Flexion Therapeutics, Inc.
Q3 2017 Earnings Call Transcript

Published: 7 Nov 2017

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Flexion Q3 Financial Results Conference Call. My name is Michelle and I’ll be your coordinator 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 will now turn the call over to the Company.

[Scott Young:]

Thank you, Michelle. Good afternoon. This is Scott Young, Senior Director for Corporate Communications and Investor Relations. Thank you for joining today’s conference call. Both the earnings release we issued this afternoon and an archive of the call can be found on the Company's website at flexiontherapeutics.com. Today’s call will be led by Flexion’s Chief Executive Officer Dr. Michael Clayman. He is joined by Dan Deardorf, Senior Vice President of Commercial Operations, and Fred Driscoll, our Financial Advisor. Before we begin, I need to remind you that we will be making forward-looking statements during this teleconference that include commercial, financial, clinical, and regulatory projections. Statements relating to future financial or business performance, conditions or strategies and other business matters, including expectations regarding 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. Further information on the factors and risks that could affect Flexion's business, financial conditions and results of operations are contained in Flexion's Annual Report on Form 10-K and quarterly Form 10-Q for the quarter ended September 30, 2017 and other filings with the SEC, 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.

[Mike Clayman:]

Thanks, Scott. Good afternoon. I’d like to thank you all for joining our third quarter conference call. Today, we will discuss our recent business highlights and provide a short summary of the Q3 financial results. After that, we will open the line and take questions, but to begin, I would like to quickly review what we have achieved over the past month alone. In short, it has been a remarkable few weeks for all of us at Flexion. Between October 6, and October 31, we obtained FDA approval of Zilretta for the management of osteoarthritis or OA knee pain; we raised approximately $140 million from a common stock equity raise. We introduced product into our distribution channels, we booked our first sale through our internal sales team and we hired our entire field sales force of 103 reps. Each one of these milestones is as impressive in its own right, but when viewed collectively, I think it’s fair to say, they are truly extraordinary. It is hard to describe just how important the past month has been for Flexion, but if I were pressed to define it in one word, it would be delivery. Those of you who have followed us for any length of time will know that our mantra as a company is to set appropriate expectations and then deliver on them. With the approval of Zilretta on October 6, and its introduction into distribution channels two weeks later, we delivered on our promise of bringing a medicine that matters to the millions of people confronting OA knee pain. People who are in urgent need of new, non-opioid alternatives to help them address the inexorable pain associated with this chronic, degenerative and incurable disease. With our recent equity raise, we delivered on our goal of ensuring Flexion’s future. We secure the capital that believe can bring us to profitability, and enable us to continue building Flexion as a great company that provides real value to our shareholders. And over the past three weeks, we have delivered on our plans to onboard our full complement of field sales and field access representatives, a group which is comprised of some of the most experienced, successful, and passionate professionals in the industry. Now our focus moves to the execution of a world-class launch of Zilretta. Based on our past performance, our culture, and the people who are Flexion, I have utmost confidence that we will fully deliver on all aspects of the launch and our commercial plans. Dan is going to provide more details on that front. So at this point, I’d like to provide a few updates on our clinical activities. With respect to our efforts to expand indications for Zilretta, we are fully on track to initiate clinical trials of Zilretta in OA of the hip and shoulder by the end of this year. In addition, in the coming weeks, we intend to initiate a study of Zilretta in bilateral OA knee pain. The objective of this trial is to compare the systemic exposure from Zilretta versus immediate-release triamcinolone acetonide or IRTA to assess the safety and general tolerability of concurrent intra-articular injections. We know that there are many patients who suffer from bilateral knee OA pain, but that physicians can be reluctant to administer IR steroid into both knees during one office visit giving concerns about substantial, systemic, steroid exposure. This study has the potential to demonstrate substantially lower plasma concentrations of TA after Zilretta injection compared with IRTA. It will be a small study with approximately 24 patients who will be randomized to receive bilateral doses of Zilretta, 32 milligrams or bilateral doses of immediate-release TA 40 milligrams. We expect the trial to begin before the end of Q4. With respect to the growing body of Zilretta data, we had two presentations at the recent American College of Rheumatology Annual Meeting, the first was an oral presentation which focused on the effectiveness of Zilretta in knee OA pain in patients with or without inflammation at baseline. The data showed that Zilretta provide a substantial clinical improvement in OA knee pain versus saline-placebo in both groups. But that its effect was general enhanced more than two-fold when inflammation was present. Additionally, we presented a poster which described the results from a recent meta analysis of intra-articular steroid injection which was updated to include data from all three phase 2/3 trials of Zilretta. The expanded meta analysis appear to demonstrate that Zilretta provide a greater pain relief through three months compared with traditional IA corticosteroids further supporting the clinical relevance of Zilretta as beneficial for treating OA knee pains. With respect to upcoming publications, I can say our Phase 3 pivotal study has been accepted by a highly regarded medical journal, however due to embargo rules, we can’t share many more details at this point, but once it has been published, we will communicate that news. So, stay tuned. Regarding our pipeline, we continue to progress the preclinical development of FX101 and extended release formulation of fluticasone, which leverages our proprietary microsphere technology and aims to provide extended pain relief for patients coping with OA pain. We believe that FX101 has the potential to provide patients with pain relief for up to six months, pending successful results from our ongoing studies we intend to initiate GLP toxicology studies next year. And those results will inform our decision to file an IND and advance into clinical trials. In addition, as we have previously guided, we are actively pursuing in-licensing to our goods which will be fully aligned with our strategy of advancing local therapies for muscular skeletal conditions, while we are committed to building a robust pipeline that provides us with multiple high quality shots on goal, we are currently focused on development-stage programs given that we want our field sales force focused solely on Zilretta for the next few years. At this point, I will turn the call over to Dan Deardorf to talk about the upcoming launch.

