Welcome to the AcelRx Pharmaceuticals Fourth Quarter and Year-End 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold the question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded today, March 03, 2013. I would now like to turn the call over to Mr. Jim Welch, Vice President and Chief Financial Officer. Please go ahead.

Thank you, Amy. 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 fourth quarter and year-end 2013 financial results which we will discuss in more detail on this call. In addition, we’d like to provide you with a corporate update and a review of our commercial preparations for Zalviso, our Sufentanil Sublingual NanoTab System that has been evaluated for the treatment of moderate to severe acute pain in the hospital setting, as well as provide an update on our ARX-04 program. The financial results press release has been posted to the website at www.acelrx.com. Also, a replay of this conference call will be made 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 the press release and in the company’s Securities and Exchange Commission filings. I will now turn the call over to Richard King.

Thank you, Jim and welcome everyone to this afternoon’s call. 2013 was a very successful and exciting year for AcelRx across three major areas of activity. First, clinical and regulatory; second, business development and licensing; and finally, the commencement and build out and expansion of our commercial capabilities. Success in these areas has propelled AcelRx from a purely clinical development stage company, to one that is establishing full commercial capability in advance of an anticipated U.S. launch. That transformation gone underway in the second half of 2013 and has continued to accelerate in 2014. During 2013, we announced positive results from two pivotal Phase 3 double blind placebo controlled studies of Zalviso in managing moderate to severe post-operative pain, which added to the positive results from the head to head study comparing Zalviso to IV PCA morphine that we announced in the fourth quarter of 2012. The data from these Phase 3 studies and the results of other clinical and pre-clinical work allowed us to file our New Drug Application or NDA for Zalviso in September of 2013. Subsequently, in December 2014 the FDA – sorry 2013, the FDA accepted the application for filing and confirmed a PDFUA action date of July 27, 2014. Our lead product Zalviso also known as the Sufentanil NanoTab System is a patient activated, non-invasive analgesia system which delivers 15mcg of Sufentanil per sublingual dose as needed for pain control subject to a 20 minute lockout period between doses. Our proposed indication for Zalviso is the management of moderate to severe acute pain in adult patients in the hospital setting. In its Phase 3 study, Zalviso demonstrated a consistently rapid onset of pain relief, faster impact than the intravenous morphine that is commonly used to manage moderate to severe pain in a hospital. Zalviso also…

Thank you, Richard and good afternoon everyone. AcelRx reported net profit for the fourth quarter of 2013 of $17.8 million or $0.41 per share, compared to a net loss of $10.5 million or $0.41 per share for the fourth quarter of 2012. Common shares used in calculating basic earnings per share were 43 million in the fourth quarter of 2013 compared to 25.6 million in the period of one year ago today. During the fourth quarter of 2013, AcelRx recognized revenue of $27.6 million compared with $1.7 million for the fourth quarter of 2012. The fourth quarter of 2013 revenue includes $27.4 million of revenue recognized from the $30 million upfront payment received from Grunenthal and $200,000 of revenue for reimbursement of work completed under the research grant on USAMRMC for the development of ARX-04, a Sufentanil NanoTab for the treatment of moderate to severe acute pain. With the recording of the $200,000 of reimbursement from the USAMRMC grant in the fourth quarter, AcelRx has completed utilized the $5.6 million of grant. Research and development or R&D expenses in the quarter ended December 31, 2013 totaled $4.3 million compared to $7.8 million for the quarter ended December 31, 2012 and compared to the $6.5 million in the preceding quarter ended September 30, 2013. The decrease of R&D expense compared to the fourth quarter of 2012 reflects a reduction in Phase 3 development cost for Zalviso, which reported top-line data in the second quarter of 2013. R&D expenses for the third quarter of 2013 included an NDA filing fee for Zalviso of approximately $2 million. Without that fee, R&D expenses in the third quarter of 2013 would have been $4.6 million. Selling, general and administrative expenses were $3.3 million the fourth quarter of 2013 compared with $1.9 million for the fourth…

