Good morning, and welcome to the Discovery Labs' Third Quarter 2013 Business Update Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tom Tattory, Vice President of Finance. John A. Tattory: Thank you, Frank. Good morning, everyone, and thanks for joining today's call. This call will provide an overview of Discovery Labs' third quarter financial results, as well as provide an update on recent business events. Before we begin, 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 products. The listener is cautioned not to rely on these forward-looking statements, as 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. Joining me on the call today will be Mr. John Cooper, Chief Executive Officer; and Dr. Tom Miller, Senior Vice President, Chief Operating Officer. I'll now turn the call over to John Cooper. John G. Cooper: Good morning, everyone. Thank you for taking the time to be with us this morning. It was about 3, 4 weeks ago when we had our last call. And in that call, we identified the fact that we hit some very important milestones for the company, and I'm happy to say that we've added, on top of that -- they were expected, let's be frank about that, they were expected. Good companies do what they're supposed to do, and that's one of the things that we want to make sure we're reflecting going forward. So what we added on top of the milestones were: #1, the SURFAXIN launch. SURFAXIN is now cleared by the FDA. And just this past week, we announced that we launched SURFAXIN. And during the Q&A period of this call, we intend to get into more details with you. But most importantly, it's been a long road. It's been a -- I think the road right now where we are looking forward. We're not looking back. Here's the way we think about SURFAXIN. We believe that we have a product that has the potential to be a new standard of care. We know and believe that it's going to take time though, and we have a quite bit of data that supports in our belief, a product that can stand on its own and be a new standard of care. But the market, the neonatal community, has been using animal-derived products for 20 years. They've been comfortable with those products, comfortable in certain ways, uncomfortable in many other ways. And when you speak to neonatologists, they will tell you that. What we have to do is change that. We have a product that we believe again has clinical differentiation from the animal-derived products. That information is provided in a lot of Peer-Reviewed publications regarding SURFAXIN. Those Peer-Reviewed publications are part of the formulary package that the hospitals will be utilizing and the formulary communities will be utilizing to assess our opportunity with SURFAXIN or their possible use. We are getting quite a bit of positive response to try SURFAXIN, and we are excited about bringing the product out. But we will bring the product out slowly. We will bring it out to the market in a way that's very deliberate, in a way that's very measured. We will be asking the community to try a precision drug, a drug that needs to be warmed for a very precise time period and a very precise temperature. Again, it's synthetic. It's precision. We're taking a world that was used to animal-derived product and we're bringing it forward. Again, it's the beginning, as we've said in the past, of a transformation. So very, very excited that we're bringing SURFAXIN to the market now, and it's launched. With that respect, the launch also triggered an arrangement that we have with Deerfield, where, if you recall, back in February of this year, we put in place with Deerfield a $30 million debt facility, $10 million of which came to the company back in February. And now with the launch of SURFAXIN and the sale of the very first vial, $20 million will be coming to us very, very shortly. So that's the first area that we piggybacked on from our last call when we were cleared by the FDA. The second area is a product that we are developing called AEROSURF, that takes a lot of our learnings from SURFAXIN, takes the product and in an aerosolized form, is geared towards delivering an aerosolized surfactant to a baby without the need for intubation. Very exciting. We recently had a steering committee of neonatologists and respiratory therapists into the company talking about these opportunities of -- again, very exciting. This is something that really has an opportunity to change the practice of medicine in neonatology, and we are proud to support that, and we're, quite frankly, proud that the investment community supports that as well. But what we said we were going to do back then, back 4 weeks ago, was we said we filed the IND. And then, of course, as everyone knows, we have a period of time where the FDA has, of course, the opportunity to review the IND, ask their questions prior to the company then being cleared or the IND being cleared, so the clinical trial can start. I'm happy to report that the IND is now open. We received an official notice from the FDA indicating so. A press release went out yesterday showing that. So again, it's an interesting time for us, a very, very positive period for the company, a time when I can't -- when I think about our past, I've never been in a situation with our company, where I think we've been better poised and better positioned to begin our journey and to implement our business plan. But we needed to do one other thing to implement our business plan. As you saw, when we make certain announcements regarding -- positive announcements regarding