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Edited Transcript of FLXN earnings conference call or presentation 12-Mar-20 8:30pm GMT

Q4 2019 Flexion Therapeutics Inc Earnings Call

Woburn Mar 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Flexion Therapeutics Inc earnings conference call or presentation Thursday, March 12, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David A. Arkowitz

Flexion Therapeutics, Inc. - CFO

* Melissa Layman

* Michael D. Clayman

Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director

* Scott Young

Flexion Therapeutics, Inc. - VP of Corporate Communications & IR

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Conference Call Participants

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* Bruce David Jackson

The Benchmark Company, LLC, Research Division - Senior Healthcare Technology Research Analyst

* Carl Edward Byrnes

Northland Capital Markets, Research Division - MD & Senior Research Analyst

* Daniel James Busby

RBC Capital Markets, Research Division - Senior Associate

* Elliot Henry Wilbur

Raymond James & Associates, Inc., Research Division - Senior Research Analyst

* François Daniel Brisebois

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Gary Jay Nachman

BMO Capital Markets Equity Research - Analyst

* Patrick Ralph Trucchio

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. And welcome to the Flexion Therapeutics Fourth Quarter and Full Year 2019 Financial Results Conference Call. My name is Daniel, and I will be your coordinator for today. (Operator Instructions)

I'll now turn the call over to the company.

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Scott Young, Flexion Therapeutics, Inc. - VP of Corporate Communications & IR [2]

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Thank you, Dan. Good afternoon. This is Scott Young, Vice President for Corporate Communications and Investor Relations. Before we begin, I would call your attention to the metrics slide that we will discuss in today's presentation. Those slides can be viewed directly via the webcast, in the 8-K we issued this afternoon or under the Investors tab on flexiontherapeutics.com.

In addition, our Q4 earnings press release and an archive of this conference call, can also be found there. Today's call will be led by Flexion's Chief Executive Officer, Dr. Michael Clayman; and he is joined by David Arkowitz, Flexion's Chief Financial Officer; and Melissa Layman, Flexion's newly appointed Chief Commercial Officer.

On today's call, we will be making forward-looking statements that include commercial, financial, clinical and regulatory projections. Statements relating to future financial or business performance, conditions or strategies

(technical difficulty)

matters, including expectations regarding net sales, operating expenses, cash utilization, clinical, regulatory and commercial developments and anticipated milestones are forward-looking statements within the meaning of the Private Securities Litigation Reform Act.

Flexion cautions that these forward-looking statements are subject to various assumptions, risks and uncertainties, which change over time. Additional information on the factors and risks that could affect Flexion's business, financial conditions and results of operations are contained in Flexion's Form 10-K for the year ended December 31, 2019, which was filed with the SEC and other filings, which are available at www.sec.gov as well as Flexion's website.

These forward-looking statements speak only as of the date of this call, and Flexion assumes no duty to update such statements. I will now turn the call over to Flexion's CEO, Mike Clayman.

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [3]

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Thanks, Scott, and thank you all for joining. Today, I'll recap our commercial progress in 2019, review our life cycle management activities, provide an update on our pipeline and discuss our priorities for this year. After that, I'll turn it over to David for a deeper review of our commercial metrics and a summary of our financial performance, and then we will open the line and take questions.

To begin, as we reported today, we recorded full year ZILRETTA net sales of $73 million for 2019, which is fully in line with the preliminary unaudited revenue estimate we provided in early January. We are very pleased with our sales performance in 2019, which represents growth of more than 220%, compared to our 2018 full year net sales of $22.5 million. Those numbers tell a very compelling story, and they speak to the outstanding work of our field-based teams, the excellent coverage we have for ZILRETTA, the impact from our judicious use of volume-based rebates, but most importantly, our sales performance speaks to the remarkable experience that patients and clinicians are having with ZILRETTA. As you will see in the commercial metrics that David will review, by the end of 2019, our customers had purchased 175,000 units of ZILRETTA. While our data are limited to the account level, that number provides a reasonable surrogate for the number of patients who have been treated with ZILRETTA since it was introduced to the market in late 2017. And we know that many of those patients have received unprecedented pain relief from ZILRETTA. I say this based on real-world feedback from the countless conversations I've had with grateful ZILRETTA patients and their physicians, feedback that is wholly consistent with our compelling clinical trial data.

