Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Discovery Laboratories Fourth Quarter 2012 Update Conference Call. [Operator Instructions] Thank you. Mr. John Tattory, Vice President of Finance, you may begin your conference. John A. Tattory: Thank you, Sarah, and good morning, everyone. And thank you for participating in Discovery Labs' conference call. This morning's call will provide perspective on the 2012 fourth quarter financial results, select business updates and an overview of management's progress towards the commercialization of SURFAXIN and AFECTAIR in the United States. Before we start, I will read the Safe Harbor statement. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or the company's future financial performance. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from any future results expressed or implied by such statements, predominantly those inherent in the process of discovering, developing and commercializing our pipeline products. The listener is cautioned not to rely on these forward-looking statements. Actual results could vary materially from those described as a result of a number of factors, including those set forth in Discovery's 2012 annual report and Form 10-K to be filed with the SEC on or before March 18 and any subsequent SEC filings as they may be amended. Today we have with us Mr. John Cooper, Chief Executive Officer; Dr. Tom Miller, Senior Vice President and Chief Operating Officer; and Dr. Rusty Clayton, Senior Vice President, Research and Development. I'll now turn the call over to John Cooper. John G. Cooper: Thanks, John. Good morning, everyone. Thank you for taking the time to spend some time with us on this call. We issued a press release this morning on the earnings, but probably more importantly, provided an update on a number of our key programs. And I hope everybody's had a chance to look at that press release. What we'll do in this call is we'll stick to some prepared remarks from the beginning. I'll provide an update on SURFAXIN and AEROSURF. Dr. Miller will give a perspective on the work that we've done so far with our commercial and medical affairs team out in the neonatal marketplace with respect to the role of SURFAXIN and AFECTAIR. I'll then come back with a financial review. And most importantly, we'll try to keep all of that brief and then take time for your questions in the Q&A session. Before I get into any of the updates on SURFAXIN and AEROSURF, I want to take the opportunity to recognize the fact that we've gone through some change in the last couple of months. And most importantly, I want to give a thank you to some of our previous board members: Mr. Amick, Mr. Link and Mr. Esteve. They've played a very important role in the company. And that role, in many ways, is inherent in the fact that we have a strategic foundation that was put in place years ago. It was governed by them, and that stays today and maintains today, that strategic foundation, all around the fact that we have a synthetic surfactant. We have what we believe to be some very important aerosol delivery technologies. And the combined capability of those technologies, we believe, has the ability to truly change the way critical care respiratory medicine will be managed in the future. And most importantly, what that team has done in the past, and where we are today as well, is we focus on changing the way respiratory distress syndrome is being managed, in dealing with premature infants in critical care. Very important, this is an area where, over the years, innovation, quite frankly, has been -- I don't want to say missing, but it's been lacking in many ways. And we believe that we're the company that's going to change that. We believe we have the technology to create that innovation for the future. The past has been -- and the current, I shouldn't say -- it's not just the past. Currently, kids are being addressed with animal-derived surfactants. We believe our technology will change that. And again, I want to thank those members of our board who have moved on from our company, who have helped establish that. And most importantly, I want to welcome new members of our board who will pick up this strategic foundation that has been laid and now help move it forward. The technology that we have, the ability of transforming the world of neonatal respiratory medicine, is our goal. And the work that's been done in the past, the work that's been done by our management team thankfully has been significant enough to attract some very, very, very talented and experienced pharmaceutical executives who have recently joined our board. So we welcome them. We say thank you to the board members who are no longer here. And with that said, now let's move into our programs. First, with respect to SURFAXIN. Recall please that SURFAXIN represents the first synthetic peptide-containing surfactant that's approved for use in neonatal medicine, a major, major event for our company, especially those who understand our history and what we've been through, a very, very big accomplishment for us and now, quite frankly, provides health care practitioners with an ability, hopefully in the future, to have an alternative to animal-derived surfactants. Now at our last conference call, which was in the fourth quarter of 2012, we announced that we'd determined that one of our analytical chemistry methods that's used to assess SURFAXIN conformance to specifications required an improvement. And as a result, it required an update to product specifications that was necessary. What did we do about it? When we identified that, we proactively communicated the findings to the FDA. And at that time, we were also preparing to launch SURFAXIN. But what we decided to do was to be smart about things, take the prudent decision. We took a long-term view towards what was truly at