progress in the company, our stock made a move, but began to retreat. And in my opinion, the retreat was associated with the fact that the company needed to bolster its financial position. And as being in this industry for quite a while, those of us know that when you're financially weak, the value of your company is never going to properly reflect where it should be. So we, as a management team, and our Board of Directors, along with our advisors, made the decision that, let's bolster the financial position of the company, let's get ourselves in a position where the milestones of our business over the next 2 years can show themselves, and we have to manage this company to execute accordingly, and we did that. We brought on board, we did a financing, we now have, as of the end of this year, pro forma, we will have $85 million in the bank on the balance sheet for the company. That includes the approximately $54 million that we brought in from the public offering, including the exercise of the over allotment. That includes the cash we already have on hand. That includes the $20 million that will come in from Deerfield. So we will start this year with $85 million in the bank. In the press release that was issued this morning on the financials of the company, as you could see, we indicated that we burned approximately $10 million in the third quarter, and that the burn rate for the fourth quarter, when the operations -- the burn from operations for the fourth quarter will be approximately $10.5 million. All of that adds up to the number that I just gave, $85 million starting the new year. So very, very well-positioned, I think, I believe, in the strongest position we've ever been as the company to now begin the execution of our program. So with that, I'd like to turn the call right over to Q&A, so we can get into the issues that are on your mind. I'm here, and joined with Dr. Tom Miller. And any question you have, we'll be happy to answer. So I'll turn that over to Q&A, please.

[Operator Instructions] First question comes from Joel Sendek from Stifel. Joel D. Sendek: Yes, the key question I have is about the SURFAXIN launch. So you said that we should expect it to take some time. And I'm wondering, what have you done so far to work through reimbursement and getting on formularies. And how extensive the -- because you have been doing some pre-marketing before. And I'm wondering, now that you're launching, how can that working that you did prior facilitate the objectives that you have in order to get the drug on the formularies as quickly as you can? John G. Cooper: Right. Let me start by, I guess, reiterating our guidance, and then we can get specifically into what your question. Because the guidance that we've given, we gave this guidance a year ago. That guidance, we believe, holds as the same today. We indicated that we believe in the very first full 12 months of SURFAXIN's commercial existence, we would generate sales in the range of $8 million to $10 million. So in this case, we're talking about 2014 of $8 million to $10 million. We then went on to say that we believe that by year 4, we believe sales would be in the range of $40 million to $50 million. And assuming AEROSURF is not in the equation, that SURFAXIN on its own would generate approximately $100 million in revenue by year 7 and further out. So and that's what we're saying there is we think we've got a peak year of 7 years, when we begin to hit $100 million on up. Now with that said, we did have to prepare the market quite a bit, and we've been preparing the market for that. With that, I'll turn it over to Dr. Miller, and he can answer your specifics. Thomas F. Miller: Yes. So maybe to start with and to jump into the comment that are at the highest level, I'm quite encouraged by the early signs for the product right out of the gate. As John indicated, we have SURFAXIN product in the channel just this week, and we expect that there will be some orders right out of the gate, as we move towards the tail end of this year. We have about 490 account targets in the United States. And we've staffed our field team based around a target where 63% of unit volume is found in those limited number of accounts. And so far, we have a good formulary phasing set of activities in more than 50% of those accounts. So the team has been very productive, trying to take advantage of the time that we had to prepare the market. The team at Piper launched an initiation report yesterday, at which we read with interest. And in that report, they did their own primary market research, independent of Discovery, with physicians. And what I was particularly pleased to see was consistency with our own assessment around the awareness of the product. And in that particular report, with a reasonable sample size in neonatologist, they concluded that about 80% or so of the sample that they highlighted had a good bit of awareness of the product. And that's exactly where you want to be in -- on the front end of a product launch: start with awareness, transition to trialing and then begin to climb the formulary curve. John used a word in his preamble that we discussed last evening as we're preparing for the call today, and that was measure. That we -- it's in our best interest, to be measured with this launch and not run too quickly and get ahead of ourselves, because we are asking for a product that we believe is fundamentally advantaged relative to current standard of care, we are asking the NICU teams to modify their practice. The