Thanks, Jim and before we answer your questions, I’d like to briefly summarize our major goals and potential milestones, looking at over the coming months. Zalviso is under review at the FDA for the management of moderate severe acute pain in adult patients in the hospital setting with the PDUFA date of July 27, 2014. Dialogue with the agency is active and ongoing. MMA filing via the centralized procedure in the EU for Zalviso is being prepared by AcelRx and Grunenthal and we expect to make our submission in mid-2014. We are engaged with a notified body BSI to pursue ISO 13485 certification for AcelRx and a CE Mark for the Zalviso device in Europe. We anticipate realization of both of these key milestones in the second half of 2014. The build out of our commercial capabilities is ongoing, with sales leadership to be added in the first half of 2014 and approximately a third of the sales organizations to be added in the third quarter assuming timely approval of Zalviso. We plan to put the full sales force in place in first quarter of 2015. Based on the end of Phase 2 meeting, we conducted with the FDA at the end of 2013, we are preparing to initiate a Phase 3 registration ARX-04 in the second half of 2014, and we would anticipate conclusion of the study about a year later in the second half of 2015. We continue to explore partnerships with Zalviso outside the U.S., Europe and Australia with a particular focus on Asia and South America. The coming months will be highly active ones as I’ve just described we’re looking forward to another strong and productive year for AcelRx. With that, I’d like to open the call for questions. Amy, I’m going to turn it back to you so you can coordinate I’d appreciate it.

Thank you. [Operator Instructions]. And our first question comes from Louise Chen with Guggenheim Partners. Louise Chen – Guggenheim Partners: Hi. Thanks for taking my questions. I had a few. So one question I had was on your REMs for Zalviso we’ve gotten quite a few questions regarding that and how confident you feel that, that review process will go smoothly and potential diversion issues in hospital and how you’ll handle that? And then the second question we’ve got quite a bit of is with respect to the competitive landscape increasing number of postoperative pain drugs or pain drugs in general potentially coming to market over the next few years and you’ll fit within the treatment paradigm? And then lastly, if you could comment on Mike Royal leaving saw some press release this morning that he’s going to Toronto and just wanted to see what your thoughts are on that one? Thank you.

Okay. Thanks, Louise. So firstly REMs obviously as part of the applications for the NDA for Zalviso we’ve submitted a proposed REMs to the agency. We haven’t had any feedback on that rems yet and that will be part of the negotiation around the time of labeling. It tends to be one of the latter things that gets discussed so I think that will be discussion to be held at that stage. It did reference particular diversion in the hospital that is obviously a topic of focus to Zalviso we’re concerned with that ability for health care professionals to divert particular clear liquids in hospital setting and certainly Zalviso has built-in to it systems that can prevent against that particular diversion issue. I will say that the discussion is already with the agency they recognize I think the particular attributes to Zalviso that are trying to mitigate against that potential healthcare professional diversion in hospital setting. So I think that will be a productive area of dialogue for us. Competitive landscape I guess that large market opportunities do tend to attract competitors into the landscape I think that the we see a lot of room I think for people to co-exist in that market place. The goal that I have and the goal that AcelRx has is when physicians post-surgery or even outside of the surgical setting are looking for an opioid to help manage pain and there is still nothing as effective as an opioid to manage that moderate severe acute pain experienced by people particularly in the hospital setting but the opioid that they reach for is Zalviso. And the Zalviso system has an overall patient controlled analgesia system provides many, many benefits to patients and healthcare professionals alike in the management of that moderate to severe acute pain in hospital settings. Lastly, in terms of Mike yes there was an announcement this morning that Mike will be joining Cadence Pharmaceuticals. We didn’t put a press release out on this Mike is not a Section 16 officer report to the panel chief medical officer and very personal reasons for why Mike decided to move at this stage. His family is located in Southern California the amount of travel both up to AcelRx’s offices in San Francisco as well as across the U.S. and even internationally has been weighing on Mike for some time and I respect his decision to make a change at this stage to be located in a company which is in a San Diego area. And obviously I want to acknowledge the share of Mike’s work he’s done as well ensuring that we present to the agency very attractive NDA. Pam has picked up Mike’s workload and we are moving forward and exactly at the same phase and frame as we worked previously and don’t anticipate us missing a beat as we move towards the commercialization of Zalviso.

