Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Discovery Laboratories' Second Quarter 2013 Update Conference Call. [Operator Instructions] Mr. Tattory, you may begin your conference. John A. Tattory: Thank you, Melissa. Good morning, and thank you for joining today's call. This call will provide an overview of second quarter financial results, as well as a business update followed by Q&A. Before we start, I will read the safe harbor statement. Today's 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, especially 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 our 2012 annual report on Form 10-K and any subsequent SEC filings as they may have been amended. On the call today, will be 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 would now like to turn the call over to John Cooper. John G. Cooper: Thanks, John. Good morning, everybody. Thank you for taking the time to spend time with us and get to know our company better. I'd like to start the call kind of in a way, taking a little reflection for a moment. We're coming through a very, very important inflection point for our company. As you saw in our press release this morning, yes, of course, we released the earnings and we released our financial picture, and there's really nothing in that financial picture that I'm sure changes people's views towards the company right now. I mean, we put together financings over the last couple of quarters to make sure the company is solid. We have brought on some very important investors into the company. We've been burning on average $10 million per quarter, and that will continue into the third quarter. But what that represents, quite frankly, is an investment into a capability that we've been, for lack of a better word, I'll say chopping up a bit for a long time to take it to reality. And that's the combination of having our SURFAXIN, our lead product SURFAXIN go into the market, into the neonatal community. And number two, the beginning of developing our aerosol platform, starting with AEROSURF for neonates with RDF. We've been wanting to do that for a long time, and the inflection points that I mentioned earlier are coming up in the fourth quarter. And in many ways, that's what this call is all about. That's what the value of this company is about, today and in the future. One would argue is the value reflected today? Well, those arguments could be made pro and con. We won't get into that. I do know one thing, though, and I think our management team knows one thing, and that is we need to make sure we execute accordingly. We need to make sure that the FDA is happy with what we're giving them in order for that value to show itself. Now we're also talking, not just value for the company, value for shareholders, value for employees, value for others. I mean, we're talking also of value for the neonatal community. Let's kind of put our company into perspective for a moment. What do we have? I'm repeating things that I think many people know already. For those who are new, I think it's worth going through it. I think it's really important. It sets the stage. What do we have? We have a technology that mimics the surfactants that we all have in our lungs, and that technology allows us to produce a synthetic peptide-containing surfactant that could be ultimately be applied to a number of respiratory diseases, most of them, of course, in the critical care setting. We also have developed, over the years, a capability in device technology that's predominantly focused on the ability to deliver our surfactants as an aerosol ultimately to patients. And where are we focused? We're focused first and foremost in the field of neonatology and, specifically, infants with respiratory distress syndrome. It's a market that's not, I think, very well understood. And again, I use the term market. It's also an area of medical need. It's an area that, quite frankly, has been the same for many, many years. Now is that a fair statement? Well, one could argue that. There have been attempts to make the practice of neonatology improved for better clinical outcomes. But those attempts have been predominantly focused around existing capabilities: animal-derived surfactants, the use of nasal CPAP and a variety of processes or procedures that could be employed using those tools to help the children do better. Where do we come in? Why is this an inflection point for us and for neonatology? We bring our synthetic surfactants, the very -- we start with SURFAXIN, the very first approved peptide-containing synthetic surfactant, and then we also bring our technology to deliver a product that we call AEROSURF, taking our surfactant delivering it as an aerosol to babies with RDS, and we bring this to bring change. It allows this technology, allows the whole practice of neonatology and, quite frankly, the economics associated with it, to change considerably. So in many ways, that technology for us represents a platform and a very valuable asset. And there are stepping stones that can take place even after that. If you can deliver an aerosolized surfactant to a baby on a consistent basis under FDA regulatory conditions, you probably can then begin to develop that for other respiratory conditions, with children or with adults. Now that's a promise, that's