Welcome to the AcelRx Pharmaceuticals’ Fourth Quarter and Full-Year 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today, March 12, 2013. I would now like to turn the call over to Mr. Jim Welch, Vice President and Chief Financial Officer. Mr. Welch, please go ahead.

Thank you, Amy. Good afternoon and welcome to today's call. This is Jim Welch and joining me on the call today is Richard King, AcelRx’s President and CEO. Earlier today, AcelRx issued its fourth quarter and full-year 2012 financial results which we will discuss in more detail on this call. In addition, we will also provide you with a corporate update and a review of our progress on our Phase 3 clinical trial with our Sufentanil NanoTab Patient-Controlled Analgesia System that is being evaluated for the treatment of moderate to severe post-operative pain in the hospital as well as an update of our progress on our Phase 2 clinical trial for ARX-04, the Sufentanil NanoTab formulation to treat acute pain. These financial results press release has been posted to the website at www.acelrx.com. Also, a replay of this conference call will be available later today on the Investor Relations section of our website. Please keep in mind that risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements made by management during today's call. As a result, the company's performance may differ from those expressed and/or indicated by such forward-looking statements which are qualified in their entirety by the cautionary statements contained in the press release and in the company's Securities and Exchange Commission filings. :

Thanks Jim and welcome everybody to this afternoon’s call. AcelRx continues to make progress across multiple aspects of its business and I am pleased to provide you with an update on that progress today. We have successfully completed two of our three Phase 3 studies for our lead products; the Sufentanil NanoTab Patient-Controlled Analgesia or PCA system with achievement of the primary endpoint attained in both cases. The third Phase 3 should complete shortly with topline data results expected in the same quarter of 2013. In addition, we have completed patient dosing in our Phase 2 trial with ARX-04, a single dose Sufentanil NanoTab product for treating acute pain that is being funded entirely via grant from the Department of Defense with data from this study anticipated in the second quarter of 2013. I would like to briefly review results from the two Phase 3 studies announced so far for the NanoTab System. In November of 2012, we announced the topline results from our first Phase 3 NanoTab System trial, an open-label trial that directly compared the NanoTab System to IV PCA with morphine. This study was conducted in patients after even major abdominal or major orthopedic surgeries with 359 patients randomized to receive either Sufentanil NanoTabs of IV PCA with morphine. This study achieved its primary endpoint demonstrating that the NanoTab System is not inferior to IV PCA with morphine for the primary endpoint of Patient Global Assessment, a method of pain control. In addition, because the results was strongly in favor of the NanoTab System, a statistical analysis for superiority could be performed which demonstrates that the NanoTab System was specifically superior to IV PCA with morphine for the Patient Global Assessment endpoint in this trial. We also collected and report a large amount of secondary endpoint data…

Thank you, Richard. AcelRx reported a net loss for the fourth quarter of 2012 of $10.5 million or $0.41 per share compared to a net loss of $6.4 million or $0.33 per share for the fourth quarter of 2011. Common shares using calculating the basic and diluted earnings per share were 25.6 million for the fourth quarter of 2012 compared to 19.6 million in the fourth quarter of 2011. We currently have 37.1 million shares outstanding. During the fourth quarter of 2012, AcelRx recognized revenue of $1.7 million compared to $624,000 in the fourth quarter of 2011. The revenue resulted from the reimbursement for the work completed under the research grant from the US Army Medical Research and Material Command for the development of the ARX-04 product candidate, a Sufentanil NanoTab for the treatment of moderate to severe pain. Research and development expenses in the fourth quarter totaled $7.8 million compared with $4.7 million in the fourth quarter of 2011. The increase is primarily due to the Phase 3 clinical expenses for the NanoTab system which we anticipate that R&D expenses for both the first and second quarter of 2013 will be in line if not modestly higher than the R&D expenses experienced in the fourth quarter of 2012 due to the ongoing Phase 3 clinical trial activity for the Sufentanil NanoTab PCA System including the preparation of the NDA submission in the NanoTab System anticipated in the third quarter of 2013 as well as the completion of the ARX-04 Phase 2 clinical study. General and administrative expenses were $1.9 million for the quarter ended in December 31, 2012 compared to $1.7 million in the fourth quarter of 2011. The increase resulted primarily from the higher legal cost associated with the intellectual property. Other income and expense included a $2…

