Hello and welcome to the AcelRx Fourth Quarter Fiscal Year 2016 Financial 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, Chief Financial Officer, please go ahead.

Thank you Austin. Good afternoon, everyone, and welcome to today’s 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 related to the process and timing of anticipated future development of AcelRx’s product candidates ZALVISO, sufentanil sublingual tablet 30 microgram, then is ARX004 outside of the United States and sufentanil sublingual tablet including U.S. Food and Drug Administration, or FDA review of the New Drug Application or NDA for DSUVIA. The potential approval of the DSUVIA NDA by the FDA; the DSUVIA and ARX-04 clinical trial results; AcelRx's pathway forward towards gaining approval of ZALVISO in the United States, including successful completion of the IAP312 clinical study for ZALVISO; and the therapeutic and commercial potential of AcelRx's product candidates, including potential market opportunities for DSUVIA, ARX-04 and ZALVISO, anticipated resubmission of the ZALVISO New Drug Application or NDA to the FDA including the scope of the resubmission and the timing of the resubmission, and the FDA review time; and the status of the Collaboration and License Agreement with Grunenthal, or any other future potential collaborations, including potential milestones and royalty payments under the Grunenthal agreement. 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' DSUVIA ARX-04 development program, including the FDA review of the DSUVIA NDA and the possibility that the FDA may dispute or interpret differently clinical results obtained from the DSUVIA Phase 3 studies; the ZALVISO development program, including successful completion of IAP312 and the resubmission of the ZALVISO NDA to the FDA; any delays or inability to obtain and maintain regulatory approval of its product candidates, including DSUVIA in the United States, ARX-04 in Europe and ZALVISO in the United States; the uncertain clinical development process; the success, cost and timing of all development activities and clinical trials for ZALVISO IAP312. 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 uncertain clinical development process, including adverse events; 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 Quarterly Report on Form 10-Q filed with the SEC on November 2, 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. Well this announcement didn’t place in the fourth quarter. It is obviously going to be topic of interest. So please allow me to take a moment and discuss our appointment of a new Chief Executive Officer. You probably saw the recent press release announcing Vincent Angotti, who has agreed to join AcelRx’s CEO starting on Monday, March 06. We're very fortunate to have attracted some of the Vince’s many years of successful commercial and management experience to lead the Company as we prepare for the potential approval and launch of DSUVIA in the U.S. As many of you know, I stepped into the role of CEO for AcelRx in 2015 when the need arose. This transitioned to an externally recruited CEO as a key milestone in AcelRx becoming a commercial organization. I have served on the Board of Directors since 2008 I am looking forward to helping Vince and the AcelRx team in my continued role on the Board. Now let's turn back to the fourth quarter achievements, the most important milestone, we achieved in the fourth quarter was the submission of a new drug application or NDA with the U.S. Food and Drug Administration for DSUVIA a 30 microgram sublingual sufentanil tablet for the the treatment of adult patients experiencing moderate to severe acute pain in a medically supervised setting. Recently this application was accepted for filing and a PDUFA date of October 12, 2017 was assigned. We continue to be excited about the potential for DSUVIA because of its simple single-dose applicator design. And is administered to the patient by health care professionals. We are also grateful to our partners in the Department of Defense for bringing this unmet need to our attention and for their financial support. The FDA has indicated to us that…

Thanks Howie, our efforts in the fourth quarter included presentations that results from the DSUVIA clinical program at the International Society for Burn Injuries, the Annual Meeting of the American Society of Plastic Surgeons, EMS World Expo, the European Conference on Emergency Medicine, the National Conference on Correctional Health Care and the Obesity Societys Annual Meeting. In addition we made the first presentation of complete results from the DSUVIA Phase 3 SAP303 study at the Annual Pain Medicine meeting of the American Society of Regional Anesthesia and Pain Medicine. SAP303, you will recall was conducted in 140 patients aged 40 years or older who would have undergone short stay in-patient or out patient surgery. These results show that the patients administered DSUVIA experienced a 49% reduction in mean pain intensity from baseline during the first two hours and maintain that reduction for the duration of a 12-hour study period. The most frequently reported adverse events in the study population were nausea in 27% of participants and headache in 6%. Another recent presentation, we made at the European Congress in Vienna is worth the mention as well. That presentation outlined a European micro-costing analysis of the direct and indirect costs associated with the administration of intravenous opioids. Direct cost of hydromorphone, morphine and other opioids are easy to find and tend to be relatively low. But materials with indirect costs such as IV set up equipment and nurse time to start an IV and a dose to launch of the patients had not been clearly established. Based on this analysis we determined that an initial dose of an IV opioid can cost approximately EUR18 to EUR20 in emergency departments across the EU. This finding was an important part of our market analysis and helped Gina and her team understand where the needs are in the marketplace. Our analysis of the cost of IV opioids administration in U.S. emergency department was presented at the U.S. IS4 meeting last year and is currently in a press in the Journal of Health Economics and outcomes research. That analysis demonstrated a cost of over $140 dollars for an IV set up and single dose opioid administration in the emergency room. Looking forward we will continue to present our clinical data at medical conferences throughout the year and two upcoming presentations are going to occur this month at the American Academy of Pain Medicine in Orlando and at the International Symposium on Intensive Care and Emergency Medicine in Brussels. I will now turn the call over to Gina to talk more about commercial preparations.