stake, both with respect to product continuity, in terms of supply in the market, our relationship with the neonatal medical community, our relationship with the FDA. The prudent decision: halt launch for the time being. Delay launch, fix the issue and then address the launch afterwards. Now since that time, what have we accomplished? First, we initiated a plan, and what we ultimately did was we improved and validated the analytical chemistry method. Secondly, we prepared and submitted the updated product specifications to the FDA. So where we are today is our remaining planned activities are on track. And pending confirmation from the FDA regarding the updated specifications, we believe that SURFAXIN will be available for commercial sale in the second quarter of 2013. Now moving on to AEROSURF. AEROSURF is a very, very exciting product. It takes the same drug that we use in SURFAXIN, and we aerosolize it. Actually, for AEROSURF, our choice formulation will be a lyophilized form of SURFAXIN, but we aerosolize it. And we aerosolize it using our proprietary technologies, our capillary aerosol generator, as well as our patient delivery technologies. Now premature infants with respiratory distress syndrome currently are treated with surfactants that can only be administered by invasive endotracheal intubation, and the results, unfortunately, are there are serious respiratory complications for these children. So what neonatologists generally will do is not treat infants who could benefit from surfactant therapy unless those benefits of the surfactant therapy will outweigh the risk. So AEROSURF is being developed to change this, deliver surfactant therapy without that need for invasive -- for that invasive procedure. Basically, the neonatal community -- and Dr. Miller in a few minutes will talk about it, given the fact that we now have our team out in the field and we're getting a lot of feedback from the neonatal community. That community has a big, strong interest in AEROSURF. And quite frankly, as a company, we have been very patiently waiting to invest in AEROSURF. We've done quite a bit of work over the last, well, 5 to 6 years, a lot of preclinical work. We've developed, I think, a real strong competency in the area of aerosol device technologies, and we've done a lot of additional work to support AEROSURF. But we've been waiting, unfortunately, at the gate for quite a while until we knew we had SURFAXIN approved and until we brought in the money to move this important program forward. And I'm really happy to say that this past -- probably about 9 months now, we've been making -- we've moved it forward. We've aggressively begun to make AEROSURF a reality. So what we've done so far is there are -- and there are a number of prerequisites, 2 of them are critical. One, we need to make sure that our capillary aerosol generator is what we call "clinic ready." We want to make sure that when we enter the clinic, and we're going to enter in the Phase II program, when we enter the clinic, that our technology, that generator, will be able to sustain the scrutiny of all of the regulatory processes from beginning to end. That means the fundamentals have to be sound. And for that, what we did was we went to one of the leaders in the world in this field, and that's Battelle, and it must have been about 9 months ago that we entered into an agreement with them. We filed an 8-K announcing that, and we started working with Battelle to get that generator to the point where it's -- where we can enter the clinic. We have made a significant amount of progress to date, and we're really happy with that so far. Additionally, the choices I mentioned before, the choice of drug formulation that we will use for AEROSURF, we could use a liquid formulation of KL4 Surfactant, but our choice will be the lyophilized formulation. We have been working with a leader, a CMO leader who has expertise in lyophilized manufacturing, and we've been working with them to transfer our manufacturing process to take on the manufacture of lyophilized KL4 Surfactant. And we've made very, very favorable progress to date as well. So with that said, those 2 key prerequisites are necessary to enter the clinic for AEROSURF, and we anticipate completing both of those activities in mid-2013. Now in concert with that, we are also preparing the clinical and regulatory operations to get ready to administer our Phase II clinical program. The beginning of that program we will manage ourselves. The latter part of that program, the more extensive part of that program, we will work with a contract research organization to be determined. So we are very, very excited that we're finally moving AEROSURF forward in a manner in which we can say is on pace, on track. It's an exciting program, and we remain on track to initiate that Phase II clinical program in the fourth quarter of 2013. Now with that said, Dr. Miller will provide an overview of what we're seeing in the market so far. So Dr. Miller? Thomas F. Miller: Thank you, John. And again, thanks to all participating this morning. I'd like to start off by saying that we've had a very productive fourth quarter in the field, and I'm looking forward to continued success and momentum in both SURFAXIN and AFECTAIR as we move through 2013. Although early in the commercial campaign, we're observing quite a bit of interest with our new products. Starting off with SURFAXIN, as John indicated, this is the first completely synthetic peptide-containing surfactant approved by the Food and Drug Administration. We conducted a multinational clinical program with more than 1,500 preterm children with 2 highly successful Phase III trials published in Pediatrics, the most relevant journal for neonatologists, certainly academic neonatologists in our space. Our SELECT trial, which was pivotal in the United