In fact, last year, we became aware of several professional athletes who received ZILRETTA, namely Rod Woodson, the NFL Hall of Fame Defensive back named as one of the top 100 players of all time. Michael Eruzione, the captain of the 1980 Gold medal winning U.S. Olympic Hockey team and the player who scored the game winning goal against the Russians during the Miracle On Ice; and Chris Dickerson, a former outfielder who played from the New York Yankees and other major league baseball teams. From snow blowing a driveway to playing with their children and grandchildren, to jogging for the first time in years, they all have profoundly moving stories about how ZILRETTA has helped each of them manage their knee OA pain, and thereby, improve their ability to participate in regular everyday activities. As part of our ongoing physician marketing initiatives, we brought all 3 athletes together at a major orthopedic conference last December, where they and their treating physicians, spoke to a standing room crowd of some of the country's leading sports medicine experts. They shared their stories of how ZILRETTA has helped them, and the best words I can use to describe that session are inspiring and humbling.

While all are elite athletes, their ZILRETTA stories echo the scores of e-mails and letters I've received from patients who are so grateful to reengage in things they love doing with less pain. From gardening, playing a round of golf, walking on the beach, hiking, each of these stories serves as a reminder to all of us that while we have impacted more than 175,000 patients, there are 15 million people who see their doctor every year for OA knee pain. And 5 million of them receive an intra-articular injection. The opportunity for ZILRETTA and Flexion is truly massive, which brings me back to our performance in 2019 and our goals for 2020.

Throughout the course of 2019, we saw existing practices increase their use of ZILRETTA and more than 1,600 new accounts start using the product. Today, with the benefit of 2 years in the market, we have actual claims [data that show some slight] (added by company after the call) changes in the payer mix versus our assumptions prior to launch. We now see that the actual payer mix is skewed slightly more toward Medicare, which accounts for roughly 55% of the market versus previous estimates of 50%. 40% is still commercial, but Medicaid, VA and 340B plans are making up roughly 5% of the mix. We view this modest increase in Medicare patients to be incrementally positive as Medicare patients can be injected the same-day they visit without any need for prior authorization. In addition, it is important to point out that commercial coverage for ZILRETTA remains excellent. As we discussed in December, the recent approval of our sNDA resulted in a significantly improved label, which most importantly, removed the onerous not intended for repeat administration wording in the limitation of use statement. Within days of the approval, we developed materials to help our MBMs communicate the label update and we have anecdotal feedback from the field that tells us that the changes have been very well received. While we clearly view the label update as a tailwind. We have always said that we continue to believe that the meaningful impact will be seen over the following quarters and years. From a commercial perspective, our progress in 2019 strengthens our belief that ZILRETTA can become the new standard of care for the intra-articular treatment for OA knee pain in the years ahead. While under normal circumstances, these factors would give us confidence that our 2020 ZILRETTA net sales guidance of $120 million to $135 million is both credible and achievable. Like all businesses, we are acutely attuned to the potential impacts of the coronavirus global pandemic, and we are monitoring this dynamic situation very closely. To date, we have not seen any material impacts on ZILRETTA sales, our ability to access customers or to initiate our clinical trials. However, it is impossible to predict how the outbreak could evolve in the months ahead or what impacts more aggressive social distancing or other containment efforts might have on patients or practices. Regarding our supply chain, we believe we are in a very strong position. We do not source any of our key materials from China, and we presently have approximately 10 months worth of finished product inventory in our warehouses in the U.S. Furthermore, we have an additional 12 months of API, triamcinolone acetonide at our manufacturing facility in the U.K. Again, it is impossible to predict the long-term impacts of the outbreak. But we feel very good about our ability to provide ZILRETTA to patients over the quarters ahead.

Shifting to our clinical development activities, our Phase II trial to investigate the safety and efficacy of ZILRETTA in shoulder OA and adhesive capsulitis, also known as frozen shoulder syndrome continues to advance, and we anticipate data from that trial in 2021.

As we've previously discussed, these 2 conditions combined account for roughly 800,000 injections, and they present an opportunity for us to expand the use of ZILRETTA with a subset of orthopedists, who primarily focus on sports medicine and commonly treat these conditions with steroid injections.

With respect to our pipeline, we've also been making progress with our 2 drug candidates, FX201 and FX301. FX201 is our gene therapy, which holds the potential to provide OA pain relief for at least a year, improve function and potentially modify disease. As we announced last year, the IND for FX201 was accepted by the FDA, and we recently treated the first 2 patients in our Phase I dose-ranging study. We anticipate treating approximately 15 to 24 patients, who will be followed for 104 weeks with initial readout in 2021.

Now we'll move to FX301. Our NAV 1.7 inhibitor, formulated within a thermosensitive hydrogel for administration as a peripheral nerve block for control of postoperative pain. We've held our pre-IND meeting with FDA, and we remain on track to initiate our first FX301 clinical trial in 2021.