a hope. We believe we have the technology to do that. We haven't earned that right yet. We have to make sure we focus first on neonatology. But the promise is there. And what we're also doing is we're building another strategic asset, and that other strategic asset is a commercial and medical affairs capability. Our goal over time, and it will take time, our goal over time is to build a capability that will be viewed by the U.S. neonatal medical community as the foremost leader in bringing products to that community. We plan to start with surfactants. We have already started with AFECTAIR. We plan to eventually leverage that capability, and we plan to, once AEROSURF, knock on wood, is going to be approved, then we plan on having that developed with our capability as well. It's a niche opportunity. It's focused. It does not require a significant investment. But what it does require are specialized people, people who understand the world of the hospital, people who understand the world of delivering aerosolized drugs to babies and ultimately to infants, and we've built that capability. Our team is out in the market right now, preparing the neonatal community for our products and for what the future can hold. So we're excited. We have an opportunity, and the real key for us is will we succeed in the fourth quarter in achieving our milestones in bringing SURFAXIN to the market and bringing AEROSURF into the clinic? And I could tell you right now, our plans and all of our actions to date have us on track to do exactly that. So with that, let's get into SURFAXIN for a moment. As you know, and as I mentioned earlier, it's our very first product. It's the very first synthetic peptide-containing surfactant approved for use in neonatal medicine and represents -- I think, it's a gateway. It's a gateway to the future. It represents the ability for the neonatal community to have an alternative to today's standard of care, which is an animal-derived surfactant. It also is a gateway because it leads to a next-generation conclusion where you could possibly lyophilize our surfactant and continue to engineer the technology, so that innovation can be appropriately applied and consistently applied over time. It's a gateway in the fact that, again, it can possibly lead to an aerosolized technology, which is what the neonatal community greatly, greatly, greatly desires. So with SURFAXIN, as you know, we have plans to launch SURFAXIN in the fourth quarter of 2012. And in that process of reviewing our analytical methods, we saw something that requires fixing and improving. We took the information, including a requirement to work with the FDA to update our product specifications of SURFAXIN, and we took that to the FDA. I emphasize again that we did that. This is something that when we think of the long-term capabilities and value for this company, we want to make sure we're solid. So we went to the FDA. The FDA, as you know, when we reported back in April, came back to us and indicated that they had some additional points of clarification and recommendations. Those recommendations specifically were they wanted us to -- they gave us a recommendation on how the product specs should be documented and notated. They gave us a specific recommendation for the upper limit of a single product spec, and we could readily accept their recommendation. They requested that 2 existing and readily available documents related to the analytical chemistry method were provided to them, and we did that of course. And last but not least, they asked for data set regarding the revalidated analytical chemistry method from recently manufactured batches of SURFAXIN. And what we did is we completed all the work, gave that to the FDA on June 7, 2013, and we believe that the FDA will take up to 4 months to review that material, respond to us. And so we anticipate that their actions back to us will come most likely in the early October timeframe. We know that the review is active. We've had interactions with the FDA and we will not be getting into any of those details, but we are active with the FDA. We know they're working on it. And we, as a company, are prepared for the response from the FDA, whether it's before, could possibly be before, the 4-month time window, will it be after, I don't know, you never know, it's the FDA's schedule. But we, as a group, are prepared to execute the launch of SURFAXIN as soon as we know the result, and we have every reason to believe that, that result will be successful, but the FDA is our boss. They'll tell us. And once we know, we'll go forward from there. But in the meantime, we're prepping for the launch and our commercial and medical affairs team are out there in the marketplace building relationships. We've mentioned Dr. Miller and some of his statements earlier, in previous calls, mentioned that our target audience is approximately 400 hospitals. That's our target for now. Of course, we'll expand over time. But we've zeroed in on 400 hospitals, which represents approximately 60% to 65% of the surfactant usage in the United States right now. And our goal at launch was to have 100 hospitals committed to trial SURFAXIN. And right now, what we see so far is a very strong interest for SURFAXIN. Our records indicate that we