States, enrolled just about 1,300 children. We concluded this program with direct and favorable comparisons to active comparator surfactants. This large data set continues to support new medical publications and presentations at key medical congresses. And along these lines, a key focus for our field team as we drive the formulary process for SURFAXIN forward is our pharmacoeconomic data package. This is a significant differentiation feature for us as we advance SURFAXIN in the category. As I've indicated previously, the primary focus for the team in advance of product availability is the hospital formulary and our target accounts, of which we have just about 400 in the United States. I'm encouraged by the fact that we've had more than 200 initial formulary discussions to date. Let me give you some perspective as to how I see this process rolling through the early SURFAXIN campaign. I see 3 fundamental phases of product adoption, more often than not, at the account level, the first being restricted use, non-formulary purchasing. This would be an exercise where the institution would agree to purchase enough product perhaps to expose as few as 20 or as many as 50 children to SURFAXIN. The exercise here would be to get the neonatal intensive care team comfortable with the dosing, preparation and administration of our product as it's different than the other surfactants in the category. Assuming a favorable exercise and conclusion of initial user experience with SURFAXIN, which can take perhaps as few as 3 or as many as 6 months per account, entailing a relatively slow beginning of the commercial campaign, a formulary decision will be made. I would expect, more often than not, that step would include a first inclusion from a non-exclusive formulary addition, meaning that we may be more than 1 product on formulary as SURFAXIN is added. Our ultimate goal, of course, is to transition to exclusivity on formulary, and that's a very important step for us as we work through the sell cycle. Because being on standard -- standing orders or having exclusivity in the account essentially means we have 100% unit share of surfactant utilization in the account. So early signs, so far, so good as it relates to the team's productivity and getting accounts excited about the product. Also of paramount importance to our strategy, the team is also executing well at the national accounts level. I expect that all key group purchasing organization and other key buying group agreements to be in place prior to commercial product availability. As John indicated, we believe that we are on track for 2Q 2013 product introduction and U.S. sales initiation. And at this point, we'll also reaffirm prior guidance for SURFAXIN sales, the first full 12 months of sales, approximating between $8 million and $10 million. As we move towards Year 4 of selling, approximating $40 million. And we ultimately see SURFAXIN as a $100 million product. This model that we've put in place works well with AFECTAIR, too, as there are significant customer tactical overlap with SURFAXIN execution. As I've indicated in previous calls, we thought very comprehensively about the type of field team that we put in place as we recognize that we would need a unique competency for our products. The team that we have in the field has tremendous experience, both with drug product formulary hospital selling, as well as medical device selling in the hospital, specifically in the neonatal and pediatric intensive care environments. We did this because we recognize the relevance and the need for this competency in the short term with our current products, and in the mid-term as we advance AEROSURF. AFECTAIR is a very clever proprietary device. You could essentially think of AFECTAIR as an aerosol-conducting airway connector with the potential for the initial device, which will focus in the NICU and the PICU, to simplify and improve inhaled medication delivery, both medical gases and aerosolized medications. Our key focus for the team as it relates to AFECTAIR, our leading tactic, as we've indicated previously, is a user experience program, and we've provided an update in January regarding the importance of this initial launch stage. This is a free goods program where we collect information that will help us best understand the way to approach the broader market, although our R&D team, led by Dr. Clayton, has done quite a bit to understand the utility of the product. This exercise will allow us to get experience down at the site level to understand compatibility with various ventilation circuits, gain a broader array of experience with administration of a multitude of medications, et cetera. Essentially, this program will allow us to gain knowledge that will best equip our field team for success with the product going forward. I think it's also important to understand that AFECTAIR represents a very important account access tool for us. It essentially allows us to access accounts with a number of additional stakeholders that ultimately opens the door for SURFAXIN cross-selling. And of most importance, from my perspective, the inclusion of AFECTAIR in our field team's bag allows us to position ourselves as a solutions company. This is a very different perspective versus that of our competitors. Our goal is to redefine standards of professionalism and collaboration with the neonatal community. I continue to look for approximately 10% of our target accounts to participate in this early user experience program. That will run through the first half of 2013, and we expect revenue initiation to begin in the second half of 2013. We'll also reaffirm prior guidance here. We ultimately see AFECTAIR in the United States as a $10 million product opportunity, with a comparable size product opportunity in major international markets throughout the developed