[Dan Deardorf:]

Thanks, Mike. It’s my pleasure to provide an update on our commercial launch activities, which literally began upon work Zilretta’s approval. At that moment, our work went into high gear, shifting from state of preparedness to one of execution. Within hours of communication from FDA, the Zilretta.com website switched from coming soon to now available and we initiated our multimedia promotional campaign designed to educate and inform physicians about Zilretta. Last week, we activated our patient-focused website and our plan is to kick off a full direct-to-patient campaign in 2018 after our field sales force has had the time to establish a solid base of Zilretta healthcare providers. On the Monday, following approval, Flex Forward, a comprehensive market access and reimbursement support hub was up and running and we are fielding calls from both physician practices and patients who are eager to access Zilretta. The level of interest has been remarkable, especially considering our field sales force won’t be in the field until late November. On October 23, we had Zilretta in our distribution channel and available for sale through our specialty distributor and specialty pharmacy partners. Our distributors have also received their first sales orders from physician practices suggesting to us that there is pent-up demand for Zilretta. With respect to field personnel, our reps have been onboarded and are undergoing intensive home study and web-based training in advance of our national sales meeting in November. We are planning for reps to be in the field and calling on physicians before Thanksgiving. We’ve also hired and deployed all of our field access managers who provide additional compliant support to physicians as they navigate the reimbursement environment. Additionally, we’ve hired two key account managers who bring deep existing relationships with key opinion leaders and C level executives at top medical institutions across the country. On the reimbursement front, we had preliminary discussions with some major payers. Those interactions have been encouraging and reinforce our belief that Zilretta will be covered by commercial health plans. While we know that it can take as long as three to 12 months for payers to implement policies for a new product, we are confident that physicians will be reimbursed for patients with OA of the knee today. With respect to Medicare, use of Zilretta in patients with osteoarthritis of the knee is a covered benefit, we filed for Zilretta’s dedicated J code and expect that it will be issued on January 1 of 2019. As for recent medical meetings, we just launched our Zilretta booth at the American College of Rheumatology and the American Association of Hip and Knee surgeons and are pleased to report that we have had excellent traffic at both congresses. Additionally, the level of interest and our interactions with thought leaders at both meetings was remarkable. Mike and I were in numerous discussions Friday and Saturday and it’s safe to say there is great enthusiasm for Zilretta among this important constituency. In addition, we held our first post-approval physician advisory board and there was tremendous excitement about the product and particularly about the inclusion of the diabetes on the label. While our efforts are just beginning, I believe our sales team will find an appetite for Zilretta in the marketplace and I am looking to Q1 of next year when we can begin to report metrics and to provide you with a more thorough picture of how the launch is progressing.