Unlike typical local anesthetics, we believe the selective pharmacology of FX301 has the potential to deliver at least 3 to 5 days of effective pain relief, while preserving motor function, which could enable ambulation, rapid discharge from the hospital and early rehabilitation following musculoskeletal surgery.

Finally, regarding our search for a Chief Commercial Officer. We were very excited to announce the appointment of Melissa Layman earlier this week, and I'm delighted that she is able to join us for today's call. As we've said repeatedly, in our search for a CCO, we were looking for someone who had had success leading an entire commercial enterprise, who had deep experience and expertise in each of the key commercial functional domains, who had a track record as a very strong leader and who would positively contribute to our already strong culture. Because Melissa fulfills all of these criteria and is simply a terrific person to interact with. We could not be more pleased to have her take the helm of our commercial organization. Before David summarizes our fourth quarter financials and walks through the commercial metrics, I'd like to give Melissa the opportunity to make a few remarks. Melissa?

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Melissa Layman, [4]

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Thank you, Mike, and thank you for the kind words. It is such a pleasure to be here today and such an honor to join Flexion. While I've barely been in my role for a day, I can already see what an amazing group of people work here. The team has been welcoming, engaging and candid, and that was consistent throughout the entire interview process from the Executive Committee to the Board members. The commitment to patients and passion for winning has been universal, and that was one of the many reasons I wanted to join. Put simply, I can't begin to convey how excited I am about the opportunity that's ahead of us. The strong foundation that's been laid by Mike, David, Steve Meyers, and the rest of the commercial leadership team is truly impressive, and I'm looking forward to working together to grow ZILRETTA's market share and help make it the leading IA treatment in this space. Over the next few months, I'll be working intensively with our commercial organization, and I look forward to representing our commercial effort on future calls. At this point, I'll turn it over to David.

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [5]

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Thank you, Melissa. I'll start by walking through our commercial metrics which, as Scott mentioned, can be found on our website and in the 8-K we issued today.

If you look at Slide 2, you can see that we recorded ZILRETTA net sales of $23.7 million in the fourth quarter of 2019, bringing full year 2019 net sales to $73 million. As Mike mentioned, year-over-year growth topped [220%] (corrected by company after the call). As in previous quarters, we expanded our list of target accounts in the fourth quarter to 4,972, and by December 31, 2019, we've called on almost all of them. At the end of the fourth quarter, 3,488 accounts had purchased ZILRETTA, which is an increase of nearly 360 purchasing accounts compared to the end of the third quarter.

As of the end of December, we had 2,642 accounts or 76% of all purchasing accounts place at least 1 reorder for ZILRETTA. Notably, we saw our reorder rate increase in each quarter throughout 2019, and this occurred on a successively growing customer base. Slide 3 charts our quarterly sales from launch through the fourth quarter of 2019, which provides a very compelling view of ZILRETTA's growth in the market, especially since the introduction of the permanent J Code on January 1, 2019. We do not provide quarterly guidance, but based on routine seasonality impacts, directionally, we anticipate first quarter net sales to be roughly flat versus the fourth quarter of last year.

Moving to Slide 4. This slide and the remaining 2 slides reflect purchases of ZILRETTA by accounts, which represent physician practices, clinics and hospitals of various sizes and purchasing potential. As we look at the distribution of accounts that have purchased ZILRETTA since launch, we stayed with the same groupings that we've used in previous quarters, accounts that have purchased 1 to 10 units, purchased 11 to 50 units or purchased more than 50 units. We continue to see a significant number of accounts with purchases of 1 to 10 units. And as of December 31, 2019, roughly 1,670 accounts had made purchases in this range. While approximately 1,030 accounts had purchased 11 of 50 units. In addition, 794 accounts had purchased more than 50 units, which represents growth of 150% as compared to Q1 2019 when 313 accounts had purchased in this category.

Looking at Slide number 5. You can clearly see the distribution of purchases by accounts. Those 794 accounts that have each purchased more than 50 units are in total, responsible for approximately 143,000 units or roughly 81% of all units purchased since launch. As we have mentioned previously, accounts generally move along a utilization continuum from 1 to 10 units to 11 to 50 units and then to more than 50 units. Importantly, none of our purchasing accounts has fully incorporated ZILRETTA into their practice. And this holds true for even the highest utilizers. As a result, we believe there is tremendous opportunity for us to increase utilization across each of these groups. Before I leave this slide, I would like to point out that the total ZILRETTA purchases by accounts in the fourth quarter were approximately 37,500 units, which is lower than the 48,600 units purchased in the third quarter. We believe this quarter-over-quarter reduction was primarily the result of the broad-based rebate program that we introduced in the third quarter. There was a strong amount of enthusiasm and pent-up demand for this program, and we believe that some purchases that otherwise would have occurred in the fourth quarter instead occurred in the third quarter. To a much lesser extent, we believe that the holidays in the fourth quarter had an impact on the sequential quarter reduction as well. Nevertheless, we saw total ZILRETTA purchases by accounts increased by more than 70% in the second half of 2019 versus the first half of 2019.