way our product is prepared, the way our product is dosed is a little bit different than what they've been used to. So a key focus for us for the tail end of this quarter as sales begin, and certainly into the early part of 2014, is to make sure that we in-service every single account to ensure that everyone that's going to touch the product is familiar with the way that we want them to prepare and utilize the product, even if it means going a little bit slower than we might otherwise would because at the end of the day, as I've discussed on this call and we've discussed with you, we see this as an annuity model, whereas most products that are used in the hospital are considered interchangeable commodities for the most part. This is different. SURFAXIN is a fundamentally advantaged product where, as we walked the hill from initial trialing, which will begin in the immediate short-term, to add and then ultimately to exclusive on formulary, given bioequivalence complexities with this type of product, the annuity value of an account for us is enormous. And relationally, of course, that becomes leverageable ultimately for AEROSURF as well. So the goal right now is to take advantage of the awareness that we have. I think there will be fairly widespread interest in at least trailing the product before a formal formulary decision is made, and that the team, I think, has done a great job in priming that pump, but the goal is to be very measured and very focused to make sure that everyone touches the product is going to have a good positive experience. Joel D. Sendek: Yes, I want to focus on the word measured, because you guys used it. Obviously, it's an important element of the guidance that you're giving. Is that due to the fact that you're just not going to get to all the targets, because you want to have such a high touch relationship with them? Or is it more along the lines of just, we should expect the share build to take longer -- a longer amount of time. Thomas F. Miller: Well, this is a hospital product, right? So it's very different than retail or even buy and build products that other companies that you cover are familiar with them manage. So the gatekeeping here and this touches on your -- maybe to touch quickly on your reimbursement question, payers aren't really relevant in this market for us at all, because this is a capitated DRG-based reimbursement model. So unlike many of the other companies and products that you cover where specific coding is required before reimbursement can occur, that's already in place structurally for us. So that's not really an issue. The key keys for us is to make sure that we have access from the accounts. So stage gate #1 is recognizing that about 80% of all surfactants, make a little bit more than 80% of all surfactants that are purchased in this country are -- have price negotiations through large group purchasing organizations. There's about 5 of them that matter, for the most part, nationally. And they -- the name is a bit of a misnomer, because they don't actually purchase anything per se, but they negotiate price on behalf of their member hospitals. And recognizing that was a key critical success factor for us, that was one of our long lead items that we put in place as we got the product approved last year to make sure that we can work through ticking and tying on those contracts -- contractual arrangements, now all of which are in place. So hurdle #1 behind. Hurdle #2 is formulary, and formulary is not relegated solely by neonatology. Typically, we had medical subspecialties, and pharmacy obviously sharing the account, and how it works, frequency of the review can vary from account for account. It could be a quarterly meeting. It could be a monthly meeting, it could be a biannual meeting, depending upon which system you consider. So there's a natural pacing of new product introduction into the hospital, depending upon the cycle time for the formulary review, and that cannot be circumvented. So there are number of accounts that we were able to prime the proverbial pump with and advance those formulary discussions to decision points, and we will be moving out of the gate with some of these accounts quite quickly. But as it relates to the national picture, we recognize that the uptake curves are very different than retail-based uptake curves. You typically see year 1 and year 2 relatively slow growth, and then you start to climb the wall of conversion exclusivity as you move into years 3, 4 and 5. Typical time to peak for a hospital product may be 6 to 7 years. I think we have -- we're not a typical product, but the guidance that we've given, and John just reaffirmed, was very intentionally done to prepare the markets for the immediate short term for us is about getting the product trialed in the hospital, trial the product on 20, 30, 40, 50 babies, whatever the number is going to be at the account level to make sure that everyone's comfortable with the product, and we'll pay for the products during the trial period as well. And after that, we will use the appropriate contractual incentives, albeit never competing on price, to start to drive the addition to formulary in the longer-term commitments for the product. So a long-winded answer to your question, but I think as we move forward now into 2014, we want to make sure that for folks like yourself, we ground expectations and understanding that providing guidance with number of hospitals using the product, number of hospitals transitioning to formulary, we believe, are