Welcome to the AcelRx Pharmaceuticals’ Second Quarter 2013 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, August 12, 2013. I would now like to turn the call over to Jim Welch, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Denise. Good afternoon and welcome to today’s call. This is Jim Welch. Joining me on the call today is Richard King, AcelRx’s President and CEO. Earlier today, AcelRx issued its second quarter 2013 financial results, which we will discuss in more detail on this call. In addition, we would like to provide you with a corporate update and a review of our clinical program for Zalviso, which was previously known as ARX-01, or the Sufentanil NanoTab patient-controlled analgesia, or PCA system that has been evaluated for the treatment of moderate-to-severe acute pain in the hospital. The financial results press release has been posted on our website at www.acelrx.com. Also a replay of this conference call will be available later today on the Investor page of our website. Please keep in mind that the 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 in or indicated by such forward-looking statements, which are qualified in their entirety by the cautionary statements contained in this press release and the company’s Securities and Exchange Commission filing. At this point, I will turn this call over to Richard King for a company overview.

Thank you, Jim and welcome everyone to this afternoon’s call. AcelRx has come a long way over the course of the first half of 2013 and expects to continue to transform itself in the remainder of this year and into next year. In May, we successfully completed our third planned Phase 3 trial for our lead product candidate, Zalviso. We look forward to positive top line results for this trial conducted in adult orthopedic surgery patients following either total hip or total knee replacement surgeries. With positive results from all three of our Phase 3 clinical trials for Zalviso, the preparation of our new drug application, or NDA, is in high gear. We plan to submit our NDA filing by the end of the third quarter 2013 for Zalviso with proposed indication for the treatment of moderate-to-severe acute pain in the hospital setting. Presentation of the results from the Zalviso safety program at major medical meeting has begun and will continue through 2013 and into 2014 as we educate anesthesiologists, surgeons, nurses, and other relevant hospital staff on the clinical profile of Zalviso. Some of the key medical meetings we plan to it on attending include the America’s Society of Anesthesiology Annual Meeting in San Francisco in October, the European Federation of IASP Chapters also in October, and the American Association of Hip and Knee Surgeons Meeting in Dallas in November. The process of preparing for commercial readiness is underway at AcelRx. In July, we completed a public offering of approximately 4.4 million shares of common stock. The total gross proceeds of this offering were approximately $50.9 million with estimated net proceeds to AcelRx of $47.9 million after deducting underwriting discounts and expenses. AcelRx intends to use the net proceeds from this offering to fund potential regulatory approval of Zalviso…

Thank you, Richard and good afternoon everyone. AcelRx reported a net loss in the second quarter of 2013 of $17.4 million or $0.47 per share compared with a net loss of $7.2 million or $0.35 per share for the second quarter of 2012. Common shares used in calculating the basic and diluted earnings per share were 37.3 million in the second quarter of 2013 and compared to 20.6 million in the period one year ago. During the second quarter of 2013 AcelRx recognized revenue of $407,000 compared to $224,000 in the second quarter of 2012. The revenue resulted from reimbursement for the work completed under the research grant from USAMRMC for the development of ARX-04, a Sufentanil NanoTab for the treatment of moderate-to-severe acute pain. Research and development or R&D expenses for this quarter ended June 30, 2013 totaled $6.1 million compared to $5.4 million in the quarter ended June 30, 2012 and compared to $9.3 million for the preceding quarter ended March 31, 2013. The increase over the quarter ended June 30, 2012 was primarily due to expenses associated with the Phase 3 clinical studies of Zalviso. The decrease in R&D from the first quarter of 2013 reflects lower Zalviso Phase 3 costs as we completed Zalviso Phase 3 program. General and administrative expenses were $2.1 million in the second quarter of 2013 compared with $1.8 million for the second quarter of 2012. The increase was related to increased market research activity. Other income and expense includes a $9.3 million non-cash charge in the second quarter of 2013 resulting from the liability accounting related to warrant issued in connection with the PIPE financing completed in June of 2012. The primary determinant of this charge is an increase in the share price during the second quarter of 2013 and is…