Moving to Slide 6. Here, we break out ZILRETTA purchases by new and existing accounts. And in the fourth quarter, we added about 350 new purchasing accounts. While we expect to eventually see a slowing in the number of new accounts coming on board each quarter, we continue to be pleased with the progress we are making with new accounts as they typically work their way through the ZILRETTA utilization continuum.

So at this point, I will briefly walk through the fourth quarter and full year 2019 financial results, which we included in the press release issued this afternoon and in our 10-K. We reported a net loss of $149.8 million for full year 2019 as compared to a net loss of $169.7 million for full year 2018. Net sales of ZILRETTA were $23.7 million for the fourth quarter of 2019 and totaled $73 million for full-year 2019. The cost of sales for full-year 2019 was $10 million. The fourth quarter 2019 net sales reflect a gross to net reduction of 11%. A gross to net reduction is primarily comprised of distributor and service fees, returns reserve, health care provider rebates and mandatory government discounts and rebates, such as Medicaid, 340B institutions, and Veterans Administration, Department of Defense. As we previously mentioned, in the third quarter, we started offering rebates to eligible health care providers that are variable based on the volume of product purchased. These provider rebates contributed 4% of the fourth quarter total gross to net reduction of 11%. Research and development expenses were $69.6 million, and $53.1 million for the years ended December 31, 2019 and 2018, respectively. The increase in research and development expenses year-over-year of $16.5 million was primarily due to an increase in salary and other related costs for additional headcount and stock-based compensation expense, an increase in expenses related to portfolio expansion and other program costs, including an upfront payment to Xenon Pharmaceuticals related to FX301, and an increase in development expenses for ZILRETTA. Selling, general and administrative expenses were $129.7 million and $121.3 million for the years ended December 31, 2019, and 2018, respectively. Selling expenses were $96.3 million and $87.3 million for the years ended December 31, 2019 and 2018, respectively. The year-over-year increase in selling expenses of $9 million was primarily due to salary and other employee-related costs and external costs related to marketing and reimbursement support activities.

General and administrative expenses were $33.4 million and $34 million for the years ended December 31, 2019 and 2018, respectively, which represents a decrease of $0.6 million year-over-year. Interest expense was $17.1 million and $15.7 million for the years ended December 31, 2019 and 2018, respectively. We expect that while our operating expenses will continue to increase in the near term, primarily driven by commercial activities in support of ZILRETTA, line extension clinical trials for ZILRETTA, continued development of FX201 and FX301 and development activities associated with future additions to the pipeline. We believe we will be able to increasingly leverage our infrastructure in support of these efforts. As of December 31, 2019, we had approximately $136.7 million in cash, cash equivalents and marketable securities compared with $258.8 million as of December 31, 2018. In addition, earlier this quarter, we fully drew down $20 million from our revolving credit facility, which is secured by our accounts receivables. We believe that our current cash balance with the expected future sales [of ZILRETTA] (added by company after the call) and the ongoing prudent management of our expenses will enable us to reach profitability. However, our projections are based on certain market assumptions, which may or may not be affected by the coronavirus pandemic. As a result, we will continue to review and reassess our [assumptions] (added by company after the call)

in light of those factors. In addition, we will remain opportunistic as it relates to potential funding decisions, and we will do what we believe is in the best long-term interest of Flexion and our shareholders.

At this point, I would ask the operator to please open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from Randall Stanicky with RBC Capital Markets.

