BOSTON (Dow Jones) -- Discovery Laboratories (NASDAQ-NMS:DSCO) soared Tuesday after it announced it had retained Jeffries & Company to seek out strategic options for the ailing drug developer.

Shares of Discovery (DSCO) shot up 17% to $1.56 midday, after hitting an earlier high of $1.74.

Discovery said early Tuesday that it has hired Jefferies to "assist the Company in identifying and evaluating strategic alternatives intended to enhance the future growth potential of the Company's surfactant replacement therapy pipeline and maximize shareholder value."

"Discovery is considering multiple alternatives including, but not limited to, potential business alliances, commercial and development partnerships, financings, business combinations and other similar opportunities," the company said, adding, "No assurances can be given that this evaluation will lead to any specific action or transaction."

Discovery shares have been battered since April 25, when it announced it was abandoning further development of its pediatric respiratory treatment Surfaxin due to on-going problems with regulators over its manufacturing process. At the time, Discovery said that it would be looking for strategic partners.

Discovery shares tumbled over 50% following the April 25 announcement.

Surfaxin is used to prevent Respiratory Distress Syndrome in premature infants. The product is a made-made version of a naturally-occurring protein called surfactant, which is necessary for proper lung function. Premature infants are often lacking in surfactant, a condition that can lead to respiratory failure.

The company had been seeking approval for the Food and Drug Administration for Surfaxin since April 2004, receiving two approvable letters in the process. The letters meant that the agency thought the drug could be approved if certain conditions were met. The FDA's concerns were centered on the company's manufacturing process for the product.

On May 4, Discovery announced it was cutting 34% of its workforce, or 54 jobs, because of Surfaxin's regulatory delays. The move, which also resulted in the elimination of its chief operation officer, would save the company about $8 million a year, it said.

Discovery withdrew its application for European approval of Surfaxin on June 6.

    (END) Dow Jones Newswires   06-20-06 1357   Copyright (c) 2006 Dow Jones & Company, Inc.