Thank you for joining the Pacira Pharmaceuticals’ Fourth Quarter and Full Year 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 from Pacira Pharmaceuticals. Please go ahead.

Thank you and good morning everyone. Welcome to the Pacira fourth quarter and full year 2013 financial results conference call. Joining me on the call today from Pacira are David Stack, President, Chief Executive Officer and Chairman; Jim Scibetta, Senior Vice President and Chief Financial Officer and Taunia Markvicka, Senior Vice President and Chief Commercial 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 including those regarding EXPAREL, Pacira’s plan to expand the indications of EXPAREL including for nerve block and the related timing and success of SNDA, serious plans to evaluate, develop and pursue additional DepoFoam based product candidates, clinical trial in support of an existing or potential DepoFoam based products, production in Suite A and Suite C, approval of Suite C, anticipated fixed cost in gross margins and potential conversion of the company’s convertible debt and other statements containing the words believes, anticipates, plans, expects, and similar expressions constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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, 2013 and in other filings with the SEC, which are available through the investors and media section of the Pacira website at www.pacira.com or on the SEC website at www.sec.gov. During the course of this call we will also refer to certain non-GAAP financial measures including adjusted EPS. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included in the earnings release for the quarter. And with that, we will hear first from Dave. Dave?

Thanks, Jessica. Good morning everyone and thank you for joining us today. The primary focus of our call today is EXPAREL, our novel multimodal treatment for post-surgical pain that surgically reduces – significantly reduces the reliance on narcotics and the potential for narcotic-related adverse events. The first and only long-acting multivesicular liposome local anesthetic for use as a peri- or postsurgical setting, EXPAREL utilizes our proprietary DepoFoam technology that provides local anesthesia throughout the setting two hours. Characterized by consistent quarter-over-quarter growth, 2013 demonstrated the successful execution of our two-fold commercial launch strategy make and sell EXPAREL. As pre-announced early last month, we record $30.5 million of EXPAREL sales for the fourth quarter, up more than 50% from the third quarter and $76.2 million of EXPAREL sales for the full year, up more than 420% from full year 2012. We also saw 374 total new customers in the fourth quarter, a 27% increase from the previous quarter which translated to an average of 29 new customers per week. As of the end of the year, 2106 distinct customers have ordered EXPAREL since launch. While the breadth of new customers adapting EXPAREL contributed to the base of product sales, the vast majority of the business grew out of customers who have had access to EXPAREL for a longer time was approximately 250 hospitals each ordering more than $100,000 worth of EXPAREL. We believe the numerous intersecting market dynamics influenced this robust fourth quarter. Our customers continued to utilize EXPAREL for an evolving broad range – broad spectrum of procedures with soft tissue surgeries, especially hernia repair, cholecystectomy, Anal/Rectal procedures, Colon Hysterectomy and Laparotomy surgery constituting the bulk of EXPAREL markets today. In addition, orthopedic procedures in soft tissue infiltration into the Transversus Abdominus Plane surgery, which importantly widens the EXPAREL audience…

Thanks, Dave and good morning everyone. I’ll briefly cover three topics as Dave alluded to. First, the financial results for the recent quarter and year-ending December 31, second an update on our manufacturing capacity and third our financial outlook for 2014 and beyond. Obviously, the outstanding EXPAREL revenue growth in Q4 speaks loudly for itself, in terms of total revenues, we reported $33.6 million in the quarter, and $85.6 million for the full year. We continue to caution against relying on the monthly EXPAREL sales estimates released by the Data Tracking Services which showed distorted trends and lead to incorrect conclusions. You've heard us reiterate this statement every quarter since launch, but this assessment was particularly pronounced in Q4 and was a primary factor in our decision to preannounce EXPAREL revenue in order to provide the investment community with accurate information. While we don’t report monthly sales and we don’t intend to do so going forward, we can confirm that the estimated October EXPAREL sales numbers reported by the Tracking Services was materially misleading. Gross margin for the quarter, for the company, increased to 43%. Today, all EXPAREL sales are relate to product manufactured and what we refer to as Suite A and product made and sold that is Suite A alone, the gross margin in the quarter was 50%. The differences related to DepoCyt(e) revenue and costs, as well as expenses incurred in our new manufacturing suite, Suite C, which has been put in place and is generating operating expenses including depreciation, although that activity in Q4 was expense rather than capitalized in the inventory. As for our other operating expenses, our $4.8 million of R&D reflects a couple million for the pivotal nerve block studies, a little more than $1 million for stock-based comp and the rest for…

Thank you, Jim. Nicole?

