Flexion Therapeutics, Inc.
Q4 2016 Earnings Call Transcript

Published: 10 Mar 2017

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the Flexion Year-end 2016 Financial Results Conference Call. My name is Terrance and I’ll be your coordinator for today. At this time, all participants are in a 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. Please proceed.

[Scott Young:]

Thank you Terrance, good afternoon. This is Scott Young, Senior Director for Corporate Communications and Investor Relations. Thank you for joining Flexion 2016 year-end financial results conference call. Both the earnings release we issued this afternoon and an archive of this conference call can be found on the Company's website at flexiontherapeutics.com. Today’s call will be lead by Flexion’s Chief Executive Officer Dr. Michael Clayman. He is joined by Senior Vice President of Commercial Operations, Dan Deardorf and our Chief Financial Officer, Fred Driscoll. Before we begin our prepared remarks, I need to remind you that we will be making forward-looking statements during this teleconference that include financial, clinical, and regulatory projections. Statements relating to future financial or business performance, conditions or strategies or other financial and business matters, including expectations regarding operating expenses, cash usage, clinical and 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 numerous assumptions, risks and uncertainties, which could 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 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 everyone. Thank you all for joining our 2016 year-end financial results conference call. Today I will discuss the Company's accomplishments in 2016 and recent months. And share our expectations for the remainder of 2017. I will then turn the call over to Dan to provide an update on our commercialization plans and finally Fred will summarize the year-end audited financial results, before we open the line for your questions. So to begin, in short 2016 was a seminal year for Flexion Therapeutics. We made remarkable progress in our mission to develop and commercialize novel local therapies for the treatment of patients with musculoskeletal conditions. And we have moved considerably closer to our goal of commercializing our lead product candidate for osteoarthritis Zilretta, which is also known as FX006. Let me provide a quick summary of our clinical and regulatory progress. For the benefit of new followers of Flexion, Zilretta is an investigational extended release intra-articular steroid. It employs proprietary microspheres technology combining triamcinolone acetonide or TA with a poly lactic-co-glycolic acid or PLGA matrix. Following injection these microspheres remain at the source of the patients pain in the knee joint and slowly dissolve releasing TA into the Synovial fluid over an extended period of time, as we reported in February of 2016 in a pivotal Phase 3 trial Zilretta met the primary end-point by demonstrating statistically significant pain relief against placebo as measured by the weekly mean of the average daily pain or ADP score at 12-weeks. In fact clinically meaningful and statistically significant pain relief versus placebo was achieved at each weekly time point beginning at week one and continuing through week 16. On average patients experienced approximately a 50% reduction in pain from baseline over weeks one through 12. Zilretta also demonstrated significant improvements in other validated OA specific measures. In a secondary analysis, of the Phase 3 data, Zilretta appeared to provide improved pain relief, reduce stiffness and improved function compared to placebo and immediate release TA as measured on the WOMAC A pain, WOMAC B stiffness, and WOMAC C functions scales. The frequency of treatment related side effects was comparable across all treatment arms in the trial. No drug related serious adverse events were observed and no patients treated with Zilretta were discontinued from the study due to a treatment related side effect. In May of 2016, the FDA informed us that the collective safety and efficacy data were sufficient to support the submission of an NDA for Zilretta. In November we reported data from a 33 patient Phase 2 study which assessed the effects of Zilretta compared with immediate release TA on blood glucose levels in adults with OA of the knee who also have type 2 diabetes. The data showed that Zilretta was associated with a statistically significant and clinically relevant reduction in the rise of blood glucose compared to a immediate release TA injection over 72 hours post dosing. This is particularly important since approximately 20% of OA patients are also confronting type 2 diabetes. And this translates into about 1 million patients with diabetes who receive knee injections each year. We believe that if approved, Zilretta could be an important clinical advance for these patients. 2016 culminated with a successful submission of the NDA for Zilretta in December, which also included the diabetes data. In February of 2017, we announced that the FDA accepted the NDA for review and established a PDUFA date of October 06, 2017. Additionally the FDA has scheduled pre-approval inspections at several of our contract manufacturers, as part of their standard procedures, so it is clear that the review of Zilretta is well underway. We now eagerly await the agency's decision later this year. With respect to ongoing studies of Zilretta, last month we announced the initiation of an open label 200 patient repeat dose trial in patients with OA of the knee. We expect the trial will be fully enrolled, later this year and we look forward to reporting the results when the trial readouts, which is expected to occur in 2018. In addition to achieving crucial clinical and regulatory milestones the previous 12 months has been a period of impressive progress across all areas of Flexion. Fred will cover the financials later in this presentation but we significantly strengthened our balance sheet with two successful public offerings in June and November, which raised gross proceeds of just under $150 million. Thanks to our strong financial position, we have been able to strategically grow the Company. We now have just over one 100 FTEs. But, what is more striking is the caliber of the people who have joined us. Being based in the greater Boston area, we've been able to leverage the rich local talent pool and attract outstanding professionals at all levels. Notably Dr. Scott Kelley joined Flexion’s management team in 2016 as the Head of Medical Affairs. Scott has more than 25 years of clinical, academic and industry medical affairs experience. Most recently he served as Vice President Global Medical Affairs at Sanofi where he oversaw global data generation, data dissemination and key opinion leader engagement for the Biosurgery portfolio including Synvisc. We also strengthened our Board with the appointment of Mark Stejbach the Chief Commercial Officer at Alkermes. Mark has more than 25-years of leadership experience in biotech and commercial marketing, sales managed care and finance. His considerable commercial experience strategic thinking and deep knowledge of sales and marketing complements our Board. And we expect he will be invaluable to us as we prepare for a potential product launch. On the commercial front, we appointed several outstanding leaders in 2016, I will let Dan share more about his team and preparations for a potential launch of Zilretta in just a moment. But before I turn it over to him I would like to briefly outline our anticipated business highlights in 2017. As we look ahead to the next 12-months clearly our biggest milestone is the potential approval and launch of the Zilretta. Dan will provide more specifics but with the build up of our field force and other commercial operations we anticipate that if Zilretta is approved we will have approximately 250 FTEs by year-end 2017. We also intend to expand Flexion’s portfolio this year through a combination of our own internal R&D efforts in business development and licensing activities. Our focus continues to be on transformative, local medicines for musculoskeletal with particular interest in OA, low back pain, post-op pain and wound healing. To facilitate the construction of the strong pipeline, we have opened an innovation lab in Woburn, Massachusetts this year which will provide us with the discovery lab capability to create novel product candidates and also to further characterize potential in-licensing candidates. With that, I'll turn the call over to Dan Deardorf for an update on our commercial preparation and activities.