Thank you, Jim and before we answer your questions. I would like to summarize our major goals, potential milestones looking at over the coming months. Near-term, we expect to complete on second double-blind, placebo-controlled, pivotal phase III registration study of the Sufentanil NanoTab system for the treatment of acute pain in patients following orthopedic surgery such as hip and knee replacement. We plan to announce top line results during the second quarter of this year. This represents our largest study with approximately 400 patients. We anticipate (inaudible) of further results from our phase 3 trail program as medical meetings over the coming months. As we finalize these presentations, we will make the information available to the investment community. We plan to submit on our new (inaudible) application to the FDA once we have of our Phase 3 data and that will occur in the third quarter of 2013. And finally, in Europe would be sometime after the US submission in the first half of 2014. Dosing of the last patient in our Phase 2 study ARX-04 with single dose Sufentanil NanoTab product candidate for the management of acute pain has been completed, we expect to announce top line results during the second quarter for 2013. As we tell the coming months will be busy and accelerates with numerous important milestone events to be completed. And so with that, I would like to open the call for questions. Amy, we are now ready for the first question please.

Thank you. (Operator Instructions) Our first question is from David Amsellem with Piper Jaffray. Go ahead please.

Thanks, just a couple of first I wanted to ask about the commercialization plans in the US regarding ARX-01, just walk us through your thoughts on the size of the sales organization and how many hospitals initially you are going to target and then the extent to which you are actually wedded to going at alone with your own sales force in the United States for the products. Thanks.

Thank you, David, an important question. So in the US there's about 1000 hospitals based on our estimates that deal with about 80% of the surgical volume in the US, about 2000 hospitals cover pretty much the entirety of the surgical volume in the US, but we would focus on that 1000 hospitals, sales force size, round about 60 to 65 people should be also addressed those hospitals because of that scale of 65 people it’s a manageable commercial scale for a company of our size and one that we are certainly gearing up to be able to address and accommodate as we kind of prepare the ground work for the commercial approach that we will take. And certainly at this stage given the size and scale of the opportunity, the ability to actually build a new company around commercial company, a successful commercial company around the launch of ARX-01 we fully intend to do that under our own scheme, and our own capabilities.

And then second question if I may, this is a competitive question, but with medicines companies taking over ANSYS what are your talks regarding the advantages and limitations of that product and do you see any disadvantages for 01 assuming that ANSYS is commercially available on the market before your product.

Again great question, so I think that taking a step back for a moment, the idea of developing alternative to IV PCA I think firmly puts ANSYS and ourselves on the right line of trying to figure around an appropriate innovative technology to address the shortcomings of intravenous patient-controlled analgesia. My perspective on things is to start with the skin is not the best medium to go through to try and address acute pain in a real time fashion. The skin is designed to be a barrier to entry to materials from the outside, and so in order to get to a point where the sufficient drug concentration in the skin to create blood levels that are managing pain there is any breakthrough in pain medication with the ANSYS part for the first three hours based on their approved label that I don't think has any change from that in terms of when they will go back and present that product back to the FDA again. So the nurse will have to certainly provide continuous oversight of the patient in the first three hours. So that’s a challenge. I think the fact that the product is not tethered to anything but the patient skins makes it very, has some risk of being diverted in the hospital and removed which is a potential problem, and there’s a lot of material that is left in the device at the end of (inaudible) close to 7 milligrams of Sufentanil left in the device that must then be disposed off and 7 milligrams of Sufentanil a very large amount of Sufentanil that could in the wrong hands create some significant concerns. So there’s number of shortcomings, I think they were on the right track to try to address the problems of IV PCA. I am not sure the route was necessarily the right route, but that said, I believe there will be a good competitive spirit between ourselves and the management’s company. I think between the two of us, we’ll both be pushing towards the replacement of IV PCA, as the first focus of our [energies].

The next question is from Louise Chen with Guggenheim. Go ahead please.