very important metrics because that becomes a stalking horse, for lack of a better term, for the revenue train that will follow in years 2, 3, 4 and 5. Joel D. Sendek: Just to be clear, you said you trialed the product meaning you would pay for that drug during the... Thomas F. Miller: That's correct. John G. Cooper: The hospital will trial the products first. And Joel, just from our perspective, to the audience, remember that SURFAXIN and the clinical trials of SURFAXIN were performed in the early part of 2000, 2001, 2002, 2003. We've got to reintroduce this product now. The date is been out there. The audience and the community has a desire for, but we have to reintroduce it now to them. We've got to make sure that they apply it properly, they use it properly. We've got to make sure that it is going to be different than the animal-derived surfactants. Is it in terms of the administration, is it significantly different? No, but it is different. So we have to make sure that each hospital gets trained properly, use the product properly, get comfortable with the product. This isn't about trying to drive sales in 1 year. This is about trying to convert that hospital. So that once they make the switch, we don't want them going back to using an animal-derived product. And I hope one day, that parents and others, when people begin to understand that there's a change now in the world of neonatal medicine with these products, that they won't want to go back as well. If this was AEROSURF coming out of the market right off the bat, you probably see a peak that is much more aggressive, where the time to peak sales would probably be about 4 years, but it's not. It's a replacement, an alternative now for the animal-derived products. We need to train people, we need to get them comfortable. Once we have them at that point, we think we have a long-term business in our pocket.

Next question comes from David Amsellem from Piper Jaffray.

A couple of questions. So I wanted to get some early thoughts from you. #1, on what kind of feedback you've gotten from hospitals, and particularly, the personnel that are required to administer the product on? How onerous it is or how the extent of which it's user-friendly? I know that's been something that you alluded to. I wanted to get a sense of what the early feedback has been. And then secondly, on pricing, I know it's early and formulary discussions are taking place and have yet to take place. But are you seeing any kind of pushback in any way on the premium price vis-à-vis the animal-derived surfactants? Thomas F. Miller: Yes, David, this is Tom. Let's start with the prep keys. So really 2 key areas that we focus on from an educational perspective. #1, all these products are cold chain, ours included. And they all require -- manufacturers have different recommendations on how the product should be warmed before administration. We find and it's been our core observation that there's been very limited adherence to manufacturers' recommendations on how surfactant products are administered and warmed. And what we -- as quality initiatives become increasingly important in the account paramount in the neonatal intensive care unit, we believe that the way that we're advocating for warming our products will -- has beginning to be viewed as, and will ultimately be embraced as, a new quality procedure. We can promise a unique degree of quality from lot-to-lot and from vial-to-vial that is substantive. The way that we prepare our product in the NICU would -- is the same time every single time. The way we dose our product is the same every single time. So the message to read that we wanted to provide, we believe, tracks very nicely with where the practice of neonatology is continuing to walk down the road, and that is quality in every single thing that we do. Nurses and respiratory therapists have procedures that they follow, and this will require a little bit of change. But as you start to have the quality discussion and you work with the physician, the neonatologist, to support the importance of quality initiatives from a top-down perspective, the impact factor becomes less than considerable. Everybody understands that at the end of the day, what we're all trying to do here, Discovery included, is the best thing for the child. And that's the message that we want to support there. So that was the first question. Your second question again, please?

Pricing. Thomas F. Miller: Pricing, sorry. So on the pricing side, we publicly disclosed our WAC or whole acquisition cost of $860 per vial, which is a premium to the price leader in the category Curosurf. As we've indicated publicly, nobody actually pays wholesale acquisition cost, and contracting with the large repurchasing organizations and entering into the delivery networks is an essential part of our strategy. We have not disclosed for competitive reasons either, but what we have said publicly is that in any eventuality, from a contractual incentivization perspective, we will not compete on price, because we believe that the product is fundamentally advantaged relative to current standard of care. And while pharmacy, particularly hospital pharmacy, never likes to hear pay more, when we use the surround sound strategy with the clinicians now stepping up to the table saying they want the product, they want the ability to use the product in the institution, given the relatively small line item that surfactants represent in the grand scheme of the hospital pharmacy budget, so far, so good.