Thanks, Jim. Before we answer your questions, I’d like to summarize our major goals and potential milestones looking at over the coming months. The value of our NanoTab system and the management of acute moderate-to-severe pain in the hospital is beginning to emerge. Zalviso, we believe is a product, which not only manages moderate-to-severe pain effectively over 48 to 72 hours, but can provide early pain control to better level than an IV delivered pain medication. Zalviso has demonstrated superior patient global assessment of method of pain control compared to IV PCA with morphine, nurse and patient satisfaction, and ease-of-care during use are also enhanced with Zalviso. Due to its intrinsic design, Zalviso eliminates the risk of programming errors and since it frees the patient from an IV connection to an infusion pump, it can enable patients to ambulate more easily. The side effect profile relates the study drug. We have observed in the placebo-controlled Phase 3 clinical trials is similar to placebo-treated patients except the itching, which is the only adverse event considered related to study drug that is higher in Zalviso-treated patients than in placebo-treated patients. In addition, in a single head-to-head study with IV PCA with morphine, Zalviso demonstrated a reduced incidence of oxygen desaturation events in comparison to IV PCA morphine. Now that we have all of our Phase 3 data, we plan to submit our new drug application to the FDA by the end of the third quarter of 2013 for the indication of moderate-to-severe pain management in the hospital setting. Our filing in the EU will be sometime after the U.S. submission. We are in the process of presenting full data from all Phase 3 studies of Zalviso at major medical meetings in 2013 and 2014 with the goal of raising awareness for product physicians, surgeons, nurses and pharmacists both in the U.S. and in Europe. We are beginning to build our commercial capabilities and plan to establish our marketing team in the second half of this year and our sales management team in 2014. We have planned to put active sales force in place in the first quarter of 2015 and planned to bring on board medical science liaisons in the first half of 2014 to be deployed for educational purposes in the hospital. We continue to engage in discussions with potential partners regarding the U.S. commercial rights for Zalviso – ex-U.S. commercial rights for Zalviso sorry, of business objectives for AcelRx remains and ex-U.S. licensing agreement with a partner skilled in commercializing products in the hospital environment outside of the U.S. The coming months will be busy at AcelRx with the analysis of additional clinical results, the preparation of filing of our NDA, planning and building infrastructure to support the commercial introduction of Zalviso in the U.S. and ex-U.S. partnering discussions. With that, I would like to open the call for questions. Denise, I wonder if we can invite the first question please.

Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question will come from Louise Chen of Guggenheim. Please go ahead.

Hi, thanks for taking the questions. I had a few. The first question I had was on your SG&A spend, just curious how we should model that in 2014 and 2015 and if you don’t want to give specifics maybe you could just sort of give us generally what we need to think about adding on in that timeframe? Second question I have was on your label for ARX-01, just wondering if you think you maybe able to include the head-to-head data and also favorable labeling for the two at-risk groups older and heavy patients, just wondering about that? And then lastly, just curious in terms of early adopters for your products, would Kaiser be possibly one of those types of organizations given that it’s also investor in the company so just kind of curious there? Thank you.

Okay, thanks Louise. Maybe Jim, you might want to talk first about SG&A and the one commentary I’ll give to start the ball rolling, the big bolus of headcount will come in January ‘15 as we add what we anticipate to be a sales force of about 65 people. So, clearly SG&A will ramp significantly at that moment. But Jim, do you want to give any other commentary?

What I would add is what you’ll see is starting here in the second half of this year. You will see a – I’ll say is a drifting up in the SG&A expenses as we start to kick off on various market research activities and commercial preparation activities. As Richard identified a little bit earlier in terms of the hiring of people in terms of marketing the [MS] [ph] sales and so forth, those will occur over the course of 2014 and so you’ll see a accelerated increase on the expenses and then as Richard just said, the real bolus will come in the first quarter of 2015 as we bring on the sales force, which we estimate to be about 65 people is what’s necessary and that will be brought in over the course of a few months in 2015. We are at this point in time not giving any specific guidance on outfitting or out that far, but if you look at the expenditures that should kind of give you the shape of which – where we expect things to happen.