My first question is on ARX-04. Just curious if you plan to partner that drug or market that yourself, and then secondly I wanted to ask on your SG&A guidance; are you seeing modest increase from full-year 2012 or fourth quarter 2012? I wasn’t sure and then if you could give some more color on the R&D expenses for the remainder of 2013 as well, and then last question is just on your plans for additional funding post 3Q ‘13, and what are you thoughts there. Thank you.

Okay. So let me just note to myself so I can address what is [asked]. ARX-04, so the opportunity with ARX-04 is obviously from a DOD perspective, wounded soldiers on the battlefield, requiring acute pain treatment, the design to get away from syringes in to muscular injections of morphine which is the current standard. That dramatic pains management process and with sublingual technology, if we can find the right dose we think we will be a much less problematic technology able to avoid needles to injuries to soldiers and for medics on the battlefield, it's not morphine, which is (inaudible) and then because of this sublingual [hypoglycaemic] shock situation which can result in lack of uptake of drugs from a muscle that was injected presents some similar traction to the use of this technology on the battlefield. But beyond that there are significant opportunities ahead as I alluded to in my comments previously in the emergency room, in the recovery room also in the paramedics banks and those are opportunities that are significant and could be very easily managed by extension from the 15 sales force that we are planning to have that is going to focus in on hospitals, selling into the hospitals for ARX-01. So we feel that hospital sales team can extent ARX-04, can accommodate it, and again we would tend to sell that product ourselves in the US and look at partnership ex-US. Jim from an expenses standpoint.

Yeah in terms of SG&A, if you were look at the G&A portion that I would expect to stay relatively pretty flat with what we saw in the fourth quarter. As you look to roll in there will be over the course of the year as we get the data and get move in towards the filing of the NDA, there will be a continual but not necessarily a huge ramp but a continual increase in terms of commercialization (inaudible) work deliverable SG&A line including market research and various other things. So there would be a general increase over the course of the year as we move closer and closer to the filing event and getting ready for the product approval in 2014.

And I think what this comments on the, the question was on the R&D expenses and the transition for Q4 to Q1 to Q2?

In terms of the transition there Q4 was higher than what we have seen, I would imagine what we will see is Q1 is going to be probably the largest of the quarters that we do have and then you will see it start to ramp down some in Q2. If you look at the largest element of the cost that we do have in clinical trails which are the investigator payments and so forth, we in the first quarter have recruited a large number of patients into these studies, and so I would expect to see Q1 the highest of the two, Q2 down some and then again Q3 and Q4 would also show some kind of a gentle ramp down as we complete all the R&D activities of the company for the time being.

And my last question was funding close Q3 of ‘14, and we are funded right now into the third quarter of 2014, we see the number of different avenues for that funding. Our primary focus is on partnering ARX-01 from an ex-US perspective, and that we see as since getting non-diluted funds to support the company’s commercialization efforts in the US. Remember, we have other assets in ARX-02 and ARX-03 that we are also seeking partners to provide funding sources as well. So we will explore all those different avenues and of course should we need to also consider the equity markets although our preference at this stage is to find those options to secure that funding going forward.

I guess I just wanted to clarify, so you are saying you are funded through 3Q ’14 I think in the press release it says third quarter of ’13 that might have been a typo, but just wanted to be sure?

Actually, the case that we have taken out in through and well into the third quarter of 2014.

Our next question is from Randall Stanicky with Canaccord Genuity. Go ahead please.

This is Dana Flanders filling in for Randall. I’ve just got a couple of questions here. Richard, can you give us your updated thoughts on potential ex-US partnership for ARX-01 specifically your view on global partner versus regional and then also how you weigh a device company versus more of a typical drug developed company that would be helpful? Second, regarding ARX-04, I was hoping to get some thoughts on timeline between when the data is coming in 2Q and then when we should know if that is going to progress and obviously that will depend on the data? And then thirdly, Jim or Richard can you update us on your NOLs as we exit calendar 2012? Thanks.