world, with first full 12-month sales forecasting currently between $0.5 million and $1 million. As our field team continues to reach into the neonatal intensive care unit, it becomes increasingly clear that there is significant enthusiasm for the AEROSURF product concept. Our pipeline programs such as AEROSURF also reinforce our solutions company positioning for products today and products tomorrow. As John mentioned, we've had significant progress with both drug products and device development for AEROSURF, and we're looking forward to resumption of clinical activity later this year. From a commercial perspective, AEROSURF has the potential to become a transformational product. And while we are initially focusing on the respiratory distress syndrome population, where we've already had great success with SURFAXIN, it's very important to understand that our first-line targeted patient population with RDS is not those that are currently treated, rather a much larger eligible patient population that perhaps might not meet the initial criteria for first-line intubation, or insertion of an endotracheal tube into a trachea. This represents a much larger eligible patient population than those that are treated with first-line therapy with SURFAXIN today. Our goal conceptually is avoidance of need for mechanical ventilation, which is the primary cost driver of management for critical care patients in the neonatal intensive care unit. It's also of importance to note that we intend to use the same field infrastructure to both prepare and ultimately commercialize AEROSURF in the United States. Finally, the AEROSURF development program is a key area of focus for us with various strategic partnership pursuits in international markets, and we will continue to advance these discussions as a priority for Discovery Labs this year. With that, I will close and turn the call back to John Cooper for a financial overview of the quarter and closing remarks before Q&A. John? John G. Cooper: Thanks, Tom. With respect to the financial review, again, in our press release this morning, we, as usual, are pretty detailed with information. So please look at that. But I'll hit the highlights. And even before I hit the highlights, I'd like to kind of set a picture. So here we are as a company, awaiting to launch SURFAXIN, using the technology that made SURFAXIN successful, and moving that now into an aerosolized formulation for AEROSURF. We have a market cap as of yesterday of approximately $110 million, $115 million, and we ended the year with approximately $27 million in cash. As you could see from the fourth quarter, we had an operating loss of $12.4 million. $2 million of that was both a cash and non-cash charge associated with a onetime arrangement. And so if you exclude that onetime arrangement, the operating loss was $10.4 million, and the net cash outflow for the quarter was $9.1 million. We are anticipating in the first quarter of this year to have a net cash outflow of $10.5 million. So pretty obvious that we have a bright future ahead of us, but we also have to make sure that we're financially sound. So one of the decisions that we made this past quarter was to improve the financial picture of the company, but we wanted to do so in a way that was limiting the dilutive effect on the company, but yet gave us the ability in the future to achieve certain milestones. Hopefully, those milestones will show in the value of the company. And then at such a point in time, we can finance accordingly. And our choice of doing that, quite frankly, was an arrangement with Deerfield, where we used a debt facility that was also backed by warrants to accomplish this. We're extremely happy with this arrangement with Deerfield. Deerfield is a highly sophisticated quality investment group, and we worked very closely with them in discussing the alternatives for the company. We're trying to think long term. So when you look at that deal, and it's -- again, it's been announced previously, and it's also outlined in the press release, we wanted to make sure that the cash flow that the company was going to be requiring in the short term -- and the short term, in this case, you can be in the next 3, 4 years, was not hindered by debt issues and principal payments. So we structured a deal where the principal payments were put out in time, beginning at the end of Year 4 and possibly may not be paid until the end of Year 6. So we're really happy with the way in which that was structured, and we think we have a partner in Deerfield that we could work with for the long term. In addition to that, one of the other things that's changed in our company financially over the past year is our shareholder base. The shareholder base that we've put in place now has -- and we're happy with that. We've built an -- we've been able to attract a good fundamental shareholder base known for their long-term perspective. As of the most recent reporting date, which was December 31, 2012, we have names such as Fidelity, which owns 15% of the company; Wells Capital Management, owning 8% of the company; BlackRock, owning 7%. So again, change, and I think it's positive change for the company. And the other piece that we've put in place was a $25 million ATM arrangement with Stifel. This is putting in place access to potential capital in the future at a time when we think it's most attractive to the company. It's completely, as you know, at our discretion, and we can use this to support our business plan. So this past quarter was an active one where we've put in place access to potential financing availability, and we're pleased by what's been accomplished. So I'd like to now move the discussion over to Q&A. Any questions you want to have on any of the topics we covered, please feel free to ask. And with that, operator, if you'd begin the Q&A process.