So just to be clear, you don't believe that you need to key up additional pharmacoeconomic studies or analyses, just given that it's a small piece of the overall cost of taring for a [ph] neonate? I mean, is that a fair commentary? Or is that -- additional pharmacoeconomic study is something that you do have to heat up? John G. Cooper: I think the pharmacoeconomic work that we've already accomplished tells the story. So we're not planning to have to do any further. We don't think we're going to need to. Thomas F. Miller: We had some great stuff in the publication and presentation queue. And we'll just ask you to keep posted for that, as that continues to roll out and move forward. But the bottom line is, although we've had a protracted regulatory process, as everyone on the call I'm sure of recalls, it gave us the opportunity to put in place an armamentarium that is very typical for a new product launch, the pharmacoeconomic data being a key, but only a small component of that armamentarium. So the tools that the fields has to address their customer in a tailored way is -- are significant, and we'll leverage them accordingly.

Next question comes from Scott Henry from Roth Capital. Scott R. Henry: I guess just to round up the SURFAXIN questions first. Given what you said, should we expect any revenues in Q4? And I don't know if you want to just kind of set expectations for Q1 as well, you may not want to do it at this point in time. John G. Cooper: There will be very, very, very minor revenues in Q4. And we will not be setting any quarterly expectations. What we will do, of course, is make sure that on every quarterly call, we provide the information that is imperative, I think, to know and to follow the launch. Obviously, the revenues, but probably more importantly than the revenues will be the number of hospitals that are now trialing or using the product, the number of hospitals that have accepted the product on formulary, because all of those indicators are just that, indicators of the future performance, and so we'll be doing that on a quarterly basis. But we won't be providing any quarterly expectations. I think right now, what we have in terms of $8 million to $10 million as arranged for the first year should be sufficient. Scott R. Henry: Okay, fair enough. And then you talked about, I believe, the number was 490 account target. Where would you like to be by the end of the year in terms of -- or what percent of those targets would you like to have had a sample at their location. Thomas F. Miller: Well, we're not going to be providing that guidance today, Scott, as John indicated. But, I think I'd add an absolute minimum, I would at least expect that our team has the opportunity to get in front of every one of those accounts as we move into 2014. Also important to remember that while we are targeting 490 accounts with respect to our field deployment, that only represents about 25% of total hospitals that can purchase product in the United States. So a component of our tactical plan will be nonpersonal selling, reaching frequency to ensure that the awareness that I referenced earlier is not only -- is high as I'd like it to be on our target accounts, but also non-target accounts as well. And typically what happens is, as you start to chip away at the influence centers, that becomes a very important tool for the representative to start to hit these periphery hospitals to ensure that, that business begins to substantiate as well. And then finally, because it came up, I think with the last caller, but to reemphasize the point, we're using the word trial with a small t, because individuals will be paying for product during the trial process. There is no free goods program for SURFAXIN. Scott R. Henry: Okay, that's helpful. And obviously, to sample the product, you need a warming cradle. Is that something you supply? Does that come in as a real-time event with this sample? Or can that be a lead indicator of how things are going, just wanted to step into the logistics there. John G. Cooper: Every hospital will be a little bit different, so I'd love to say it's one algorithm, but it's not. And that we expect our representatives to have local knowledge and understanding of how logistics will work by hospital. But from a generalization perspective, first order, and the way we chose folks that are participating, third party vendors in our supply chain specifically for this, first order triggers sending of a certain number of the warming devices to the account. So that the time the in-service occurs, that all the materials are there to make sure that the team on the ground can walk the folks through the procedure as we advocate for. Scott R. Henry: Okay, great. And then final question, I just want to shift the topic over to AEROSURF because it seems like there may be a misperception about that opportunity. Can you talk about the revenue opportunity for AEROSURF relative to SURFAXIN? I imagine there are 2 levers which make it bigger, one being price and the second being market size as I think it opens up to a lot of new patient groups. But could you just kind of hit on as far as relative magnitude, how much larger AEROSURF could be than SURFAXIN? John G. Cooper: Yes, this is John. The opportunity for AEROSURF is really exciting, it's both again medically and economically. From the market perspective though, to answer your question directly, we see the opportunity of revenues being between $600 million to $1 billion in the United States alone. That is a combination of obviously 2 things. #1, we see far more patients on AEROSURF than what would be with a product that requires intubation. And #2, the pricing changes. Remember that AEROSURF basically is a new entrant into the