Okay. So ex-US partnership global versus regional and also drug partners by pharma. So clearly, we see a very attractive market opportunity for partners outside of the US marketplace in multiple locations around the world. Europe has a very robust and very well established procedure set, very similar to the US in many, many respects. An ageing population which is going through the major replacement, replacements and so on that the US patients are going through and the need for pain control in an environment just as great as it is in the US. But we also see emerging markets in Latin America, in Asia. Clearly, established markets as well Australia and South Africa and so on where there is significant unmet need in terms of management of post-operative pain and a significant attraction to a simple-to-use handheld device low on capital investment which is critical to adoption in these parts of the world that can present a significant opportunity to a partner. In terms of whether that partner would be global or regional, I see advantages to both. I see a limit on the number of regional partners that would be manageable by company specific, AcelRx; I think two or at most three regional partners could be supported by the AcelRx organization so I don’t see it going kind of country-by-country around the world. In terms of drug versus device partners, I think obviously with the combination of products you kind of confront this question of best suited in the drug world, best suited in the device world. In many respects, I think its manageable on both sides of the device here, the drug companies, drug companies are very used to delivery devices such as syringes, more and more inhalation related devices and so on to deliver medication which…

On the NOLs, we, as of the end of the last year, we had approximately just a little bit less than a $100 million in NOLs. And so, it's not limited at this time. One of the benefit shall I say of having the same VCs that still on a good portion of the company, we haven’t had ownership change now one thing as we look forward to it and it all determine really based upon the market capital of the company, if we will see some ownership change that triggers the NOL limitations but at this point in time, it's currently standing at 98 with no limitation.

Our next question is from Ed Arce with MLV Company. Go ahead please. Ed Arce - MLV & Company: A lot of them have been asked, but couple of more here. I just wanted to get a little more detail around your pre-commercial activities, I would imagine that you are going to be focused primarily with the data and the submission of the NDA in the first half of this year, but as you get into late summer and beyond, just wondering, what are the some of the specific activities that you would be engaged in that regard?

So, you are actually right, data and presentation of data, most in the first half of this year and we will basically roll through the course of 2013 and actually through 2014 as well. One of the benefits of doing three different studies, two placebo-controlled, one active comparator, there are gifts that keep on giving from the various cups and combinations of dates across those studies. But I think we will provide relevant hope for the physiology community as well as the surgeon community as well as the nurse community that really will be the primary users and doctors of our product. And obviously along that the submission of the NDA is a critical element as well. As we get to towards the end of 2013, we will have defined and we will have go-to-market strategy based on market research associated with all of our data and the key messages that come out of that dataset. We hope to define the idea of positioning the product in the marketplace and the benefits that can be positioned on in the minds of physicians that we use and the nurses and so on. And we will also be moving towards definition of the full rollout strategy in terms of the foundry submission process, the medical affairs, communication work that goes around that formally proved process. The contracting work that will be done at individual hospital level at integrated delivery systems level as well and at the [GPL] level and that is starting to be further refined by the end of this year moving into 2014. Ultimately with the goal of being ready in hopefully the end of Q3 ‘14, with approval to market that allows us to recommence in earnest at work with formally committed and then on into go through nurses and surgeons thereafter. So that’s kind of a broad outline, there is a lot of detail and below that but I think I hope I got you some sense of the work that will heading towards over the course of the next year and half to two years. Ed Arce - MLV & Company: Okay, so it sounds like this year will be focused primarily on the data analysis and the NDA submission?

I think pretty much the case and you will see revised cuts of data and different data presentations coming out through this year and indeed through 2014 as well. Ed Arce - MLV & Company: Okay. And just one other if you have anymore clarity at this point on which specific conferences, you would be presenting any of that data?

Yes, so we have submitted [ARX-02] and starting to see acceptance of ARX-02 meeting such as the American Society of Anesthesia, the American Pain Society Meeting, the American Society of Anesthesiologists. We are starting to look more at the surgical meetings and prepare ARX and so on for those and what we intend to do is as we come toward those meetings where we will be presenting material we will obviously press release the material that is to be presented and ensure that the investment community is aware of both data as well as the schedule of presentation.

Your next question is from John Newman with JMP Securities.

