Hello and welcome to the AcelRx Third Quarter 2016 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference call over to Tim Morris. Mr. Morris, please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to today’s call. On this call, I’m joined by Howie Rosen, our Chief Executive Officer; Pamela Palmer, our Co-Founder and Chief Medical Officer; Gina Ford, our Vice President, Commercial Strategy; and Jane Wright-Mitchell, our Chief Legal Officer. During the call today, we will make forward-looking statements, and Jane will now remind you of our Safe Harbor language.

Thank you, Tim. During the call today, we will make forward-looking statements, including but not limited to statements relating to financial results and trends, the process and timing of anticipated future development of AcelRx’s product candidates ARX-04, sufentanil, excuse me, sublingual tablet, 30 micrograms, and Zalviso, sufentanil sublingual tablet system, including the ARX-04 clinical trial results, anticipated submission of the new drug application or NDA for ARX004 for to the U.S. Food and Drug Administration, or FDA; AcelRx’s pathway forward towards gaining approval of Zalviso in the U.S.; including the successful completion of the IAP312 clinical study for Zalviso; anticipated resubmission of the Zalviso NDA to the FDA including the scope and timing of the resubmission, and the FDA review time; the status of the Collaboration and License Agreement with Grunenthal, a company organized under the laws of Germany, or any other future potential collaborations, including potential milestones and royalty payments under the Grunenthal agreement; and the therapeutic and commercial potential of AcelRx's product candidates, including potential market opportunities for ARX-04 and Zalviso. These forward-looking statements are based on AcelRx Pharmaceuticals' current expectations and inherently involve significant risks and uncertainties. AcelRx Pharmaceuticals' actual results and timing of events could differ materially from those anticipated in such forward-looking statements, and as a result of these risks and uncertainties, which include, without limitation, risks related to AcelRx Pharmaceuticals' ARX-04 development program, including anticipated submission of the ARX-04 NDA and the possibilities that the FDA may dispute or interpret differently clinical results obtained from the Phase 3 ARX-04 so forth studies, the Zalviso development program; including completion of IAP312 and resubmission of the Zalviso NDA to the FDA, any delays or inability to obtain or maintain regulatory approval of its product candidates, including ARX-04 in the United States and Europe, and Zalviso in the United States; AcelRx's ability to receive any milestones or royalty payments under Grunenthal agreement and the timing thereof; ability to manufacture and supply sufficient quantities of Zalviso to Grunenthal on a timely basis; the commercial success of Grunenthal's launch of Zalviso in the European Union or EU; the uncertain clinical development process, including adverse events; the success, cost and timing of all development activities and clinical trials, the market potential for AcelRx's product candidates; the accuracy of AcelRx's estimates regarding expenses, capital requirements and the need for financing, and other risks detailed in the Risk Factors and elsewhere in AcelRx's U.S. Securities and Exchange Commission filings and reports, including its Annual Report on Form 10-Q filed with the SEC on July 29, 2016. AcelRx undertakes no duty or obligation to update any forward-looking statements contained in this presentation as a result of new information, future events or changes in its expectations. I will now turn the call back over to Howie, our Chief Executive Officer.

Thank you, Jane. On today’s call, we'll provide business highlight and accomplishments since last call, including an update on pipeline program, ARX-04 and Zalviso in a review of the third quarter financial results. Let me start with our recent accomplishment. Our medical affairs team was busy in the third quarter making presentations of ARX-04 results at six medical meetings around the world. One such presentation is a military health system research symposium reported for the first time results of SAP302, the single arm, open label phase 3 trial of ARX-04 in patients who presented to the emergency room with moderate-to-severe acute pain associated with trauma or injury. We just reported for the first time result of SAP303, an open label phase 3 trial of ARX-04 in 140 patients who were at least 40 years old and included patients with baseline renal and/or hepatic impairment who underwent short stay, in-hospital surgeries associated with moderate-to-severe acute pain. Pam will discuss results from both of these studies in a moment. With SAP302 and 303 complete we are now focusing on completing the new drug application, which we expect to submit before the end of the year. It goes without saying, overall extremely excited to reach this milestone and look forward to bringing you further update/ In the third quarter we also continued to make progress with Zalviso. In September, we announced the initiation of IAP312, a Phase 3 trial of Zalviso in hospitalized, post-operative patients. This study as you recall was designed with the FDAs input to measure device usability, including any incidence of Zalviso's failure to dispense medication, as well as the incidence of misplaced or dropped tablets. On the finance side during the quarter we were able to make some favorable amendments to our debt agreement with Hercules Growth Technology that Tim will describe in more detail later in the call. Let me turn the call over Pam now for more detailed update on our clinical program.