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Daniel James Busby, RBC Capital Markets, Research Division - Senior Associate [2]

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This is Dan Busby on for Randall. A couple of questions. First, among the high-prescribing accounts, in particular, can you give us a sense of how much more room there is to grow within those practices? I think I heard you mentioned that you haven't fully penetrated any of those accounts yet. And of the physicians in those accounts who aren't using it, what's the pushback you're hearing?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [3]

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Yes, Dan, this is David. So as we shared in our prepared remarks and in the deck, we've got almost 800 accounts that have purchased 50 units, more than 50 units of ZILRETTA launch to date. In the vast, vast majority of those accounts, ZILRETTA has not been fully adopted, incorporated into their practices and even there's a subset within those accounts of almost 50 accounts that have purchased more than 500 of units of ZILRETTA launch to date. So there's room to run with those almost 800 accounts as well as the other accounts that are less than 50 units of ZILRETTA purchased launch to date. And in terms of the other part of your question, in terms of why have they not fully incorporated ZILRETTA at this juncture. The way this will typically work is take a practice with 5 or 6 physicians [1 or] (added by company after the call) 2 of those physicians have started to use ZILRETTA and are using ZILRETTA for their patient -- appropriate patient population. But there just hasn't been awareness and experience with ZILRETTA for the other 3 or 4 docs in the practice. So it's a process. It's a process for the docs that are treating the existing patients to talk to their colleagues or our representatives to be making those physicians that are not yet using ZILRETTA, aware of ZILRETTA, getting them comfortable with reimbursement. So that's really what is going on.

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Daniel James Busby, RBC Capital Markets, Research Division - Senior Associate [4]

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Okay, that's helpful. And I guess, as a follow-up to that, if 1 practice, if 1 or 2 physicians within a practice, have secured reimbursement? Is it typically the case that other doctors who aren't using it, but may in the future, they would have reimbursement set up already? Or is that more kind of doctor by doctor?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [5]

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No, it's typically at the office level, at the clinic level. But the -- it's an issue of just getting familiar and comfortable with reimbursement, experiencing reimbursement, and that takes those docs that have not achieved that to just go through the process.

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Operator [6]

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Our next question comes from Elliot Wilbur with Raymond James.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [7]

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A couple of questions. First, Mike, I believe you mentioned in your commentary that you expect 1Q 2020 ZILRETTA sales to be essentially flat versus 4Q '19. Just want to get maybe a little bit more color behind that? How much of that you think is attributable to high deductible plans, perhaps influencing utilization versus other factors such as seasonality or just sort of overall company conservatism kind of in light of potentially increased macro uncertainty here in the short term?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [8]

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Yes. So I think there are a few things, Elliot. So it's a good and important question. First, just to recognize, historically, in this space, the hyaluronic acids are typically down 10% in the first quarter, with the driver being, as you point out, deductible. That is a key driver. I think that you also have to look at an older population may be less active in the winter months. And as a result, have less need to go to their physicians. So there are a couple of reasons why there is a basis for, relatively speaking, the first quarter being softer than other quarters and why we have guided to flat in the first quarter.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [9]

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Okay. And then with respect to your commentary around some of the data points that emerge from the claims data that you're referring to in terms of the payer mix with Medicare representing now a higher proportion. How should we think about the relative opportunity with respect to additional growth levers such as repeat administration, bilateral administration within the context of a greater Medicare book of business versus commercial?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [10]

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Yes, it's a good question. We -- as you know, the Medicare population has the opportunity to benefit most directly in a sense from ZILRETTA and that physicians can use same-day without any hesitancy and proceed with confidence that they will be reimbursed. They can repeat dose without any concern about reimbursement. They can do bilateral injections, et cetera. So we like the Medicare population. We also like the commercial population. It's very straightforward with Medicare. And I would say directionally, as a modest bump up in the representation of Medicare is, wind in our sails and will improve our circumstances. As we often say, this is not a light switch, but it's directionally encouraging.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [11]

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Okay. And then just a couple of financial questions for David as well. With respect to SG&A trends, they've held relatively flat in the $32 million, $33 million range over the last 4 quarters, not sure kind of directionally would expect it to increase, but obviously, you've been able to get a lot more leverage out of that line than probably what we would have expected at the beginning of the year. So how should we think about progression of that number over the course of 2020?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [12]

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Yes, Elliot, great question. So to your point, it has been relatively flat quarter-over-quarter in 2019 the G&A component of that. So if you just look at quarterly SG&A for fourth quarter about 20 -- excuse me, about $32 million, about $8 million of it is G&A, that will stay flat in the ensuing quarters. $24 million of it is commercial. And as we've talked about before, slightly more than half of that is related to headcount and support of spend, and we are right-size from a headcount standpoint. So increases in that portion will be minimal, where we're going to see some increases over time are external marketing activities in support of increasing ZILRETTA sales. But because that's only less than half of the selling and marketing spend, you're not going to see SG&A go up by meaningful amounts quarter-over-quarter. And on top of all that, as you might imagine, we're very focused on leveraging as best we can, our SG&A infrastructure that we've built up over the past 4 quarters.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [13]