And your second question, Louise, in relation to label and I don’t anticipate that head-to-head study as a single study will be included in the label although, some of the data from that study particularly the safety related information are likely will be referred to in the label. And certainly the information as it relates to older and heavier patients, it’s unclear at the stage whether it will be called out specifically in the label itself, but certainly the fact that the information is available in the study data that will be forming the basis of approval to placebo-controlled study specifically. There will be a lot of information related to the use of Sufentanil in older and heavier patients. Lastly in terms of early adopters, yes, certainly hospital systems with significant patient volume that manage both post-operative patients and certainly admit patients in the hospital with broader disease states that require management and support for pain I think will be early adopters and we haven’t called out any specific group at this stage. I don’t think we’re in a position yet to be able to do that. But over the course of the next year, we certainly imagine and anticipate that will lead to defining very specifically who early targets for Zalviso will be and then making sure that we had a sales force that is aligned to go and talk to and speak with those early-stage adopters.

Thank you.

The next question will come from Randall Stanicky of Canaccord Genuity. Please go ahead.

Okay, great. Thanks guys. There has been a lot of focus – most of the focus has been on the U.S. opportunity appropriately. Richard or Jim, can you just help us think about the ex-U.S. opportunity and then a couple of questions on that. Number one, how do we think about, what you are targeting is it Europe, is it global more broadly and then as you think about the potential peak or potential opportunity, how does that compare to the U.S. and then finally with respect to a partner was that something that if you don’t see the right terms, you could just hold off on and we could see that coming well post NDA submission or even post approval and then – that would be need to file for Europe on your own, thanks.

Okay, great questions. So, the ex-U.S. opportunity first and foremost in the context of the U.S. opportunity, procedures, hospital procedures and painful hospital procedures are a reality worldwide, it doesn’t matter which country you’re in. There is a significant procedural volume is done in Europe for example where in the U.S., we have about 12 million or so procedures resulting in moderate-to-severe pain on an annual basis for about 300 million people in the U.S. In Europe, we estimate is about 18 million to 19 million procedures resulting in moderate to severe pain from the 500 million European total population volume. So I’ll give you some sense that it does scale based on populations number one. Certainly in markets which are quite westernized. As you go more towards Asian markets, and towards South American markets, it doesn’t quite scale in the same linear fashion to population. But there remain substantial opportunity for products like Zalviso beyond the realms of US and Europe. We do tend to split them when we think about the world, our primary goal right now and focus is a European partner. And that’s clearly the market that’s well established. It’s definable in a significant way and we are working down that road. The global partnership of this product I do believe it has relevance on a global basis. In many countries outside of Europe and US, the way in which postoperative pain for example is managed is still on the basis of the patients sticking their hand in the air when they’re in pain and the nurse giving push opioids, because this acquisition of the IV PCA technology was too expensive. Where we think the acquisition of the Zalviso technology will be within the reach of many less well-funded healthcare systems around the world. So, I would say that we see opportunity on a global level. In terms of the partner shift, Randall it’s a great question. Certainly completing the recent financing that we did allows us to be comfortable waiting for the right partner with the right terms to present itself. And I think the further that we carry the product down the regulatory pathway will open up that particular opportunity for other partners to play here. But we’re working to find the right partner with the right profile the right capability to commercialized products, primarily in Europe and if we can do that sooner rather later than we absolutely will do so. But certainly this recent financing gives us some options to that.

Great color. Thanks, guys.

Okay, thank you.

The next question will come from Mario Corso of Mizuho. Please go ahead.

Yes, good evening. Thanks for taking my questions. In terms of data presentations in the second half of the year, I wonder if there is any kind of specific analysis or sub analysis we should be looking forward. It’s the matter of just we’re going to see similar cuts of data to what we have already seen but obviously you are building awareness in the various physician populations. And I am wondering what you can say separately longer term about kind of where you see the product in the company breaking even. And finally on the pipeline, anything – any thoughts percolating that you’re willing and able to share about future NanoTab targets or it where ARX-04 maybe heading? Thanks.