believe we'll be successful with that goal. Now remember, that goal comprises 2 conditions. One is some hospitals will already accept SURFAXIN and put SURFAXIN on the formulary. Other hospitals, of course, will bring SURFAXIN in on a trial basis. And then based upon that trial, the question will be, will they accept SURFAXIN on the formulary. I could tell you one thing though, what we see so far which makes us excited, that we recently went to the Pediatric Academic Societies meeting, which is the annual meeting in this field of medicine and that took place in May. And without a question, there is a desire for our product. Without a question, there is a desire for change, and a desire for innovation. It's in many ways, what we're hearing loud and clear, is it's about time that this technology gets into the marketplace, and we can start moving forward with AEROSURF as well. So it's an exciting time for us, and we're really anticipating a good opportunity here to begin to change neonatal medicine and to get Discovery on a path of success and a path of value creation, both medically and economically. So we're excited by that. One other thing that I just want to cover before we move to AEROSURF, and that is in June, we issued a press release regarding SURFAXIN. Now quite frankly, we've issued a number of press releases on this topic. The topic is reintubation, and the topic is the pharmacoeconomic benefit of reintubation by using SURFAXIN versus the animal-derived products. Let's be clear. The market today for animal-derived surfactants is, in my words, my opinion, it's a depressed market. It's a market that's been underappreciated in many ways. Think about it. You save a baby's life. And the current cost of therapy is approximately, for surfactant therapy, is approximately $800 per course of therapy. Compare that to other drugs, whether it be for cystic fibrosis, for RSV, for cancer-causing agents, where there's thousands and thousands and thousands of dollars that's applied to these drugs to help patients. And for whatever reason, we can't go backwards. We can only go forwards. For whatever reason, the surfactant markets have valued these products less than $1,000 per course of therapy. That needs to change over time. But in order for it to change, you have to bring value. You have to bring clinical differentiation, and quite frankly, you have to bring pharmacoeconomic considerations for the table. And if you can do that, and the data supports that, you can change these markets over time, and it will take time. The pharmacoeconomic analysis that we put out in the press release back in June, I believe, is very compelling. It was the third piece in a series of analyses, and the whole complete series was presented at a meeting at the, what's called, the PPAG meeting, the Pediatric Pharmacy Advocacy Group meeting, and it was in May of 2013. If you recall, in the very first ever full description of the consequences of reintubation on preterm neonates, that information indicated that when infants who require reintubation have significantly higher mortality rates and significantly higher rates of key morbidities associated with complications of prematurity. In essence, reintubation of these babies is not a happy consequence. That description of the analysis that was done as well based upon our studies, also indicated that preterm infants who receive SURFAXIN demonstrated a significantly lower reintubation rate when compared to infants who receive either the animal-derived surfactants Curosurf or Survanta, again very compelling. And what the pharmacoeconomic analysis indicated is that a reduction in the rate of reintubation among preterm infants may potentially result in hospital cost savings for 100 patients ranging from $34,000 for a diagnosis of early to up to $562,000 for a diagnosis of BPD. So again, very, very compelling pharmacoeconomic data. And I can tell you that our understanding is that the formulary gatekeepers and the hospital and neonatal medical community understands this. And we think, again, this provides the basis for our goals with SURFAXIN. Our goals with SURFAXIN, our guidance of in the first year of launch would be between $8 million and $10 million. We think SURFAXIN represents a $40 million to $50 million product by year 4 and approximately $100 million product by year 7. So not exactly a blockbuster, but nevertheless a good step forward. So really, really important that we succeed in making sure that SURFAXIN gets to the market in the fourth quarter, and we're looking forward to the FDA's response. Now moving on to AEROSURF. AEROSURF allows us to take our KL-4 Surfactant and combine it with our proprietary aerosol delivery technologies. As you know, premature infants today are handled, with RDS, by receiving surfactant through an endotracheal tube. It's an intubation process, it's not a pretty thing, and doctors will do everything they possibly can to avoid intubating the baby. In essence, if only they had an aerosol. And right now, one does not exist. AEROSURF represents that promise. And if you can aerosolize a surfactant and deliver it to a neonate and show that, that surfactant is getting into the lungs of that patient, show that it's safe and well tolerated and show that you have a clinical benefit