[Operator Instructions] Your first question comes from the line of Joel Sendek from Stifel. Joel D. Sendek: Actually, I have a question on SURFAXIN and a question on AEROSURF. So first, on SURFAXIN. I'm wondering -- you submitted all the required documentation to the FDA, I assume. Is there anything else for you to do? Or are you just awaiting their decision? And are there ongoing discussions right now with the agency? John G. Cooper: Joel, it's John. I'm going to ask Dr. Clayton, our Head of R&D, to cover that question. Russell G. Clayton: We have completed all of our submission. And at this point, there's no further discussion involved with the FDA. In fact, we checked in with them, and the review of the submission is going as planned. And so at this point, we're just waiting to hear back from them. Joel D. Sendek: Okay, great. And then on AEROSURF, it seems like you're getting outside help here. You have a CMO, you have a CRO, and obviously that, I think, is encouraging that you get those experts involved. I guess what I worry about a little bit is can you get everything -- can you orchestrate everything such that you have high confidence you'll be able to start the Phase II by the fourth quarter? I mean, sometimes when you have outside groups, things tend to go slower as opposed to faster. So can you give us some confidence that 4Q is a reasonable timeline for the start of the Phase II? Russell G. Clayton: Right, Joel, it's Rusty Clayton again, an excellent question. So one of the investments that Discovery Laboratories has done is to make sure that we have the right people, first of all, to manage those individual components. So we have an excellent person who's in charge of our supply chain and who's overseeing the transition of our technology to make the lyophilized form of the drug. We also have hired a top-notch medical device engineer with a great resume of experience who is personally managing the work that Battelle is doing. And these people are frequently on-site at these locations. They're having daily conversations with these contractors and they're managing the component parts of this. Now behind that, there is a in-house orchestration of the entire AEROSURF program that I'm personally overseeing, but I have a great team that is assisting me with that to make sure that these component pieces funnel into the requisite milestones, such as submissions to institutional review boards, submissions of documents to the FDA and then ultimately culminating in the first patient in that we forecast in the fourth quarter of this year. So we master this through an overall program plan, and we keep track of things and make sure that if something seems to start to lag that we pay very close attention to that. So we have every confidence that we have internal facility to manage these things and bring them home. John G. Cooper: And Joel, on the clinical trial front, while we won't get into the trial design right now -- that just may be premature, let's wait until we kick that off and we'll take you through those details. But what I will say, though, is that the first component, the first phase of that trial, we will be doing on our own. It's not until we get to the second phase where we will be using a CRO to help us.

The next question comes from the line of Bill Tanner from Lazard Capital Markets.

I guess, I've got a 2-part one for you, Rusty, and then maybe a follow-up for Tom Miller. On the CAG, how would you view the technical feasibility or difficulties that you guys are facing or not facing, just curious, as John obviously mentioned you'd like to have something clinic-ready before you go in. Can you remind us, just as it relates to the development path, are there any tweaks that needed to be made to a device, how that would be addressed? Russell G. Clayton: Sure, Bill, my pleasure. So let's first, very briefly, a couple of seconds, literally a couple of seconds on history here. The capillary aerosol generator has been in development for quite a number of years and has undergone development changes with regard to some of the fundamentals of its design and the hardware-software interactions. And it's gotten us to a point where when we handed it off to Battelle, we were handing off a concept that was already demonstrated to work. We just needed to take that generation of device and get it to a point where it would be acceptable to operate in a clinical environment exposing preterm babies to aerosolized lucinactant. Also, we want to remind folks that capillary aerosol generator, it was brought into Discovery Labs specifically for the purpose of aerosolizing surfactant because we've been able to identify and verify that current off-the-shelf aerosol generators are not adequate to aerosolize surfactant at the volume that is required. So what we've done now is we've asked Battelle to take this through a formal development program that would be clinic-ready in order to pass, certainly, regulations that govern investigational devices and as well as -- I'm sorry, I'm blocking on a word here. So the FDA's regulation of investigational devices, as well as make sure that it's a good first impression for the clinicians as well. And we've gone through different stages, I don't want to get into too much detail because we haven't made that public, but we're very confident that we have a working device. We're in the last stages now of making sure, we're verifying the design, we're verifying the output of the device, we're getting all the data and the information that we need for regulatory filings. And it's really been a pleasure to work with Battelle. They have a very well-developed systematic approach. They have a very mature quality management system. They have extensive clinical expertise, particularly with aerosolized devices, and that's why we chose them, and they've just been a real pleasure to work with. They've done a nice job getting us to where we need to be, and I have every confidence that we're going to have a fully functional clinical device. We'll have to have that for some time before we actually enter the clinic. But then, the next thing is building a suitable number of those devices to actually do our clinical trials. But so far, I'm very pleased with the progress.

