Flexion Therapeutics, Inc.
Q4 2019 Earnings Call Transcript

Published: 13 Mar 2020

[Operator:]

Good afternoon 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. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session at the end of today's call. [Operator Instructions] I'll now turn the call over to the company.

[Scott Young:]

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 presentations. Those slides can be viewed directly via the webcast in the AK 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's 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 and strategies [Technical Difficulty] matters, including expectations regarding net sales, operating expenses, cash utilization, clinical, regulatory, and commercial developments, end anticipated milestones, our 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 of risk 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 [Technical Difficulty] over to Flexion's CEO, Mike Clayman.

[Mike Clayman:]

Thanks, Scott, and thank you all for joining. Today, I'll recap our commercial progress in 2019, review our lifecycle 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 were 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 have 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 defense named as one of the top 100 players of all time, Mike Eruzione, the captain of the 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 for 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 three 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 emails and letters I've received from patients who are so grateful to reengage in things they love doing with less pain, from gardening, playing around 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 five 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 two years in the market, we have actual claim [Technical Difficulty] slight changes in the payer mix versus our assumptions prior to launch. We now see that the actual nexus skewed slightly more toward Medicare, which accounts for roughly 55% of the market, versus previous estimates of 50%. [Technical Difficulty] 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 MDMs 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 2020. As we've previously discussed, these two 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 two 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 two 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 sensitive hydro-gel for administration as a peripheral nerve block for control of post-operative pain. We've held our pre-IND meeting with FDA, and we remain on track to initiate our first FX301 clinical trial in [Technical Difficulty]. Unlike typical local anesthetics, we believe the select pharmacology of FX301 has the potential to deliver at least three days to five 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's 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?

[Melissa Layman:]

Thank you, Mike. And thank you for the kind words. It's 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 patience 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 [Technical Difficulty] opportunity that's ahead of us. The strong foundation that's been laid by Mike, David, Steve Myers, 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 the 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.

[David Arkowitz:]

Thank you, Melissa. I'll start by walking through our commercial metrics, which as Scott mentioned, can be found on our website 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 20%. 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 one 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 two 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 one 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 one to 10 units, and as of December 31, 2019, roughly 1,670 accounts have made purchases in this range, while approximately 1,030 accounts had purchased 11 to 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 one 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'd 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 increase 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. 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 $93.7 million for the fourth quarter of 2019 and totaled [Technical Difficulty] for full year 2019. The cost of sales for full year 2019 was $10 million. The fourth quarter 2019 net sales reflect a gross net reduction of 11%. The gross net reduction is primarily comprised of distributor and service fees, returned reserve, healthcare 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 healthcare 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 [Technical Difficulty] $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 [Technical Difficulty] 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. 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 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 and 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 sale [Technical Difficulty] and the ongoing prudent management of our [Technical Difficulty] 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 [Technical Difficulty] 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, please open the line for questions.

[Operator:]

Thank you. That concludes our prepared remarks. We will now open the call for questions. [Operator Instructions] Our first question comes from Randall Stanicky with RBC Capital Markets. Your line is now open.

[Daniel Busby:]

Hey, good evening. 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 mention 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?

[David Arkowitz:]

Hey, 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. The vast majority of those accounts, ZILRETTA has not been fully adopted, incorporated into their practices. Instead, even within those accounts of almost 50 accounts that are purchased, more than 500 of units have already launched 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 five or six physicians. Two of those physicians have started to use ZILRETTA and are using ZILRETTA for their patient pop, the appropriate patient population. But there just hasn't been awareness and experience with ZILRETTA for the other three or four doctors 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, for 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.

[Daniel Busby:]

Okay, that's helpful. And I guess as a follow up to that, if one practice -- if one or two 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?

[David Arkowitz:]

It's typically at the office level, at the clinic level. But they -- 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.

[Daniel Busby:]

Got it. Understood. Thank you.