versus the current standard of care, many, many more babies are going to be treated. We believe there will be a pharmacoeconomic analysis or benefit there as well. So this is a product that we have a lot of hope for. We are very excited to begin our clinical program with AEROSURF. Right now, we're preparing to initiate our Phase II trial in the fourth quarter of this year. There are some prerequisites that are necessary, of course. We are talking about a drug device combination. We've had interactions with the FDA about what the trial design should look like. We are preparing and concluding, hopefully very soon, work that we're doing on the technical components of what AEROSURF represents. That is our device technology that we're working very closely with Battelle Memorial Institute to prepare clinic ready devices that will be used for delivering our surfactant. We're working very closely with our own manufacturing, as well as our CMO, for developing a lyophilized surfactant for use. And very importantly, what we've also been doing is working closely and collaborating closely with a group of very nationally recognized neonatologists who form our steering committee to design the trial with us and then execute the clinical trial itself. So we're excited about this. We're moving forward. We remain on track. Again, we believe AEROSURF is a highly promising program. Development issues along the way are meant to reduce risks and ultimately create value. When we think about risks, we think about it in the following way: number one, we know we have a surfactant that, when given to a baby, is safe, tolerable and has shown efficacy via the experience with SURFAXIN. We also know that babies who have RDS are, in essence, surfactant-deficient. So if we can show that we're getting surfactant to these babies, we believe there's real hope here. So we believe that, in and of itself, the population and the drug reduces risk, development risk. What we now have to show is do we have the development capabilities or I should say, the delivery capabilities to make sure that the baby is receiving the drug and most importantly, that it's safe and well tolerable. Well, those milestones are not that far away. The first milestone really is around the proof of concept that we've developed an aerosol delivery system that is accepted by the FDA and that could be used throughout the registration process for moving AEROSURF through that process. This is -- in the past, this has been an issue for other companies. Aerosol I think as surfactant is not that easy, and the delivery systems have never been optimal for doing that. We believe we have an optimal system. We believe we've developed that. We've invested quite a bit over the last 6 years in our capital aerosol generation technology as well as ancillary technologies for the delivery and an efficient delivery of a surfactant to a baby. So we, as I mentioned earlier, then went to experts to help us and those experts are the people at Battelle. It's been a wonderful experience. It's been an experience where that expertise truly supports what we're doing and gives us confidence that when we eventually enter into the clinic, we have a CMC capability around the device that is going to be sound. We're not done. When we enter the clinic, that's when we will be done and we're bringing it to a completion now. But nevertheless, by entering into the clinic, I think this is a milestone that shows that the device capability is worthy now to move forward. And then the next issue or the next milestone will be a near-term milestone, probably as long as we enter the clinic in the fourth quarter, and we're planning to do so and everything is on track to do so, the next milestone will be most likely towards the middle of 2014, which will be the Phase IIa portion of our trial. And that milestone is focused on safety and tolerability. Can we, and do we, have the ability to have them, to show the maximized tolerated dose delivered to the baby safely and tolerably? And that's a really key milestone. Without that, there is no product. And the ability to do so is a major, major, major step forward. And then we can move forward on the remainder of our Phase II trial, which we then focus on more efficacy signals, but of course, always, always safety is considered throughout all phases of clinical trials. So I'll hold back further discussion on AEROSURF for Q&A. But we're excited. We remain on track. Lastly, I did mention that from a financial perspective, we reported our results, and I spoke about that earlier. One other thing to complete the segment is we are active on the business development front. Our goal and our strategic plan is to maintain our competitive asset of sales and medical affairs team in the United States, while as our products advance, work with partners in other parts of the world, while I have nothing to report specifically on that right now, the only thing I can say is we are very active. Interest is increasing and AEROSURF is the focal point around us, as well as SURFAXIN in other countries that could ultimately accept the work that we've done to date. So with that, I'll end this part. We do have with me Dr. Rusty Clayton and Dr. Tom Miller to take your questions, and I'll turn this over now to Q&A.

