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Executives

John A. Tattory - Principal Accounting Officer, Vice President of Finance and Controller

W. Thomas Amick - Chairman and Chief Executive Officer

Thomas F. Miller - Chief Operating Officer and Senior Vice President

Russell G. Clayton - Senior Vice President of Research and Development

John G. Cooper - President, Chief Financial officer and Treasurer

Analysts

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

William Tanner - Lazard Capital Markets LLC, Research Division

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Discovery Laboratories (DSCO) Q2 2012 Earnings Call August 2, 2012 10:00 AM ET

Operator

Good morning. My name is -- welcome to the Discovery Labs Second Quarter Business Update. My name is Terry, and I will be facilitating the audio portion of today's interactive broadcast. [Operator Instructions] I would now like to turn the show over to Mr. John Tattory. Please go ahead.

John A. Tattory

Thank you, Terry. Good morning, everyone. Thank you for participating in today's conference call. During this morning's call, management will provide a perspective on the company's business operations, discuss financial results for the second quarter of 2012 and address investor questions during the Q&A session.

Before we start, I will read the Safe Harbor statement. Our conference call this morning 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.

Listeners are 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 annual report on form 10-K and any subsequent SEC filings, as they have may have been amended.

Today we have with us Mr. Tom Amick, Chairman and Chief Executive Officer; Mr. John Cooper, President and Chief Financial Officer; Dr. Tom Miller, Chief Operating Officer; and Dr. Rusty Clayton, Senior Vice President, Research and Development. I would now like to turn the call over to Tom Amick.

W. Thomas Amick

Thank you, John, and thanks to everyone who is participating in this call. We know you have a busy schedule, and we really appreciate you joining us this morning.

Since our last call, we've had a lot of progress against our key objectives. And just as a quick reminder, our key objectives are to have a successful launch, to advance our pipeline, our pipeline is really the future of Discovery, and then our third is to secure a strategic alliance with a partner outside of the United States. I will cover each one of these over the next couple of minutes.

First of all, building out a commercial organization, as well as a medical affairs and scientific organization, we have made tremendous progress there. I think, Tom Miller and his team, as well as Rusty Clayton and his team, have really done an outstanding job of identifying and hiring some of the best people I've seen come along in a long time. I'm going to take a quick diversion here and ask Tom Miller and Rusty to give just a couple of minutes on background of some of the people that they've been able to bring into this organization that makes me feel very, very good about how successful our launch will be. Tom?

Thomas F. Miller

Yes. Thanks, Tom, and thanks for everybody joining this morning as well. Tom indicated that we've been focused on the commercial team. I'll provide a bit more as we go forward in the call, but as an overarching goal, the focus has been hospital, hospital, hospital. We want folks that have a tremendous amount of expertise in driving new product launches and the formulary process. And that the team that we put in place in all relevant areas of commercial leadership have done this exceptionally well, with multiple product launches previously.

W. Thomas Amick

Rusty?

Russell G. Clayton

Yes, thanks. And with regard to our medical affairs team, primarily our medical science liaisons, we've been very, very pleased with the pool of talent we've been able to garner here. Every one of our medical science liaisons is very experienced with regard to hospital-based products and getting products on formulary. And they're also a very diverse team, ranging from PhDs, Pharm. Ds physicians, respiratory therapists and nurses, the majority of whom have some professional or -- professional medical experience or clinical experience or MSL experience in the neonatal intensive care unit.

W. Thomas Amick

Thank you very much. As you can see from the brief description of the background of the people we've been able to attract to this organization, we're very excited about launching our commercial products, our approved products, as well as having our medical science liaison teams out in the field, interacting with key physicians and key neonatal sites to make sure that we deliver the message -- the medical message as well as the commercial messages that are so important.