[Mike Clayman:]

Thanks, Dan. I would now ask Fred Driscoll to provide a summary of our financial performance in the third quarter, but before I do, I’d like to recognize Fred’s invaluable contributions to our remarkably successful equity raise. Fred’s leadership, understanding of the markets and business acumen are truly outstanding. We are very fortunate that he has continued as a financial advisor to us throughout this critical period.

[Fred Driscoll:]

Thanks Mike. The Company reported a net loss of $34 million for the third quarter of 2017, compared to a net loss of $18 million for the same period of 2016. Research and development costs increased to $13 million in the third quarter of 2017, as compared to $9 million in the third quarter of 2016, due primarily to an increase of $1.9 million in personnel and other employee-related costs, for additional headcount and stock compensation expense and an increase of $1.1 million in portfolio expansion costs. General and administrative expenses increased to $18.4 million in the third quarter of 2017, as compared to $8.4 million for the same period in 2016, due solely to cost associated with increased headcount and expenses related to the launch and commercialization of Zilretta. As of September 30, 2017, the company had approximately $335 million in cash, cash equivalents and marketable securities, compared with $210 million as of December 31, 2016. As Mike previously alluded to, on October 10, 2017, the company announced its intention to offer 4 million shares of stock to the public. Due to high demand, the offering was upsized to 4.8 million shares, which was successfully completed on October 16, 2017. Additionally, Flexion granted the underwriters a 30-day option to purchase an additional 720,000 shares of common stock, which was exercised in full and closed on October 18, 2017. All of these shares were sold at a price to the public of $25.50 per share resulting in the total gross proceeds of approximately $141 million. As a matter of corporate practice, we do not provide financial guidance. However, we expect expenses to increase significantly over the next several years due to the ramp in cost associated with commercial activities for Zilretta, line extension clinical trials for Zilretta in OA of the hip and shoulder and bilateral knee, expenses associated with the development of FX101 and the development activities associated with new additions to the pipeline. With that operator, please open the line for questions.

[Operator:]

[Operator Instructions] Our first question comes from David Maris of Wells Fargo. Your line is open.

[David Maris:]

Hi, I have a few questions. So first, we’ve done a number of different surveys and doctors say after seeing the label that they prescribe this to maybe 20%, 25% of their patients in the first year. Does that corresponded all with your market research? Secondly, wanted to talk about the repeat dosing study, is this something that payers have told you that they think that they want or need, because it seems like that could be all risk or high risk and a lot of downside if it doesn’t work. And then, lastly, actually two other things, H A, your competition or vague competition Anika Therapeutics have said some things about their product vis-à-vis Zilretta that no of you have heard of that and how you think their product will or won’t compete? Thank you.

[Mike Clayman:]

Okay, with respect to the 25%, I think if you look back at historical launches, a penetration rate of 25%, we’ve could be on the upper-side many products look at that ultimately as peak penetration, but obviously your research shows what it is. I think, for physicians I think will get broad base use in the first year. But I think it will be moderated as we’ve discussed before based on physicians who wanted to get comfortable in their hands, the administration of the products in their hands and as we heard this last week and getting comfort around the reimbursement and the fact that when they use the product it’s going to be reimbursed. So, I think 25% frankly in the first year, feels high to me given those dynamics, but could well be a feasible number ultimately for a peak penetration in a market like this. With respect to the repeat data for payers, on the label, again, we’ve had some preliminary discussions with some large payers and we have not – that has not been a topic that has been raised as something that they are looking for or was required. Most of them have looked at the limitation of use where the product is intended for single administration as not matching what they believe the clinical practice would be for the clinicians within their plans. Hopefully, that answers that question. And the last one, with respect to Anika.

[David Maris:]

Yes.

[Mike Clayman:]

I am sorry, the specific question again?

