Thank you for joining the Pacira Pharmaceuticals Fourth Quarter and Full Year 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks the Pacira management team will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the company's request and will be archived on the company's website for two weeks from today's date. [Operator Instructions] I'd now like to turn the conference over to Ms. Jessica Cho, Ma’am you may begin.

Thank you and good morning, everyone. Joining me on the call today from Pacira are Dave Stack, President, Chief Executive Officer and Chairman; and Jim Scibetta, Senior Vice President and Chief Financial Officer. Before I turn the call over to the management team for their prepared remarks, I would like to remind you that certain remarks made by management during this call about the company's future expectations, plans, outlook, prospects and statements containing the words believes, anticipates, plans, expects, and similar expressions, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are based on assumptions that the company believes are reasonable and that are subject to a wide range of risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Many of these and other risks and uncertainties are described in the Risk Factors section of Pacira’s most recent Annual Reports on Form 10-K for the fiscal year ended December 31, 2014 and in other filings with the SEC which are available through the investors and media section of the Pacira website at www.pacira.com or on the SEC website at www.sec.gov. During the course of this call, we will also refer to certain non-GAAP financial measures, including non-GAAP net income or loss, on-GAAP operating expenses, non-GAAP gross margin and non-GAAP EPS. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the earnings release for the quarter. And with that we will hear first from Dave.

Thanks Jess. Good morning, everyone, and thank you for joining us today. The primary focus of today's call is EXPAREL which has improved the lives of over 1 million patients in the United States to-date by providing a non-opioid pain management solution in the acute care postsurgical setting. EXPAREL provides healthcare providers with a non-opioid platform as an option to address the opioid epidemic in the United States. In 2012 there were 259 million opioid prescriptions written and in 2013 46 people died every day from prescription pain killers. Current study show that roughly one in 15 patients who are prescribed opioid for acute postsurgical pain go on to become long term opioid abusers which translates to over 2 million patients every year, a public healthcare problem we work every day to address. In Q4 the commercial trends and dynamics that we've seen from quarter-to-quarter continued into the end of the year. We saw a continued removal of formulary restrictions by earlier doctors and new formulary wins without restrictions, and our largest customers remain those who have had access to EXPAREL for the longest indicating that our existing customers continue to broaden EXPAREL use to new procedures with a reduced opioid strategy for managing postsurgical pain. Soft tissue where we first launched continues steady growth in conjunction with a proliferation of enhanced recovery after surgery or ERAS protocols and continuous quality improvement or CQI initiatives at major academic teaching centers and hospitals across the United States. Plastic surgery, general colorectal surgery, OB/GYN oncology, abdominal wall reconstruction, thoracic and geriatric procedures have all been documented through ERAS protocols. Recall of these protocol driven programs originally stemmed from our earlier algorithms identifying those patients most at risk when opioids are used to control postsurgical pain. High densities protocols are the understood health…

Thanks, Dave. Good morning, everyone. Q4 marked a solid finish to 2014, a year full of financial, commercial, and operational milestones that signal how far we've come as a company in a relatively short period of time. To recap the year financially, we crossed the line into profitability for the first time in Q2 on a non-GAAP basis, and also generated cash from operations for the first time in Q2, and we were profitable in generating cash from operations for the full year as well. Operationally we received FDA approval of our new Suite C manufacturing line in our San Diego Science Center Campus and we entered into a strategic partnership with Patheon for additional manufacturing capacity in Swinton, England, and showing that we can meet future demand for EXPAREL. And further, we galvanized our product development efforts as we submitted an SNDA for nerve block indication for EXPAREL provided additional color on the potential use of EXPAREL in oral surgery and chronic pain and we unveiled DepoFoam based products in development. For those looking at the bigger financial Pacira picture, we are pleased to see in our 2014 results tangible evidence of our operating leverage emerging alongside continued EXPAREL revenue growth. In January we preannounced total revenue of $61.8 million for the fourth quarter, up 84% from the same period last year, and slightly below $200 million for the full year, up 131% from 2013. This of course was catalyzed by EXPAREL sales of $59 million for the fourth quarter, up 93% from the same period last year and $188.5 million for all of 2014, up almost 150% from 2013. From launched in Q4, a total of 3,293 distinct customers have ordered EXPAREL with 729 of these customers ordering more than $100,000 of product cumulatively, a 120 ordering more…

Thank you. [Operator Instructions] And our first question comes from the line of Gary Nachman of Goldman Sachs. Your line is open, please go ahead.