Thanks, Howie. I'll start with ARX-04. As you just hear we heard, we had two significant announcements of ARX-04 result last quarter. The first from SAP302, our emergency department study and the second from SAP303, in post-operative patients who were 40 years old or older. Taking these one at a time, SAP302 if you recall had two phases, one that treated 40 adults who presented to the ER with moderate-to-severe acute pain from trauma or injury with a single dose of ARX-04, and an extension phase that enrolled an additional 36 patients, who were eligible to receive multiple doses of ARX-04. Overall the 76 study participants experienced mean pain intensity difference or PID of 2.9 from a baseline of 8.1 on 0 to 10 numeric rating scale at 60 minutes. This represents over 35% decrease in pain intensity. Interestingly, the second cohort even though patients were allowed multiple doses of ARX-04, only seven in the 36 patients requested a second dose there before and only two requested third dose. Therefore for 75% patients in second cohort is single dose of ARX-04 was sufficient for pain relief and only 8% of patients overall received more pain in addition to ARX-04. ARX-04 was well tolerated in study with 79% of patients having no adverse events. Among those risks in AEE [ph] the most common was nausea 9%, somnolence 5% and vomiting 4%. In addition to the PID or pain intensity difference and safety measures, we also included a cognitive assessment SAP302 protocol. This was not required by the FDA, rather we added it and requested the Department of Defense which is partially funding the development of ARX-04. The Department of Defense is understandably concerned with cognitive side effects of pain medications given to the soldiers in the battlefield. In addition to presenting…

Thank you, Pam. In order to better understand the markets of ARX-04, AcelRx is also attended a number of important medical conferences in September and in October, including, the Emergency Nurses Association conference in Los Angeles, the American Society of Plastic Surgeons meeting in Los Angeles, the European Society for Emergency Medicine Congress in Vienna, Austria, the National Conference on Correctional Health Care in Las Vegas, the EMS World Expo in New Orleans and the American College of Emergency Physicians Scientific Assembly in Las Vegas. Information from year’s worth of market research and insight from these meetings is helping us shape the commercial strategy for ARX-04. Probably that strategy is to launch ARX-04 ourselves with an internal sales force. The initial target will be emergency medicine. These develops are positioning and are finalizing our strategy, so that as the NDA estimated we can move into launch planning. Most of our thinking on the commercial strategy for ARX-04 in the US will be completed in the next month. We decided to hold an analyst meeting in December where we will review these trends and provide a fresh perspective of the market potential for ARX-04 in the US. And we therefore like to formerly announce that AcelRx performed its second analyst meeting in New York City on the morning of December 1 at the [indiscernible] This meeting will feature a presentation from Harold Minkowitz, MD, from Memorial Hermann Memorial City Medical Center, a principal investigator for ARX-04, of the innovated safety and efficacy data basis for ARX-04 to be included in the NDA. And we'll host a panel discussion with several emergency room physicians who can share with you their real world trauma experience both military and civilian and their impression of the various treatment for acute pain. The panel will consist of James Miner, MD, Chief, Emergency Medicine, Hennepin County Medical Center, John Holcomb, MD, Vice Chair, Professor, and Chief of the Division of Acute Care Surgery, at the University of Texas Health Science Center at Houston. John Holcomb served in the army for 23 years and created comprehensive trauma systems for DoD. Michael Ritter, M.D. Chief of Emergency Medicine at Mission Hospital in Mission Viejo of California. The trial group will be sending invitation for the even. But for now, please save day and I will see you in New York City on the morning of December 1. Tim, I'll turn the call back to you to discuss the ISPOR presentation and the Q3 financial results.