[Dan Deardorf:]

Thank you, Mike and good afternoon everyone. From a commercial perspective our sites are set on the October PDUFA date and the potential approval of Zilretta. As Mike mentioned Flexion is well capitalized and we have the people, the plans and the resources needed to position us for the successful launch of Zilretta. And I'm pleased today to provide an overview of those preparations. But before I go too far into our launch planning, I would like to spend a brief minute talking about our people. Throughout 2016, we actively built the commercial leadership team and I am pleased to report that we have assembled an outstanding roster of industry veterans who bring deep knowledge of and experience in the injectable and specialty products space. In 2016, we announced the appointment of Mark Fraga, Vice President of Marketing; Dan Thornton, Vice President of Market Access and John Magee, Vice President of Sales. Each brings a wealth of industry experience, strong leadership skills and deep customer focus. Mark Fraga is a proven leader in the marketing and commercialization of pharmaceutical products and medical devices. Before joining Flexion, he served as Head of Global Marketing at Sanofi, where he led franchises in osteoarthritis and surgical devices including Synvisc. Prior to Sanofi, who is Director of Marketing at Codman Neuro, a neurosurgery device subsidiary of Johnson & Johnson, where there he had several leadership roles in commercial and strategic marketing and previously he also served at Centocor another Johnson & Johnson Company. Dan Thornton has held leadership roles in patient and market access, pricing and distribution for a number of biotechnology and pharmaceutical firms, both large and small. He joined Flexion from Chiasma, where he was VP of Market Access and Patient Services and built a comprehensive patient services and market access organization in preparation for a product launch. He has also built an executed market access strategies at a number of other companies including Biogen and Shire Pharmaceuticals. John Magee is an experienced sales leader with a proven track record of successfully launching products. Prior to joining flexion he was Head of U.S. Sales for the rare disease unit of Shire Pharmaceuticals, where he also served as U.S. Sales Director for its renal business. Previously he held senior sales leadership positions at Esprit Pharma and Bayer Corporation. With this core leadership team in place and the depth of talent within each of their teams we now have a rock solid foundation to flawlessly execute the Zilretta launch after potential approval. So let me touch on some of the commercial highlights as we prepared for the potential launch of Zilretta. We will be ready to quickly launch post approval, we are focused on the long-term success of this product and our strategy reflects that philosophy. We will employ a very deliberate and customized process to ensure our customers have a positive experience with every aspect of the Zilretta experience and we will work hard to exceed their expectations at launch and for years to come. Given the long-term commercial potential that we believe Zilretta holds, we see this as a marathon not a sprint. To that end, we have extensive plans involving more than a dozen functions that will touch the launch of Zilretta. However today, I will focus on three major aspects of our launch preparation marketing, field sales force and market access. With respect to our strategic marketing and brand development work, our plans are driven by deep understanding of all of our customers, knowledge which is rooted in extensive market research. To-date we have conducted more than 35 initiatives that have given us extensive insights into the needs of our physician, patient and payer customer groups. These deep insights form the basis of positioning strategies, which we firmly believe will support Zilretta’s adoption in the marketplace with a clear and compelling value proposition. The research is also informed our physician targeting and segmentation work. Breaking down prescribers by a variety of criteria, which helps us refine our messaging by audience and ultimately direct to size and focus of our field activities. As for our message research, we have developed tailored plans encompassing both personal sales-related initiatives and non-personal initiatives such as advertising which will broadly reach our target audience. As I mentioned at the beginning of my comments, our goal is to exceed our customer's expectations from the very first experience with Zilretta. To ensure we accomplish this we will provide comprehensive and compliance support for prescribers and the key personnel in their practices, ensuring end-to-end support which will include patient assistance and reimbursement support as needed. We also recognize that some physicians will need to gain familiarity with Zilretta and we will operate targeted sampling program to facilitate their exposure to the product. Furthermore, we will execute a distribution strategy designed to efficiently get Zilretta into the hands of physicians. With respect to the selling of Zilretta, we intend to control our own destiny by building our own sales force of approximately 100 representatives. We are utilizing our targeting and segmentation data to ensure that we have the right level of field-based resources in place to meet the needs of our future prescribers. Our field force alignment and resourcing work is well underway and we have already begun to hire first level sales managers. And I can tell you there is a lot of interest in joining Flexion. To illustrate that excitement that is building in the marketplace, we recently posted 10 regional physicians and received more than 1,400 applications for those roles. The vast majority of applicants are highly qualified, experienced pharmaceutical sales leaders many of whom are gainfully employed in senior positions at other companies. As for our market access preparation, I will briefly touch on a few highlights. In addition to our distribution plans, we have conducted payer profiling, developed an initial pricing strategy and developed a framework for our patient access program including the implementation of a hub to provide patient assistance and reimbursement support. Underlying all of this work is perhaps one of the most important elements of a successful launch a great commercial effectiveness team. Our team provides the strategic market and data analysis to inform our decision making as well as the infrastructure to support our tactical execution. Led by [indiscernible] we have assembled a team that is truly unique capabilities with deep experience in this market and they will be one of the keys to our success. Finally, all of our plans have been benchmarked against launches by other small companies over the past decade, what's clear is that successful launches require appropriate resourcing. In terms of both people and programs and they implement effective targeting strategies. We have also enlisted two independent third-party firms with extensive launch experience to wed our plans and based on their assessment we remain very confident in a successful launch of Zilretta. I will now turn the line over to Fred Driscoll to review our year-end 2016 financial results.