[Operator Instructions] Your first question comes from Scott Henry. Scott R. Henry: I appreciated the prepared remarks, it answered a lot of my questions, but I did have a couple just modeling as well. First of all, AFECTAIR, should we expect revenues in the third quarter of this year, when do you expect you'd start reporting revenues? Thomas F. Miller: Scott, Tom Miller here. So you may recall in our last investor update, we indicated that the key components or a key step for us is the user experience program. This is a very typical tactic that's employed with medical devices, giving -- particularly new medical devices for which there are no alternatives, where you give the accounts the opportunity to trial the product in a free goods program. We've indicated previously that our goal is to have about 10% of our target accounts actively participating in that program, and we are there at this point, as we indicated that we would. While we ultimately expect AFECTAIR to be perhaps order of magnitude, $10 million product, the key piece for us in the immediate short term was to recognize that it was another entry point in the account to drive the SURFAXIN business, and it's been a very successful companion product in that regard. So as we move forward with user experience, we do expect revenues to begin in the second half of the year. And as we complete the user experience program, as we move through the summer months, we'll be in a better position to provide more granular guidance. But the consensus estimates for AFECTAIR revenues for 2013 were somewhat de minimis, but we do expect to see initiation of revenues in the second half of this year. Scott R. Henry: Okay. And then when we look at spending for the quarter, should that be reflective of at least third quarter and I imagine, a slight increase in the fourth quarter, as you prepare or actively launching SURFAXIN? How should we think about the expense items going forward? John G. Cooper: Well, from the launch of SURFAXIN, keep in mind, the capabilities are already in place. So the sales and marketing team, the medical affairs team, they're in place. Those expenses are in our P&L. So from a third quarter perspective, I think what you just said was true. It's really the R&D numbers that get focused on in the future. And if you think about what we've accomplished so far, what we've been working on, we've been investing in a lyophilized capability, and we've been investing with Battelle in making sure that our capillary aerosol generator, both of those components are ready for AEROSURF. So those investments are basically sunk investments now and already incurred and showed themselves on our P&L. So I would tend to think you're looking at something that's relatively consistent with what the third quarter -- what the second quarter looked like for both the third and the fourth. Scott, as the expenses for AEROSURF, what I just described, decrease now, what will increase, and therefore keep R&D flat, is predominantly the beginning of the trial. Scott R. Henry: Okay, that's helpful. And the final modeling question, given the recent financings, the interest expense line, is that now relatively predictive of the number going forward? And as well shares outstanding, have they fully incorporated the recent financing? Just trying to get any idea on those 2 numbers as well? John G. Cooper: Yes. The information in the press release indicates how many shares are outstanding now, and the interest expense for the second quarter is reflective -- there's 2 components. One is the cash component that we paid to Deerfield, which is 8.75% on the outstanding debt. And the other piece is an accounting mechanism for the value of the warrants that is described as interest expense. Scott R. Henry: Okay. And the final question, a little more big picture, a little more subjective, when we think about the SURFAXIN decision in approximately 4 months in terms of getting that product ramped, how can you -- I mean what are the key risks to that event? I mean do you look at most of this as a formality of going through the process? Or are there any significant risks that perhaps we should be focusing on more? Russell G. Clayton: Scott, this is Rusty Clayton. I think that given that when we first submitted our request to alter some of the specifications in December, we did so in a way that certainly made sense to us and we understood the rationale. We provided a very comprehensive package. But you can never anticipate all of the questions that a reviewer might have in looking at this. And that's essentially what happened to us where there were -- there was a viewpoint of the reviewer that said, "Well, geez, instead of doing this, why don't you do this, and I'd like a clarification on this, and I'd like to see a little bit more." So just the process of going from a submission that you think makes sense and you think it's going to answer the question to be able to respond to comments and suggestions in a very positive way, yes, we'll take your suggestion. Yes, good comment or just a request for more data puts you in a better stead. So being in that position reduces the risk a great deal. It's much more of a known quantity. We could provide that information very easily. There were certainly no showstoppers or areas for concern for us. So being in that position is a very low risk position to start with. Now having said that, the risk is the same in concept is that there can always be another question. When you provide more data or you provide more information, there could be another question. It's not likely that, that's going to be the case. Here we had a team of external consultants that did our submission as well and looked at it very carefully, to make sure that we anticipated any questions. So I think that overall, and the team in general looks to this overall as something that really should be a very -- that we've reduced risk as much as possible, let me put it that way. I certainly can't verbalize any risk that's coming to mind here that's keeping me up at night.