Because we've been so successful in our recruiting, we are ready to launch this product in the fourth quarter of this year. And these are our approved products, which are SURFAXIN as well as our AFECTAIR. AFECTAIR will be our neonatal AFECTAIR. So again, we got the organizations behind us, the commercial organization, as well as the medical science liaisons organizations, and they are in the process of preparing for this launch that will occur in the fourth quarter.

The second priority is to advance our pipeline, and that's important. No matter where we go or who we talk to, the first question we are asked is, "When will AEROSURF be available?" So again, I'm happy to report that we've been able to advance this pipeline. And there's 3 pieces to having an aerosolized SURFAXIN. Number one is you have to have a SURFAXIN that can be aerosolized, which we have. Number two is you have to have a device that can enhance the delivery of an aerosolized medication, and we have that in the neonatal AFECTAIR. And then the third part is you have to have a Capillary Aerosol Generator that really does the job for you. We refer to that as our CAG. And we're making good progress again here, because we have just entered into an agreement with a company who's recognized on a worldwide basis as the experts on devices to deliver aerosolized medication. And they're working hand-in-hand with our team to get our CAG ready for the clinic, for the second half of 2013. So we're very excited about how much we've been able to move AEROSURF forward from where we were 1 year or 1.5 years ago. So that's a key area for us as well.

And the third is securing a strategic partner. And I'm happy to report that our talks and our interactions with some companies that we have been working with have been very good. We're very encouraged by our interactions with these companies and our goal is to secure a strategic alliance for x U.S. by the end of this year, or certainly by the end of the first quarter of 2013. And we think that we're on track to achieve that.

Now I'd like to turn the meeting over to Tom Miller, who will give you a little bit deeper dive into some of the things we've been doing. Tom?

Thomas F. Miller

Thanks, Tom. I'll be providing an overview this morning regarding SURFAXIN, and affect our U.S. launch preparedness. But I think it's important to remember our overarching goal, which is working towards new standards of respiratory critical care. We believe that our technology platform has the potential to completely redefine the therapeutic application of SURFAXIN. We also believe that the current market is quite underserved. Current treatment options for neonatal RDS are limited to animal-derived surfactants, all of which must be delivered in an invasive fashion. And by that, I mean into the endotracheal tube of an incubated preterm infant.

From our perspective, there's been no real innovation in this market for more than 2 decades, and we see a significant value gap within the therapeutic surfactant category today, specifically relating to product pricing. To give you some tangible perspective there, a course of surfactants -- really any of the surfactants that are available today, will range somewhere between $900 and maybe $1,000 per course of therapy. And that investment in more than 80% of these kids will effectively extend life for 75 years and reduce cost-driving morbidities in the hospital by several hundred thousand dollars during the initial inpatient stay. These medications have tremendous value that's not being recognized today. We see that, and as we advance our technology platform, as Tom described, we intend to be quite mindful of that in balancing pharmacoeconomics and closing this value gap.

Our goal is to introduce a series of new therapeutic advancements beginning with SURFAXIN and AFECTAIR and to partner with the neonatal community collaboratively as we work towards these new standards of care. We recognize that this will take some time, but we will pursue this goal with conviction, knowing how important these new technology solutions are for these very fragile patients.

As Tom indicated, we have been very focused on this vision as we build out our commercial and medical affairs team. All key U.S. commercial and medical affairs leadership position have been filled, and the team is actively working towards 4Q product launches. As I indicated briefly in the opening statements, the team has a very strong competency in hospital product launch, both with the formulary process, which is the key focus for the SURFAXIN product, as well as with the materials management and procurement process for AFECTAIR. This is the purchasing group in the hospital for non-drug-related products, essentially the buyers of everything else, including disposable medical devices. We believe that the team that we have put in place, both commercial and medical affairs, will serve our vision well in the short, mid, and long term with initial product launches through AEROSURF and beyond.