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Fair enough. One last question for you, David, just doing some simple back of the envelope math here, yield is a much higher net price per unit in the fourth quarter versus what we've seen during the course of the year. Wondering how much of that may be attributable to simply payer mix? Or is there some sort of Medicare true-up or other reserve adjustments that may have led to that?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [14]

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Yes. So Elliot, the gross to net reductions in the third quarter. That was 14%. That would have generated a net price per unit of about $490. In the fourth quarter, our gross to net, as I talked about earlier, was 11%, and that generates a net price per unit of about $507 per unit. And really, the difference between Q4 and Q3, why the gross to net reduction is a bit less, relates to the provider rebates those were obviously less in the fourth quarter than they were in the third quarter on a per unit basis.

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Operator [15]

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Our next question comes from Gary Nachman with BMO Capital Markets.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [16]

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Mike, first, I just want to confirm, if not for all the coronavirus uncertainty, would you be reiterating ZILRETTA guidance of $120 million to $135 million that you provided in January, based on everything that you had been seeing thus far? And David, how much flexibility do you have with expenses? If revenue ends up trailing your guidance, what sort of levers do you have with both SG&A and R&D?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [17]

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Yes. And good questions Gary, let me say that. We do reiterate guidance in the script. We do indicate our confidence in achieving full year revenue $120 million to $135 million. What we do is qualify that by the unknowns associated with COVID-19 and inability to predict with any sense of reality, what the situation will be in the coming weeks and months. So I think it would be imprudent for us to guide to $120 million to $135 million without that qualifier, because there are just too many unknowns. Bottom line is take COVID-19 off the table and our confidence in the guidance continues at the highest level.

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [18]

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And Gary, this is David. So operating expenses on a quarterly basis, around $50 million. We do have a certain amount of operational flexibility to dial expenses up and dial them down. Obviously, we want to ensure that we're appropriately resourcing ZILRETTA from a commercialization standpoint, from a line extension standpoint and that we're appropriately resourcing FX201 and 301 in their respective development. But with all that said, we are sitting here in Burlington, Mass in rented space that's not all that expensive, and we don't have a whole lot of fixed cost. So we have a certain amount of flexibility, but we're obviously going to do what makes the most sense for the business.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [19]

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Okay, great. And then, Mike, just a little bit more on what sort of impact have you been seeing or hearing so far in the label update. How have you changed your promotional materials and messaging since that label update? I Know that it's pretty early, but -- and it takes some time for you to really see the impact there. But any color on the anecdotal feedback that you've been getting on that? And then just -- yes, go ahead, I'll have a follow up after.

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [20]

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Okay. I'd just say, it's a good question. We're very happy with our ability and the ability of our sales reps or MBMs to share the reprint and reprint cover that includes information about the trial, data from the trial and to be able to do that proactively.

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Operator [21]

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(technical difficulty)

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [22]

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Sorry, Gary. Are you still on the line? Apologies, we had a technical snafu. So what we're hearing anecdotally is very positive, but it's too early to quantify the effect. But directionally, it is -- we're absolutely confident it will be positive.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [23]

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Okay. And then the last question is just what sort of initiatives might you have in place to try and shift an acceleration with the targeted physicians to the higher utilization buckets. And Melissa, welcome to you, maybe it's a chance for you to comment just a little bit, based on your prior experience, where do you see the greatest opportunity to accelerate ZILRETTA? And then at what point do you think the sales force might be ready to take on some new products in the bag and then leverage that infrastructure a little bit better?

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Operator [24]

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(technical difficulty)

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [25]

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Sorry about that, guys. We're back, Gary, you're...

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [26]

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Right. If you really don't want to answer my questions just tell me.

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [27]

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Go ahead, sorry.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [28]

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Corona's affecting everything here. Did you hear that last question?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [29]

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No, please ask it again.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [30]

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Okay. So what sort of initiatives do you have in place to try and shift an acceleration with the targeted physicians to the higher utilization buckets? And then I was just asking, Melissa may be you could comment, welcome to you, but maybe you could comment, where you see the greatest opportunity to accelerate ZILRETTA based on your prior experience? And at what point do you think the sales force might be ready to take on some new products in the bag to leverage the infrastructure better?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [31]

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Yes. So Gary, there are multiple levers that are being pulled to increase penetration in accounts. That's the way I would interpret your question. It starts with ensuring that physicians have adequate exposure to the product, their patients have adequate experience with the product because that feedback loop is kind of like a flywheel that once it gets going, it gets self-propelling over time. But importantly, we're also -- we have to cite the rebate program, a continually refined rebate program, improved marketing materials for health care practitioners and for our patients and an increasingly effective sales force. We put all that together, and our confidence in enhanced penetration over time is very high.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [32]

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Okay. And Melissa, I don't know if you want to have a quick comment on where you see some of the opportunities?