market. AEROSURF does not have to follow the pricing algorithms that were established by the animal-derived products. Look at SURFAXIN. I really believe what I'm about to say here. If SURFAXIN was on the market and the very first surfactant on the market, these products would be priced probably between $5,000 and $10,000 per course of therapy, and that's for 1.7 vials on average of product. You're looking at a tremendous opportunity. But due to where the animal-derived products are priced today, the market is what it is today, and we will, over time, as long as we execute accordingly, we believe we'll begin to change that. AEROSURF is not in that boat. AEROSURF, we have an ability to be the first entrant into the market, and we can price that accordingly. So the guidance that we gave when we filed our IND was approximately, you're dealing with 160,000 patients that would benefit, in our opinion, from receiving a surfactant very early in the course of their life. And the ability to do that with an aerosolized, non-intubated version of surfactant administration, we take this significant. We then have the issues of saving the hospital money at the same time. So when you think about the cost of mechanical ventilation, when you think about the cost of a chronic lung disease, and the cost associated with that from a hospital perspective, we believe there'll be a pharmacoeconomic benefit as long as, again, the trials have to show that of course. So we see an opportunity where AEROSURF could be the $600 million to $1 billion product in the United States alone. We also see that as an opportunity where peak sales can be reached in the United States within a, I would say, a 4-year timeframe and maybe more conservatively you can go 5. And we see the same opportunity in international markets, and equal opportunity for the rest of the world as we see in the United States. Thomas F. Miller: Scott, just Tom again. Just a couple of quick complementary comments to John. I think it's very important to understand epidemiologically, this is a -- it's not exactly the same patient population, it's a similar patient population. These children do have respiratory distress syndrome, but these are children that are not eligible at time 0 for intubation mechanical ventilation. So the patient who'll expense dramatically with access to a less invasive delivery approach. John touched on this, but maybe to be a bit more granular, that the primary driver of expense under the management of these children is mechanical ventilation. So the ability to significantly reduce CPAP failure and derivatively the need for intubation mechanical ventilation provides for a potentially enormous financial incentive for the institution to want to use the products like AEROSURF. And we've seen, from an analog perspective, a willingness to pay in the order of magnitude of $8,000 per course of therapy, if the perception is that the benefit is there. We've seen this with inhaled products, and we've seen with other products to address the respiratory to central virus within the -- during the initial acute stay in an ICU. So as we start to think about AEROSURF, we think about #1, accessing a much larger eligible patient population; and #2, having much more pricing tower with the product than we do with SURFAXIN, at least initially, because we're no longer anchored to where the market has been to date. John G. Cooper: One other thing to bring up as maybe, I don't know, a correlation to those who think first about SURFAXIN, and then how that relates to AEROSURF. Without a doubt, we all know it's the same 4 APIs that we are aerosolizing to create AEROSURF and then SURFAXIN, and we believe -- we've seen the results of SURFAXIN in clinical trials. So we have to execute accordingly to see hopefully something positive going forward, but we have that confidence. But when you think about the amount of drug, right now, with SURFAXIN, again the course of therapy for an animal-derived product would be about $800 per course of therapy representing 1.7 vials on average. There will be more drug that's used for AEROSURF. I mean, just the process of having to aerosolize the drug and have that drug ultimately get delivered to the baby, a lot of drug is lost along the way, but ultimately, you want to get a sufficient amount of drug in aerosolized form into the lungs. So you start thinking about the amount -- the trials will indicate it. And I can't sit here today and say what the end result will be after a Phase III program. But one can begin to model in their own minds 3 or 4 times the amount of drug that you normally use in the baby that's intubated, that you're going to have the use to be then become aerosolized. And you start to think now about what that price point would be from that perspective. And if we see the results that we are hoping and planning to see, then all the pharmacoeconomic results that Tom just talked about earlier should begin to play out. That's why we've been using the range of $600 million to $1 billion in sales, because on average, we're thinking that there's approximately somewhere between 100,000 and 160,000 children that will ultimately benefit from it. There's a huge desire, significant desire by the neonatal community. Again, I mentioned earlier, we had a portfolio steering committee in here not too long ago, last week, with a number of neonatologists that we seek their knowledge, we seek their advice so we're smart about what we do. And it's unanimous about their desire, and their wanting for an ability to use an aerosolized product. So when you think about the demand, when we think about the number of patients and then you layer in the pricing mechanisms that could come about, we see a very, very large market.

