Welcome to the AcelRx Pharmaceuticals' third quarter 2013 financial results conference call. (Operator Instructions) I would now like to turn the call over to Jim Welch, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Amy, and good afternoon and welcome to today's call. Joining me on the call today is Richard King, AcelRx's President and CEO. Earlier today, AcelRx issued its third 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 commercial preparations for Zalviso, our sufentanil sublingual microtablet 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 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 filings. At this point, I will turn this call over to Richard King.

Thanks, Jim, and welcome everyone to this afternoon's call. The submission of AcelRx's first new drug application on September 27, 2013, for Zalviso, was the most significant event of the third quarter. It is also a further demonstration of the transformation that is underway at AcelRx from a clinical development stage company to one with full commercial operations. That transformation to commercial capability began in earnest in the third quarter with the addition of David Chung, as our Chief Commercial Officer, and the transformation is expected to continue throughout 2014. Our lead product Zalviso, also known as the sufentanil sublingual microtablet system is a patient activated non-invasive analgesic system, which delivers 15 micrograms of sufentanil per dose as needed for pain control, subject to a 20-minute lock-out period between doses. The proposed indication for Zalviso is the management of moderate-to-severe acute pain in adult patients in the hospital setting. The NDA submission is based primarily on data from a Phase 3 clinical program that included two double-blind, randomized, placebo-controlled clinical trials, in addition to an open label active comparator trial comparing Zalviso to intravenous patient controlled analgesia or IV PCA for short with morphine conducted inpatients following either major abdominal or orthopedic surgery. Zalviso successfully achieved the primary efficacy endpoints for each of these studies. In the course of these Phase 3 studies, Zalviso have consistently demonstrated an ability to achieve rapid onset of pain relief, faster in fact than IV delivery of morphine, thereby enabling patients to manage their moderate-to-severe acute pain, both early after the start of treatment and over 48-hours to 72-hours post surgery. In addition, the non-invasive delivery of Zalviso and the pre-program nature of the Zalviso delivery device, showed strong Ease of Care and Satisfaction scores from both patients and nurses, higher in fact than…

Thank you, Richard, and good afternoon everyone. AcelRx reported a net loss for the third quarter of 2013 of $11 million or $0.26 per share compared to a net loss of $8.6 million or $0.38 per share for the third quarter of 2012. Common shares used in calculating basic and diluted earnings per share were $41.5 million in the third quarter of 2013 compared to $22.6 million in the period one year ago. During the third quarter of 2013, AcelRx recognized revenue of $548,000 compared to $166,000 in the third quarter of 2012. The revenue resulted from reimbursement for work completed under a 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 the quarter ended September 30, 2013, totaled $6.5 million compared to $6.9 million for the quarter ended September 30, 2012, and compared to $6.1 million for the second quarter of 2013, which ended June 30, 2013. R&D expense for the third quarter of 2013 included an NDA filing fee for Zalviso of approximately $1.95 million. Without this filing fee, R&D expense would have been $4.6 million. Not including the NDA filing fee, the decrease in quarterly R&D expense from the second quarter of 2013 primarily reflects completion of the Zalviso Phase 3 clinical development program. The $1.95 million NDA filing fee in the third quarter of 2013 was an unanticipated R&D expense. FDA regulations allow for the waiver of an NDA filing fee if a company is filing its first NDA and qualified as small business with less than 500 employees. The FDA requested the SBA, our Small Business Administration to determine if AcelRx was a small business and the SBA ruled that AcelRx could not qualify as a small business.…

Thanks, Jim. And before we answer your questions, I'd like to summarize our major goals and potential milestones looking at over the coming months. We anticipate feedback from the FDA on the submitted Zalviso NDA later this quarter. Looking to the agency to confirm acceptance of this submission, and also to confirm a PDUFA date in third quarter of 2014. We are continuing to present data from all Zalviso Phase 3 studies at major medical meetings in 2013 and through 2014, with the goal of ensuring awareness of the clinical data and the awareness of the patient experience with Zalviso amongst physicians, surgeons, nurses and pharmacist both in the U.S. and in Europe. In addition, we plan to add medical science liaisons personnel in mid-2014, support educational initiatives around the management of postoperative pain in the hospital as well as to be able to provide information to pharmacy and therapeutics review committees on Zalviso after approval of the product. We will complete an end of Phase 2 meeting with the FDA later this quarter for ARX-04 helping us to define the Phase 3 program for the product candidate and supporting identification of funding for the Phase 3 program. The build-out of our commercial capabilities is underway with the focus in 2013 on establishing marketing capability. In mid-2014, we planned to add a sales management team and will add key account mangers after approval later in 2014. We will add the remainder of the sales force after approval of the product and I expect it early in the first quarter of 2015 to support the launch nationally as formally approvals are achieved. We're licensing discussions with essential partners regarding ex-U.S. commercial like the Zalviso as a high-priority for AcelRx. A key strategic objective for the company is to obtain an ex-U.S. licensing agreement with the partner experienced in commercializing products in the hospital environment outside of the U.S. So with that, I'd like to open the call for questions. Amy, if you can, we're ready for the first question.