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Melissa Layman, [33]

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Gary, I would just reiterate what Mike just said. I think that it's obviously very early hours for me, not even early days at this point. But from my experience and from what I've observed thus far, it's just continued blocking and tackling out there day in and day out with the sales force continuing to penetrate the targets with the revised marketing materials and messaging. It's a sensitive market, and it is something that will take a lot of time and repetition to be able to realize its true potential, but all the elements are definitely there.

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Operator [34]

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Our next question comes from Patrick Trucchio with Berenberg Capital Management.

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Patrick Ralph Trucchio, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [35]

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Just a few for me. First, just regarding ZILRETTA. Is the plan to run an updated DTC campaign with the new materials from supplemental NDA? And if so, what's the status of that campaign? And how much would it cost? And then secondly, I appreciate the details regarding COVID-19, particularly regarding supply chains. I'm wondering if you can tell us what, if any, impact the pandemic has had on your enrollment in clinical trials. ZILRETTA and OA shoulder and frozen shoulder or FX201 in terms of patients' willingness to visit centers or ability for centers to continue conducting clinical trials, the understanding that FX201 just began enrolling patients and that the situation with COVID-19 is changing all the time?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [36]

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Sure. So in terms of direct-to-consumer campaign related to the repeat dose and the supplemental NDA approval. I'd simply say, Pat, that we're very pleased with the materials that we now have our MBMs handling and interacting with physicians over and stay tuned on direct-to-consumer plans. We're always evaluating. It's way premature for us to guide one way or the other on that, as it relates to COVID-19 and its potential negative impact on enrollment. In this case, specifically, FX201 single ascending dose study or shoulder studies. At this moment in time, we do not see any negative impact of COVID-19, but we could not be in a more dynamic circumstance. And this is something that we're following very closely.

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Operator [37]

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Our next question comes from François Brisebois with Craig-Hallum.

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François Daniel Brisebois, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [38]

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I was just wondering, just to hit on -- Melissa to put on the spot. I know it's just been a couple of hours. But I was just wondering have -- in your past experiences here, have you had experience with the DTC campaigns?

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Melissa Layman, [39]

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I have had experience with DTC campaigns, fairly large ones. Is that the extent of the question?

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François Daniel Brisebois, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [40]

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I guess, so I just -- I wonder -- I guess, if -- I guess, I could just ask what the main takeaways that what makes you think that DTC could help. Are there certain things to check the box to say, yes, it might be time for this? Or is it mostly just financial?

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Melissa Layman, [41]

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It's a terrific question. It's just way too early for me to opine based on previous experience alone as to whether or not this is a market opportunity that would be really responsive to direct-to-consumer advertising. But stay tuned, more to come.

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François Daniel Brisebois, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [42]

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Makes sense. Okay. And then, Mike, I don't think it's been hit on. A lot of things have been hit on here on the call. But in terms of the Phase IIIB, that shows the greater than 50% decrease in synovial tissue. On the pain and function side, is that versus baseline, it's open-label, right? So -- but in terms of stats, figures or any details, could you just talk a little more about the Phase IIIB?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [43]

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Yes, it is versus baseline. We do see clearly statistically improve -- statistically significant and clinically meaningful improvements versus baseline in pain and function.

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François Daniel Brisebois, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [44]

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Okay, great. And then on the -- you have the reorders again. Is there any way -- I forget, is there any way to ever see based off the LOU [end] developments on the clarity of it? Is there any way to ever see the -- not reorders, but the re-administration numbers? Or is that always going to be impossible to see?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [45]

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Yes. No, it's a great question. And all I can tell you is that our outstanding Chief Medical Officer, Scott Kelley, working with our health econ and outcomes research people, has identified databases that have the potential to shed light on exactly that question. Too early to commit to that, but it's an area of interest for us, and it's something that we're actively pursuing.

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François Daniel Brisebois, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [46]

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Okay, great. And then lastly here, David, I guess, this might be your last time commenting on the commercial metrics. But just a chance here, is this the over 50-plus account -- unit purchased accounts, you're kind of early adopters, but you're fast growers, I don't -- I can't tell -- am I -- where did you -- did you mention something slowed down versus third quarter. Is that their relative growth that's -- or can you just repeat what actually slowed down there?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [47]

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No. They -- there are about 800 of them in the fourth quarter, it's about 670 in the third quarter. So what I did talk about slowing down was the addition of new accounts in the quarter. That was about 350 new purchasing accounts in Q4. If you look at all the prior quarters, it's been between 400 to 500 new purchasing accounts per quarter. But the -- those accounts that are 50 units or -- more than 50 units of ZILRETTA purchased launch today. They continue to increase, both in the number and in the number of ZILRETTA units they have purchased.

