David Amsellem – Piper Jaffray & Co. Richard Lau – Wedbush Securities Douglas Tsao – Barclays Capital Thank you for joining Pacira Pharmaceuticals second quarter 2013 financial results conference call. At this time, all participants are in a listen-only mode. Following the formal remarks, Pacira's management team will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the Company's request and will be archived on the Company's website for two weeks from today's date. At this time, I would like to introduce Jessica Cho of Pacira Pharmaceuticals. Please go ahead.

Thank you and good morning, everyone. Welcome to Pacira's second-quarter 2013 financial results conference call. Joining me on the call today from Pacira are Dave Stack, President and Chief Executive Officer; and Jim Scibetta, Chief Financial Officer. Before I turn the call over to the management team for their prepared remarks, I would like to remind you that certain remarks made by management during this call about the Company's future expectations, plans, and prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements about the Company's future expectations, plans, and prospects include statements regarding the Company's plans and expectations regarding EXPAREL; the success of our sales and manufacturing efforts in support of the commercialization of EXPAREL; the rate and degree of market acceptance of EXPAREL; the size and growth of the potential markets for EXPAREL and the Company's ability to serve those markets; Pacira's plans to expand the indications of EXPAREL to include nerve block; Pacira's plans to continue to manufacture and provide support services for commercial partners who have licensed DepoCyt; the Company's commercialization and marketing capabilities; and other statements containing the words "beliefs," "anticipates," "plans," "expects," and similar expressions. Any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Many of these and other risks and uncertainties are described in the "Risk Factors" section of Pacira's most recent annual report on Form 10-K for the fiscal year ended December 31, 2012 and in other filings with the SEC, which are available through the investor section of the Pacira website at www.Pacira.com or on the SEC website at www.SEC.gov.

Thanks, Jessica. Good morning, everyone, and thank you for joining us today. Today we will primarily be discussing, about EXPAREL, our novel treatment for postsurgical pain management, which we launched commercially in the United States in April of 2012. EXPAREL is the first and only long-acting multivascular liposome local anesthetic for use in a peri or post-surgical setting. They utilizes our proprietary DepoFoam technology to improve local analgesia for up to 72 hours with a reduced need for opioids. EXPAREL remains the principal focus for Pacira today, as we continue to deliver on commercial success. We plan to continue to build upon the EXPAREL brand through multiple clinical trials and initiative the use of EXPAREL use among key hospital and ambulatory surgery audiences as well as the expansion of the current label. The second quarter was strong. We reported net sales of $15.2 million for EXPAREL, up 46% from the $10.4 million in the previous quarter. As of the end of the second quarter, 1,435 distinct accounts have ordered EXPAREL since launch, a 35% increase over the prior quarter. In addition, as evidenced of the breadth of adoption of EXPAREL, we now have over a hundred hospitals, which have ordered more than $100,000 worth of EXPAREL since launch; a mile stone achievement in hospital penetration. We recorded 370 new customers in the second quarter finishing the quota with an average of 30 new customers per week. Not only do we continue to build momentum within existing accounts but also and across an increasingly broad range of surgical specialties and hospitals. Our initial launch audience of could he colorectal general and plastic surgeons continue to expand the use of EXPAREL through open surgical and laparoscopic procedures. Abdominal soft tissue procedures saw increase use of EXPAREL through our iTAP initiative. iTAP is…

Thanks, Dave, and good morning everyone. As Dave noted, our EXPAREL revenue for the quarter was $15.2 million, indicating not only a very robust 46% increase over Q1 2013 but also the highest percentage of fifth quarter launch growth we could find compared to several graded hospital product launches. The $15.2 million of EXPAREL revenue was more than a 500% increase over Q2 a year ago; our initial launch quarter. Year-to-date 2013, EXPAREL sales are now up to $25.7 million. Our gross to net off the $285 per vial price has remained at approximately 5%. So we haven't had to engage in any material of discounting to date. Now that we've treat over 150,000 patients with EXPAREL, the empirical evidence of safety and efficacy in the marketplace is speaking loudly to our growing and diversifying customer base. Total revenue for second quarter of 2013 was $17.1 million. We anticipated a greater amount of DepoCyte revenue in the quarter, as we continue to resupply the market, which would have led to a slightly stronger reported total revenue for the quarter, if not for the timing of DepoCyte launch released and a related delay of revenue recognition. As a result, much of the resupply activities under way should benefit our Q3 and Q4 numbers instead. To state the obvious, though, we believe the investment community should focus on EXPAREL revenue for the foreseeable, regardless of report of total revenue, as we expect EXPAREL to become a major brand that in the current Pacira model will be the driver of our earnings and cash flow. With respect to the sales data tracking services, we continue to cross the interim relying on their monthly numbers as reported, and I'll note that the monthly trends implied by the tracking services have been particularly misleading in…

Operator, we're ready for calls – for questions.