The next question comes from Randall Stanicky at RBC Capital Markets. Randall Stanicky – RBC Capital Markets: Great. Thanks guys. I guess I had a couple may be Jim could you help us with the cost structure. How should we think about the OpEx spend ramping this year? And where I’m really trying to go with this is to get a sense is as we exit this year what’s the run rate I know adding some more ‘15 just trying to get a sense of how to get that cost structure going forward? And then I have a follow up.

Okay. As I had mentioned as you look at the R&D cost which you have we’ve got ARX-04 kicking in a little bit later this year but if you look at the spending pattern over the course of the year, it’s going to be relatively fixed in the run rate that I had given you from Q1 Q2 Q3 and Q4 as there is a lot of in Phase 4 that are for the Phase 3 that we will be going to in the first half of the year. So it’s really there’s not going to be a spending ramp on the R&D side it’s going to be kind of a stepped up consistent spend over the course of the year. If you look at SG&A, SG&A we have basically if you take out the look at the marketing costs that’s the cost that’s really going to be ramping towards the back half of this year presuming a FDA approval in mid Q3. We in Q4 of ‘13 our marketing costs of that comment was about $1 million in the fourth quarter of last year and you’ll see that build up quite significantly toward the end of the year as we prepare for the commercial launch in Q1 of ‘15. The SG&A side I think you will see – it will creep up generally speaking, but it’s going to be much more modest in terms of ramp in sales and marketing side. That’s kind of why we gave the guidance that we did in around that on the sales and marketing side in below 20s and so forth and much of that is going to be sales and marketing.

I’ll perhaps add to that and these numbers are not a secret. So if we’re talking about earning about a third sales force of 20 people in effectively what it’s going to be Q4 then you can expect an annualized salary rate round about $250,000 on the representatives that we’ll be adding fully loaded which request about $500 million on an annual basis you can then quarter from there. And similarly 65 reps it’s about 250,000 a head so again the bulk of the cost is going to come in at sales force and you can expect an annual carry cost of total sales force 65 reps turn $50,000 about 60 plus million dollars a year. Randall Stanicky – RBC Capital Markets: Okay. That’s helpful. And then one more Richard for you as you talked about in the prepared comments the new opportunities for Zalviso in some of the work that you’ve done in Poland. When you roll this out, how do you sell into that group of patients that you’re not the traditional postsurgical IV PCA morphine patient base. Is there a concerted effort that you can expand into that [inaudible] phase until the other – how are you thinking about doing it I guess how long do you expect that could take?

That’s a great question, Randall and one of the things that we’ve been very focused on doing on as referenced previously is an expensive segmentation related market research with physicians of various different use and colors. And what’s interesting to me is that there are a number of non-surgical specialties that are identifying themselves through this research as dynamically interested in Zalviso as the surgical specialties themselves are ultimately what we are seeing is there is a broad consensus that Zalviso could represent between 30% and 50% share of their either post op or moderate severe pain patients depending on which segment that you’re in. That seems to be consistent in that range across the different specialties that we talked to with interests in both the post-op and non-postop patients. The ramp is slightly different depending on actually the individual physician we’re able to characterize physicians according to their tendency to adopt new technologies and what we’re seeing is those who have adopted new technologies historically regardless of whether they’re in a surgical specialty or managing patients outside of a surgical specialty seem to be both eager to adopt earlier to adopt and with higher market share ultimately than the physicians who are traditionally more lagged in terms of new technology adoptions. That’s a very important piece of information as we think about how we will target our sales force and also have a segment in the market and drive into those different surgical and non-surgical specialties. In summary, at this stage I’m not suggesting that we’ll go surgical first and non-surgical later, I’m suggesting that across the spectrum here we’re seeing the ability to go and talk to physicians about the management of their acute pain patients and Zalviso fits pretty much broadly across the entire spectrum. Randall Stanicky – RBC Capital Markets: Got it. That’s helpful. And I’ll just leave to you at one question is it possible that we could see another international partnering deal this year? Thanks.

Possible. And I’ve always tended to said this historically, it’s very difficult to predict timing on these things. As you’ll recall, we didn’t do coming up to the Grunenthal execution and deal execution, we will – we’re engaged. There are folks who are interested in Zalviso outside of the U.S., Europe and Australia and the timing of when that gets consummated is dependent on both parties coming to an agreement that can be announced. Randall Stanicky – RBC Capital Markets: All right. Thanks guys.