Thanks Pam and you're absolutely right conducting that pharmacoeconomics analysis was really eye opening. Since then we’ve learned a tremendous amount from KOLs about the impact that a product like DSUVIA might have in an emergency department. Not only is an little dose IV opioid is surprisingly costly in both the U.S. and Europe as Pam mentioned but requires the patient be assigned to a bed where they can be monitored even the large ER’s have a limited number of beds which they which they would prefer to reserve for critically ill patients. Unfortunately if a patient in moderate to severe acute pain from a fracture dislocation or other trauma comes in they will need to be assigned one of those beds in order to receive an IV opioid. So there's an increased indirect costs associated with IV opioid as well as increased utilization of hospital resources like beds that could be used to treat more critically ill patients if they are moderate to severe acute pain patients could be treated elsewhere. As it turns out, there may be alternative the same patient who came in to the ER in moderate-to-severe acute pain from a fracture instead of being assigned a bed could be assigned to a chair, where they could receive DSUVIA. This process would save the patient for this IV, increase hospital throughput decrease indirect costs and still allow the physicians to treat and monitor their patients pain so they can address the underlying trauma. Given the size of the ER market and estimated 51 million adult Americans go to the moderate-to-severe acute pain each year, we decided to make this our initial launch target for DSUVIA. Once approved by the FDA will initiate our launch in a limited number of key institutions will use the feedback during…

Thank you, Gina. Earlier today, we reported results for the fourth quarter and year ended December 31, 2016. You are encouraged to review that press release for specific details. In summary, for the fourth quarter 2016 net loss was $9.7 million or $0.21 basic and diluted net loss per share, as compared to net income of $10.5 million or $0.24 basic and diluted net income per share for the fourth quarter of 2015. The decrease in net loss in the fourth quarter of 2016, as compared to the fourth quarter 2015 was primarily due to an increase in revenue partially offset by increased operating cost and expenses. For the full year ended, December 31, 2016, we reported a net loss of $43.2 million or $0.95 basic and diluted net loss per share, as compared to $24.4 million or $0.55 basic net loss per share, $0.60 diluted net loss per share for the same period in 2015. For specific details on these results, please refer to the press release and the Form 10-K. As of December 31, 2016, the AcelRx had cash, cash equivalents and investments of $80.3 million. This compares to $113.5 million at the end of 2015. The decrease was primarily attributable to cash used in operating activities. As we discussed in last quarter’s call. We admitted the terms of the debt payables of Hercules Growth Technology extending the interest-only period through to April 1, 2017. As a result of the FDA’s acceptance of the DSUVIA NDA announced earlier. Today, we were able to refinance the loans entirely into a new 36 month term note with an initial six month interest-only period through October 2017. The scheduled maturity date is now March 2020. In addition under certain conditions, we maybe able to extend the repayment period up to 48 months, extend the interest-only period for a total of 18 months, as well as borrowing additional $10 million under the line. In the short-term, the refinancing will give us the added flexibility to fund the commercial preparation for DSUVIA. On the Investor Relations front, we’ve already had a busy quarter having presented at the BIO CEO & Investor Conference, February 14. The Source Capital Disruptive Growth and Healthcare Conference, February 15. Small Cap Nation Family Office & Life Science Symposium on February 21. The RBC Capital Markets Global Healthcare Conference on February 22. Including schedule to present at the Cowen Health Care Conference on March 8. The ROTH Annual Conference on March 12. Inaugural CEO Investor West Coast Conference on March 23 and I will make a return trip to the Smallcap event sponsored by Invest Securities, April 18 in Europe. We will now look for – I look forward to see you in person on one or more of these events. I will now turn the call back over to Howie, for a few closing comments.