I just wondered if you could give us a little bit more detail on the types of additional and or incremental data that we might see at some of these upcoming medical meetings from your Phase 3 studies. Thanks.

Yes, so and we presented top line data from both our active-comparator study as well as our first placebo-controlled study as you've seen and we've covered that material. There is additional information in both studies for example in the active-comparator study there's information related to specifics on pain control that will be I think of interest and value to positions as well as to the investment community. I think there's also information as it relates to adverse event profile for our product compared to IV PCA Morphine that will also be relevant. When we look at the information flow from our placebo-controlled studies there's additional information to begun there from the key questionnaires that were in those studies. So we've kind of gathered top line data from these studies that we can present quickly to the investment community to understand what the top line results in each case are and then there is additional more full data on a variety of other endpoints that we will take to major medical meetings and present there.

And one additional question which is on the ARX-02 program. Would you be looking for a financial commitment there from a partner to take that program forward or is that more of a situation where you would refer to wait until after you secure FDA approval for ARX-01 to think about Phase 3 study there?

No, I think we have a very clear pathway forward in Phase 3 for ARX-02. We think it has a lot of attraction as a product, the first non-(inaudible) based cancer breakthrough pain of program of products. I think we would present some very valuable alternative treatment modal to patients with cancer experiencing breakthrough pain and I think that’s what we see the minimum in respect to the Phase 3 data from ARX-01 is clearly demonstrating the value of the Sufentanil NanoTab and it's ability to control pain in a post-operative condition in a rapid onset manner that can translate very well I think to sort of pain that patient experience in cancer breakthrough pain situations. And so that kind of halo effect on ARX-01, we hope will stimulate some interest in the program to move it forward into Phase 3. It's a different call point than the one that we intend to access from ARX-01 and ARX-04. The primary management point for patients with cancer is in the oncology setting or is in the primary care arena, it’s quite separate from the hospital setting and again would look to help move that forward into a Phase 3 setting. We're blessed with products and with ideas and we have to choose carefully which products to go, move forward into Phase 3 and then support those fully. And that’s where we are right now with 01. We would like to be able to move 02 and 03 for that matter into Phase 3 with that requirement.

Our next question is from Mario Corso with Mizuho. Go ahead.

Yes. Thank you, a couple of things I wanted to ask about. Number one is, as you look at the commercial landscape, I am wondering what you could say about how that evolved over the last year or two. I think investors look at companies, recording and talking about they like (inaudible) bupivacaine and their IV see [administered] and may be one that what that means for you guys as you come to market in another 12 or 18 months from now? Also wondering on the regulatory side, I know that you’ve hired senior people to really manage that process, and I am wondering as we have think about that, whether you think a six months or accelerated type review is possible and if you would expect in FDA panel. And then finally you talked about some of the pre-commercial activities, and I am wondering what you can say about what type of pharmacoeconomic data you would expect to have because it's sounds like a, that hospital setting it's nearly important for any therapy these days.

Okay. Mario, thank you. Firstly commercial landscape hasn’t evolved over the last two years. The IV of multi-model analgesia has been around for a long period of time now, the idea of taking an OPOID is a corner stone of therapy and then adding to that other agents that can control other pain pathways such as acetaminophen, such as bupivacaine and other agents and certainly I think that to a greater and lesser extent there has been evolution in that multi model approach and part of that remember is just one of the fact that frustration that exists with the delivery of IV morphine in particular in this post-operative setting through the PCA infusion pump. Some of thing that we are trying to address as a kind of focus for our product development. So I think there’s been some evolution in that approach over the last two years. I would say that it was already well establish, it continues to be the part of practice. Our goal is basically to say that within the opioid area of that multi modal approach, providing patients with a non-invasive pre-programmed delivery device using Sufentanil as opposed to morphine is the appropriate way to manage that post-operative pain situation. So that’s (inaudible) on the regulatory question the six month review and the FDA panel and we’ve always assumed a standard review clock 10 month after FDA filling of the FDA itself. So a 12 months total review clock, and it’s possible that the [19] panel would be convinced, it’s not traditional in products which are actually going into a hospital and very well control setting. You’ve certainly seen that and I think fairly commonly with opioids which are being used in the community to manage chronic pain, but in the control setting hospital that has not been part and parcel of the FDAs process to date, and then from a pharmacoeconomic standpoint, you are absolutely right, the value of not helping a patient to get them up and ambulated and out of the hospital more quickly is pharmacoeconomic value. The value associated with improvement patient satisfaction with pain relief is of pharmacoeconomic value. The value of not ending up in the ICU due to excessive sedation caused by morphine is of pharmacoeconomic value. Much of this has been documented in the list just some of it will be added to by our Phase 3 program and overall we believe there will be a powerful pharmacoeconomic argument to support introduction of our Sufentanil NanoTab PCA System.