Thanks.

The next question comes from Mario Corso with Mizuho. Mario Corso – Mizuho Securities: Good evening. A couple of things I wanted to ask. Related to the FDA process, is there anything you can say kind of at a higher level is there anything you see or heard that would make you think that in July FDA action or FDA approval is not a high likelihood? And I’m wondering from there any particular issues that have surprised you in the process of going as planned from the commercial side may be more specifically from the prior question as it relates to EXPAREL, I think some investors look at the success there and think that the need for opiates is really getting obviated. So I wonder if you have any market research or comments that would help people think about the segmentation that would go on there. And then thirdly, any thoughts on when we might see some of your pharmacoeconomic analyses that you’ll be going to hospitals with? Thanks very much.

Okay. Thanks, Mario. So first question nothing that I’ve seen or heard at this stage is suggesting that there is an inability to get through July 27th PDUFA date. Other than that I can’t give any color but nothing at the moment that point against that based on the dialogue agency etcetera. On your second issue, in terms of EXPAREL, and is the needs for opioid obviated? So this – it’s a common misconception and you got to remember that there are various mechanisms that which multi-modal analgesia could reduce down the dependency on any one single form of analgesia and that’s relevant because pain is multi-factorial in nature, it’s multi pathway based and managing pain effectively actually requires a multimodal approval. And certainly things like [inaudible] which has been around for quite long as a would infiltration agent field block but also as a local nerve block has been used for many, many years to provide that support to patients in that postoperative realm. Last time then you get your pain coming up to patient and then you got to manage them differently. And certainly there is no indication I think in any of the studies that are involving moderate to severe pain that suggest that anything other than opioid is the most effective way of managing that market to severe pain. You need to provide the pain relief that the opioid can muster and can handle if you’re going to effectively and efficiently control moderate to severe pain. My goal as I said earlier is regardless of the multimodal approach and that will I think continue to be the case links forward. We want to be the opioid age of patients, physicians surgeons and also patient reach for managing that difficult moderate to severe pain. Lastly in terms of pharmacoeconomic analysis we are working extensively on P analysis. In fact we have presented – we have submitted a number of manuscripts to pharmacoeconomic journals that are beginning to describe the pharmacoeconomic analytics for Zalviso particularly the marketplace that we’re entering updating the cost of IV PCA in particular. Those we haven’t talked about publically as since in submission form for manuscript issuance. We anticipate that later this year and then we’ll obviously update/share that full information set with everybody. But I don’t want to jeopardize the publication process at this stage. I hope that satisfies.

The next question comes from David Amsellem Piper Jaffray. David Amsellem – Piper Jaffray: Thanks. Just a couple. So on the Grunenthal partnership with the upfront payments with the milestones how does that play into your decision to potentially accelerate or move forward development on ARX-02 or 03 or is that something that you’re still committed to looking for partners both domestically and internationally? And then secondly, just on your one of your competitors your primary competitor medicines company they had an interesting slide in there in their presentation sort of layering picture of IONSYS versus Zalviso and trying to make a point that their product was simpler and easier to use. So I was wondering since clearly there’s been no shortage of commentary about these two products how you would response to that and essentially what that counter detailing message would be?

Thanks, David. Good point on the Grunenthal milestones. Obviously, they’re not flanked at the moment in supporting either Zalviso in the commercial breakeven point or in the ARX-04 program within funding those with the currently available test results that we have access to. So yes it would open up access for 02 and 03 interestingly as well though since the unveiling of the Zalviso data set, there is a more active dialogue now again on 02 and 03 from a partnering standpoint. So, a number of avenues that we will explore. I believe 02 and 03 with ARX-02 breakthrough pain we’ll be the only non- Sufentenail based approach in managing cancel breakthrough pain with some really neat packaging technology around controlling access to the product where we think relevant and 03 is very novel sublingual combined pain relief analgesic and also model sedative that comfortable patients going procedures outside of the hospital setting or in the physician’s office. Both have strong relevance, less commercially relevant to since the focus for us acute care setting in the hospital, but still I think have extreme relevance and extreme commercial relevance and we continue to explore ways in which we can move those forward. I wish I could put all my through simultaneously but sometimes you kind of have to make those choices. On the medical[ph] company with IONSYS it’s kind of this market is big enough as I referenced earlier to accommodate a good number of players. And I have no issue with the idea that actually having two players out there is going to result in faster conversion of IV PCA to other better treatment modalities than technology. So I’m not in the lease bit of that product introduction. I do think there is account to detail mechanism that’s relevant here…

