution or other remedies which an Indemnified Party or a
Company  Indemnified  Person  may have  pursuant  to law,  equity,  contract  or
otherwise.

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Section 3.4. CONTRIBUTION.  To the extent that any indemnification  provided for
herein is  prohibited  or limited by law, the  indemnifying  party will make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under this Article III to the fullest extent  permitted by law.  However,
(a) no  contribution  will be  make  under  circumstances  where  maker  of such
contribution  would not have been  required to indemnify the  indemnified  party
under  the  fault  standards  set forth in this  Article  III,  (b) no seller of
Registrable  Securities  guilty  of  fraudulent  misrepresentation  (within  the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any Person who is not guilty of such fraudulent misrepresentation,  and (c)
contribution   (together  with  any   indemnification   obligations  under  this
Agreement) by any seller of Registrable  Securities will be limited in amount of
proceeds received by such seller from the sale of such Registrable Securities.

                                   ARTICLE IV

                                 MISCELLANEOUS

Section 4.1. NO OUTSTANDING  REGISTRATION RIGHTS.  Except as otherwise disclosed
in accordance with the Purchase  Agreement or in the Commission  Documents,  the
Company  represents  and warrants to the Investor that there is not in effect on
the date hereof any  agreement  by the Company  pursuant to which any holders of
securities  of the  Company  have a right to cause the  Company to  register  or
qualify such securities under the Securities Act or any state securities or blue
sky laws and regulations of any jurisdiction.

Section 4.2. TERM. The registration  rights provided to the Investor  hereunder,
and the Company's obligation to keep the Registration Statement effective, shall
terminate  at the  earlier  of (i) such  time that is two  years  following  the
termination  of the  Purchase  Agreement,  (ii)  such  time  as all  Registrable
Securities  have been issued and have ceased to be  Registrable  Securities  and
(iii) upon the  consummation by the Company of an "Excluded  Merger or Sale" (as
defined in the Purchase  Agreement).  Notwithstanding the foregoing,  paragraphs
(c) and (d) of Section  1.1,  Article  III,  Section  4.8 and  Section 4.9 shall
survive the termination of this Agreement.

Section 4.3.  RULE 144. The Company  will,  at its expense,  promptly  take such
action as the  Investor  may  reasonably  request to enable the Investor to sell
Registrable  Securities without registration under the Securities Act within the
limitation  of the  exemptions  provided  by  Rule  144 or any  similar  rule or
regulation hereafter adopted by the Commission;  provided, that the Investor may
not make any such request more than once during any calendar  quarter during the
term of this Agreement.  If at any time the Company is not required to file such
reports,  it will,  at its expense,  forthwith  upon the written  request of the
Investor, make available adequate current public information with respect to the
Company  within  the  meaning  of  paragraph  (c)(2)  of Rule 144 or such  other
information  as necessary to permit sales pursuant to Rule 144. Upon the request
of the Investor,  the Company will deliver to the Investor a written  statement,
signed by the  Company's  principal  financial  officer,  as to  whether  it has
complied with such requirements.

Section 4.4. CERTIFICATE.  The Company will, at its expense,  forthwith upon the
reasonable  request  of the  Investor  but not more  than  once in any  calendar
quarter,  deliver  to the  Investor,  a  certificate  signed  by  the  Company's
principal  financial  officer,  stating  (a) the  Company's  name,  address  and

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telephone  number  (including  area code),  (b) the Company's  Internal  Revenue
Service identification number, (c) the Company's Commission file number, (d) the
number of shares of each class of Stock  outstanding as shown by the most recent
report or  statement  published  by the  Company and (e) whether the Company has
filed the reports required to be filed under the Exchange Act for a period of at
least ninety (90) days prior to the date of such certificate and in addition has
filed the most recent annual report required to be filed thereunder.

Section 4.5. AMENDMENT AND MODIFICATION.  Any provision of this Agreement may be
waived,  provided  that such  waiver is set forth in a writing  executed by both
parties to this  Agreement.  The  provisions  of this  Agreement,  including the
provisions of this sentence, may not be amended,  modified or supplemented,  and
waivers or consents to departures  from the provisions  hereof may not be given,
unless the Company has obtained the written  consent of the Investor.  No course
of dealing  between or among any Person  having any  interest in this  Agreement
will be  deemed  effective  to  modify,  amend  or  discharge  any  part of this
Agreement or any rights or  obligations of any person under or by reason of this
Agreement.

Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and all of
the  provisions  hereof  shall be binding  upon and inure to the  benefit of the
parties hereto and their  respective  successors  and assigns.  The Investor may
assign  its  rights  under  this  Agreement  to  any  subsequent  holder  of the
Registrable  Securities  (unless  sold  pursuant  to an  effective  registration
statement or in accordance  with Rule 144 under the  Securities  Act),  provided
that the  Company  shall  have the right to require  any  holder of  Registrable
Securities  to execute a  counterpart  of this  Agreement as a condition to such
holder's claim to any rights hereunder. The Company may assign this Agreement at
any time in connection  with a sale or  acquisition  of the Company,  whether by
merger, consolidation,  sale of all or substantially all of the Company's assets
or similar transaction,  without the consent of the Investor or other subsequent
holders of  Registrable  Securities;  provided,  that the successor or acquiring
Person or entity  agrees in writing to assume  all of the  Company's  rights and
obligations  under this Agreement.  This  Agreement,  together with the Purchase
Agreement  and the Warrant  sets forth the entire  agreement  and  understanding
between the parties as to the subject  matter  hereof and merges and  supersedes
all prior  discussions,  agreements and  understandings  of any and every nature
among them.

Section 4.7.  SEVERABILITY.  In the event that any  provision of this  Agreement
becomes,  or is declared by a court of competent  jurisdiction  to be,  illegal,
unenforceable  or void,  this Agreement  shall continue in full force and effect
without said provision; provided, that such severability shall be ineffective if
it  materially  changes  the  economic  benefit of this  Agreement  to any party
hereto.

Section 4.8. NOTICES. All notices, demands,  requests,  consents,  approvals and
other  communications   required  or  permitted  hereunder  shall  be  given  in
accordance with Section 12.04 of the Purchase Agreement.

Section  4.9.  GOVERNING  LAW;  DISPUTE  RESOLUTION.  This  Agreement  shall  be
construed under the laws of the State of New York. Any dispute arising out of or
relating to this Agreement shall be resolved by means of arbitration pursuant to
the provisions of Article XI of the Purchase Agreement.

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Section 4.10. SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. (a) The Company and
the Investor  acknowledge and agree that  irreparable  damage would occur in the
event  that  any of the  provisions  of this  Agreement  were not  performed  in
accordance  with  their  specific  terms  or  were  otherwise  breached.  It  is
accordingly  agreed that the  parties  shall be  entitled  to an  injunction  or
injunctions  to prevent or cure breaches of the provisions of this Agreement and
to enforce  specifically the terms and provisions hereof or thereof,  this being
in addition  to any other  remedy to which any of them may be entitled by law or
equity.

            (b)  The  Company  and  the  Investor   irrevocably  submit  to  the
jurisdiction  of the United States District Court and other courts of the United
States sitting in the State of New York for the purposes of any suit,  action or
proceeding  arising out of or relating to this  Agreement and (ii) hereby waive,
and agree not to assert in any such suit,  action or proceeding,  any claim that
it is not personally  subject to the jurisdiction of such court,  that the suit,
action or  proceeding is brought in an  inconvenient  forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Investor
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy  thereof to such party at the address in effect for notices to it
under this  Agreement  and agrees that such service  shall  constitute  good and
sufficient service of process and notice thereof.  Nothing in this Section shall
affect or limit any right to serve process in any other manner permitted by law.
The prevailing  party in any litigation in connection  with this Agreement shall
be entitled to recover from the other party all costs and  expenses,  including,
without  limitation,  reasonable  attorney's  fees,  incurred  by such  party in
connection with any such litigation.

Section 4.11  HEADINGS.  The headings in this  Agreement are for  convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.

Section  4.12.  COUNTERPARTS.   This  Agreement  may  be  executed  in  multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.

Section  4.13.  FURTHER  ASSURANCES.  Each party shall  cooperate  and take such
action as may be reasonably requested by another party in order to carry out the
provisions  and purposes of this  Agreement  and the  transactions  contemplated
hereby.

Section 4.14. ABSENCE OF PRESUMPTION.  This Agreement shall be construed without
regard to any  presumption  or rule  requiring  construction  or  interpretation
against the party drafting or causing any instrument to be drafted.

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      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.



                              KINGSBRIDGE CAPITAL LIMITED



                              By: /s/ Valetine O'Donoghue
                                  ----------------------------------------------
                                   Name:  Valentine O'Donoghue
                                   Title: Director



                              DISCOVERY LABORATORIES, INC.


                              By: /s/ John G. Cooper
                                  ----------------------------------------------
                                   Name:  John G. Cooper
                                   Title: Executive Vice President and
                                          Chief Financial Officer

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