Thank you. Your question-and-answer session will now begin. (Operator Instructions). Our first question is from the line of Douglas Tsao from Barclays. Please go ahead, Douglas. Your line is open.

Thanks. Good morning. Dave or Jim, I was hoping you could provide a little perspective? Obviously, we've seen a very nice ramp, in terms of the absolute sales, as well as this sort of acceleration in the number of customers. Just curious if you could provide a little detail or color in terms of what you're seeing, in terms of the number of surgeons within those customers, the trends within those customers in terms of the number of surgeons using the product?

Hey. Good morning, Doug. Thank you. Yes. We – you know, as we've seen from launch, but continuing to accelerate, you know, there is always a champion, who is willing to speak on our behalf and go through the formulary approval process. And that basis of support inside the hospital is clearly changing. In the launch, when we had a hemorrhoid data set, it was almost always the colorectal surgeon. As we go forward now, we see, you know, a broad base of physicians, who are asking for access to EXPAREL in the different hospital settings. And I think especially important among those are the orthopedic surgeons and spine surgeons inside is that data set, as well as anesthesiologist. So what we see, Doug, and maybe a way to answer your question is that where we were restricted to specific physician specialties, we see the other physician specialties now going back to pharmacies and to committee and getting restrictions removed because these other customer groups want access to EXPAREL. So I think as we try to capture in the call, what we see is that, you know, the physician lounge and people who have had great success with EXPAREL are our best salespeople, frankly, and we are especially gratified to see, you know, breast augmentation in a retail environment lead to abdominal plasti and a retail and then an in-patient environment, and then that success leads reconstructive surgeons to actually using the drug and getting some formulary wins because of that. The orthopedic guys and – are very vocal inside the hospital environment, especially where there's an orthopedic center of excellence and they carry a lot of weight. And once an anesthesiology starts using the drug safer for iTAPs, then you see other surgical specialties wondering why did you do that for Dr. Jones's colectomy and you're not doing it for mine, and you see a viral kind of danger for the way the drug is used inside the hospitals. And I think something you've noted, Doug, and what we take a lot of solace in is that the hospitals that have had access to EXPAREL for the longest are our biggest customers. And so we have a clear demonstration of the path forward because we see how the drug is growing in the places, where it's been available for the longest. And it really – it's really challenging, frankly. If you get a list of all the places that the drug is used and our top biggest customers, it's so broad that you struggle to come up with a sales strategy to address all those customers and all those different ways to use the product.

Yes. I was just going to add, related to what Dave is saying there, that while the data we have is just boxes sold into hospitals, so it's not surgeon or anesthesiology specific, in some of our large error customers, where we have a relationship they provided us some information that shows that it's being used in not only different kinds of surgeries but with a long list of surgeons within those accounts.

And this is a follow-up. I mean in terms of the growth this quarter over the first quarter, was most of that coming from or is a greater share coming from your prior existing account base? Or is it coming from, you know, customer additions? And then just curious, we, obviously, saw an acceleration in new customer adds which, you know, is a little surprising and given the fact that you had so much success. And really what's sort of the explanation for this pickup? And is that why you decided to expand the field force?

Yes. I should have also said before I started answering any questions that (Tania Marvica), our head of commercial is also here with us. So if you hear her chime in here, you'll know that she's in the room with us. It's – they're – in the quarter, if we reference those 32 hospitals that are coming on or 30 new customers that are coming on a weekly basis, Doug, almost all of those are ordering one box. So the vast majority of the delta that we reported in the quarter is from existing customers, who are rapidly increasing the use inside of an existing customer. If you look at who those people are, there is a increase, you know, specifically driven by the orthopedic customers. There is a fair number of DOD customers, who are, you know, more important than the end would suggest because all the influence they exert to local geography. But orthopedics is – and iTAPs are driving the vast majority of the new users. And in many cases, Doug, we're able to go back in with the increased influence of these new customers and get us on formulary in places, where we may have been turned down previously. So all those things are contributing but it is still very safe to say that when we win a new account, especially when we win a major new account, it takes us several weeks to train and to change all of the different nursing notes and standing orders and everything inside the hospital. So there is always going to be a lag of several weeks between when a new account and when they have a material impact on our quarterly sales.