Hi, good morning. How much nerve block is currently used off label, so is the 10% in your guidance completely incremental with approval of that indication. And then talk about commercial plans with nerve block if you get it approved, how you expect to roll that out, how many reps will you have on it, and will it be the primary focus for that entire sales force?

Hey Gary, we know that there is - I mean, there are folks especially KOLs and folks that are - the more opinion leading groups are RUVs [ph], that are experimenting with EXPAREL and nerve block. I don't think Gary honestly that it's anything material to the business as it's currently constituted. Our belief is that 10% is roughly the number of the value of nerve block given a March 5 PDUFA. I think we have to be a little bit careful, even here at Pacira we have to be a little bit careful because we have lot of discussions about nerve block and we have a number of people who are using the product on a hit and miss basis in nerve block, but when you get out to the rank and file, when you talk to folks that are not KOLs in the metropolitan areas you find out that there is zero use. I think we all have to be a little bit careful on how we anticipate the current use and we don't think it's material to the business at all. Assuming success, as we've talked about earlier we expect that we would get a femoral nerve block claim. We currently have 87 reps and roughly 50 folks in the field that are in our medical affairs department, all of those folks would understand the way our organization is broken out here. About 87 surgical account specialist really are account managers and own the institutions and are responsible for determining how our resources are deployed in this institutions that they have. The medical affairs team is more involved with training and making sure that patients receive best care in terms of best practice transfer and things like that. So we will - the focus on the hospitals will be roughly the same since nerve block maps right on top of the infiltration business. We're looking at it really that it is another opportunity for a call point with the anesthesiology community and to have a different moralistic approach to the way we treat pain by being able to talk about a nerve block and an infiltration in the same patient. We don't see it really as a - there is no formal, you're going to spend 20% of your time here and 30% of your time there, the reps are going to have the same hospitals, we anticipate having the opportunity to have more productive discussions with the pain treaters in those hospitals as a result for the nerve block label.

Okay, great. And then just one follow-up here, on the full year EXPAREL sales guidance - and definitely appreciate that you guys are giving that at this point, could you give us a sense of how much of that outside of the nerve block would be orthopedic versus soft tissue, how you expect that to trend? And are you assuming any real price increases in 2015 in that guidance? Thanks.

Yes, but modest as we've talked about in the past, and ideally we would like to see nerve block roll out first and then sort of have the opportunity to gauge that against the potential for our price increase sometime early in the year. If you're talking about orthopedics, I mean it's difficult to gauge exactly Gary because we've got so many things going on, most of the ERAS and CQI programs that I referenced are in soft tissue. So while orthopedics is gaining the fastest, we do see some very productive publications and programs coming out of major medical centers as it relates to soft tissue. I think it would be safe to say that if we get into the 55, 45, very broadly speaking, you're in the right ballpark but there will be about 50-50 if you include everything else other than orthopedics on the other side of the line.

Okay, great. Thanks guys.

Thanks.

Thank you. Our next question comes from the line of David Amsellem of Piper Jaffray. Your line is open, please go ahead.

Thanks, just a couple. Do you have a read on the extent to which EXPAREL is used in cash paid customers or maybe the percentage of use in cash pay customers? And then secondly on the R&D spend, can you just remind us what the total spend associated with the EXPAREL expansion programs and also during chronic pain? And then also, how should we think about expanding 2015 and then 2016 on the non-EXPAREL programs if you started with the R&D? Thanks.