Thank you (Operator Instructions) Our first question comes from the line of David Amsellem of Piper Jaffray. Your line is now open.

Thanks, just a couple. So, first on the manufacturing, I just wanted to pose a hypothetical and if there is any major delay in approval, can you give us a sense of how many months of excess inventory you have on hand where that would enable you to meet demand? And then I have a couple follow-ups, thanks.

Yes, thanks, David. So, you know, as I said earlier, we are quite confident that we will get approval on the timeframe. And we’ve been producing well on Suite A. We’ve talked about $100 million being the – roughly the number that we can produce in Suite A and frankly that includes periods of scheduled shutdown during the year which obviously were not in. So, we are continuing to go a lot in Suite A and we are quite comfortable with where we are from an inventory perspective. I guess we need to get the Suite C approved eventually and on the timeframe to continue to meet the growing demand, but we are pretty comfortable with where we are.

Yes, David there is no point in us putting a number in the marketplace then if there is any changes we’ve got ourselves in advantage situation, the best way for us to handle this is just to allow everybody know that we are very comfortable that we’ve got enough inventory to get to the PDUFA date and beyond.

Okay. That’s helpful and then, switching gears towards nerve block, can you just remind us how you are thinking about the expansion in terms of – how do you think about the dollar amounts of the opportunity? I mean, you talked about peak sales for the EXPAREL franchise, potentially near $1 billion, how much of that do you think would be nerve block if any? And then secondly, on these building outs, with this as and evaluating other opportunities where does the business develop and looking at acquisition opportunities that leverages your sales organization, where does that fit into the mix? Thanks.

Thanks, David. So, three things, I think just to restate – we’ve got, I mean, we are expecting that we are going to have a positive outcome with the nerve block trial, but we believe that this is a significant product by itself with infiltration. We do think that nerve block is important for a couple of reasons. The anesthesiologists typically use bupivacaine in their daily practice as a standard of care and so, you know there is a significant market opportunity all in its own right, at least in the numbers just they are currently constituted, David, nerve block is not as big infiltration, but it is a significant opportunity all in its own. I freeze it that way, because I think the real value of getting nerve block to us is that there are a number of regional anesthesia opportunities where physicians are treating pain and frankly don’t have a real conscious understanding of what’s an infiltration and what’s a nerve block et cetera. Having a nerve block indication for us will allow us to have discussions with those folks that are much more strategic in nature and we won’t have to be worried about the package insert in any issues around having infiltration and not having nerve block. We can have more strategic discussions about just playing taking care of a patient’s pain. So from a strategy perspective, it’s important to us and adds to the overall cache of the brand as well as the dollars if you will. And then lastly, your question on total opportunity, you would expect that we are thinking differently about these things as we launched EXPAREL and we come out the other side of this and we can see profitability. We routinely look at product opportunities, I would say that as Jim outlined, our first order business is to maximize EXPAREL and as we said during the call, there is a number of opportunities to do that not only through nerve block, but also with the institution of a product pain toxicology program et cetera. So we think EXPAREL itself has a long way to go. We will always have a bias towards DepoFoam based products just because of the active profile and our ability to manufacture these products and we think we have a very significant proprietary position in the marketplace. But at the same time, we do look at BD opportunities, I would say it’s safe to say that we haven’t seen anything yet that convinces us that the lost opportunity cost against EXPAREL is worthy of us taking on anything additional, but that doesn’t mean we are not looking and we wouldn’t do that if the right opportunity came along.

All right, thanks, Dave.

Thanks, David.

Thank you. Our next question comes from the line of Richard Lau of Wedbush Securities. Your line is now open.

Good morning guys.

Good morning, Richard.

So, the first question I guess is, you guys are still adding new customers at pretty good cliff here and I had actually thought that it might come down over time as just because you guys would have less customers to target. So maybe if you can talk a little bit about what’s driving all these new customer adds?

Yes, I think, the biggest piece of it Richard honestly is still word of mouth and people at major centers who are having real success with the product and, the medical groups that go into a lot of different places, not only smaller hospitals, but ambulatory surgery centers and different places where they might practice a day or week or half-a-day or week or the influence model is clearly working in that regard. I would have to tell you that to be completely candid we are a little bit surprised that that number as well to be perfectly honest with you and I think as we look forward, and I’ve asked Taunia to comment here on a second if she has got anything that adds to this as well. But as we look out and we see nerve block and we see the possibility of other opportunities to move in the ambulatory setting, where people have been trained in the hospital environment and we are in an environment where people are trying to move these patients from an in-patient opportunity to an outpatient opportunity. We think we might actually continue to see this over the next year especially if we are lucky enough to get the nerve block indication.