[David Maris:]

Well, I mean, they seem to think – they had some commentary on their last conference call regarding competition and somewhat dismissive about Zilretta. So I wanted to understand how you think the two products will compete? Do you even care about taking share from the HA market? Or are you really looking at replacing just the IR market, the IR steroid market which seems to be the much lower hanging fruit since everyone is already using that?

[Mike Clayman:]

Yes, I think we look at entire $5.3 million injection market as attractable market, that’s $4.3 million steroid injections and it’s $1 million HA injections. We do see the HA market under substantial pressure and this was reinforced in our discussions with numerous physicians at the American Academy of Hip and Knee surgeons this weekend. And, I simply would suggest that we feel confident that Zilretta is a compelling alternative to either immediate-release steroids or HAs and that this will prove to be a very useful product in the hands of prescribing physicians.

[David Maris:]

Great. Thank you.

[Operator:]

Our next question comes from Randall Stanicky of RBC Capital Markets. Your line is open.

[Randall Stanicky:]

Great, thanks. Hey Mike, can you talk, what your expectations for Zilretta as a potential opioid sparing therapy and how do you expect that the actual clinical practice? And then, what is your messaging – detail message around that and then the follow-up would be, do you think about other joints beyond the knee? Have you guys done work to figure out what the treatment paradigm looks like? In other words, as you think about the IA steroid versus HA and so on and so forth, should we think that that looks similar to what it does in the knee for OA? Thanks.

[Mike Clayman:]

So, let me just start with the opioid sparing piece of this Randall. What we are very comfortable saying, because it is literally true, Zilretta is a non-opioid and in the absence of the data, the opioid sparing data, it’s going to be very difficult to say that this is opioid sparing. Having said that, I think we can credibly argue that at the time that a patient presents to a physician that Zilretta is a quite viable alternative for prescribing opioids. So, I think, we would leave it at that. I can tell you that, we are continuing to explore ways to generate data that would demonstrate directly that Zilretta is opioid sparing and we are confident that once we have a design and it could involve a registry. Once we have a design, that that – those studies or that study would yield very interesting data. And your second question related to use of Zilretta outside of the knee, and other joints, just – if you won’t just mind rephrasing that to be sure, if you could?

[Randall Stanicky:]

Yes, I mean, as you look at the use of the IR steroid HA and NSAIDS, does that distribution of therapy look pretty similar to what it does in the knee, in other words, just the amount of immediate-release steroid pretty similar to that which you see in osteo for knee?

[Mike Clayman:]

Yes, so, based – I think the way – I think about it anyway, so if you ask how much HA is used outside the knee, it’s tiny. It’s not approved for use outside the knee. So when you get to shoulder and hip, these are really – and you are talking injections, these are steroid injections and if you want numbers, the numbers of steroid injections and the numbers of patients receive steroid injections in hip and shoulder each year is approximately 1.5 million patients and that compares to the 4.3 million patients who receive knee injections as steroids each year.

[Randall Stanicky:]

Got it. That’s helpful. Thank you.

[Mike Clayman:]

Yes.

[Operator:]

Our next question comes from Gary Nachman of Bank of Montreal. Your line is open.

[Nicole Germino:]

Hi, this is Nicole, dialing in for Gary.

[Mike Clayman:]

Hi, Nicole.

[Nicole Germino:]

Hey. When do expect to have the full phase 3 data for – with all the secondary points and the diabetic data published?

[Mike Clayman:]

Well, as we alluded to in the comments that we made before, the Phase 3 study has been accepted. But there are – the best journals have embargo rules that preclude discussion of specifics. But everyone on this call will recognize that when it gets published, it’s being published in one of the most prominent and relevant journals. So, just stay tuned there and the diabetes data has been submitted to similarly prestigious journal in the diabetes realm and it’s premature for us to comment on that. But again, as soon as we are in a position to provide detail on the Phase 3 study, manuscript and on the diabetes manuscript, we will do so.

[Nicole Germino:]

Sounds good. And how are discussions going for potential in-licensing as new opportunities in the pipeline? And are the assets like they’d be more early stage assets?