[Operator Instructions] Next question comes from Larry Smith from SmithOnStocks.com.

I wanted to start with the premise and then let you expand upon it. If I were an FDA regulator, looking at the IND for AEROSURF, I think I would be very cautious, if not trembling, at the thought of starting a clinical trial in a premature baby, as frail and weak as they are. And yet the IND allows you to go -- skip through Phase I right into Phase II. I'm wondering what data in the IND gave the FDA confidence to allow you to make that judge -- or to make the jump right into Phase II. And then I have a follow-up question. Thomas F. Miller: Maybe you could address that fanatically, hopefully in a way that will answer your question, Larry. So it's important to understand, John touched on this ago, we're talking about aerosolizing a drug that's based upon the same fundamental active ingredients that's comprises the surfactant product, the same 4 APIs are in the aerosolized dosage form. That product to date has been exposed to more than 1,000 human beings in multiple diseased states, in both bolus form and in aerosolized form. And as we were working through the IND build, the internal team, we kid around that they've -- it's quite rare and very infrequent where you file an IND and you have such a substantive degree of clinical experience with the product. So there's a good bit of safety and tolerability experience with the drug administered as both the bolus down and the tracheal tube and in aerosolized form predominantly in preterms, point one. Point two, another piece that John touched on briefly, aerosolization is an inherently inefficient way to deliver a drug, right? Because the nasopharynx is designed to not let stuff in. And the trade-off when you aerosolize, at least in our particular cases, we're happy to have some of that inefficiency in exchange for a reduction in invasiveness. Because intubating a child, everyone understands, inclusive of FDA, but that is not without considerable risk. So if there's a way to get the surfactant where it needs to be without having to intubate the child, that's a big win. But I guess the point back to the exposure piece that I made a moment ago is that in the preponderance of those exposures, particularly with bolus administration, the children are likely exposed to much more cal KL4 Surfactant than they will be with the AEROSURF program. So I think you get a comfort level in that regard. Certainly, we do as well. And then finally, you may recall on the device development side, we had the privilege of working with Battelle. And I think Battelle by every measure is probably the most substantive aerosol device developer on the planet. And I wish, as John and I looked back over time, I wish we had the capital to work with these folks previously, because they did such an extraordinary job for us, to work through the capital of aerosol development, and now we have devices that just work exactly as we want them to work to help us get a good shot on going here. So we have a good bit of strength from the device perspective as well. And then, finally, we took all of those pieces together, and back to the preterm land model of RDS which was such a critical success factor for us in getting SURFAXIN approved, this now becomes a very important pharmacology tire kicking tool, for lack of a better term, given the anatomical similarities with the preterm lamb below the vocal cords in a human child, that gives us a good sense of confidence in how the drug is likely to perform in a human trial. So if you look at the totality of the experiences that we have, it certainly doesn't mean that there's no risk. We need to be very respectful of the development and regulatory process and work with the best and brightest neonatologists, as John indicated, that we are along the way. But we think that the totality of the experiences conveys a risk profile for AEROSURF, that is nothing like a standard NTE Phase II risk profile that you might otherwise be familiar with.