Yes, I would also Dave that, one of the things we are seeing is physicians that are training in centers where EXPAREL has had a history of utilization. They are now going into practice in other medical facilities and taking that experience with them and therefore pushing the adoption into these other facilities that have been slower to adopt the products. And you’ll see some of our data coming out in the hysterectomy phase, really reinforcing what Dave mentioned about taking these procedures from historically being an in-patient procedure into an ambulatory setting and patients being able to successfully go home and recover after their surgery versus being held in the hospital setting. So you’ll see that continue to drive our ambulatory efforts as well.

Okay, great. Good to hear. And then, one last question is, you mentioned doing exploring new areas with chronic tox package and repeat dosing. So I was wondering if you can maybe go into a little bit more detail about that market opportunity and what surgery types that’s currently being used and where it might see that being beneficial?

Yes, we really don’t know much about it yet. We are just putting some add ports together. Some of the initial discussions came from folks and some of the combat area is frankly where you know there was a desire to be able to use the second dose largely around transfer the ability to get somebody from a battlefield to a triage hospital and then from a triage hospital to a more official medical treatment center. That sort of got us thinking in that direction and now we are getting significant input from the marketplace regarding different areas where they would like to see some support from the company in terms of repeat dosing. So, again to be completely candid, our chronic tox package in this scenario will take a couple of years and so, we are starting the chronic tox package now. I can’t tell you that we’ve got a solid formed idea about what we are going to do with that once we get it. So we figure the market is changing so fast, that even if we did, it probably wouldn’t hold up over the next two years. So we are going to get the background support of a chronic tox package and then we will do a lot more work to specifically identify what the opportunities are inside of that as we get closer to being able to do some of that work.

Yes, thanks very much. Thanks for taking my question.

Thanks, Richard. Thanks for your help.

Thank you. Our next question comes from the line of Douglas Tsao of Barclays. Your line is now open.

Hi good morning. Jim and Dave, I was just curious in terms of the capacity expansion, have you already had an FDA inspection as part of the DAS process?

So, the – just for everybody’s knowledge base, it’s a four months process for the PDUFA goal and it does have both an inspection component of it and sort of the Washington review of the actual filing of the information in it. And we don’t think it’s particularly constructive to provide details of sub-components of the overall process in terms of our activity, but I can very much confirm what I said earlier which is, we have an April 5 PDUFA date and we think we are very much on schedule with receiving approval by that.

Okay, and then, when we think about the adoption right now, we’ve obviously seen in recent months a lot of strength from orthopedics as well as ITAP, when you think about the key drivers for adoption in 2014, are those going to be the sort of key focus areas or do you see right now, new indications sort of in the same place where ortho and ITAP were at this time last year meaning ones that are relatively small there really growing like a weed?

No, I think, a little bit of a broader answer maybe Doug, so, we continue – the soft tissues remains today the majority of our business and TAP infiltrations are embedded inside of soft tissue. So, we do see TAP infiltrations as being important for two reasons. One is, it gives us a place where several days of pain control in the abdominal area really separates us and gives us the unique selling opportunity in the marketplace. But it also gives us an opportunity to interact with anesthesia in advance of getting a nerve block indication since most of those procedures are done by anesthesiologists. So, TAP infiltrations in terms of not only EXPAREL being used, but it is a relatively new procedure. So we are working with a lot of the folks in the education space in training physicians and their teams how to do appropriate TAP infiltrations with ultrasound guidance. So, it is a fairly broad initiative. Doug, it is, when you talk about orthopedics. And I know you know a lot about orthopedics and where we are, it is still growing the fastest and really interesting to us because we’ve got a reasonable market share and these – but what we see in orthopedics is, a formal initiative in spine is now leading to what we believe is growing use there and then once you get into spine then you start to see trauma surgeons start to use the product. So, while the more advanced orthopedic indications are leading the charge if you will inside orthopedics, you continue to see a lot of growth and so I think that those two will remain the major focus for this year largely because of the stature of those surgical groups inside the hospital. It makes it easier for us to get in the hospital if we can train those high-end customers on the appropriate use of the product, things go more smoothly in terms of adoption across a broader spectrum and that’s – and so we sort of get into soft tissue in a different kind of way. But those two lead the way and that will be the key components of this year.