So it’s an interesting one. Again, turning back to for a second, when IONSYS was originally introduced in Europe it was priced by J&J and about $120 a day. That was back seven plus years ago. I think there was sensitivity to that price points so I think at that kind of price level, we would run ourselves into difficulty 120 bucks a day $240 over two days, still I think seven, eight years further on. But certainly as we did some research on price sensitivity, similar price points to the range that we’ve talked about the lower end of the range that we talked about in the U.S. that kind $150 wasn’t necessarily a negative reaction amongst physicians in Europe. David Amsellem – Piper Jaffray: Okay. Thank you.

[Operator Instructions]. The next question comes from Graig Suvannavejh at MLV & Company. Graig Suvannavejh – MLV & Co.: Thank you. Thanks for taking my questions and congrats on the quarter. A few questions like I’ll just focus on the 04 program. Could you just may be remind us in terms of what you’re thinking about the Phase 3 trial with the similarities and what the differences might be versus the prior Phase 2 trial that you ran it may be some of the doses or the dose that you might be exploring in the Phase 3 program? And just given the fact that you’ve decided to move forward and fund this on your own, how you’re thinking about may be commercializing on a go forward basis?

Okay. So if you recall, the Phase 2 study was a bunionectomy study so it was a model of what’s called bony pain and the FDA fundamentally wants for its pain assessment, a model of bony pain, a model of visceral pain. So the bony pain model is done, the visceral pain model which will be the subjects of the Phase 3 studies you can think of it as looking very similar of what we did with Zalviso in the abdominal surgery that we reported as 310 study that we reported back in Q2 of 2013, as a good example of how to do that study effectively. The product is a 30 mcg dose in a Sufentanil NanoTab. Its healthcare professional administered in response to patient request as opposed to the Zalviso system which is a 15 mcg dose on the patient control. And the limitation on the ARX-04 program is that we’re expecting to see dosing no more frequently than once per hour. So it means that for short term acute use where you’ve got a patient that’s under very kind of monitoring and watching by healthcare professional staffs such as in the being transported by the paramedic, such as in the ambulatory surgery center surgery, may be in the where you’re transferring out of the operating room before you get Zalviso going to the floor, the kind of to manage that patient to pain in the could be managed by ARX-04. Those are the areas where we see commercial activity and because that commercial opportunity of hospital if you think about it, hospital, the [inaudible], and AFCs of proximal to the hospital we see this as a very complementary product in the sales rep bag to Zalviso maintaining that focus on acute pain responding in different parts of the hospital systems. Graig Suvannavejh – MLV & Co.: Okay, great. Thank you. And then if I could just follow up on Zalviso. I know that there were plans on looking at perhaps about future point next generation delivery devices and perhaps version 2.0. So can you may be give us an update where you stand there and the timings of the new things that might come to the market? What kind of studies you might need to get that approved? Thanks.

Yes. We are interested in generalizing this device on a repeat basis. We see a number of opportunities to enhance the functionality of the device. We took public wireless communication to the nursing station directive EMR so on with a number of other areas that we have interest in as well. So I don’t expect to get to that point of introducing Gen 2 in the first two or three years of commercial lives or want to establish Zalviso in the hospital setting initially, but ultimately our goal is to obsolete our own technology and the course to generate perhaps a new and extended IP for the products. We think the majority of these iteration to the device can be managed through supplements to the original label as opposed to new clinical data and through device related testing outside of that clinical experience. But it will depend on what we ultimately do with the device as to whether we’ll need to generate any new clinical information but our expectation is low likelihood of requirement. Graig Suvannavejh – MLV & Co.: Okay. Thank you.

Thanks, Graig.

At this time, we show no further questions. Would you like to make any closing remarks?

I want to say thank you everybody for some great questions today. Really appreciate digging in on the AcelRx story and look forward to seeing you all soon. Take care.