Thank you, Gina. The presentation we are giving at the International society for International Society for Pharmacoeconomics and Outcomes Research is ISPOR annual meeting continues some interesting findings which will inform our European commercial strategy for ARX-04. The team is presenting analysis of the cost of delivery IV opioid in European emergency departments, specifically it was determined that the cost of IV administration of morphine rangers from 18 to 28 pounds in the EU 5 countries of Germany, Spain, France, Italy and United Kingdom, most of the costs is associated with nursing time, specifically for drug administration and patient monitoring. However, when the cost of treating adverse events or AEs and complications probably associated with IV morphine, such as nausea, vomiting provided are factored into the equation. This range now increases to €121 to €132 per patient. That’s where drug custom sales maybe relatively low, the economic burden of treatment with IV morphine is about high through the cost associated with staffing and complications of our IV administration. Product such ARX-04 which is a six dose sublingual tablet has potential to have lower healthcare burden. You could find this in our other posters we presented on our website under the Publications tab. And to our financials. Earlier today we reported the results for the third quarter ended September 30, 2016, you are encourage to review that press release for specific details. In summary, the net loss for the third quarter 2016 was $11.4 million or $0.25 basic and diluted net loss per share. This compares to a net income last year of $5.1 million or $0.11 basic and diluted net income per share. The net loss from operations in the third quarter this year was $8 million, as compared to net income of $7.1 million for the third quarter last…

Thanks, Tim. One last update regarding Zalviso, as I mentioned IAP312, a Phase 3 trial on hospitalized, post-operative patient. IAP312 is an open label study that will enroll approximately 315 patients who will use the Zalviso system to self administer sublingual sufentanil tablets as often as once every 20 minutes for 24 to 72 hours to manage the moderate-to-severe acute pain. The types of surgeries being included are abdominal, orthopedic and other surgeries. Multimodal pain therapy is also allowed. The materials for IAP312 are manufactured by a commercial supply chain partners and based on our experience in previous clinical trials and in Europe, we incorporated certain software and hardware revisions to improve device usability, and optimize system functionalities. To anticipate the enrollment and treatment period for IAP312 will continue through the middle of next year. As Gina discussed, ARX-04 is advancing on schedule with SAP302 and 303 completed now we were working on the final sections of the new drug application to expect to submit to the FDA before the end of the year. Its been very busy time for AcelRx with the presentation of clinical results, participation in various medical meetings, preparations of ARX-04 NDA and supporting Grunenthal's launch, I wan to personally thank Pam and Gina and the respective team, as well as our other employees for all the long hours and dedication on behalf of patients and our shareholders. Operator, let's open call up to questions.

Thank you. [Operator Instructions] And the first question comes from Randall Stanicky with RBC Capital Markets.

Great. Thanks, guys. I just have a couple, the first one is, as you think about the launch of ARX-04 yourself inside the next year, when do you start ramping commercially, how big of a sales force do you think you'll need? And then lastly, I guess this is probably for Tim, where can we expect that to take your quarterly burn rate Q? And then I have a follow-up as well.

Thanks, Randall. This is Howie. In terms of our lunch plans and ramp in things, those are things we're going – we are going to open more at our analyst day. But we are in general thinking about starting with some sort of pilot program to get to know the intricacies of the hospitals and other places where ARX-04 might be used and then ramp from there. As you're probably familiar with you know quick gain through formularies and P&T [ph] commission things take sometime, so we want to make sure we do good job of that and don't get ahead of ourselves in terms of putting resources in place.

Great. Follow up on that one, Tim, I mean, right now you're going to end the year at $75 million, you are burning about $10 million a quarter. Do you have the ability to self fund that launched either with partnering OUS or other opportunities? How should we think about that for 2017?

Yes, I mean, clearly when the addition of commercial and support personnel, the burn will go up, we haven’t given any guidance on that yet. With the money's we have on hand right now, clearly we have enough money to get through to the approval. But I probably don't have enough money or resources to get through full launch.

Okay. One last question for me, Howie, this is probably for you, should we expect an Adcom [ph] just given what we've seen with opioids s in general. And then it if the answer to that is yes, which is suspect it is, how do you start preparing for that, where do you think the focus will be?