Okay, and then you made a comment in the prepared remarks that the seasonality or the seasonal strength in the fourth quarter that you typically see with electric procedures although you did note that plastics was not a huge driver this year, bigger driver this year, on a percentage proportional basis. Just curious how you are thinking or perceptive going into the first quarter, because typically we see in the third quarter some seasonal softness although – just given where you are in terms of your launch you were able to go through that this past year. So, how should we be thinking about some sequential trend going into the – into 1Q? Thank you very much.

Thank you, Doug. I think, we just like everybody else. I mean, this is only our second – first quarter of being on the market, so we’ve got to run that trend line. So we are a little bit dangerous in this regard. But what you are hearing from others is pretty much what we are seeing as well. There is some disruption in the marketplace from the affordable care act and we do have people that call looking for free drug because they’ve got patients who can’t find anybody that will take their insurance. We have not seen a lot of that previously and so there is a dislocation and we’ve had some weather issues. There is no doubt that when the City of Atlanta closes down, that doesn’t do us any good. Now, how much of it is hurt and how many of those electric procedures are done in the next week and stuff, I think generally Doug, we are doing fine and we are satisfied with where we are. We just don’t have a lot to compare ourselves to and it’s what I am hearing in the marketplace about some of the issues people are facing. We don’t seem that we have any of those same issues at least to – adequate to any degree that we would be worried about.

Okay, great. Thank you very much.

Thanks.

Thank you. Our next question comes from the line of Corey Davis of National Alliance. Your line is now open.

Thanks very much. Just to follow on that last comment that you made and ask if you are ready to predict whether or not you think Q1 will be up sequentially over Q4 for EXPAREL sales?

Yes, Corey, we’ve never given any guidance Corey, and there is no point in starting now. I think the best way for us to handle it is just to say that the brand is doing fine and we continue to grow both the ways with new customers as well as use within our existing accounts and quarter-on-quarter we continue to see all the metrics grow strongly and we are pretty confident on the future of EXPAREL.

Thanks. Next question is, how would you characterize the quality of your sales force right now, given the need to move into more complex new techniques even in advance of the formal nerve block indication, is there a need to make new hires to augment the current existing sales force and what does that mean about directionality of SG&A in 2014 and 2015?

Yes, I think, we’ve got – I think that, well, let me answer your question very specifically. Not only our sales force, but our commercial organization you can have whoever else you want I’ll take us. I think we are as good as anybody in the industry and I think our folks are in terrific spot to be able to do what’s required to make sure that patients get the best available care. Just to remind everybody, we’ve got a little over 40 nurses, pharmacists, physicians out there now and their primary responsibility is best practice transfer and specifically techniques in some of these very technique-heavy areas. We will increase that a little bit as we continue to get more customers and our folks are driven into more places. But I think substantially we can do what we need to do this year with what we’ve got out there now. In terms of our field organization Corey, we’ve got, I think a good mix of the leadership that’s required from folks that have been around for a while. And some of the newer folks that have come in with very specific expertise in some of the device areas and some of the areas where we might have been a little bit soft a year ago. And so, I think right now we are in really good shape.

And, Corey, let me just add to that too, that, our selling line went from $10 million to $13.9 million Q3 to Q4 and Dave talked about how in 2013 there was a big initiative to increase our staff which mostly has taken place. So, in terms of the SG&A going forward, we talked about 10 to 15 reps a year and very modest growth in that scientific better step but it’s mostly been built out today.

Okay. When we first started this, there is a huge emphasis on opioid reduction and cost savings, but now that the drugs been out there as far as long as it has and the feedback is that use the drug just really works really well, where does that opioid reduction get in the overall schematic of selling points that resonate with new accounts?

It’s the whole. I mean, it’s the story, Corey, and it remains the story.

So, is it still important part of the …

It is it, I will go to T in a minute here, but when you think about all the different ways that physicians who are using the drug, they all have their own sponsors. For a spine surgeon, it may be patients are backing up in the pack queue for an orthopedic surgeon, it may be time to first ambulation and preventing false, for a colorectal surgeon, now it might be time to first ball movement and those kinds, but they – when you come back to the root, everything is related to finding care pathways to allow us to treat those patients’ pain with fewer narcotics. So, everything that we do we’re focusing now on patient satisfaction – it’s a reimbursement driver through wage caps and it allows us to sell into the C Suite. But everything we do in one form or another is related to our ability to control pain with fewer narcotics.

Yes, and I’ll just add to that Dave, we’ve been having a number of discussions with quality C Suite folks at various institutions and clearly they are recognizing the benefit of the active pain control with less opioid leading to enhanced recovery, improvements in patient care which obviously economic benefits to that. So that’s clearly the story. It starts with our product at the foundation and then being able to deliver on the promise of an enhanced recovery.