Thanks, Tim and thank you, everyone for dialing in for our fourth quarter and year end conference call. As you heard it’s been an excellent quarter. We filed an NDA for DSUVIA and have PDUFDA date of October 12. We also see we have a good understanding of the market and are basically preparing for launch. We have plans underway to file an MAA in Europe and are considering our commercialization options in that region. Regard to Zalviso, we are still enrolling patients in the IAP312 study. And based on anticipating inclusion of the study around midyear, we plan to resubmit that NDA by year end. In summary, we begin our transition to commercial company in 2016. We look forward to Vince Angotti, joining us the CEO next week to accelerate this transition in 2017. In that positive note, let’s open the call up to questions. Operator?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Randall Stanicky with RBC Capital Markets. Please go ahead.

Great. Thanks guys. Just on pricing to begin with I know you are using $45 as a placeholder, and this question is probably for Gina. What are the considerations that go into where that ultimately ends up? And how do you think about the difference in pricing in the U.S. relative to Europe and I’ve had a couple of follow-ups as well.

Simple question, we did this very broad forecast on simply more to Sufentanil back last fall and part of that process was interviewing policy directors and really kind of asking them where they expected the products to be priced. In addition where they would seeks to maybe limit use of the product in their hospital. And that limitation sensitivity around pricing was around $50. And so that’s why we have some comfort and putting in our model based on our study of the epidemiology marks to be our key paying physician preference, dosing in certain segments. We felt very confident including $45 in that model.

Okay. So it sounds like, it sounds like $45 is pretty close towards sales probably going to end up based on the work you’ve done so far. And then, the follow-up to that how do you think about that relative to Europe because obviously you have a peak sales number for Europe, you’ve not submitted the filing yet but it sounds like you're close in the first half and there's a partnering decision I assume that factors since start thinking as well in terms of pricing, is that right?

That’s right. And I don’t have any idea where our ultimate pricing will end up as we launched this product. We have some continued analysis to do and very specific research on pricing in the U.S. Regarding Europe, we’ve also done some extensive work there as well. Looking at the epidemiology preference share what potential analogs might be to ARX-04 in Europe, we looked at both the transmucosal Sufentanil products as well as products that’s recently been launched in UK called Penthrox, that has a price in the $17, $18 pound range. So that’s why we feel confident in that marketplace, in that geography, talking about $15 Euro again put into our model to look at the peak potential for ARX-04 in those territories.

Okay, that’s helpful. Howie, can I ask you a big picture question with Vince coming on Board and the strategic direction of AcelRx largely set – how much strategic variability could there be – and what I mean by that is it sounds like you’ve got a strategic or commercial plan in place for DSUVIA – could there be some change in thinking about how you go to market or change in thinking about how you think about Zalviso?

Good question, and as I mentioned in – as you probably aware, Vince’s career was comes from the commercial side before he got into general management and so Gina and her team are looking forward to Vince’s input on sort of more of the details. So as we mentioned, we feel like we have a good understanding of the market and where the products fit that we still have a lot of work in terms of tactics since – exactly how you enter the hospitals and one of the opportunities are maybe outside the hospital as well. So definitely, we’ll expect some fine-tuning and especially as we work from the broader strategy to the tactics but wouldn't necessarily expect big changes in overall direction of winding commercialize these products ourselves in the U.S.

Okay. That's great. Thanks guys.

And our next question comes from Boris Peaker with Cowen. Please go ahead.

Great. Thanks for taking my question. Initially I just want to focus on the broader picture and with all the discussion about reducing opioid using general in the medical community, are there any initiatives that are being corporate in the emerging room practice. We also kind of reduce opioid use?

Pam, you want to address that?

Sure. The sensitivity around emerging room use of opioids really isn’t that outpatient prescription that’s handed to the patient. Appropriate use in the emergency room when the patient in there for just a few hours of opioids or any analgesics that's necessary to set a fracture or deal with severe low back strain or what have you it's never really been challenged. It is the idea of these folks coming in with low back strain and then walking out with 60 percocet or oxycontin that's really the bigger problem. Our product is purely for use while they're in the hospital.

Got you. Okay, and so my other question is on the you said you want to do kind of small trial launch of DSUVIA initially what are the criteria that you using in selecting these initial target hospitals.