Randall, thanks. That’s a good question. So we won't know for sure until after we submit the NDA and we get feedback from the FDA, but you know, we are anticipating it will be one and as a result we are planning for that. And so we already have a contract with an outside group to help us with the preparation and also rather than wait until three or four months to get going. And they've actually been helping us as we finish off draft – finish off preparing the NDA to just give us advice and include into what's in the NDA and also thinking we do have Adcom and making sure we've covered key topics in what we have in our filings.

Okay. Great. Thanks, guys.

Thank you. And the next question comes from David Amsellem with Piper Jaffray.

Thanks. Just a couple, so first on '04, can you provide a little color on how you are thinking about pricing and perhaps you probably address that at the analyst day, but maybe give us a window into your thinking and how you're thinking about competitors that inform your thinking on pricing. And then secondly on Zalviso, I'm - are you confident that there are no more changes you actually need to make to the device, is it safe to assume that the tweaking of the devices is something that you think the past and there is nothing you need to do, I just wanted to make sure I am not missing anything there? Thank you.

Yes, thanks for both those questions. So in terms of pricing, we have not done our formal pricing study, I just want to say Jane and her team will do in 2017. But there is two things that we look at it from the price - we have said that, as part of the funding we're getting from the Department of Defense for that contract you have to agree to an initial potential purchase and a price and the price we set with them was $20. We really think of that as a floor. And part of what's guiding our thinking is the ISPOR presentation we did earlier this year, the work that Pam is going into the claims databases and looking at actual costs in the – it was like 6 million patients in about 600 more emergency departments over a couple of year period, is what we saw was that the cost to administer. We were very surprised by this the cost to administer an IV opioid is over $140. So we see that, we see that is representative of the overall impact in the emergency room of giving someone an IV. So if we can avoid that for a lot of patients, we think there's reasonable value there. So I'll turn it to Zalviso. In the case of Zalviso part of the reason its taken lot of time to get the trial going is it, we had been in a mode of not really wanting to change things and we realized since we're going to another trial we should take the gap changes - change things that we're on. So for example, switching to our commercial suppliers for the controllers. So we have made what we think were the things that made sense at this point you. Having said that, in the world of you know, this combination product, its regulated by the drug site of the FDA, but there is device component and this device you actually have to have a process in place where you continue to collect information from the marketplace and evaluate it and, where appropriate make changes. So my expectation is that, yes, we will make changes in the future. But we feel good about the systems we're using, using in the study. And I would expect things that we – things we do in the future would be a relatively mild OD, would be what I would expect.

Okay. Thank you.

Thank you, David.

Thank you. And the next question comes from Michael Higgins of ROTH Capital Partners.

Thanks, operator. And then guys, questions for you, first on 04 looking at assets, should we look for filing in Europe in the first half of next year and when do you look to seek a partnership for 04 in Europe?

Yes, Michael, this is Tim. That is our plan to file for the MA in the first half of next year. We've done a little bit of market research there and we have some sense of what market access will take in. So yes, we will begin in earnest to top with potential European partners about 04 in Europe.

Can you expand on that a bit, are you looking for regional, country-by-country, how do you approach to that?

It will be centralized filing and so preps would be somebody who has 10 year team presence, somebody that has some ability to promote to a hospital and also somebody who has experience with either pain or opioids is helpful, So it could be multi-national but since the territory is limited to Europe or EU or the continent or however you want to phrase it, most likely to be somebody who is fairly strong there but may not have a presence outside effect at geography.

Okay. That’s helpful. And then on your call on Zalviso, I think from the comments are looking for a result possibly in Q3 of next year just to verify that firstly?

I am sorry, you're looking for the end of the study, Michael, was it – what's your question?

Yes, for results on Zalviso?

Yes, our guidance is that we think it’s about nine months in life and so sometime in the third quarter of next year for data.

Okay. And then it’s hard to look and that see some study being done with ketamine over the last few years. Just curious is the – in 04 studies if patients were allowed to have background ketamine views, I know they had some risking there, if there is any data there or how would you expect that to work with both drugs on board?