[Mike Clayman:]

So we are – they will be more in the development realm. We have made the strategic decision not to analyze into commercial asset for at least the next two or three years, so that, we can give our sales force single-minded focus on Zilretta and ensure that we are realizing the potential of what we think is a very important asset. And I think the other practical reality, you begin in-licensing commercial assets, you are talking about substantial expenditures that we think are better reserved for ensuring Zilretta’s success. So, long-winded way of saying, yes, we are focused on development stage assets and I would say, stay tuned. We should have something more to say about that before too long.

[Nicole Germino:]

Great. And just one last quick question. Back to the shoulder and hip studies, how big would those studies be in terms of the protocol? And can you tell us like how long it will take to get to those data?

[Mike Clayman:]

Yes, so, those studies will be small. They are basically we are talking about a dozen or so patients in hip and a dozen or so patients in shoulder will comparing in those studies. So, roughly, roughly a dozen patients would receive Zilretta and that will be compared to dozen patients who will receive immediate-release steroids. So we will be comparing the plasma pharmacokinetics between those two as a way of – in essence, making the preliminary argument that the plasma pharmacokinetics after hip or shoulder injection are very similar to that which we see after knee injection. This is an early foray into hip and shoulder. These data would help inform our understanding of technical challenges in terms of injecting those joints, we don’t expect there would be any, but it will give us an experience and will also create a dataset that would help us in our discussions with the agency in terms of framing their full set of expectations for label expansion.

[Nicole Germino:]

Okay, great. Thank you so much.

[Operator:]

Our next question comes from Serge Belanger of Needham. Your line is open.

[Serge Belanger:]

Hi, good afternoon. I have a couple questions about this bilateral knee OA pain study will be kicking off over the next couple months.

[Mike Clayman:]

Yes.

[Serge Belanger:]

I guess, first how big is that patient segment within the overall knee OA pain market? How they treat it?

[Mike Clayman:]

Yes. So, we base it’s – based on our experience, when we enroll patients with moderate to severe pain, in our studies and we look back and ask the question what percent had bilateral versus unilateral, about 60% had bilateral pain. So it’s a very substantial portion of the population. And currently what is typically done, it’s out understanding what’s typically done, if you have a patient who has bilateral knee pain, wherein each knee would deserve a steroid injection. Very often those injections are sequence. They are not typically done at the same sitting they can be, but not typically. And certainly for diabetics they won’t be. So, what we are hoping to show is that the plasma concentrations after bilateral Zilretta injection are substantially low that that might create the basis for enabling bilateral injections at a single office visit that we think would facilitate optimal care of the patient.

[Serge Belanger:]

Okay. So, will you be looking at WOMAC can cruise over an extended period of time as part of the study also?

[Mike Clayman:]

We won’t, just to be clear, we will be characterized, what we want to do is focus on the pharmacokinetics at the right time, we might look at efficacy and pain relief. But we believe the data are so strong in knee that the knee to recreate that dataset is less pressing than if we didn’t have the strength of the data that we currently have. But I would simply say surge stay tuned on that front. What we want to do is, complete this first study and potentially open the door for downstream studies.

[Serge Belanger:]

Okay, and is this part of an overall strategy to eventually or continuously update the Zilretta label?

[Mike Clayman:]

Yes, we will – I would say, stay tuned on that. There are other interesting studies that we will be announcing in the coming months, because our goal is to create the most robust and full-fledged dataset out there possible through publications on the one hand and importantly label expansion on the other.

[Serge Belanger:]

Okay, and then just one more. Thinking of the ex-U.S. strategy for Zilretta, is that more of a focus now? And have you had any talks with the EMEA or any other regulatory agencies about additional data or filing requirements?

[Mike Clayman:]

We have, and I would say this surge, we are so – we are about a 120% focused on successful launch and commercialization of Zilretta in the U.S. and we will pursue OUS opportunities, probably next year in a more concerted fashion. Having said that, our VP of Business Development, Adam Muzikant is regularly in discussions with outside parties. But, top of mind for us, the near-term and mid-term for this company hinges on a successfully demonstrating robust commercialization of this product in the U.S.

[Serge Belanger:]

Okay, thanks for taking the questions.

[Mike Clayman:]

Yes, thank you.

[Operator:]

Our next question comes from Francois Brisebois of Laidlaw. Your line is open.

