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    Unassociated Document

      Discovery
Laboratories, Inc.

      200 Kelly
Red, Suite 100

      Warrington,
PA  18976-3622

      CONFIDENTIAL

      VIA
EDGAR

      November
8, 2010

      Jim B.
Rosenberg

      Division
of Corporation Finance

      United
States Securities and Exchange Commission

      100 F
Street, N.E.

      Washington,
D.C. 20549

                  Re:

                  Discovery Laboratories, Inc. (the
      “Company”)

        Form 10-K
for the Year Ended December 31, 2009 (“2009 10-K”)

        Form
10-K/A for the Year Ended December 31, 2009

        Forms
10-Q for the Quarterly Periods Ended March 31 and June 30, 2010

        File No.
000-26422

      Dear Mr.
Rosenberg:

      We refer
to the September 17, 2010 comment letter of the staff (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) on the Company’s Annual
Report on Form 10-K for the Year Ended December 31, 2009, the amendment to such
Annual Report on Form 10-K/A and the Quarterly Reports on Form 10-Q for the
Periods Ended March 31 and June 30, 2010, and to the Company’s responses thereto
of October 1, 2010.  By telephone call on November 5, 2010 to Messrs.
Ira Kotel and Roland Chase of our counsel, SNR Denton US LLP, Ms. Ibolya Ignat
conveyed additional comments (“Comments”) on behalf of the
Staff.   This letter sets forth the Company’s responses to the
Comments.  For your convenience, we have reproduced below in italics
each comment and have provided the Company’s response immediately below the
comment.

      Form 10-K for the fiscal
year ended December 31, 2009

      Item
1.  Business

      Business
Operations

      Strategic Alliances and
Collaboration Arrangements

      Laboratorios del Dr. Esteve,
S.A.

      Philip Morris USA Inc. and
Philip Morris Products S.A., page 21

                1.

                We
      refer to our original comment 1. You disclose in your response to our
      prior comment 1 that you will provide additional disclosure in your Form
      10-Q for the fiscal quarter ended September 30, 2010.  We will
      not be in a position to clear the comment until the disclosure has been
      provided.

        Securities
and Exchange Commission

        November
8, 2010

        Page 2

                Response:

      The
Company intends to include the following disclosure in its quarterly report on
Form 10-Q for the quarter ended September 30, 2010 (note, new language is underlined):

      ITEM 1.
BUSINESS – Business Operations.

      Strategic
Alliances and Technology License Agreements

      Laboratorios
del Dr. Esteve, S.A.

      We have a
strategic alliance with Laboratorios del Dr. Esteve, S.A. (Esteve) for the
development, marketing and sales of a broad portfolio of potential KL4
surfactant products in Andorra, Greece, Italy, Portugal, and
Spain.  Esteve will pay us a transfer price on sales of Surfaxin and
other KL4 surfactant products.  We will be responsible for the
manufacture and supply of all of the covered products and Esteve will be
responsible for all sales and marketing in the territory.  Esteve is
obligated to make stipulated cash payments to us of up to $5.1 million in the
aggregate upon our achievement of certain milestones, primarily upon receipt of
marketing regulatory approvals for the covered products.  In addition,
Esteve has agreed to contribute to Phase 3 clinical trials for the covered
products by conducting and funding development performed in the
territory.  As part of a restructuring of this alliance in December
2004, we regained full commercialization rights to our KL4 surfactant technology
in portions of the original territory licensed to Esteve, including key European
markets, Central America, and South America (Former Esteve Territories) and
agreed to pay to Esteve 10% of any cash up-front and milestone fees (not to
exceed $20 million in the aggregate) that we may receive in connection with any
strategic collaborations for the development and/or commercialization of certain
of our KL4 surfactant products, including Surfaxin and Aerosurf  in
the Former Esteve Territories.  The alliance will terminate
as to each covered product, on a country-by-country basis, upon the latest to
occur of: the expiration of last patent claim related to a covered product in
such country; the first commercial sale in such country of the first-to-appear
generic formulation of the covered product, and the tenth anniversary of the
first sale of the covered product in such country.  After all royalty
payment obligations have been satisfied, the license granted under the alliance
agreement becomes fully-paid.  In addition to customary termination
provisions for breach of the agreement by a party, the alliance agreement may be
terminated by Esteve on 60 days’ prior written notice, up to the date of receipt
of the first marketing regulatory approval, or, on up to 6 months’ written
notice, if the first marketing regulatory approval has issued.  We may
terminate the alliance agreement in the event that Esteve acquires a competitive
product (as defined in the agreement).