I think with any opioid we always have label warnings to be careful with other CNS depressant. So you know, doctors are most part dealt with a combined academy with an opioid, they chose one, or they chose the other. Its funny, people give a lot of list service academy and then they think its kind of an interesting drug. But if you really go into most ER its not a super commonly used drug the way that opioids are. So its – no, our patients – we've had four patients exposed to ketamine they used in the operating room before they started the patient on ARX-O4 or Zalviso in the post-operative period. And we do not know if any particular issues. But I can say it’s not a super commonly used drug.

Maybe more so, and if you see a setting and there is a article in August pain journal [ph] 19 meta-analysis study with ketamine at BCA [ph] with good results, and that impact at all that you’ve seen with [indiscernible] with ketamine?

So are you saying is there adverse event issue of combing them, I guess I am not sure of the question.

Little bit about I guess, just trying to look and see how the two would interact, I don’t – I haven found some fact IV being used in conjunction with ketamine, but it has been used with opioid. So just curious to see how – if it has data in your studies how it worked?

Yes, I mean, to think about – people don’t use IV to fentanyl because its I am sure [indiscernible] when given IV and that’s the whole point of our company that look for the…

Right…

We believe we're enabling it to have a permanent profile that’s usable. In the post-operative study, opioids in general there is no specific proper indication to combine the ketamine, they are both seen as depressant. And so you always have use a lower dose of the two when you are using them. And they can be spend around for many, many years, its become a little bit more popular in use and yes we will have a number of small studies where people have tried using it and we had a couple of patients and given ketamine in the operating room as part of their genuine aesthetic. But its not that people commonly use with an opioid, they some times use it in place out an opioid

Yes, maybe something that they being proactive on, that was in the real world so to speak patient centric. Just my last question, the Q3 cost of good sold do you look at that continue going forward, did it settle out over time?

Yes, we would expect – I am sorry, could you repeat your question Michael?

Sure the cost of good sold in Q3, is that level that we should report to continuing or is there is some upfront cost that level off over time?

No there are some fixed cost that will continue, so I would expect that to be the line item to probably grow is obviously the function of ordering like Grunenthal but there are some fixed cost that get into the cost of good sold. So I don’t know, and expect that number line item to go down over time.

Okay. Very good. Thanks, guys.

Sure.

Thank you. And the next question comes from Hugo Ong with Jefferies.

Hey, guys. Thanks for taking the question. I understand that you'll be presenting analysis on an obese patients in the 301 trial later this week, any plan to do a similar analysis from 302 and 303 trials in the future and if no, is there any reason to expect anything different from 301?

No. The 302 study was only 76 patients, so we're sort of limited in our ability to cutting up that data and getting anything meaningful out of that analysis. But certainly with the 140 patients in the 303 study we will probably do some analysis. But the fun thing about – one of the many fun things of writing up a NDA is that you get this integrated Phase 3 database, where you really can look across all of your studies and we are including some obese patients into our ARX-04 database as we previously stated. And so we can get so many different cross sections of analysis whether it could be age, whether it BMI looking at whole different rates et cetera, you can look at lot of different demographics. So I am excited about presenting much of that data from that NDA cross sectional ISS integrated safety analysis and in the meetings to come in 2017.

Okay, great. And maybe a question for you Gina, can you talk about know how you see the plastic surgery market for ARX-04 and is this included in your peak estimate?

Hi, Hugo. How are you doing? We are including that. We do think plastic surgery in a couple of areas, in our core market of hospitals, particularly around burn, so burn patients come into the ER as they were admitted and oftentimes have to have skin procedures, plastic surgeons are typically involved in their care. The other really exciting area though for ARX-04 is in plastic surgeons who have an affiliated surgical fleet with their office. So they are actually performing a couple of procedures on a daily basis and their goal is similar and if they want to make sure that patients come out of surgery successfully or their pain is treated rapidly and they can be sent home as quickly as possible, plastic surgeons, that’s our goal, if they can't manage pain today then like I saw one of these patients at a recent surgery – surgeon that I visited actually had to send the patient to step down unit. So we are excited about that segment for ARX-04 and it will be included in our peak sales numbers.