[Francois Brisebois:]

Hey guys. Thanks for taking the questions. First one here is, any difference in feedback from, just between regions for physicians whether or not they are in major cities and more rural areas?

[Mike Clayman:]

Well, I think you learn that when talking to physicians. There are impressive differences from – not just region-to-region, because that can be either certain places in this country which do not use HA at all regionally and there are certain places they are very comfortably using HA. And that extends then down to the physician level. There are certain physicians who are very comfortable using HA and there are certain physicians who don’t use HA at all and don’t believe in it. So, it really is highly individualized and anyone who generalizes about the care of the OA patient in an orthopedic practice, I think they does so at their risk and that’s why I am so pleased with the quality of the market research that we’ve done which has been so deep and so broad to help us to understand that.

[Francois Brisebois:]

Okay, great. And then, I guess, the reps experience will help too and that goes into the second question, in terms of reps, with the pressure that you can sense more and more on the HA field, there are lot of reps coming in from the HA background. Is that where a lot of them come in or what’s their experience usually?

[Dan Deardorf:]

We’ve actually had a mix. There are a fair number of HA – now ex-HA reps that have joined us, I think seeing, not only seeing the pressure that’s on that marketplace, but also seeing the opportunity they’ve got here in Zilretta. But we’ve also got an equivalent mix of other folks that have more orthopedic device experience and bring those relationships with them and other reps who have specialty injectable experience with lots of buy and bill support, miscellaneous J code reimbursement support. So, we’ve really got a broad mix, but there is a certainly a significantly slots that do come from that background.

[Francois Brisebois:]

Okay, great. And then, the last one was on bilateral, but it’s been answered. So, thank you. That’s it from me.

[Mike Clayman:]

Thanks, Frank.

[Operator:]

Our next question comes from Carl Byrnes of Northland Securities. Your line is open.

[Carl Byrnes:]

Great. Thanks so much. Congratulations first on the approval of Zilretta and the fund raise. Kind of going back to the Analyst/Investor Day, can you just comment on what the KPIs and benchmarking we might expect in the first quarter and second quarter of this launch next year?

[Mike Clayman:]

Yes, we will providing a number of metrics. The key elements of that are to give a proxy for the adoption of the process over time. So we will be giving, so the metric we’ll be reporting on are the number of target accounts that we have – that we’ve had called on and had a meaningful interaction with those that have received some type of in-service around the preparation of the product and so therefore prepared – to prepare the product and to treat a patient that will look at number of accounts, targets that have experienced with the product, be it sampled product or purchased product and we will be looking at account orders, reorders et cetera. On the payer side, we will be covering on the number of target payers that we’ve had interactions with, as well as those that we’ve seen evidence across as claims and the amount of covered lives that those represent understanding that there is – in the payer world there is fair amount of over double counting for the percentage of covered lives, but we will be reporting on that as well.

[Carl Byrnes:]

Great. Thanks so much.

[Mike Clayman:]

Sure.

[Operator:]

Our next question comes from Bruce Jackson of Lake Street Capital Markets. Your line is open.

[Bruce Jackson:]

Hi, congratulations on all the progress and thanks for taking my question. So, going back to your Analyst Day, there was one physician presentation that talked about the sequence of injections on the current care pathway saying that about 70% of the patients get the corticosteroid injections first, about maybe 30% get HA first. I just wanted to see how that compares with your internal marketing research first off? And then, if you could then segue into which one of those markets you are targeting first for Zilretta? And if there is an ideal patient or physician profile that you are going after?

[Mike Clayman:]

Yes, I would say those percentages based on the data that I’ve seen in my history in the space are certainly reasonable. That 70%, we get a steroid first. A good portion of that is driven by the fact that a number of payers and large payers require a steroid injection prior to getting HA. So that’s a driver of that dynamic, but those numbers seem certainly – certainly seem reasonable. With respect to how we intend to target, as we’ve said a number of times before, we will position t his product as first-line to 5.3 million treatments out there intra-articular treatments a year that patients that are treated per year, we believe are the sandbox for this product. Given the efficacy safety profile and the benefits of this product in the backdrop of what’s available for treatment today, we believe and are confident that a strong case can be made for this to be the first-line, for this to be the first-line injectable therapy that’s utilized.