And if there is overseeing, – welcome on the questions, last one would be, now that you are on a quarterly run rate that annualizes north of $100 million, how much do your customers think about that in capacity and potential for disaster scenario although unlikely that you run out a product for them? Or is that mainly just something that you are concerned about and they don’t think about it all? Obviously, what I am getting towards is, Q1 softness just holding back a little bit and do you actually get that approval and then factoring?

Yes, it’s funny. Right, it is something that you guys worry a lot more about than anybody in that clinical marketplace does to be completely honest to get. The only time that I ever hear, again, I’ll let Taunia comment about it, comment as well is, if you are going to go to a formulary approval process or if you are going to educate for a large system where there is a considerable commitment on their time to changing nursing mode from change the pain protocol and changing the standing orders in the ICU et cetera. Every once in a while, you will have a direct your promise you say only because there ought to be bupivacaine or out of so many drugs now. So, say to us, you guys have got plenty, so then if I go through this, you are not going to tell me you can’t make it right, but it’s never in a scenario where anybody is worried about our ability to supply relative to patient care. It’s more an investment in resources, et cetera at the time.

Okay, and I’ll add one more, any flexibility to raise price or not there yet?

Yes, no, I think we do – Corey, you know, I mean, there will be a day for sure, we are still looking, I’ll go back to Richard Lau’s question, we still got these – between 25 and 30 new customers every week and we want to make sure that we allow maximum access. We think that’s the key to getting this to be a very big product. And so, we are doing primary market research all the time trying to discern what is the point when the marketplace will accept the higher price, but we can still expect this expansion that we keep going through on a monthly basis.

Okay, great. Thanks, and I know you pre-announced, but congrats on a great quarter.

Thanks, Corey.

Thanks, Corey.

Thank you. Our next question comes from the line of Patti Bank, DISCERN Securities. Your line is now open.

Good morning. Just following up on price. How much is that linked to Suite C approval? And then also kind of along with that, any update on discounting with EXPAREL, is there any?

There is virtually no discounting of EXPAREL today. Well, we haven’t bought our way in any place if that’s the reference point for the question, Patti. And, I think you see in our gross to net we are giving – we’ve just got the standard returns and those kinds of things, 2% prop pays et cetera. In terms of pricing in Suite C, it doesn’t really have anything to do with Suite C. In fact, it’s probably inversely proportional actually if we were going to raise the price to try to damp the demand, we would have done that already. I think we see Suite C more as an opportunity to be more aggressive and support the nerve block indication and all the other initiatives that we’ve got going on, especially all the meetings and all the congresses we are going at. When you see the abstracts that come out at the American Academy of Orthopedic Surgery and at ASRA for example, you will see some astonishing stuff and it will be pretty good to get Suite C approved before all that good data comes out.

And then just one more question, any thoughts on – with now on with Mallinckrod soon to be in the market now, could that an indifferent just if you think that will expand the market or any change there?

I’ll be true to my mother, raising me the right way and say if I don’t have anything good to say, I'm not going to say anything.

Okay. And then another topic that you might not have anything to say, but, on visibility with the prescription data and whether that we should see any changes there with them becoming more accurate, is there any hope for that this year?

I have – let me go back on my last statement Patti, just for a second and I just thought everybody understands that we don’t view affirm as – is anything but, compatible and we think EXPAREL and affirm that frankly is the way to achieve a multimodal pain strategy and we do so opioid. So we don’t see us being competitive at all. We liked working with the cadence guys and we just don’t know what level of emphasis that’s going to get in a new environment which is why I answered the question the way I did. Right, I just want to make sure people don’t think that we think we are on a competitive situation with Mallinckrod the quite the opposite. In terms of the tracking agencies, I have no idea. You know, you are probably right, I shouldn’t say anything, but it’s astonishing to me that anybody could be that bad it sounds.

Okay. And then my question for asking that Mallinckrod was more just whether you think that could help a situation with a bigger voice or not. So…

I just – I have…

I guess, we don’t know at this point.

Yes, I have no information at all Patti. I would just be guessing.

Okay, thanks.

All right.

Thank you and I am showing no further questions in the queue and now I would like to hand the call back over to Dave Stack for any closing remarks.

Thanks for joining us today everybody. We look forward updating you on EXPAREL as we go forward here. We also like to note that coming up we’ll be presenting at the Barclays Global Healthcare Conference in Miami on March 13. All right, thank you very much for your time.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may disconnect. Have a great day everyone.