Okay. And as you into Phase IIa, can you give us initially the enrollment criteria and the types of babies you will be treating, for example, what gestational age might they be? And what might the dosage be relative to what you think the ultimate therapeutic dose might be? Thomas F. Miller: So we'll be a little surface-y because we haven't provided wholesome public guidance on the trial yet. I'd encourage you and others listening for a little bit more granular perspective to check out clinicaltrials.gov regarding the Phase II program and you could get a good sense of the program in that regard. But the idea is to establish a maximum tolerated or feasible dose, because history will teach us with surfactant literature that giving the child as much surfactant that they will tolerate is likely to produce the most efficacious scenario. So the idea is to recognize that as we step on to 3 dose groups, we want to take a pause to each of them with our steering committee and make sure that everybody's comfortable before we proceed with the next dose. And this is -- while Phase IIa studies very typically, ours included, focus on safety and tolerability, there is, I think, very important point to be made as it relates to our particular trial. Back to the comments that I was making a moment ago, we have a tremendous amount of exposure in clinical experience with KL4 Surfactant to date. And in every eventuality, and with every disease target, inclusive of RDS, we've concluded that the drug is safe and well tolerated, point #1. Point #2, surfactants as a class have enormous therapeutic windows. These are very safe drugs, inclusive of animal-derived surfactants quite frankly, because they are not receptor-based pharmacologies. These are surface active agents. So the point here is that, if we determine that we are able to get to the high dose, and that is still well tolerated, that, I think, is an enormously important piece of information for us. Because given the experience with the class of surfactants in general, given the substantive experience that we have with surfactants through quite a bit of human exposure to date, the risk of new safety issues emerging through the development program is attenuated. And we think that, that is a very significant observation for folks and that are on this call considering the program and certainly a very important consideration as we go on to later developments in the clinic.

Tom, if I could just push a little bit further, you didn't comment on what the gestational age might be? Thomas F. Miller: Sure. We're happy to. We're focusing for the program overall, we tend to be focusing on children on the low end, maybe 26 weeks of gestation to about 32. And the reason that we have that lower limit of cutoff is, our belief, I think our steering committee's belief is that there will always be some babies that just simply don't have enough respiratory drive to be managed on CPAP. They have to be intubated no matter what. And if you're going to intubate a child, that you may as well administer the product down the tracheal tube, right? So it's really the question is, once you get to a little bit more stabilized partially surfactant sufficient babies in the 26 to 32-week range, where there -- where in that sweet spot might we find the ability to significantly attenuate what is a relatively rampant rate today of CPAP failure.

So these babies are going to be -- almost all of them will be surfactant deficient, I think? Thomas F. Miller: To some degree.

I'm sorry? Thomas F. Miller: To some degree. Lawrence B. Smith: Yes, so are they selected to be less surfactant deficient? Or are they healthier? Are you just going to take a broad cross wipe across babies in that gestational age group? Thomas F. Miller: Well, ultimately, we're going to want to try to understand by gestational age strata across the program, the relative impact on potential attenuation of CPAP failure. I mean that's the objective. But as we started to look at sites, what our clinical team has done is focused on centers that, #1, have a lot of babies being born there, because that's a precursor for a reasonable amount of prematurity, and ultimately the need to manage respiratory distress syndrome. We also looked at centers that managed CPAP at a certain way and did not have sort of an outlier range of CPAP failure, either good or bad. And I won't comment any more quantitatively on that, but the idea was recognition that at the end of the day here, heterogeneity is not your friend in running the clinical trial, right? So we want to try to find as much standardization to the degree that the practice of critical care medicine will allow one to standardize, and give us the best possible shot on going in that regard. John G. Cooper: And the centers we're working with and the steering committee that's guiding us very -- again, use the word measured, very measured, very well aware of these items.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. John Cooper for any closing remarks. John G. Cooper: Thank you. Thank you, everybody. It's been a -- I think one heckuva ride for Discovery Labs. And again, I couldn't be more excited about where we are today. I know our employees feel that way. I'm hoping our investors feel that way. The round of money that we just raised to support the company over the next couple of years was very, very important. We -- the type of investors that came in, we are very happy with. The majority, the super majority of the money and the shares were in the hands of a very small group of people who are just top-notch institutions in the world of biotechnology. What we now have to do is execute. We've got to take everything that we've learned, both good and bad, apply it, execute, get as much help as we possibly can from people who are the smartest in the world in neonatology and aerosol and surfactant delivery and apply it. So I look forward -- we look forward to speaking to you further. Our next call will most likely be sometime in the middle of or the latter part of the first quarter of 2014, and we'll provide as many updates as we possibly can. In the meantime, if anyone has questions, don't hesitate to contact me, and I thank everybody for your time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.