We are building a process right now really identifying from our ER strategy really looking at where there’s over utilization of resource patients being delayed the treatment for [indiscernible] opioid while we lean on at that so we know I feel strong there’s some hospitals that match that we would really want to target first. And so we're going to get analysis right now. So really look at as Howie mentioned how we go from the overall strategy to identifying those hospitals that could really benefit ARX-04 to begin with, help us learn get some initial traction and then we would plan to grow from there.

And how many of these hospital do you anticipate, I just want to kind of get a sense, would it be any kind of material revenue from these hospitals that would provide a good reach to other hospitals or is it going to be just too few of them to really make a conclusive kind of estimate.

Yes, Boris, Tim here. The revenue won’t be significant or even probably recordable it’s the learnings from the hospital the establishment of best practices the throughput, the data that we get from those early on but the revenue numbers will be insignificant.

Okay. Great. Thank you for taking my question.

Sure.

And our next question is from Michael Higgins with ROTH Capital Partners. Please go ahead

Hi, guys. Thanks for taking the questions. As we can go across the pond for a moment just looking ahead to the potential DSUVIA, European rights. How’s the feedback done so far what kind of companies are you talking to, are they larger, smaller are you favoring a one company approach versus several any color you can provide there would be helpful. Thanks.

Sure. The potential market, potential partners in Europe take all forms and shapes from multinational to pan-European and to regional. Even though, we think sometimes Europe has one nation one country, or will be under central procedure each market is slightly different. So we'll look at a variety, we will lock ourselves in obviously for us its about maximizing the value and the potential of the asset.

In terms of timing for that is it something you want to do after approval or would you consider that prior to approval?

Yes, its hard to put a timeline on BD activities, we’ll continue to talk to folks and if we have something we like, we’ll do it if not we’ll cross our bridge when we come to it.

Michael, just let me say, one thing we did do ARX-04 as we have put together the EMA ourselves – will be prosecuting that ourselves. So in the case of ZALVISO, we felt as a company we weren’t sort of comfortable doing that and we did until we have a counter partner. So we are being more proactive with the ARX-04 that we can keep building value and we have the flexibility now to be able to wait for the right kind of deal because we are moving the product ahead in the regulatory process.

Sure. From a value standpoint makes more sense, so hold on to it. So point taken. And then back here in the U.S. What are your thoughts on potential timing for an AdCom? Within October 12 PDUFA; you could fall into that August trap. So wondering what kind of timing you’re looking for there.

We’re planning sort of the July-August timeframe. So I’m not quite sure what you mean by the August trap. Actually, if you look back the past few years this division has had meetings in August, I know last year, I think the year before, and if you probably go back past year so. You are referring to everyone going away in August and nothing happening, they do have a history of actually having AdCom in the early part of August.

Okay, understood. And if I can move to ZALVISO. Any stocking that we saw in Q4 numbers, any updates you can provide for us there in the country-by-country launches?

No, I wouldn’t. I mean that there’s obviously a little bit of inventory, but not enough to point out. We don’t have any breakdown of the country-by-country revenues, we do know that Grünenthal is now – in case in nine countries across Europe for the commercial launch of the product.

Okay, that’s helpful. And should we see a few more here in the first half of the year?

Yes, they do continue to plan to roll out. They have the rights to all of Europe which includes 40 territories, but they are being methodical and they are rolling it out across all these different countries and territories.

And they are continuing to make the transition from what they’re doing in terms of their pilot rollouts to a broader commercial effort in the countries. And they’re doing that this year.

And then one final one, financially. Operational, it looks like you’ve got some programs that are winding down, the marketing spend will gradually increase later in the year or more so in 2018 it seems like. If Tim you can provide us some sense as to how the quarters may look looking in into 2017.

Sure. I think I’ll just reiterate the guidance that we had given previously. The historical burn is around $10 million a quarter. I would expect that trend to continue at least through the first half given guidance that we would expect in Q2 at around $50 million in cash. Beyond that assuming there is a positive decision at advisory committee, you would expect the commercial spend to increase, but I haven’t given much any guidance on that.

Very helpful. Thanks guys.

Thank you.

And our next question is from Ed Arce with H.C. Wainwright. Please go ahead.

Great, thanks for taking my questions. So first one just focused on DSUVIA and Europe coming AdCom, I just wanted to get a little more details around some of the key aspects that you are thinking of that you’re preparing for in particular things where you think the FDA and the panel could focus on how you are going through that. And I have a couple of follow-ups.