[David Arkowitz:]

Thanks, Dan. Sure.

[Operator:]

Thank you. Our next question comes from Elliot Wilbur with Raymond James. Your line is now open.

[Elliot Wilbur:]

Thanks. Good afternoon. 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 do 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?

[Mike Clayman:]

So, I think there are a few things, Elliott. So it's a good and important question. First, just recognize historically, in this space, the hyaluronic acids are typically down 10% in the first quarter, with the driver being, as you pointed out, deductible. That is a key driver. I think that you also have to look at an older population, maybe less active in the winter months, and as a result, have less need to go to their physician. 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.

[Elliot Wilbur:]

Okay. And then with respect to your commentary around some of the data points that emerged 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?

[Mike Clayman:]

Yes, it's a good question. As you know, the Medicare population has the opportunity to benefit most directly in a sense from ZILRETTA, in 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 populations. Very straightforward with Medicare, and I would say directionally, a modest bump up in the representation. Medicare is wind in our sails and will improve our circumstances. As we often say, there's not a light switch, but it is directionally encouraging.

[Elliot Wilbur:]

Okay, 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 four 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?

[David Arkowitz:]

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 the quarterly SG&A for fourth quarter, 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 supportive spend, and we are right sized 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 four quarters.

[Elliot Wilbur:]

Fair enough. One last question for you, David. Just doing some simple back of the envelope math here yields 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?

[David Arkowitz:]

Yes, so Elliot, the gross 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 net price per unit, 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.

[Elliot Wilbur:]

All right. Thank you.

[David Arkowitz:]

Thank you.

[Operator:]

Thank you. Our next question comes from Gary Nachman with BMO Capital Markets. Your line is now open.

[Gary Nachman:]

Hi, good afternoon. 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 there?

[Mike Clayman:]

Yes, good questions. And Gary, let me say that we do reiterate guidance in the script. We do indicate our confidence in achieving full year revenue of $120 million to $135 million. What we do is qualify that by the unknowns associated with COVID-19, and an 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 they're just too many unknowns. Bottom line is take COVID off the table, and our confidence in the guidance continues at the highest level.

[David Arkowitz:]

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 FX301 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 costs. So, we have a certain amount of flexibility, but we're obviously going to do what makes the most sense for the business.

[Gary Nachman:]

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, 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 -- go ahead. I'll have a follow-up after.

[Mike Clayman:]

Okay. I'll just say it's a good question. We're very happy with our ability and the ability of our sales reps, our 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 [Technical Difficulty].

[Operator:]

[Operator Instructions]

[Mike Clayman:]

Apologies. We had a technical snap [ph]. 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 we'll be positive.

[Gary Nachman:]

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? Thanks. Hello?

[Operator:]

[Technical Difficulty] [Operator Instructions]

[Mike Clayman:]

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

[Gary Nachman:]

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

[Mike Clayman:]

Go ahead. Sorry, Gary.

[Gary Nachman:]

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

[Mike Clayman:]

No, please ask it again.

[Gary Nachman:]

Okay, so what sort of initiatives do you have in place to try and shift in acceleration with the targeted physicians to the higher utilization buckets? And then I was just asking Melissa, maybe you could comment. Welcome to you, but maybe you could comment on 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? Thanks.

[Mike Clayman:]

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, and 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 our healthcare 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.

[Gary Nachman:]

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

[Melissa Layman:]

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.

[Gary Nachman:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Patrick Trucchio with Berenburg Capital Management. Your line is now open.

[Patrick Trucchio:]

Thanks. Good afternoon. Just a few from me. First, just regarding ZILRETTA, is the plan to run an updated DTC campaign with the new materials from the 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 the supply chains. I'm wondering if you can tell us what if any impact the pandemic has had on your enrollment in clinical trials for ZILRETTA in OA shoulder and frozen shoulder or FX201 in terms of patients willingness to visit centers or ability for centers to continue conducting clinical trials, understanding that FX201 only just began enrolling patients and that the situation with COVID-19 is changing all the time.