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Gary Jay Nachman, BMO Capital Markets Equity Research - Analyst [48]

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Okay, that makes sense. And then is it 50-plus, like on the edge? Or are there some that are way above? I think in the past, you might have mentioned some that were in the 100s kind of level. Are these metrics going to stay the way they are?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [49]

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Yes. So that set of metrics is something that is ripe for refreshing, looking at what the breakpoints are, what the buckets are. And undoubtedly, that will change in the future, whether that's next quarter, subsequent quarters that's in front of us. But what I would also say is, of those almost 800 accounts that have purchased more than 50 units launched to date, there's almost 50 accounts that have purchased more than 500 units of ZILRETTA launch to date. So there's a higher grouping within there, as you might imagine.

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Operator [50]

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Our next question comes from Serge Belanger with Needham & Company.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [51]

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Most of my questions were asked. So a couple of follow-ups on some prior questions here. In terms of the new label, have you noticed any changes to commercial payers and your policies related to over ZILRETTA with the [same] label?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [52]

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A work in progress, Serge. So stay tuned on that, it's something that we're actively working on. Recall that the vast majority -- first of all, that Medicare has no policy that restricts repeat administration to the vast majority of commercial payers. Similarly, do not restrict repeat administration for those handful of policies that do. It becomes a work in progress for us to be sharing the data and working through a change and -- from our perspective an intended change in policy.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [53]

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Okay. And then on the Phase IIIb synovial study that you reported today. Can you just frame for us here what the -- this means for the ZILRETTA market opportunity? And I think in the past, you talked -- your plans were not to have this data as part of the ZILRETTA label. So I guess, what are the longer-term plans for -- once you have the full data set?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [54]

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Yes, well, realize, Serge, 2 things. One is, these data would be considered on-label. So they're available to incorporate into our materials -- promotional materials. And as a result, the concept of label expansion is rendered moot. So we like that and also realize that many of these prescribing physicians, these orthopedists, most of whom do arthroscopy are very familiar with the right synovitis looks like on arthroscopy. So it's not a new concept to them. When you do an arthroscopy, and you see a very red and inflamed lining of the joint, that synovitis. So the idea that you would have a picture that shows evidence of synovitis, and then with treatment of ZILRETTA, substantial suppression of that synovitis, to us, is a very appealing line of consideration for our prescribing physicians.

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Operator [55]

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(Operator Instructions)

Our next question comes from Carl Byrnes with Northland Capital.

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Carl Edward Byrnes, Northland Capital Markets, Research Division - MD & Senior Research Analyst [56]

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Congratulations on the progress. I think most of my questions have been answered. But kind of backing into the numbers, David, that you mentioned earlier, is it safe to assume that R&D on a quarterly basis would lie in the $18 million to $20 million range. Does that sound reasonable?

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David A. Arkowitz, Flexion Therapeutics, Inc. - CFO [57]

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So Carl, R&D for Q4 was about $17 million. We haven't given specific guidance on what it's going to be going forward. It will grow as we advance FX201 and FX301 in the clinic. And also as we continue our activities as it relates to ZILRETTA line extension program. So it will increase. Obviously, it's not going to double in a short period of time.

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Operator [58]

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Our next question comes from Bruce Jackson with the Benchmark Company.

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Bruce David Jackson, The Benchmark Company, LLC, Research Division - Senior Healthcare Technology Research Analyst [59]

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I know it's still early days on the new labeling. But I wonder if you have just any anecdotal stories about going back to accounts that may have pushed back on the repeat administration labeling? And are you getting any receptivity or conversion as a result of the new label?

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [60]

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Yes. What I can say is, at a high level, Bruce, that anecdotally, we're hearing receptivity to the story and that there are examples of practices growing comfortable with repeat administration as a result with repeat administration as a result.

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Operator [61]

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I am not showing any further questions at this time. I would now like to turn the call back over to Mike Clayman for any closing remarks.

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Michael D. Clayman, Flexion Therapeutics, Inc. - Co-Founder, President, CEO & Director [62]

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I'd just say thank you for everybody's attention. It's an exciting time here at Flexion, and we're looking forward to updating you at our next earnings call. Take care, be well.

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Operator [63]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.