I'll transition now for some specific areas of progress towards U.S. launch. In-house and field commercial medical affairs leadership team is in place. As I indicated, we are actively working through the recruitment process for our sales representatives. You may recall in prior updates we've indicated that we'll be hiring 20 professionals in this regard, and I expect that team to board by the end of this month. The talent has been exceptional to date. And we've had an opportunity to be quite selective, with a good blend of NICU, hospital, formulary and materials management experience. We're building something unique here that transcends the initial launches of both SURFAXIN and AFECTAIR. Boarding will be followed by extensive product training prior to the 4Q product introductions. We expect this team to be the expertise in the space, as we work towards this vision.

Regarding key trade agreements, we have selected our solutions for both warehousing and our primary specialty distributor. Access contracting is absolutely a critical success factor particularly for the SURFAXIN product. Our national accounts team is in place that had a tremendous experience with TPO [ph] and IBM [ph] contracting, and that activity is well underway, with the goal of having key agreements buttoned up and in place before we introduce product. And we have introduced and initiated several marketing and non-personnel selling initiatives as well.

To give you some examples in that regard, print and e-advertising is underway for SURFAXIN and a number of key neonatology journals. The SURFAXIN and AFECTAIR professional websites are up and operational. We are planning for very visible attendance at multiple medical congresses, as we move into the second half of '12. And we have a pipeline of new publications for both SURFAXIN and AFECTAIR that will roll through the second half of 2012 and into 2013.

In a very recent development, Discovery's technology platform was showcased in the Neonatology Today. This piece was written by a very influential thought leader, Dr. Tom Shaffer at the A.I. du Pon'ts children's hospital in Delaware. This piece was directed towards more than 25 neonatologists and neonatology healthcare professionals. For those that have an interest in Discovery and have an interest in getting thought-leader perspective on our short-term product introductions and where we're trying to go with the company, I highly recommend accessing this piece. It's free and available online at neonatologytoday.net.

So in closing, we are on track to launch both SURFAXIN and AFECTAIR in 4Q in the United States. And I suspect the audience listening today will have some interest in understanding how we intend to measure success. For the SURFAXIN product, the key is driving exclusive use in hospitals. The universe of preterm children that will be eligible for SURFAXIN and follow-on products that will be administered down the endotracheal tube is fixed. So the goal is essentially to drive exclusive use in the account, because when we have exclusivity on formulary and standing orders, that essentially means that you have immediate access to 100% unit share in a particular facility.

Again, this will not be an immediate reality for us. There will be a period of initial trialing, in addition to formulary in a non-exclusive way, as we are at sites with each and every account that we're going to target. But this establishes a foundation for our SURFAXIN business that can endure for some time. And we're confident that the team that we've put in place will be focused and successful in this regard.

For AFECTAIR, the first SKU that we will launch is a device that will have primary application in patients less than 10 kilograms. So as Tom Amick indicated earlier the predominance of use will be in the neonatal intensive care unit, with perhaps, some selective use in the pediatric intensive care unit for younger but not premature patients. Given the unique competencies of the team that we've assembled from both the formulary and the materials management perspective, as well as the commercial footprint overlap with SURFAXIN accounts we have decided to launch this particular AFECTAIR device ourselves. A key advantage in doing so for us is that at the end of the day, it's another reason for a Discovery Labs representative to be in the account. And we want that relational visibility for both SURFAXIN and AFECTAIR, as we move forward with both product launches. This will be a very important tool for the commercial and medical affairs team, and we're targeting trial and usage to begin in the fourth quarter of this year and the U.S. as well.

So in closing, I'm very proud of the job that the team has been working towards thus far. I think they're doing a great job. We're ready and looking forward to launch.

With that, I will turn the call over to John Cooper to provide the 2Q financial update. John?

John G. Cooper

Thanks, Tom. Very important time for us, very exciting time for us. Just a little perspective for a moment. I mean, think about it, it wasn't that long ago where we were working towards addressing a specific issue to get SURFAXIN approved. And when we were doing that, we were also doing our best with the limited financial capabilities we had at the time to plumb other technologies from the work we were doing with AEROSURF to focus on AEROSURF, and from that came AFECTAIR.