(Operator Instructions) Our first question comes from Louise Chen with Guggenheim Securities

This is [ph] Swati in place of Louise. So I had a couple of questions. The first one is about the postoperative pain market. There are several amount of products being developed currently on the market, do you feel this is a market that is big enough for more than one product and why? Can you please speak with respect to Pacira's EXPAREL and medicines IONSYS? And the next question I have is that if you are successful with Zalviso, how do you think in terms of competitors, specifically pump manufacturers will react?

So first question, it is big enough for more than one product. I think the short answer is, yes, given the scale of procedures that are undertaken in the U.S. on an annual basis, about 12 million procedures resulting in moderate-to-severe pain, and that's a lot of patients requiring support while they're in the hospital to manage that extremely painful time for them. Speaking specifically to the two products that you referenced, an EXPAREL is a longer acting bupivacaine product that's used to provide local site relief at the site of the wound. And traditionally bupivacaine has been around as an agent for use in managing postoperative pain for a long time now. And as the case historically and will be in the future EXPAREL will form one part of a multimodal analgesic regime, which will include opioids and likely include acetaminophen and likely include gabapentinoids and a variety of agents to manage pain effectively from a hosts of different pathways. And certainly, I don't see EXPAREL as being competitive. I think it's adding to be armamentarium for surgeons and anesthesiologists to manage pain effectively as we will do. And our goal is to be that product of choice when they're looking for an opioid to manage that pain particularly because of the patient-controlled analgesia mechanism that we offer. And in contrast, IONSYS is a competitive product to ourselves. There will be a choice between either IONSYS or Zalviso. I think that should both make it through into the commercial marketplace. That's a challenge that I feel pretty comfortable with. Some of the differences between the two products, they are both patient-controlled analgesia devices but delivering product sublingually versus transdermally, creates differences in onset of pain relief, creates differences in local irritations of patients and also on the wastage process of patients, where you can completely utilize all the drug in a Zalviso device, you have to throw away a lot of drugs from an IONSYS device, if you're comfortable in that comparison. To the other part of your question how will pump manufacturers react? It's a great question, difficult to predict, obviously. There is an installed base of pumps that's out in the hospital community, many of them are now are leased because of all of the withdrawals of pumps that have occurred over the last five years or so due to FDA concerns of a functionality. So at the hospital level, I think it is relatively comfortable process to relief those pumps in access of a technology, at the manufacturer level more difficult to predict what we might actually do.

Our next question comes from Mario Corso of Mizuho.

Maybe you can talk a little bit about what your commercial preparations and market research thus far have revealed? And I'm wondering related to that when you talk about potential in non-surgical pain treatment, I'm wondering what you're thinking about in terms of clinical trial plans versus is it more a matter of where the hospital formulary is going to allow usage? And then secondarily, on ARX-04, what type of confidence do you have at this point about some or all of Phase 3 being potentially funded by DOD?

So market research today, obviously, I'm going to talk about what we have in the public domain. There is a host of research that we've conducted that is not in the public domain and is proprietary as we prepare the product for launch. Universally, what we see when we present Zalviso to surgeons, to anesthesiologists, to a variety of different nurses in the hospital, pharmacists, there's a very strong positive reaction to the product. People like patient-controlled analgesia from a variety of perspectives. But they also like this technology, this preprogrammed, noninvasive delivery technology. Surgeons like the noninvasive part of it. It allows patients to get up and ambulate, which allows them to get to recovery and out of the hospital faster. It's good for patient and for surgeon. Nurses like the preprogrammed nature of things. It reduces their time required to program and the risk and exposure that they experience. And patients like the fact that as a noninvasive delivery, they're not having to walk around with an IV infusion aligned in their arm that they can basically use that postoperative pain med as they need to, put it down, and go to the bathroom or the physical therapy as required. By the way, physical therapists love it as well, because the challenge of trying to actually get somebody through a rehabilitation process. Whilst they're taking a pole with them and a swinging IV PCA pump and tubing and so on, it's very challenging indeed. So it has a whole variety of different positive connotations to a host of different patients. So that also applies by the way in the non-surgical patient population. So the indication that we have proposed to the agency, as I referenced it for the management of moderate-to-severe acute pain in the hospital setting adult,…