And so just to sort of sum up then, I mean, if there are tweaks that need to be made at some point in time in the development path, those aren't things that would be intractable to deal with? Russell G. Clayton: No, in terms of the clinical device, changes that we make at this point are going to be very minor in terms of modifications to further enhance the device. But what we will have to anticipate is going from a clinical device, one that is suitable for clinical trial, to one that is commercially viable. That is there will be some changes between the clinical device and the commercial device, but again, those will be largely cosmetic in nature. There will not be any fundamental alterations about how the device operates. We need to make sure the core of the operation of the device maintains consistency throughout the clinical trial program. Otherwise, we will run afoul of some regulatory issues as other companies have done in the past. So we will maintain that core operation but we may make it a little slimmer or make it a little more attractive, those sorts of things, but I don't foresee any major tweaks that will be a problem at this point. John G. Cooper: And Bill, that's why we're investing in Battelle to work with that, including their quality systems. In the numbers that we gave you for the fourth quarter and then for the first quarter in terms of the anticipated burn, those investments in Battelle are in there, so well worth it, well worth it for the long term.

Yes, no doubt. And then for Tom Miller, I know you've said you've had conversations with some of the formulary folks at a couple hundred accounts. I'm just curious if you could generally characterize how those conversations have gone, is it high level of interest, modest level of interest? What's the awareness, the appreciation for what SURFAXIN actually can deliver? And then can you just remind us, what's the seasonality or is there any, as it relates to RDS? Thomas F. Miller: [indiscernible] I can start with the last piece because that's pretty straightforward. Unfortunately, in the developed world RDS is an equal opportunity afflictor without seasonality. So we have seen a little bit of reduction in overall birth rate, which drives a reduction in prematurity in the past handful of years, which is not surprising given the recessionary environment that we're now climbing out of, as folks feel a little bit less thick in the wallet, they tend to put off births. But what you also see is a pent-up demand for birth that usually follows a recessionary period. So we've been in a little bit of a trough since the recession began. We believe that, that will recover as we move into 2014, '15 and beyond. Within-year seasonality, not so much. So hopefully, that piece is helpful. With respect to color commentary, I think John Cooper mentioned early on in the call that there's been very little innovation in this space for a very long time. And while animal-derived surfactants are effective medications, I can tell you as a guy who spends quite a bit of time in the NICU that, there's a, I think, a clear frustration that although we're spending much more money on the management of these children, relative to what we're doing 10 or so years ago, we really have not had a tremendous improvement in clinical outcomes. But as it relates to SURFAXIN, I can tell you that there will be significant interest in trialing the product. I think based upon the team's performance thus far, there's ample evidence of that. The key piece for us is going to be the successful transition from initial user experience in 20, 30, 40, 50 babies and making an institutional commitment to put the product on formulary. And I see that as a -- those first 2 steps as maybe a 6- to 9-month selling cycle ultimately to culminate in exclusivity on formulary. That's where we want to be. So I'd categorize it as so far, so good. If you recall some previous guidance that we provided in fourth quarter, I expected to be at about 200 or so initial formulary progress discussions at time of product introduction, tracking a little ahead of that right now. So I'd say, so far, so good, and I'm encouraged with what I'm seeing so far.