So now, we have 2 proof products, we have capital, and it's extremely important to employ that capital appropriately. And the decision -- the business decision that was made, is that we believe we can very prudently invest in a capability in the United States that will allow us to build a neonatal commercial and medical affairs franchise, starting with -- and I use that word starting with, SURFAXIN and the neonatal AFECTAIR device. But if we execute appropriately, and we believe every reason why we should, we can build on that.

We have -- as Tom indicated before, we have a pipeline of programs to build on that, SURFAXIN LS, AEROSURF, and especially AEROSURF, and with the technology like we have, with respect to proprietary aerosolization technologies like the capillary aerosol generator with AFECTAIR. And more importantly, with a synthetic surfactant, the very first peptide-containing synthetic surfactant that will be introduced -- quite frankly introduced commercially in the United States, but the goal is to take it around the world. We're excited, and we're investing in this opportunity. And that investment is reflected in our second quarter earnings. Over the last couple of quarters through the last year, maybe the last 2 years, we've been averaging between $5 million and $6 million burn per quarter.

This quarter, we've earned approximately $8.8 million and again that reflects the investments we're making. But those investments you have to make in order to see the returns that we believe can come down stream. And again, those returns are not just financial, they're also medical. We intend to change the way, which RDS is being managed in the future in the United States and around the world. So good investments to make. Those investments will continue in the third quarter. The guidance that we gave in the press release is that the burn will go somewhere between $10 million to $10.5 million, and again, that reflects the work that we're doing.

Now side-by-side with that is our financial picture. We ended this quarter with $46.5 million roughly. And as we go forward, our #1 priority from a financial perspective, but it's more than financial, its business, it's strategic, is to work with other companies who have a desire to form an alliance with us and take technologies that we have, license the technologies, invest in these capabilities, take them into other parts of the world. They include companies that could be multinational and have operations around the world or companies that have a very, very strong focus in a specific region of the world. We have discussions happening with all of them. So it's an exciting time for us. And as Mr. Amick indicated earlier, we have a very high degree of confidence that we should be able to succeed in our strategic alliance endeavors by the end of this year or even possibly going to the first quarter of 2013.

So they're the main, I will call, strategic financial matters. From a detailed perspective, please read our press release in more detail. The charts and the financials are in the back. We'll get into more details in Q&A should you have the desire. Please also read our 10-Q. We take a lot of effort to make sure that we are delineating the financial conditions of the company, the liquidity and capital resources, our MD&A, so please, please review that. That will be available next week.

And then last but not least, I know that everybody usually wants to have an understanding of our capital structure. So we have 43.4 million shares outstanding right now. And in addition, there are 7.9 million warrants. The components of those warrants, I'll give you the main components. There are 4.9 million warrants that are priced at $2.80 that expire in February 2016. There are 1.2 million warrants with an exercise price of $6 that expires in June of 2015. And there's another 900,000 warrants with an exercise price of $12.75 that expire in February of 2015. The balance of the warrants are rather small items at prices that are -- vary between $4 up to $22.

So that's, that component for now. And I'd like to turn the call over to Q&A -- to the operator for Q&A for topics that have your interest and you want to cover.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Joel Sendek with Stifel, Nicolaus.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Two questions having to do with the partnership discussions you're having. Could you end up partnering with different partners in different geographies. Or are you looking for one partner to do the deal with? And also, is AFECTAIR part of those discussions?