Okay. Great. Thank you very much, guys. I'll jump back in the queue.

Thank you. Next question from the line of Richard Lau from Wedbush. Please go ahead, Richard. Your line is open.

Good morning, guys, and congrats on a good quarter.

Good morning, Richard.

Just sort of following up on the new customers, can you maybe talk a little bit more on if these customers are being added with less restrictions than maybe those customers who added earlier on in launch? Or are you guys just seeing a similar pattern?

Now, for the most part, Richard, there are always exceptions and we do still every, once in a while, get restrictions. But I would say the majority of our formulary wins over the last couple of months specifically are without restrictions, and it's largely driven by the fact that, you know, there will – this is a real story but I won't give hospital names or anything – you know a colorectal surgeon requests the drug for formulary improvement on a major hospital on the East Coast. We're going through the process and the anesthesiologist find out that the drug is going before the PNT committee but it's going to be restricted to colorectal surgery, which of course, is okay with the colorectal surgeon, who's asking for it. And they go to pharmacy and say, "No way. We can make a huge difference. People in major centers are reporting tremendous success with the anesthesiologist use of these drugs and the transfers abdominal plain procedures." So the pharmacist then is acquiescing now to allow. Now, it's colorectal surgeon and anesthesiologist. And then the orthopedic guy say, "Neither one of those two make any sense. The guys really making a difference in patient care are orthopedic guys and there's no way you can give it to these guys and not let us use it." And so finally the pharmacist gives up and just and just makes it available unrestricted.

That's great. Sounds like a viral thing going on there.

Yes. And it's really – I tell you what's really helpful is like I said our best friend is the physician lounge where docs are talking about they're able to do things they weren't able to do before EXPAREL, and that's the basis of a lot of our calls is – I was – give you a real – a couple of weeks ago, there was a class reunion at a major center on the East Coast. And that Monday morning, we had a number of calls from guys who were with other folks that they went to medical school with who were using EXPAREL. And they want to do know, "How do I get involved here? And can you guys send one of your nurses out to help me get start, et cetera.? So if that is viral at its very core, Richard. So...

Got it. It's the same question. Is going forward here, how should we think about the summer months? And have you guys seen any slowdown, just summer seasonality with less procedures? Or are you still sort of on the growth curve where it hasn't really impacted you?

Well, you know, my track record on making commentary here, Richard, has been less than stellar so I'll be careful. I think as our base grows, we're less sensitive to the seasonality that we saw in the past. You know, at the same time, we have a lot of information that we didn't have last year. So I think it is true that there are certain segments of our marketplace that were slower in July than they were in June, but I also think that we've got other places, where the surgeries are not elective and where, you know, we seem to be picking those up. So I don't think there's any doubt that there's fewer procedures that are being done in July than were there – that were done in June. But we don't see the material impact that we would have had last year when we only had one or two customers base that were actually using the drug.

Okay. Got it. One final question I believe you mentioned you guys expect approval of suite C Q1 of next year. How should we think about that transition from suite A to suite C and maybe the affects it might have on your cost of goods during this time?

Yes. So, you know, with the sales increasing, obviously, that's some exciting from many perspectives. From a manufacturing perspective, you know, looking at a roughly 50% increase in the past quarter, it's humbling. And we are going to do everything we can, obviously, to make sure we meet demand. And we're going to spend 2014, we'll be building inventory like we have been in 2013. So we have a two-year product dating. We would rather sort of make sure we build product in inventory; assuming things continue to go well then, you know – because you can never sort of go back. In terms of its impact on cost of goods – and this may not be intuitive, but because we'll be running two lines together and a lot of the costs, you know, will be absorbed – fixed costs in the plant will be absorbed in each line, the story is still sort of the same story of 75% to 80% gross margins at scale. The scale is, obviously, $400 million capacity rather than if it was just running suite C at $300 million capacity. Does that make sense, Richard?

Yes. Got it. Thanks, guys

Thanks, Richard.

Thank you.

Thank you. Next question from the line of David Amsellem from Piper Jaffray. Please go ahead, David.