Our next question comes from the line of Doug (sic) [Scott] Henry from Roth Capital. Scott R. Henry: Just a couple questions. For starters, I know with the SURFAXIN and AEROSURF program, there has been talk of perhaps pursuing a partnership for the o U.S. rights in some of the AEROSURF development. Could you give an update on how we should think about when you may partner those assets? John G. Cooper: Scott, it's John. First of all, as the discussions continue, there is an active environment for what we're doing, especially around AEROSURF. When one of -- by the way, one of the lessons we've learned, one of the readings we've gotten from that process is that when our potential partners think about the European market, they gravitate towards AEROSURF first. And the reasons are because of pricing considerations in Europe; and number two, the ultimate design of a trial for AEROSURF and, quite frankly, the revolutionary or transformational characteristics of the product. So the discussions continue. Quite frankly, when it comes to a timeline, mea culpa on many ways on our side. We have been doing everything we possibly can to keep these discussions moving forward, but timelines are not always under our control. Timelines are sometimes under the control of the partner who's going to be writing the check. When it does turn into a timeline under our control, it's whether we want to accept the terms on the table or whether we want to keep pushing on because of the value that we have. We believe that the AEROSURF program, especially the Phase II program, it's, by all measures in the world of biotechnology, not a very expensive proposition to invest in our Phase II program. And value will be determined. And everybody, of course, you roll the dice when you do clinical trials, but we know a lot about the babies, about surfactants in their lungs. We know about babies, again, with RDS. We understand that our technology, our surfactant, when it's in the lungs of a child, will improve that child. Our challenge, of course, is to aerosolize the surfactant and deliver it safely and have that aerosol coat the lung of the baby so that the baby doesn't have to be intubated and could go on and live a nice, healthy life. And we have confidence in our technology to hopefully prove that. But again, the proof is in the pudding. When it comes to the timing, I guess, is what I'm saying is what we've decided so far is to let's invest in taking care of ourselves first, while continuing the discussions. We are active. This is a #1 priority for our company. I mean, there are, unfortunately, or I should say fortunately, a number of #1 priorities: get SURFAXIN in the market; make sure that AEROSURF is in the clinic; and find international strategic partners. It is an absolute priority for the company. But at this point in time, I'm not going to say exactly when that will happen. Just know that we're extremely active. Scott R. Henry: Okay, fair enough. A couple of other questions, and I apologize if you've mentioned this, but you did talk about AEROSURF going into Phase II in the fourth quarter. The SURFAXIN LS, the lyophilized version, should that go into Phase III trials in Q4 of 2013? Is that still on track? John G. Cooper: Our strategy has been adjusted. We're developing the lyophilized -- well, let me back up. The fact that we're working with a CMO to develop a lyophilized surfactant leaves us with then an opportunity, if successful, and so far all plans are pointing to success, will give us then strategic opportunities with what we want to do with a lyophilized surfactant. Right now, what we're going to focus on is applying it to AEROSURF. What we then do next will be determined based upon where we are as a company, what is our capital situation, strategically, where do we want to go with LS, what will our potential partners think. If we're going to develop LS as a stand-alone product in Europe, we will not do so without a partner. If our partners want to focus, our potential partners want to focus on AEROSURF first, then we'll have decisions to make about what we want to do with LS in the United States but for now, what we're basically doing is we have capital that's focused on having a U.S. market capability. We have capital that's focused on making sure that, ultimately, we're successful with SURFAXIN and we have capital that we're investing in terms of the development priority at AEROSURF. From there, we'll then make our decisions as the year moves forward and as we figure out what we look like in the future. Scott R. Henry: Okay. So I'll kind of take that as to be determined. John G. Cooper: Yes. Scott R. Henry: Fair enough. As well, AFECTAIR, when should we see revenues start to show up for that product? Thomas F. Miller: Scott, it's Tom. In the second half of this year. Scott R. Henry: Okay. So now when -- has it been officially launched yet, I mean, in this kind of pilot study? Thomas F. Miller: Don't think of it as a study. It's actually getting real-life commercial experience with the product. This is being presented to customers as commercial product, but it's being done so in the form of a free goods program. As I indicated from a team build-out perspective, we very purposefully built out a competency on folks that understand how to drive success with disposable medical devices, and one of the most impactful tactics that one can employ is an initial, for lack of a better term, tire-kicking exercise with the product, with the goal being initial user experience. It's a good experience which translates to first order, which translates to second order and so forth and so on. And we have an opportunity to expand our learnings with respect to optimal positioning for the product through this experience as well. So the idea is to provide product that would otherwise be salable in this user experience program through the remainder of this quarter and into next and anticipate revenue build beginning as we move into the second half of the year. Scott R. Henry: Okay. So I mean, not that it's particularly material, but when you give your guidance of $500,000 to $1 million in the first 12 months of selling, does that start from third quarter 2013? Thomas F. Miller: Yes. So think about, for both SURFAXIN and AFECTAIR, think about it as time 0 from when commercial product T0 begins. Scott R. Henry: And T0 for AFECTAIR starts in third quarter, is that what... Thomas F. Miller: Exactly, yes. Scott R. Henry: Okay. Leading into SURFAXIN launch in 2Q, can you give any color on kind of when in Q2? Is that a late Q2 event or -- just for modeling purposes? Thomas F. Miller: Yes, so we're not going to provide more guidance at this point, Scott. But know that the team is focused on priming the pump, as I described, on the formulary front to the degree that we can. And we certainly will provide more clarity on that as we get closer to getting product in the warehouse. Scott R. Henry: And final question, just with regards to SURFAXIN, are you hearing anything with regards to the pricing environment for that product from competitors and what you're hearing out in the field as you start to talk to accounts? Thomas F. Miller: So it's been an interesting observation from monitoring competitor behavior over time. One of the 3 surfactants has met with considerable success in taking price up over the course of the past 3 years in the space. But being mindful of that, and with our product, I felt very strongly that it's not enough any longer in calendar year 2013 to have a strong clinical profile for hospital product as pressures continue to mount with health care reform. In addition to that, you have to have a background and experience from a pharmacoeconomic perspective. And I think that's really a big differentiator for us as we think about positioning our product, with not only neonatologists, but with pharmacists as well, with the goal to try to demonstrate that, that we think that we have a very compelling value proposition for the product. I think the other point that I've made on many occasions previously, if you think about average selling price within this category of medication, this is a small line item in pharmacy too, right? This is not a big -- a widely used cost driver within the institution. An average course of therapy for an animal-derived product course, is less than $800. And what does that get you from a return on investment perspective? That investment in 80% of children will effectively extend life for 75 years and reduce cost-driving morbidities by hundreds of thousands of dollars. I view this category of medication as probably one of the most return-intensive medications that exist. And if you're able to demonstrate what that can mean to the institution, I think that a pharmacoeconomic dimension of selling can be a compelling rationale for utilization, even with cost containment measures in the hospital.