John G. Cooper

Well, the answer to your first part is, quite frankly, we are in discussions that could have both of those things possibly occur. It will be depending upon, of course, the outcome of any negotiation. But the most important issue, quite frankly, is making sure that the European continent is covered. That's the primary focus. With respect to AFECTAIR, it's possibly a part of it. Remember what we bring to the table are SURFAXIN, SURFAXIN LS, AEROSURF and possibly, AFECTAIR. So what we've decided on AFECTAIR, of course, is to focus first on the neonatal device to make sure that -- look, we have an opportunity to take new technologies into the neonatal world for the first time in many years. And so we decided that who better to do that than the team that we're building? There are not that many groups in the United States that focus exclusively on the neonatal market. So we made the decision to hold back AFECTAIR for ourselves and bring it out under those circumstances. There's a possibility that could happen as well in Europe.

Joel D. Sendek - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Just as a follow-up, can you give us some sense of how many potential partners are in the mix right now?

John G. Cooper

No, I can't comment on that.

Operator

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

William Tanner - Lazard Capital Markets LLC, Research Division

Maybe for Tom Miller. Can you go into a little bit more detail on the CAG? I think that's how Tom referred to it in terms of just the device spend. I guess, any challenges in terms of developing it? And then also maybe how you see it being deployed in terms of the business model. I mean, is this going to be kind of a razor blade type situation?

Thomas F. Miller

Bill, I'll make a couple of comments maybe on the commercial front, and then I'll ask Rusty Clayton to comment regarding your development-oriented questions, if that's okay. So the idea is, as Tom Amick alluded to on the front end, was to recognize that we're focusing on the aerosolization initiative in a very unique way, in a way that really departs from what everybody has done previously, which was essentially dumped a very viscous surfactant product into the reservoir of the nebulizer and hope for the best. We know that, that strategy is simply not going to work. We needed to recognize that we had -- there were some unique challenges with the drug product. We needed to find an aerosolization solution that could provide a reliable and more aggressive output rate. That's essentially why we netted out with the capillary aerosol generation. And the AFECTAIR piece was the crowning need, from our perspective, once the aerosol is made to make sure that could get into the lung of your intended patients very efficiently. Currently, the way that we think about AEROSURF as a product is to focus on the selling of the disposable pieces as the revenue generator. So that essentially would be anything that's what wettable from a medical device perspective through the patient, as well as the drug product. The base unit if you will, the part that will be the hardware in the account, that's really not where the magic happens. The magic happens in the capillary itself, which will be a disposable piece. So we haven't locked into a final business model yet, with respect to what we would do and whether or not we would sell the base unit yet as well. We firmly believe that the driver of value and the revenue generator will be in the disposable drug product, and the medical device disposables, the affected razor blade, as you indicated. I'll let Rusty to comment on the development side.

Russell G. Clayton

And I think it's important to understand that what we're doing here is different than what's happened over the last 3 decades were development of the aerosol generator technology basic design modify a little bit and come out with a "me too" device. That's really not where we're focused. We have very innovative technology to deal with the aerosolization of SURFAXIN, which has the inherent difficulties that Tom Miller alluded to. And when you have those types of innovative technologies, prototypes can work very well on a bench and in the animal laboratory, and we have demonstrated success in both of those areas. But then there is a large step to come out with the device that will assure, for example, medical regulators such as the FDA that this device is going to be suitable for use in pre-clinical trials -- in clinical trials, and so we've taken the definitive step of first of all, building an internal competency with our medical device company, medical device division, I should say. But the even more proactive step of bringing in the world leader in the development and analysis of aerosol devices, and that is the Battelle Organization. And we're very excited to be partnering with them for the development of the clinic devise, which we expect will pass muster with regulatory agencies, and we will feel confident moving into the clinic with. The Capillary Aerosol Generator does work. It's just a matter of making sure that we have the appropriate control mechanisms. We have done the appropriate risk analyses, and we have built a clinical device that we'll be proud of as we bring them in. And that is the inherent obstacle is doing those design elements. But we're very confident that we're going to reach that goal in a manner that will allow us to begin clinical trials in the latter portion of 2013.

William Tanner - Lazard Capital Markets LLC, Research Division

And maybe just as a follow-on to that, Rusty, I mean, help us understand a little bit better what's the technical challenge of the tractability or intractability. I guess, Is this something that -- I mean, nothing is a layup, obviously, but is there somethings that you feel like it, it's actually going to be achievable?