          Securities
and Exchange Commission

          November
8, 2010

          Page 3

      Johnson
& Johnson, Ortho Pharmaceutical Corporation and The Scripps Research
Institute

      Our
precision-engineered surfactant platform technology, including Surfaxin, is
based on the proprietary synthetic peptide, KL4 (sinapultide), a 21 amino acid
protein-like substance that closely mimics the essential human lung protein
SP-B.  This technology was invented at The Scripps Research Institute
(Scripps) and was exclusively licensed to and further developed by Johnson &
Johnson (J&J).  We have received an exclusive, worldwide license
and sublicense from J&J and its wholly-owned subsidiary, Ortho
Pharmaceutical Corporation, for, and have rights to, a series of over 30 patents
and patent filings (worldwide) which are important, either individually or
collectively, to our strategy for commercializing our precision-engineered
surfactant technology for the diagnosis, prevention and treatment of
disease.  The license and sublicense give us the exclusive rights to
such patents for the life of the patents.  Under the
license agreement, we are obligated to pay licensors fees of up to $2.5 million
in the aggregate upon our achievement of certain milestones, primarily upon
receipt of marketing regulatory approvals for certain designated
products.  In addition, we are required to make royalty payments at
different rates, depending upon type of revenue and country, in amounts of up to
a high single-digit percent of net sales (as defined in the agreement) of
licensed products sold by us or sublicensees, or, if greater, a percentage of
royalty income from sublicensees in the low double digits.  The
license agreement will expire, on a country-by-country, upon expiration of the
last patent containing a valid claim covering a licensed product in such
country.  After payment of all royalty obligations under the license
agreement, the licenses granted thereunder become fully-paid.  In
addition to customary termination provisions for breach of the agreement by a
party, we may terminate the agreement, as to countries other than the U.S. and
Western Europe territories (as defined in the agreement), on a
country-by-country basis, on 6 months’ prior written notice; and as to the
entire agreement, on 60 days’ prior written notice.

      Philip
Morris USA Inc. and Philip Morris Products S.A.

      In March
2008, we restructured our December 2005 strategic alliance with Philip Morris
USA Inc. (PMUSA), d/b/a Chrysalis Technologies (Chrysalis), and assumed full
responsibility from Chrysalis for the further development of the capillary
aerosolization technology, including finalizing design development for the
initial prototype aerosolization device platform and disposable dose
packets.  In connection with the restructuring, we restated our prior
agreement as of March 28, 2008 and entered into an Amended and Restated License
Agreement with PMUSA with respect to the United States (U.S. License Agreement),
and, as PMUSA had assigned to Philip Morris Products S.A. (PMPSA) all rights in
and to the capillary aerosolization technology outside of the United States
(International Rights), effective on the same date, we entered into a License
Agreement with PMPSA with respect to the International Rights (International
License Agreement) on substantially the same terms and conditions as the U.S.
License Agreement.  We currently hold exclusive licenses to the
capillary aerosolization technology both in and outside of the United States for
use with pulmonary surfactants (alone or in combination with any other
pharmaceutical compound(s)) for all respiratory diseases and conditions (the
foregoing uses in each territory, the Exclusive Field).  In addition,
under the U.S. License Agreement, our license to use the capillary
aerosolization technology includes other (non-surfactant) drugs to treat a wide
range of pediatric and adult respiratory indications in hospitals and other
health care institutions.  Each License Agreement,
unless terminated earlier will expire as to each licensed product, on a
country-by-country basis, upon the latest to occur of: the date on which the
sale of such licensed product ceases to be covered by a patent claim of an
issued and unexpired patent in such country; the date a generic form of the
product is introduced in such country; and the tenth anniversary of the tenth
anniversary of the first commercial sale of such licensed product.  In
addition to customary termination provisions for breach of the agreements, we
may terminate the License Agreements, in whole or in part, upon advance written
notice to the licensor. In addition, either party to each License Agreement may
terminate upon a material breach by the other party (subject to a specified cure
period).