Hey, thanks. I have follow-up regarding suite C. Can you talk about the extent of excess inventory you'll have in place in the event that there are any regulatory delays surrounding the new suite?

Well, we're certainly ahead of the curve now and we're making as much progress as we can in suite A, and we're quite comfortable with our ability to get suite C online, and you know, we have some cushion. So we're sort of reiterating the time line of Q1 approval for suite C. And beyond that, I can just say we're comfortable that we can meet demand out of suite A until we get suite C approved.

Okay. Do you care to quantify the cushion in terms of months or weeks? And how should we think about that?

You know, I think that would presume a forecast – I mean, based on our forecast, which is, obviously, we want to be conservative from a manufacturing perspective. I don't think we want to quantify it. But we're comfortable with the cushion that we have and the ability to meet demand out there.

Okay. And then switching gears to the nerve block study in eastern Europe, I guess the question here is how confident are you that this set back won't prevent you from filing, assuming the femoral nerve block study in the U.S. is successful. I guess the question is how solid is the feedback from the FDA that this single study – that a single study is sufficient?

Now, that's been consistent, you know. I mean we have minutes that go back to 2006 and then specific minutes from the end of phase 2 meeting. It couldn't be any more solid than it is, David. I think it's important to note, you know, that the two trials are very different. You know, we needed 500 patients for safety. That's also a FDA request. And so, when we did the power calculations for the femoral nerve block trial at 90% power, we needed less than 200 patients. So it didn't make any sense to, you know, to study twice as many patients as we needed in that trial. And so the intercostal program was developed, you know, because we could do it fairly quickly and because we could do it fairly cost effectively, we thought it was the easiest way to see if we could get additional data set into the package insert, while maintaining ability to get our 500 patients for safety, which is what we were really after. So at least in my mind, David, the failure of the intercostal trial from an efficacy perspective has no impact on our plans for filing the femoral nerve block trial at all.

Okay. And then one last one, if I may. How should we think about the level of R&D spend in 2014 and 2015? I guess this is in the contest of the rest of the pipeline. And maybe you could give us a sense of how you're mapping our development of your other two pipeline assets beyond EXPAREL?

Yes. I'll talk about the map and let Jim talk about the numbers. You know, what's happened in the marketplace, David, is now that we've got – especially these anesthesiologist and orthopedic customers and reconstructive surgeon, who are very vocal, by the way, in terms the not only their voice inside their hospitals but in their relationship with us, and they've come to us with a number of opportunities, where they think we should be developing DepoFoam for their use. And so what – we've got a team now that's investigating all of these various opportunities that are being suggested by our customers to make sure that when we pull the trigger on our pipeline, that we're developing the products that not only will be the one that we can make DepoFoam but also will meet the customer needs and hopefully be opportunities that we can address with commercial resources that already exist. So we've got a (inaudible) program that we've talked about several times and the team is also looking at a number of other opportunities, as I said, that has been suggested by our customers and we have KOL panels that are looking at those target profiles, et cetera, so hopefully we'll be able to get back to everybody over the next couple of quarters and tell you where we landed over all of these things . And then from a numbers perspective, I'll ask Jim to comment.

Yes. We spent about $10 million in R&D in the first half of the year. And as we indicated, about two-thirds of that is for the pivotal nerve block studies. As we look into 2014 and 2015, we are – definitely want to drive value creation with moving the pipeline forward, but it's early enough that it's not going to drive a whole lot of spending, and it's sort of hard for me to figure out how we'll be spending as much or more than we're spending this year with the pivotal studies running.

Yes. But the other thing to remember, David, as we're – as you're putting this stuff into a model is that we do have a pediatric phase 4 commitment and we will be spending money and addressing that. And we also have a number of EXPAREL opportunities to study additional indications beyond nerve block. And the same teams are looking at that – those opportunities, as they relate to our ability to expand the pipeline to additional products. So all of that is being prepared for a board retreat in September.

Okay. Thank you.

Okay. Thank you.

Thank you. We have no further questions in the queue at the moment.

In which case, I don't have my script in front of me. So I know we're going to Wedbush next week. We will be at Wedbush in New York City on the 13th and we look forward to seeing some of you there. Other than that, thank you very much for your time this morning and we appreciate your support and all of your help, and we look forward to reporting additional EXPAREL results as we go forward. Thanks a lot. (CROSSTALKING)

Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.