Yes. It’s a little – I guess these divisions are little bit different than – what you typically see as it, usually you think of AdCom being called because there’s some major question or issue around the drug. And as you know with this division they really have sort of put in place just the practice of with a new opioid having an AdCom. And as I just mentioned, Ed, it’s not like there’s something in particular about our product just so we need to have an AdCom and some are fall into – sort of thing you call class labeling if you are talking about the product label. It’s typical when these products joint between the division as well as the safety panel. And so, I don’t know, Pam if you want to comment on the types of things that often come up in terms of REMS and those types of things?

Sure. I mean, recently it’s been around DSUVIA current nature of opioid and the outpatient use of them. Our projects are different being in a medically supervised settings and not being an extended release product that we’re not even sure what they would utilize at AdCom before, what would be the question post them. And we’re not definitively actually heard that, we stated that we’re going to have to wonder what date it would be on. So we’re just assuming that we’re having one of it going forward and preparing for the best as we can for assuming it’ll be a little the July-August timeframe.

Right. Well, I mean, I guess that’s what I was really driving to is that given the compound is so well known and understood and this is – given all that is given in the hospital and all of those other abuse issues are – and they don’t apply, but they’re – I think practice has been as you mentioned with all opioids to have one. So, not really sure what they’re going to fill the half day or day with in terms of questions?

Yes. We will prepare and we will eventually find out.

Okay. And in terms of your ongoing discussions with potential partners in Europe and perhaps in other areas; one question I was wondering is in your agreement with Grünenthal, is there any sort of a legal structure in there, some sort of a right of first refusal around the compound that would apply to DSUVIA as well or is that – there are no such –?

Correct. Yes, there’s no rights to ARX-04 in the agreement for Grünenthal and their agreement is exclusive to EEA-40 for ZALVISO.

Okay. And then just one last question. Tim, I just wanted to if you could go over again refinancing terms that you mentioned earlier to get that clear.

Sure. So the debt that you’ll see on the balance sheet at the end of 2013 $21 million somewhat is now starting into 2016, it is now going to be reset on a 36-month amortization beginning today with a six-month interest only period that will go through October of 2017. Also included in the refinancing or the new note is the ability to earn two additional six-month interest only periods following the initial six-month period, that have to do essentially with the approval of DSUVIA in the U.S. and the collection of additional $40 million either partner or new equity in the same timeframe. We also have the ability to – if we reach those last two requirements to get an additional year of amortization, so that would push the term out and additional 12 months as well.

Okay. Great. Thanks for taking the questions.

Certainly. Thanks, Ed.

Our next question is from Hugo Ong with Jefferies. Please go ahead.

Hey, guys, thanks for taking the question. Most of mine have been asked, but let me follow-up with just one question on DSUVIA. In the past you’ve hinted at running a head-to-head trial of DSUVIA versus IV morphine. Can you talk a little more about the design and kind of what you hope to show with the trial?

Sure. Our plan is to start that trial at the end of this year on following our PDUFA date with DSUVIA here in the U.S. And it’s really to help, support, both DSUVIA here in the U.S. as well as ARX-04 in Europe. And the idea is looking at for the first hour of efficacy and that hour would start with randomization. So the idea is that you’d randomize some one to perceive DSUVIA, all the nurse has to do is go to the pixes, take out the drug and dose the patient. But they get randomized with an IV morphine on, they actually have to go and puck the materials, start the IV, then go to the pixes, get the drug, dose a morphine, bring it to the patient and dose the patient et cetera. So we’re really trying to show that when someone is walking through a door without an IV, then it’s actually faster for sublingual DSUVIA than having to start an IV and dose them with an IV on opioid. And in fact, we’ve already shown in our ZALVISO study that sublingual sufentanil is more rapid than IV morphine, when they’re started at the same time. So when we actually have a head start with having to start the IV, we think that that it won this ETO for the first 60 minutes. Well, in fact, it’s pretty easy to show both not inferiority as well as probably superiority.

Okay. And when would you expect this trial to finish?

Well, we’re probably running about six months in mice with that.

Okay, okay. And whether DoD pay for this trial?

No, this is something we’ll be using probably for commercialization purposes here in the U.S. Europe often like to see active competitor studies and our MAA will be in process at the time. So it’s just almost belt and suspenders in case if they want to see a little bit extra data possibly there.

Got it, okay. Thanks for taking the questions.

Sure.

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

Thank you. We look forward to keeping you apprised to our progress. And thank you again for joining us for our call today. And have a good afternoon and evening.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.