[Mike Clayman:]

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 and its potential negative impact on enrollment and in this case, specifically FX201, single A sending dose study, or shoulder studies, at this moment in time, we do not see any negative impact of COVID. But we could not be in a more dynamic circumstance. And this is something that we're following very closely.

[Patrick Trucchio:]

That's helpful. Thank you.

[Mike Clayman:]

Sure.

[Operator:]

Thank you. Our next question comes from Francois Brisebois with Craig-Hallum. Your line is now open.

[Francois Brisebois:]

Hey, thanks for taking the questions. I just wanted to -- just to hit on -- not, Melissa, to put you the on the spot. I know it's just been a couple of hours. But I was just wondering. In your past experiences here, have you had experience with the DTC campaigns?

[Melissa Layman:]

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

[Francois Brisebois:]

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

[Melissa Layman:]

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.

[Francois Brisebois:]

Okay, thank you. 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 stage 3B 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? But in terms of stats sake, is there any details? Could you talk a little bit more about that phase 3B.

[Mike Clayman:]

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

[Francois Brisebois:]

Okay, great. And then on the -- do you have the reorders again? Is there any way -- I forget -- is there any way to ever see based off the LOU and 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?

[Mike Clayman:]

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.

[Francois Brisebois:]

Okay, great. And then lastly here, David, I guess this might be your last time commenting on the commercial metrics. But just the chance here, is this the over 50 plus account -- unit purchased accounts? You're kind of early adopters, but you're fast growers. 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?

[David Arkowitz:]

No, there are about 800 of them in the fourth quarter. There was 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 purchase launch to date, they continue to increase both in the number and in the number of ZILRETTA units they have purchased.

[Francois Brisebois:]

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 are in the hundreds kind of level. Are these metrics going to stay the way they are?

[David Arkowitz:]

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, such and 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 launch 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.

[Francois Brisebois:]

Okay, all right. Thank you. That's it for me.

[David Arkowitz:]

Thank you.

[Operator:]

Thank you. Our next question comes from Serge Belanger with Needham & Company. Your line is now open.

[Serge Belanger:]

Hey, guys, good afternoon. Most of my questions have been asked, so a couple follow-ups on some prior questions here. In terms of the new label, have you noticed any changes to commercial payers and their policies related to ZILRETTA with this new label?

[Mike Clayman:]

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 [Technical Difficulty] repeated frustration. 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, from our perspective, an intended change in policy.

[Serge Belanger:]

Okay. And then, on the phase 3B synovial study that you reported today, can you just frame for us here what this means for the ZILRETTA market opportunity? And I think in the past, you talked -- your plans or 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?

[Mike Clayman:]

Yes, we'll realize, Serge, two 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'd like that. And also realize that many of these prescribing physicians, these orthopedists, most of whom do arthroscopy, are very familiar with what 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's synovitis. So, the idea that you would have a picture that shows evidence of synovitis and then with treatment of ZILRETTA substantial suppression, synovitis, gosh, is a very appealing line of consideration for our prescribing physicians.

[Serge Belanger:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from Carl Byrnes with Northland Capital. Your line is now open.

[Carl Byrnes:]

Thanks, and congratulations on the progress. I think most of my questions have been answered. But kind of back in 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? Thanks.

[David Arkowitz:]

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.

[Carl Byrnes:]

Great, thank you.

[Operator:]

Thank you. Our next question comes from Bruce Jackson with The Benchmark Company. Your line is now open.

[Bruce Jackson:]

Hi, thank you for taking my question. 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 with labeling. And are you getting any receptivity or conversion as a result of that new label?

[Mike Clayman:]

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

[Bruce Jackson:]

All right, that was my only question. Thank you.

[Operator:]

Thank you. I'm 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.

[Mike Clayman:]

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.

[Operator:]

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