          Securities
and Exchange Commission

          November
8, 2010

          Page 4

      As part
of the restructuring, Chrysalis completed a technology transfer, provided
development support to us through June 30, 2008, and also paid us $4.5 million
to support our future development activities.  We are obligated to pay
royalties at a rate equal to a low single-digit percent of sales of products
sold in the Exclusive Field in the territories.  In connection with
exclusive undertakings of PMUSA and PMPSA not to exploit the capillary
aerosolization technology for all licensed uses, we are obligated to pay
royalties on all product sales, including sales of aerosol devices and related
components that are not based on the capillary aerosolization technology;
provided, however, that no royalties are payable to the extent that we exercise
our right to terminate the license with respect to a specific
indication.  We also agreed in the future to pay minimum royalties,
but are entitled to a reduction of future royalties in the amount of any minimum
royalties paid.

      Form 10-Q for the quarterly
period ended June 30, 2010

      Note 4 - Stockholder’s
Equity, page 8

            Securities
and Exchange Commission

            November
8, 2010

            Page 5

                2.

                We
      refer to your response to our original comment 6.  It appears
      that the warrants issued in your May 2009 registered offering and your
      February 2010 public offering do not include explicit language to assure
      that you would not be required in any circumstance to effect a net cash
      settlement of the warrants.  Notwithstanding your assertions
      that you intended, and the holders agreed, that in the event that a
      registration statement was not available, the holders’ only course of
      action would be cashless exercise, the language in Section 1(d) of both
      warrant agreements present the holder with the option to elect cashless
      exercise.  As the agreements merely permit the holders to opt
      for cashless exercise, it appears that the holders may opt to force gross
      settlement in registered shares, and since non-performance is not an
      acceptable alternative under ASC 815-40-25-14, net cash settlement is
      assumed.  Please explain to us how the contractual provisions of
      these warrants support your assertions that the holders agreed to only
      exercise the warrants on a cashless basis if no registration statements
      are available.

      Response:

      We advise you that, after extensive
discussions involving its management, Audit Committee, independent registered
public accounting firm and outside counsel, the Company has determined to change
its accounting treatment with respect to the warrants issued in its May 2009 and
February 2010 registered offerings to record such warrants as liabilities,
measured at fair value on the date of issue, with changes in the fair values
recognized in the Company’s quarterly statement of operations in its quarterly
financial reports.  In connection therewith, the Company intends to
publish a press release and file a current report on Form 8-K on November 9,
2010 under Item 4.02(a) of Form 8-K.  The Company furthermore
anticipates filing, on or before November 15, 2010, an amended Annual Report on
Form 10-K for the fiscal year ended December 31, 2009 and amended Quarterly
Reports on Form 10-Q for the quarterly periods ended March 31, 2010 and June 30,
2010, each with restated financial statements reflecting the reclassification of
the warrants, together with the Quarterly Report on Form 10-Q for the period
ended September 30, 2010.

      In
addition, as discussed in our call this afternoon with Ibolya Ignat, Staff
Accountant, and Marc Brunhofer, Accounting Reviewer, in order to assist the
Staff in its review, we are enclosing as Appendix A hereto a
draft of the consolidated financial statements and related footnotes that the
Company proposes to include in its amended Annual Report on Form 10-K for the
fiscal year ended December 31, 2009, which includes draft disclosure of the
expected financial statement impact of the change in accounting treatment to
reflect the reclassification of the affected warrants from equity to a liability
in an amount equal to the fair value of the warrants, as of the dates of
issuance, calculated using the Black Scholes option pricing
model.   The restatement will not have an impact on any other
amounts previously reported, including Assets; Revenues; Research and
Development Expenses and other operating expenses; Cash Flows; Loans, Equipment
Loan and Accounts Payables; and Contractual Obligations.   It is
our intention to provide additional relevant draft disclosure to the Staff in
follow-up correspondence as soon as possible this week.

            Securities
and Exchange Commission

            November
8, 2010

            Page 6

                3.

                We refer to the
      representations in your previous response made by counsel on behalf
      ofthe
      registrant.  We would like the Company to make those
      representations.

      Response:

      The
Company hereby acknowledges that:

                  ·

                  the
      Company is responsible for the adequacy and accuracy of the disclosure in
      the filings;

                  ·

                  Staff
      comments or changes to disclosure in response to Staff comments do not
      foreclose the Commission from taking any action with respect to the
      filings; and

                  ·

                  the
      Company may not assert Staff comments as a defense in any proceeding
      initiated by the Commission or any person under the federal securities
      laws of the United States.

      If you
have any questions, or if we may be of any assistance, please do not hesitate to
contact the undersigned at (415) 488-9347 or Ira Kotel or Roland Chase at our
counsel, SNR Den