Our next question comes from David Amsellem with Piper Jaffray.

This is Trevor Davis on for David. Just a few questions. Can you provide some color on your partnering discussions? And is finding an ex-U.S. partner for Zalviso a near-term priority or a post-FDA approval priority? And are there any updates on partnership talks on O2 and O3?

So I'm not going to comment on that, it's just ongoing discussions. I think the primary goal for us is the identification of the right partner in whose hands we feel Zalviso could be bought to a strong commercial success, in whichever geography we are focusing on. From a timing standpoint, it could be with all the Phase 3 data in hand presents a set of information that's available to partners. And obviously, post-regulatory approval presents an additional set of information. I think that at this stage I'd say, the primary focus for us is that right partnership and getting to a place where we feel that Zalviso can be bought to a successful conclusion in any given market that we're focusing on. Zalviso has been the focus of our partner discussions. I don't have any specific update to give you on O2 or O3. We have had some interest in partnership around O2 and O3, particularly following the O1 data. We always felt that the O1 data would be helpful. Two partners looking at those two programs, but nothing more specific than that to offer you.

And just one quick question. Can you remind us how many hospitals you guys are going to initially target with the sales organization, given Zalviso is approved later next year?

The focus will be within the top 2,000 hospitals in the U.S., exactly how many of those we actually do ultimately focusing on initially at launch will depend on that work that I described earlier on. But David Chung has embarked on segmentation, looking at both a hospital level and also at a surgical level, as to where the significant opportunity and the early adoption opportunity is going to exist. We will obviously, push our and target our sales organization at that hospital set. At this stage, I don't have an exact number, it will be within the top 2,000 hospitals in the U.S.

The next question comes from [ph] Rekha Patel, Private Investor.

My name is [ph] Rekha Patel. And my question is more around how cost competitive your pricing strategy will be to compete and convert the hospitals you planned to target?

Obviously, hospitals are very, very price sensitive. And our goal is to be able to offer a comparable price point to the hospitals, to that current IV PCA usage on a per day basis for patients in the hospital post-surgical and also on a broader patient population, but on a day-by-day basis to offer a comparable price. And ultimately to be able to demonstrate that from a pharmacoeconomic standpoint, the value of a delivery device, which is noninvasive, the value of a drug, which provides a rapid onset of pain relief and doesn't push patients towards excessive dosing of the product. The value of not having an IV delivered medication, but actually having patients untethered from an IV, presents a significant positive upside for hospitals. So that will be how I will describe it. In so doing as well, I would add that one of the areas of focus for us is with a drug device combination, our ability to leverage the device component of our product at a substantial cost reduction compared to current technology, IV PCA infusion pumps specifically is quite an attractive leverage point. So we are conscious of the marketplace and we're conscious of pricing this such that we can offer a very competitive price point to hospitals.

Just follow-up, how would that compare cost-wise to the IONSYS product?

It's difficult to tell, because IONSYS hasn't priced. So that will obviously depend on where the medicines company chooses to price IONSYS. And I will point out that from a cost perspective, a cost to manufacture perspective, with a product such as ours, which has a reusable component and a small part of it is disposable. You can recycle the reusable component and not at cost on a per patient basis. Where the IONSYS product is fully disposable, every patient gets a fully new product, which probably means that cost of manufacturer is going to be higher than ours on a per patient basis, which will, I'm going to guess, translates through into a price point as well. But that will obviously remain to be seen.

There are no further questions at this time. I'd like to turn the conference back to Richard King for closing remarks.

Thanks, Amy. And thanks everyone for your questions and for joining us on the call today. If you have any additional questions that you'd like to ask, then please feel free to contact either Jim Welch or myself. In the meantime, have a great rest of the day and a great evening, everybody. Bye.