[Bruce Jackson:]

All right. That’s it for me. Thank you.

[Mike Clayman:]

Thank you.

[Operator:]

Our next question comes from Ken Trbovich of Janney. Your line is open.

[Ken Trbovich:]

Thanks. Just a couple quick ones. Mike, I was wondering if you could help us understand perhaps what differences if any will exist with regard to the injection methods when we talk about hip and shoulder? Is there a disengage needle or different length of needle, what exactly will the difference be?

[Mike Clayman:]

Yes, I think one of the big difference is, it’s a good question, Ken. Thank you for it. One of the big questions, one of the big difference is, the typical knees for imaging when one injects hip or shoulder, not invariable, but very commonly employed and much, much less so in knee where the anatomic landmark serve to direct the injection. So I think that would be the – probably the biggest single difference, preparation of the product would be the same. The needle gauge will be approximately the same. So I don’t think that there would be anything other than the imaging that would really be distinguishing.

[Ken Trbovich:]

Okay. And then just, someone doesn't think he's not useful or utilized I want to make sure we press here again a little bit with a little more clarity on what it means to have significantly higher expenditures next year and then the out years? Is there a plan to hold back on launch activities in terms of non-personnel related expenses? Given that you don’t have a J code in place and you are really dealing with physician awareness in 2018 and that you would really see upon more significant ramp in 2019 on some of those non-direct promotional cost?

[Fred Driscoll:]

Yes, Ken, it’s Fred. So, we – I think we’ve said for quite a while really going back to when Dan joined the company, that we did not want to leave any stone unturned with respect to the launch of this drug. We didn’t want to be in a place where we said, if we only had hired this person, or if we only had hired that person, the product launch would have been successful. So, to answer your question, no, we are a big part of the reason why we did the convert in May and we did the equity raise in October was to have sufficient funds, as Mike said earlier in his prepared remarks to have the absolute best launch as possible. I think, my comment is really about our expenses growing really relate to R&D. Once we have the sales force on plan, I mean, those costs will have solely be fixed. But in R&D, we have great thoughts to expansion of the line with Zilretta, as well as Mike talked about in-licensing activity that there will be more to talk about, I think in the near-term. But certainly, we expect those costs to increase. I just want to point one thing also that, even with the expansion of those cost, we still believe and we have those baked into our forecast that even with all of that, we – the last raise will get us to profitability. So, long – long answer to your question, Ken, but, there you go.

[Ken Trbovich:]

Sure. And I guess, just – I know a lot of that response had to do with personnel cost. I am really, really looking at the sort of non-personnel related expenses, whether it’s speakers bureau, whether it's direct-to-consumer advertising, just relative budgets 2018 versus 2019, just given that there isn’t a lot of physician awareness at launch, it seems like there would be a risk if you overstimulate patient awareness at a time when physicians aren’t aware?

[Dan Deardorf:]

Yes, Ken, this is Dan. And in my prepared comments, I tried to make the point that we will not be starting heavy direct-to-patient advertising until such time as we know, we’ve got a solid physician base using the product, so that when we activate patients to approach a physician they are highly likely to receive Zilretta.

[Ken Trbovich:]

Got it. So that’s more related to the feedbacks from your sales efforts or promotional efforts as opposed to a specific timeline on a calendar?

[Mike Clayman:]

Yes and the way that we are actually doing are targeted direct-to-patients or we will do our targeted direct-to-patients advertising is mostly through highly targeted online means that we can frankly are able to turn on a regional basis once if there is regional differences in how the building of the physician foundation is.

[Ken Trbovich:]

Terrific. Thanks, so much.

[Mike Clayman:]

Sure. Thanks, Ken.

[Operator:]

At this time, I’d like to turn the call back over to Mike Clayman for any closing remarks.

[Mike Clayman:]

Thank you. In closing, I’d like to reiterate what was said in our press release. We are in a truly remarkable position for a company of our size. We have some of the best people in the industry, a comprehensive commercial strategy and the resources needed to deliver an important new medicine to millions of Americans who suffer from OA knee pain. Thank you for joining us tonight. And that concludes our call.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everybody have a great day.