Russell G. Clayton

Well, it absolutely will be achievable. We can run the Capillary Aerosol Generator in the animal laboratory or at the bench top. But in dealing with humans, it's always a safety first, and there are multiple controls that have to work through, there are multiple risk analyses. We're checking the boxes at this point to bring us to fruition with the clinical device, to make sure that we have met every last exercise that both U.S. and European regulators will demand of us, as well as those safety boxes that we feel that we need to check over and above what regulators may require of us. And that really is the technical challenge right now in terms of hardware-software integration, software redundancy, making sure that the user interface is appropriate. And as foolproof as one can make it realizing that nothing can be foolproof, because fools are so ingenious. But we have to make sure that we build the best device possible and put our best foot forward here. The launch of this particular program is going to be the foundation of our aerosolized surfactant program. So we don't want to do this in a way that doesn't ensure absolute excellence. Our quality statement says, "Let's do it right the first time." And that's what our goal this year.

Operator

Your next question comes from the line of Scott Henry.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Just a couple of questions. First, I don't recall any updates on SURFAXIN LS. I just wanted to see is that still on track for late 2013 start of Phase III trial? And do you have any meetings scheduled with the FDA prior to that trial?

Thomas F. Miller

Scott, Tom Miller. I'll take just a quick operational comments, and I'll let Rusty comment on the regulatory front as well. So remember, although not a focus for this call, we have provided some operational guidance and direction in previous calls. The goal, of course, in events in the clinic is to have GMP drug, and we're -- we had indicated that we have selected an outside solution that has a unique competency for the scale in manufacturing that we need with our particular drug product. Actively working through the transfer process, which will roll into commercial scale process validation, where those are the lots that we'll be judged on essentially, as it relates to defining the process. That activity will roll through the end of this year into early next, with the goal of being in a position to have a lyophilized dosage form for use as a preferred dosage form, going forward as we move into mid-2013.

W. Thomas Amick

And with regard to regulatory meetings, we have -- we continue to do our homework before we actually engage with the regulatory agencies, because even these so-called nonbinding meetings become somewhat binding when they're minuted. So we want to make sure that we have all of our facts and our plan very well structured. And to that end, we're engaging external regulatory consultants, who are engaging medical thought leaders to make sure that we have the very best possible plan to put forward. Having said all that, even with that homework being done, there are still some technical data that we need to amass related to the development of these -- of the scale manufacturing of this product. And we have to have that occur before we go in front of regulatory agencies, because I have to show them something. And that something is the analytical data for the product as well as what the clinical program will look like. So we continue to work through that, with the goal of engaging those regulatory agencies either at the end of this year or early next year.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And then shifting on to the SURFAXIN launch. I realize it's not really going to be launched until Q4, but, obviously, you're putting the team in place, and the team is working on facilitating the formulary process. As investors, is there anything that you could tell us that can give us an idea of how that process is progressing? Is it meeting your expectations? I mean, at some point, we'll be looking for updates on formulary status, but in this sort of pre-selling time period, can you give us any color on how that is going?

Thomas F. Miller

Hey, Scott, this is Tom Miller again. And I'm happy to do so. I think one of the tremendous advantages that we have as a company, a number of us here, myself, Rusty Clayton, many folks on the medical affairs team, had spent a good portion of their professional lives developing relationships with folks in neonatology. So the access that we will have to accounts from time 0 is very different than professional organization that just happens to be selling a surfactant. So there are many accounts throughout the country that we are aware of that had begun the process of amassing relevant literature and whatnot to initiate the formulary process. We expect quite a bit of interest in trialing the product, once it becomes available out of the gate. And now that we have the teams -- the integrated team in the field, the national accounts team that drive the contracting process, the regional business directors that will directly be responsible for sales in the regions that we define and the medical affairs team, that process can begin to put the packages together for formulary. No formal decision on formulary. And interest in purchasing will be made until we load price into the agreement, which will not happen until fourth quarter, but that pump is being actively primed as we speak.