Okay, great. Thanks for taking the questions and looking forward to your analyst day in December.

Thanks, Hugo.

And the next question comes from Boris Peaker with Cowen and Company.

Hi. This Justin on for Borris. Thanks for taking my questions. I had a couple around the December analyst day, do you think we can adopt this growth update and I was also wondering do you think you will be able to share new lessons where in from your partner [indiscernible] with their launch and anything you could extrapolate towards the US market?

Hi, Justin. This is Tim. First to the analyst day to really present more about the opportunity for ARX-04 and that’s why the panel today decided around that. I am sure if we have something that we can share the program will be webcast and Q&A will be webcast, and we probably give you a brief update if there is been anything substantial in terms of why their approval are progressed in Europe, but that’s definitely.

Okay. And then I just have one final question, Howie is your current partner Grunenthal have they shown any interest in our partnering for 04 or have you've been able to rule them out as a partner?

We don’t any specific about the sort of discussion, but clearly they have Zalviso there, they understand the molecule of and understand the market. So you know, from outside looking at end, it looked like they would be good candidate.

Great. Thank you very much for taking my questions.

Sure.

Thank you. And the next question comes from Ed Arce with H.C. Wainwright & Co.

Hi, everyone. Thanks for taking my questions. First one is probably for Gina, as you start to look forward to the commercial launch and a targeted launch plan across the many hospitals, I understand some of these will be earlier adaptors and will probably bring the molecule on board within two, three months, others will probably take as close to a year, they were probably larger, more bureaucratic institutions. I am just wondering how you think about rolling out pilots across the various different types of facilities like that?

Thanks, Ed. We are really looking to adding a very focused look at our pilot and want to consider specific hospital type, along with their pre-hospital endless agencies, we're looking in particular for those hospitals where there is a single formulary, so those hospitals that make a formulary decision for use in the hospital, as well as used any ambulance. Those can be hospitals that are - for type of hospitals with a county fire EMS, they could be a not for profit hospital with [indiscernible] association. So we're looking for very specific hospital type that will give us good insight to their formulary decision making, how they will start and maintain core levels of the product, do they have nurse initiated, opioid administration protocols and how can we go about getting ARX-04 on to those protocols quickly. That learning then will help us take this opportunity of just running a pilot into a larger set of hospitals. But we will continue to look for opportunities to walk as we run. We'd like to streamline that formulary profits as much as we can, but we also know there is much more to implementing a product in hospital and we're going to learn as much as we can in our pilot survey.

Okay. Another question I had around the launch, its just – while there are some facilities that are more second ACA facilities that are looking at cost more holistically within the facility, I know there is a small subset of hospitals where the hospital pharmacist really only cares about the actual price of opioid and not be the all in costs as you mentioned with your ISPOR data. Wondering how you might approach those facilities, I would imagine those are probably a little bit later until that one?

Actually its one of our first initiatives in the coming year Ed is to really evaluate integrated delivery networks, the IDNs, the ACA affiliations where patient is really monitored from the first point of care until they are actually discharged from whatever facility that could be. So we are interested in that type of model as a potential to bring the product into full use and those types of facilities, but we are certainly going to evaluate that before we just take on IDNs head start to begin with.

Okay. Couple more questions if I may, is there any updated timeline with regard to filing for Australia and since Tim had mentioned the NDA, I am just wondering if perhaps you could give us a number – a total number of patients, patient count it's going to be submitted in that filing? Thanks.

Sure, Ed. This is Tim. I don’t have an update for you on [indiscernible] therefore Grünenthal we'd love to give you an update you in the next couple of weeks. In terms of patient numbers that will include the NDA Pam?

Sure. Yes, it’s a total of 904 patients, including all active and proceed over.

All right. Great, thank you so much.

Thanks, Ed.

Thank you. And as there are no questions at the present time, I would like to return the call to Howie Rosen for any closing remarks Howie Rosen Thank you. We look forward to keeping you update on our progress and meeting on December 1 at our analyst meeting. Thank you again for joining us for our third quarter call. And if you're a baseball fan enjoy World Series.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.