Flexion’s Pandemic Rebound: How Zilretta Dropped 80% But Is Still Coming Out Ahead

Zilretta had been on a steady upward trajectory since launching at the end of 2017, and the COVID-19 pandemic coincided with a promotional push – spending that Flexion attempted to claw back as the pandemic depressed sales. (See charts below.)

Selling expenses dropped from $96.3m for 2019 to $72.3m for 2020, largely from “the elimination of live presence at industry conferences, reduction in in-person physician speaker programs and reductions in select marketing programs and materials, as well as a reduction in travel expenses due to physician office limitations and travel guidelines and restrictions at the state and local level.” Flexion also temporarily paused Zilretta manufacturing to avoid excess inventory, and recommenced production at the end of 2020.

But despite a rough year, total 2020 sales rose to $85.6m, up 17% from 2019. “Considering the unprecedented challenges we experienced last year due to the pandemic, we are very pleased with these results,” Clayman told the firm’s full-year 2020 earnings call on 10 March. “The pandemic had a tremendous impact on patient flows to doctors' offices and corresponding demand for Zilretta in late Q1 and Q2. However, we saw sales recover nicely throughout the second half.”

The firm ended 2020 with slightly more than 2% penetration of the intra-articular injection market, which it sees as just scratching the surface, especially as it plans to expand to frontline use for knee OA.

First quarter 2021 sales were $24.6m. “We were really pleased with the quarter. There were a couple of expected pushes and pulls on it. And a couple of potentially unexpected pushes and pulls on it,” Clayman told the 12 May Q1 earnings call.

The first quarter usually sees about a 10% drop for knee OA injections, driven by insurance deductibles resetting and winter weather – which was exacerbated this year by the atypical severe weather across parts of the US with extended power outages that resulted in delayed office procedures, the CEO explained. Zilretta sales were also impacted by the rollout of the COVID vaccines, particularly in Zilretta’s target age population.

“Out of an abundance of caution, some physicians opted to defer IA steroid injections for a period of two weeks prior to COVID vaccination through two weeks post completion of the vaccination regimen,” Clayman noted. Flexion believes these deferrals are largely past, barring a resurgence of COVID-19. It expects patient flow to office to remain at 80% through mid-year, “with some incremental improvement” in the second half of 2021.

As a sign of its confidence there will be continued momentum in sales, the firm issued its first guidance for Zilretta sales, projecting $120m-$130m for the full year.

The guidance “seems reasonable as momentum appears to be building,” BMO Capital Markets analyst Gary Nachman said in a 13 April note. BMO is bullish on the market opportunity for Zilretta, forecasting peak sales of about $650m based on “positive feedback from physician consultants, and also potential upside from shoulder OA. There are barriers to entry given challenges in formulating [long-acting] steroid[s] and patents to 2031,” the analyst added, and expansions to Flexion’s “pipeline is adding more shots on goal and represents optionality.”

Guggenheim analyst Dana Flanders was similarly optimistic in a 13 May note: “We continue to like the setup for FLXN as Zilretta is poised for further growth, and with the positive FX201 data presented at ASGCT and enrollment progress on FX301, we believe 2021 could be an important year for FLXN’s pipeline.”

The company ended Q1 with $154m in cash and equivalents, which should cover the company through the middle of 2020, but when pushed on a 13 April pre-Q1 call outgoing chief financial officer David Arkowitz said the company would remain opportunistic regarding fundraising.