[Operator Instructions] Your next question comes from Joel Sendek with Stifel. Joel D. Sendek: One of the things you touched on, John, is the fact that you're having ongoing discussions with the FDA. There's been back and forth. I mean we're 2 months into the 4 months. Can you give us any feel for what those conversations are like, number one? And number two, I think I heard you say that you're ready to go the minute you get the green light. And let's say you get that, what wheels are in motion or what wheels will be in motion when that happens? John G. Cooper: Well, on the first part, no, we won't be providing any color. What we just know is that when the FDA asks questions and commentary, we make sure that we're there to support them. So there's been a review. We feel good about it. That's all we can say right now. With respect to the second part of your question, we're prepared. We've been prepared. We've built -- when you think about what it takes to launch a drug, we've built all of the components necessary to effectively do that. So if the FDA were to show up tomorrow with a letter indicating that we're free and clear, we're ready to move. We're ready to move from all facets. The sales team, the medical affairs team are working in concert with each other in preparing hospitals for SURFAXIN. The team under Tom Miller have put together the contracting -- the contractual capabilities. Very, very important from a national accounts perspective with -- both with the group purchasing organizations, our arrangements are in place with distributors. We've covered all aspects. We're ready to launch the product. Now with that said, what we would then do is once we have clearance, we will go into the manufacturing process, and then we'll initial the first vial and shortly thereafter. But we're ready to do all that. Joel D. Sendek: Okay. And then I think you kind of touched on this too, and it certainly says in the press release with regard to AEROSURF, and we always love it when a biotech company sends less than we had predicted, which extends your runway and that sort of thing. But I just want to make sure that it's crystal clear in my mind that you're moving forward with AEROSURF without any delays and maybe even -- is there a possibility of any kind of expedited pathway to move forward into Phase II? John G. Cooper: Well, we are moving forward at the moment without any delays. We don't see any delays. So everything is moving accordingly. Yes, the press release specifically did indicate investment in that area. And by doing so, that means we're moving forward. Now as far as expediting, our goal is to make sure that what we put in front of the FDA, and the way we begin our trial, has the utmost quality attached to it. So I think the way of expediting what we're going to do is most likely going to happen when we see results, should those results be positive, where we can begin to expedite the Phase IIb and then going into the Phase III process. But I don't see any way, at this point in time, to accelerate what we're doing, other than, most importantly, to make sure what we are doing is right. We pay attention to the details. We make sure that all facets of our program are solid and sound. And many companies, we fell victim to this many, many years ago, tried to expedite certain programs only to find out that they caused more problems in the end. So maybe one way of saying and answering your question is, we're making sure to the best of our ability that we're buttoned up so that the program can move forward according to plan.

There are no further questions. John G. Cooper: Okay. Well, thank you, everybody, for your time. We really appreciate it. Our next conference call will most likely be when we hear from the FDA and also then thereafter, our third quarter call probably towards the end of October, early November. There should be a lot more commentary at that point in time. We can also enlighten everybody at that time about what our AEROSURF program will look like in more detail. So we look forward to that, and I thank everybody very much for your time and attention. Have a great summer.

This concludes today's conference call. You may now disconnect.