[Operator Instructions] Your next question comes from the line of Natasha Esfan [ph] from Sphera Funds.

I wanted to ask whether your plan to take AEROSURF to Phase II is dependent on your partnering efforts, or is that just outside of U.S.? John G. Cooper: Our plans to move AEROSURF into the Phase II is going to be dependent on our financial position as a company, and that is one of the reasons why in the first quarter, we moved forward with the transactions that we accomplished, the Deerfield loan facility, as well as the ATM with Stifel. So as I mentioned earlier, by all measures of a biotech product, our Phase II program is not a very costly program. I won't give the numbers until we get closer to the announcement of when the trial begins, but it is very modest. So we will -- we're prepared to do it on our own, if necessary.

Okay. And would you talk a little bit about the trial itself? What will you compare it to? Or -- the duration of the trial? John G. Cooper: What we'll do is this. We're not prepared at the moment -- we're prepared, we understand the dynamics of the trial. We have all of that in our plans. But from a public perspective, I would rather wait until we are announcing that the trial has begun and then we will go through that with you. But in general, I think we can give you an overview. Dr. Clayton, if you wouldn't mind just giving a general overview, please? Russell G. Clayton: Sure, not a problem, John. So the concept of AEROSURF is to deliver our surfactant to a population that does not have an endotracheal tube in place. There is a very prevalent trend not just in the U.S. but globally for physicians to try to manage babies who are born preterm who are having trouble breathing due to surfactant deficiency, to not intubate those babies in the trachea and put them on mechanical ventilation but rather to support them less invasively with nasal continuous positive airway pressure. The problem there is that if you do that, you don't have a way of administering surfactant. AEROSURF cures that deficiency by allowing the administration of aerosolized surfactant while delivering the CPAP. The current standard of care then is continuous positive airway pressure alone, and we believe that, that will be our comparator moving all the way through the clinical program. We will not compare, for example, against babies who are intubated and delivered surfactant administration because that's viewed as a different mode of therapy, and we already have products that will address that, for example, SURFAXIN. So our control group, if you will, or our comparator group will be standard of care, which is nasal CPAP alone, and we will move through in a very classic fashion of the Phase II and the Phase III program. And by that, I mean Phase II is to make sure that we're safe within the affected population, and we will do appropriate clinical studies to do that. And then in preparation for Phase III, we will confirm that we have a dose that will provide us an effect that will be distinct and measurable and demonstrate the effectiveness of this therapy compared to the standard of care. In terms of numbers, I can't really share with you exact numbers at this time, particularly for the Phase III program, because the Phase II program advises on that. What we envision for this particular program at the Phase II level that we will have probably enrolling less than 200 patients in the Phase II program in total to maintain that we have sufficient safety and efficacy indicators to move into a Phase III program.

There are no further questions at this time. John G. Cooper: Okay, well, thank you, everybody, for your time. We're very excited about our future. We know that there are a number of follow-ups that come from today's conference call, and we're eager to provide those follow-ups. Most likely, our next call will be towards the end of April or early May, continuous with our Q1 earnings release, and we look forward to updating and communicating with you. Thank you very much for your time.

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you, and have a great day.