Well I'll take the first one David and then turn it over to Jim. We really think that the cash pay market today is almost entirely constituted by cosmetic plastic surgery. We are hearing just very sporadically about people who are willing to pay for EXPAREL if it's outside the confines of what's available through their insurance program, whatever that might be, but almost entirely cosmetic plastic surgery and as best we can tell and I'll tell you why I give you that qualifier, it's about 5% of our business and remains about 5% of our business. And I give you that number because we can track X percent of our business currently about 5%, directly into the plastic surgery channels. What we can't track is ambulatory surgery centers etcetera where the patients are indeed plastic surgery but that is not a designated plastic surgery center if you will, and so we come to the conclusion marrying all of that information that is roughly 5% of our business.

Okay. And Dave just to be clear, I mean you don't believe there is any meaningful usage already in oral and facial surgery?

We can count the guys on one hand David.

Okay, that's helpful.

Actually you meet half of them.

Yes, that's right, I probably did.

So David, the other part of your question, it was in the context of R&D and we said we'll spend about $25 million to $30 million this year. In round numbers the trials that we're going to run in Phase III for oral surgery or chronic pain trial, that's Phase II but it's - if you assume that those are in the $5 million, each range, you'll probably be in the ballpark. You also mentioned the word expansion, I wasn't sure if you meant that in the context of clinical development but I'll just expand it and say that my CapEx discussion was about manufacturing capacity and that we had guided previously that we would spend $40 million to $50 million related to what we're doing with Patheon, those two Suites there, that's encompassed somewhat in our CapEx for 2015.

Just to enable label expansion, but that's helpful. Thanks.

Thank you. Our next question comes from Douglas Tsao of Barclays. Your line is open, please go ahead.

Hi, good morning. Should thanks for that helpful color in terms of those sequential trends that we should sort of be thinking about going to refer this current quarter. Just maybe if you could provide a little color how we should think about vis-à-vis last year, I mean which is obviously the year that we had the pull over Texas [ph], I don't know what they are calling it this year but there has been pretty extreme weather and storms as well, and yet you were able to grow sort of pretty nicely on a sequential basis and I guess we are talking about a larger base now but maybe highlight some of the trends that might be a little different this year versus next year.

Right, so there is couple of different aspects of it. One, you're absolutely correct that Q1 had weather issues last year, and then we just don't know the extent to what it will mean in Q1 of this year but it's just an obvious factor out there. A lot of those elective surgeries they could come back within Q1 or they could come back - it typically would come back within a year, so we'll just have to see how that plays out. And then the other point you sort of made for me if you will which is on a smaller base of absolute sales, the growth Q1 from Q4 can make it look like there is no seasonality going on and the point I was really trying to make is, if you look at comps in our industry there is obviously one that's sort of a poster child $40 million product, that they went from Q4 to Q1 flat earlier in their launch than we did and they have been growing ever since then, so that's not a dynamic specific to today, it's just a dynamic specific to hospital based products and volume in the hospital in Q1.

Okay, great. And then Dave maybe provide a little color vis-à-vis in terms of the existing business, and the two major buckets being sort of ortho and soft tissue, obviously ortho is now majority of the business and really sort of came out of nowhere. How do you see the penetration into that segment and certainly how should we think about the trends sort of especially into the soft tissue market which I think we would agree is perhaps bigger end market in terms of total number of absolute surgical procedures but how are you sort of penetrating that segment and sort of what are the key initiatives that sort of continue to drive that particular segment because it seems like ortho is kind of taking care of itself. And then just one follow-up in terms of ortho, what did you see in terms of performance from the cross-linked relationship in 4Q, and was that perhaps impacted in anyway by the warning letter since those are obviously reps who you don't necessarily control and so they might have been little less focused on EXPAREL until resolution of the warning letter. Thank you.