Our next question is from Nick Farwell with Harbor Group.

Richard I'm curious why the bunionectomy surgery was chosen for the Phase 2 study for ARX-04, if I understand the army run around in their boots a lot but is there some significance to that and does it in anyway relate to the abdominal and of course knee and hip.

That's a great question Nick. It turns out all of those procedures result in moderate to severe pain and all relevant procedures to study acute pain and its ability to be controlled by a therapeutic agent. In the case of bunionectomy it’s a very consistent pain. It’s also what is known as a recruited pain model which allows you to basically go out and recruit patients into a surgical process and to get to a sequence of results in a rapid period of time. One twist on this study for us is that traditionally women get bunions for a whole variety of reasons something to do with footwear and (inaudible) elements. Men tend to get fewer bunions and don't tend to go and get operated on. But in our study and this maybe the first of its kind, we actually have a 50% female, 50% male population having their bunions addressed. That's obviously meeting with the more evenly or even more male dominated split that’s the military split. The recruited pain model is a standard, its one that's often used. It’s a rapid recruitment model and provides a very good and consistent pain effect that can be assessed effectively by different modalities. So that’s the reason why it shows you.

Is the timeline in anyway different by any significance versus the abdominal, knee, hip?

So only in the sense of recruitment in this case we recruited the 100 patients, and I guess a couple of months, two and a half months or so those number of size, it’s generally more useful as a short term assessment than a longer term assessment. I guess since we were studying 12 hour focused pain relief and this part really works in that shorter time period of focus, that's again part of the reason why it’s chosen.

And then a rather simplistic question but you had a 178 in the abdominal study and 400 for knee and hip I assume its split 200-200. If that’s the case what is the magic or why roughly 200 for each of the study.

So actually, when we looked at our all the [bigger] study, it's actually 300 active, 100 placebo. In the abdominal study, it was actually 2 to 1 randomization. So approximately 120 active 60 placebo. Why are the differences in size, it's because the powering of the studies and the predicted responses in the studies are based on our Phase 2 data guided those power calculations and hence the size is to be able to determine statistical difference between active and placebo.

Yeah. Is that an FDA mended number or is that just because that’s the analytical data, the way of analyzing, getting sufficient studies to be able to analyze it and get predictable returns?

So the FDA mandated part is that you do a model of visceral pain and a model of bony pain to be able to obtain a broad post operative pain indication. The actual sizing of the studies is based on effect [size] seen in Phase 2 data as well as expected effect sizes that you would see in managing patients in this post-operative setting as well. So that’s driven largely by our own assessment as opposed to by the sizing of studies as oppose to FDA specific guidance.

Okay, one quick question, Jim. You mentioned shares outstanding at year-end were 30. Just slightly over 37 million. I am assuming that is literally year-end inclusive of December offering. So current total shares outstanding are 37 million.

That’s correct. That includes all the shares issued in the offerings that we did in early December.

This concludes our question-and-answer session. I would like to turn the conference back over Richard King for any closing remarks.

So we just like to thank everybody for their attendance and questions during the course of the call today. We continue to look forward to a busy schedule for AcelRX in the course of the next couple of months and obviously we’ll be sharing with you results from our upcoming phase III study for ARX-01 and also our phase II study for ARX-04 in the course of the second quarter as well as we hope sharing with you some data presentation that we will be making at various medical meetings. So again thank you for your attendance. And everybody have a good day.