Thanks, Mario, great question. So (indiscernible), you should anticipate that the data presentations later this year are primarily focused at with them covering much of the ground that we covered earlier in this year, but providing additional contact, and additional average to additional audiences. Next year as we start to build towards a commercial launch, you’ll see some additional data analysis presented that – in 2014, but derived from broader analysis across the entire database of the three studies that we’ve completed in our Phase 3 program. And we’ll look at subpopulations we look at a host of other interesting aspects of managing moderate to severe pain in the hospital setting. So that’s more 2014 to think about the – translations for the data in 2013. In terms of your question about breaking even, we are still anticipating breakeven point around the middle part of 2016 and so with a penetration rate in U.S. And that’s based purely on U.S. commercialization by the way, but with our commercialization in the U.S. penetration rate of around kind of 4% to 5% by the mid-year point of 2016. Your question on pipeline, yes, obviously ARX-04 presents some very interesting opportunities for us as we think about this product that can potentially manage the pain of wounded soldier on the battlefield as well as provide other acute pain management situations with a product that can respond effectively to those conditions. Certainly we’re interested in moving that program forward, ideally with support from a third party to move that forward. ARX-02 and ARX-03 at this stage are definitively waiting for partners to move those forward. Although, I do see significant opportunities for each products and certainly I think in many cases ARX-01’s clinical data set provides a lot of insight to how ARX-02 and ARX-03 may be able to help manage cancer breakthrough pain and also procedural pain and anxiety in an effective fashion. So – but certainly, ARX-04 at the moment is one that we are focusing on to see if we can move that forward quickly.

And our next question will come from David Amsellem of Piper Jaffray. Please go ahead. David Amsellem – Piper Jaffray: I’ve just a couple of questions. Regarding your thoughts about use of cash into ‘14 and ‘15, is that building any spend on potential post-approval, post-marketing studies and just a broader question about Phase IV studies. Can you give us some color on what kind that you have planned in order to enable the product to gain further traction? This is beyond sort of the subgroup analysis and more expansive analysis that you just alluded to, but I was just thinking about your thoughts, your plans on that front, thanks.

Okay. So Jim, do you want to talk used cash in ’14 or ’15 first?

Yeah, absolutely. As we said and look at the ‘13, we don’t have any further studies that we have planned in ‘13. I do think that as we do look forward we’ve got a number of things that we want to look at in terms of the Phase 3b, 4, but most of that is going to out in ‘14, out in 2014, and 2015 is when we expect those things to occur rather than having it occur concurrently with the evaluation of the NDA with the FDA.

So, a bit more specificity as well for you, David in terms of specific sorts of studies, clearly assist a study to the head-to-head study, I think will be very helpful so gaining traction from a labeling standpoint and would be certainly part of our plans and expectations. We are still looking at which population would be the total population to study for that head-to-head additional second head-to-head study, but certainly I think a study to support the IV PC morphine comparison would be helpful. We will also do work in pediatrics. Initially, I think we will look for expansion of labeling to basically accommodate adolescents between the age of 12 and 18. We anticipate an indication by the way for 18 years and above on initial approval. But we certainly are interested in providing support for pediatric population aged just 12 to 18. As we go back to the between 6 and 12 population, which is what would be a second kind of push. Obviously it will depend on how we see the ability of young children to utilize the Zalviso device effectively, but we would certainly see some value first for Sufentanil and its application to manage the pain of the younger population, younger than adult population. David Amsellem – Piper Jaffray: Okay, that’s helpful. And then another question if I may, this is a clarification question about the proposed indication in the label and you may have alluded to this, but would you expect the label indication to be just the moderate severe post- operative pain or is just a more general pain indication where potentially you could see usage of Zalviso in the ICU or in the emergency room or in say the (indiscernible) section of hospital. How should we think about that?

Yes. So, we certainly think about this as being a broader indication than just postoperative, moderate-to-severe pain. It will be specific to hospitals. Clearly, our rooms will be focused on ensuring that the product stays within the environment of the hospital. And that’s something which we are very committed to as a company, but moderate-to-severe pain in the hospital certainly encompasses it comes to the broad range of arenas. Yes, the emergency room, but I think more particularly I anticipate you mentioned the kind of environment certainly I think that’s one where there is significant amounts of pain that could be managed – assisted and management by Zalviso Burns unit would be another one, where delivering an IV medication to a Burns patient is not necessarily an ideal set up at all in a variety of other situations. I mean, most people are in the hospital with pain if you think about the conditions that you find in the hospital. So, effective way of managing pain is certainly something which I think would be found to be abused by a broad set of people in the hospital setting and our indication is to support that.

Thank you.

(Operator Instructions) I am showing no additional questions at this time. This will conclude the question-and-answer session. I would like to turn the conference back over to Richard King for his closing remarks.

Well, thank you everyone for joining us on the call today. If you have any additional questions, you would like to ask then please feel free to contact either Jim or myself. In the meantime, have a great evening everybody. Thank you.