Thanks, Doug. There is a whole bunch of questions in there, I'll do my best and come back if I don't get them all. So I'll start with ortho, so they really are two very different things. In ortho the ability to reduce opioids - provide early ambulation for patients because they move to a solid diet, they have a bowel movement and it is really the ability to ambulate on day one that leads for the early discharge that is largely responsible for the economic motivation of physicians to quickly adopt EXPAREL. We see that same motivation in a number of different orthopedic scenarios and you will see over the next few month’s data on hips, and on ACL repair, and on trigger figure surgeries, and on spine surgeries, and on trauma surgeries etcetera. So there is no reason to believe Doug that we're going to have any kind of a reduced penetration into that marketplace. While ortho is a very significant piece of our business it is still a relatively modest percentage of the ortho business, so our expectations that maybe to see this 50-50 phenomenon goal until we get to in oral surgery kind of opportunity. Soft tissue is quite different, ironically the docs did what we asked them to do. They identified the patients who were likely to be most problematic when opioids were used, so the adoption in that scenario given that algorithm of how we introduce the drug basically was responsible - were more measured approach to the adoption. Another issue that really a need to understand to really get into soft tissue is that the economic incentive in orthopedics is quite strong, the economic incentive in many of the soft tissue procedures, especially the abdominal soft tissue procedures is relatively modest, I mean…

Okay, great. Thank you very much.

[Operator Instructions] Our next question comes from the line of Steve Burn of Bank of America. Your line is open, please go ahead.

Hi, this is San [ph] for Steve, thanks for taking our questions. First one is, what percent of surgeries are done in the out-patient setting currently and do you expect that to change with the nerve block? And then have sales been all affected by the CMS real change which was effective in January? And then the next one is the long term expectations between infiltration and nerve block, and then what percent of each do you expect from orthopedic?

I'll start it out here. So currently about - well over 80% of EXPAREL is in the hospitals, so in about half of the outside of hospital procedures are actually cosmetic plastic surgery, so if you were going to look at the pure ambulatory surgery, out-patient use of the drug, it looks a lot like plastic surgery to me; so you would think about 5% and I would have the same caution that it's very difficult for us to separate plastic surgery from non-plastic surgery, use outside the hospital just by the way the drugs are purchased, so that's number one. Number two is - the CMS rule really was only relative to our ambulatory surgery code, 9290, and the FDA - I'm sorry, the CMS interpretation of that is that they are building - they do not want to provide specific J codes for products, and they - in their mind they are bundling the cost of the product against the percentage of times that the product is used in that procedure to allow the use of the product in that procedure against that percentage of caught out cases. So if you saw, I'll be more specific. If you saw that EXPAREL cost $300 and was being used in 10% of the cases then you would increase the payment for the case or the procedure by $30 to allow EXPAREL to be used 10% of the time. Now I have to tell you that when I go through that with somebody at ambulatory surgery centered, they think I'm out of my mind but I'm telling you the way CMS thinks and the way they approach the problem. So that's why you will see the focus here, I'm making sure that you report the use of EXPAREL inside those procedures…

Yes, just jumping in on the question on the long term forecast, I mean we're providing guidance only for 2015 and obviously we have a revenue base with the current infiltration and as Dave said, a limited amount of off label use in nerve block. So that's the basis of those being able to forecast 2015, your question still reminds me to inform though that we're not clear that we'll have any basis to report on nerve block versus infiltration as we go forward, it's a challenge with orthopedic versus soft tissue but we're able to - those are procedures and we can buy them, buy that data from some of our customers and then extrapolate that but given that this is an administration technique within various procedures, it's going to be a challenge for all of us if we go forward to really look back and figure out how much is nerve block versus soft tissue - sorry, versus infiltration.

Okay, that's very helpful. Thank you.

Thank you and I'm showing no further question in queue. I would like to turn the conference back over to Mr. Dave Stack for any closing remarks.

Thanks, Ben, and thanks to everyone for joining us today. We would like to note that next month we will be presenting at the Barclays Global Healthcare Conference in Miami, we hope to see you all there. Thanks a lot.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great rest of your day.