Scott R. Henry - Roth Capital Partners, LLC, Research Division

Okay. And then, conceptually, when I think about a hospital having one product on formulary and the intent only -- to have one product in the formulary, are there any sort of creative incentive plans that you can give that hospital to try out your product? Any sort of way that you can -- since you can't really sample it like you'd sample a drug, can you talk about how you address that issue of having one product on formulary?

Thomas F. Miller

Yes, so I will answer your question quite this simply, the answer is yes, but we're not going to provide any detail on contracting specifics at this point.

Operator

[Operator Instructions] Your next question comes from the line of Ted Buckemier with Save Time Corporation.

Ted Buckemier

I'm an investor, and I noticed a comment in your 10-Q that had a kind of a negative impact on the marketplace. And I'm wondering if you could comment of any management actions that are trying to turn those losses into profits?

W. Thomas Amick

Could you be more specifics sir? Could you be more specific about...

Ted Buckemier

The 10-Q said you expect to incur substantial losses for the next several years, and I wondered if there are things that you can do to mitigate that situation.

W. Thomas Amick

Well, first of all, the majority, if not all, of biotechnology companies that are launching drugs, usually, general rule is you don't see a profit until most likely at the earliest year 3. So it's pretty standard in this industry for that situation. We will be doing everything we possibly can to make sure that the investments we make, first of all, are prudent, and the people on the team are executing accordingly and doing so on a cost-wise fashion and a very smart way. The launch of SURFAXIN, the launch of AFECTAIR, as we begin to generate revenues with those programs -- or those products will begin to take our P&L and eventually convert that P&L from losses to something where we are a profitable company one day. Most importantly though is the investments that we're making in our pipeline, because the investment that we're making in AEROSURF -- remember, AEROSURF is a -- conservatively speaking, a $750 million product in the -- possibly in the United States, reaching $1 billion or more around the world. The investments that we would make into AEROSURF, and when you think about those investments, we believe it's very risk-mitigated. We're dealing with a surfactant that we know works with babies with RDS. We're dealing with a Capillary Aerosol Generator that we've -- to date, so far, we are very optimistic on its performance. And we're now putting it into the hands of the world's leading experts to get it ready for the clinic. We know that AFECTAIR will help a baby have an aerosol be delivered to that baby than what's currently available today. And the amount of investment that's going to be required for that program is, quite frankly, modest in comparison to the majority of the investments that are made in other biotech-type programs. So those investments we think are worthwhile. They will, of course, contribute to the cash burn or to the operating loss, and -- but that's also why we're looking at working with strategic partners, to help us and work with us, as we, hopefully, achieve the milestones associated with AEROSURF. And those milestones should bring considerable value to the company. So that's where we are. And of course, in the 10-Q, it's our responsibility to make sure that investors understand what our financial plans are.

Operator

And there are no further questions. I will turn the call to Tom Amick for closing remarks.

W. Thomas Amick

Thank you very much, and thanks, again, to each of you for joining the call this morning. Hopefully, you have a good understanding of what we've been doing, and how successful we have been doing it. We are -- because of the commercial organization, as well as the medical affairs and scientific organizations we've been able to put together, we are on target to launch our approved products in the fourth quarter of this year.

Also, we have done a good job of advancing our pipeline, specifically AEROSURF, and we still believe that AEROSURF has the potential to really transform neonatal medicine, as we know it today. And the third objective, we've made good progress, continue to make good progress on our conversations with potential strategic partners. So again, thank you very much, and hope you have a good weekend.

Operator

Thank you for participating period this does conclude today's conference. You may now disconnect.

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Source: Discovery Laboratories Management Discusses Q2 2012 Results - Earnings Call Transcript
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