[Fred Driscoll:]

Thank you, Dan. For 2016, the company reported a net loss of $71.9 million as compared to a net loss of $46.3 million for 2015. Research and development expenses were $41.3 million and $32.7 million for the years ended December 31, 2016 and 2015, respectively. The increase in research and development expenses of $8.6 million was primarily a result of increased costs related to the Company's clinical development program for Zilretta and expenses associated with the filing of an NDA for Zilretta in December 2016. General and administrative expenses were $28.5 million and $13.4 million for the years ended December 31, 2016 and 2015, respectively. The increase in general and administrative expenses of $15.1 million in 2016 was primarily due to the development of corporate and commercial infrastructure to support the potential launch of Zilretta. As of December 31, 2016, the Company had $210 million in cash, cash equivalents and marketable securities compared to $119 million as of December 31, 2015. As a matter of corporate practice, we do not provide financial guidance due to being a pre-revenue stage company. However, from a liquidity and cash resource perspective, we do believe that our existing cash resources will provide a runway into mid-2018. We expect expenses to increase over the next several years due to potential line extension trials for Zilretta, expenses in capital additions ceramic scale up activities in manufacturing. The significant ramp in costs associated with pre and post launch commercial activities of Zilretta and development activities associated with new additions to the pipeline. We also expect general and administrative expenses will grow in support of the anticipated growth in the various aforementioned functional areas. I will now turn the call back over to Mike.

[Mike Clayman:]

Thanks Fred. Before we open the lines for Q&A, I'd like to share just a few additional comments. In the press release we issued this afternoon, we announced that Fred has made the decision to retire from Flexion at the end of the month. While I couldn't begin to recognize all of his contributions in the limited time I have here. I would be remiss if I didn't thank him publicly for his tireless dedication to Flexion since joining the company in May of 2013. I can’t state too strongly what a real difference Fred has made for Flexion. Although, his presence, leadership and effervescent personality will be greatly missed. We are very pleased that Fred has agreed to continue with Flexion in an advisory capacity until we have appointed his successor. On behalf of all of us at Flexion, I would like to thank Fred for everything he has done to make flexion a great company and put us on such a strong trajectory. Let me turn the call back to Fred for a few words.

[Fred Driscoll:]

Thank you, Mike for those very kind and thoughtful words. It has been a true pleasure to have the opportunity to work with you in such a wonderful team of professionals here at Flexion for the past almost four years. Back in 2013 when I became employee number 15 we set our sights high to successfully complete the clinical trials and be poised to launch Zilretta ourselves in the U.S. market. With the filing in acceptance in February of the NDA and Flexion on pace to be potentially become a 250 person company by year-end. The time is right for me to move on to the next chapter of my life and focus my attention on family matters. However, as Mike mentioned I plan to remain on as a financial advisor to the company to provide for a smooth transition until my successor is appointed. With that operator, please open the line for questions.

[Operator:]

Thank you. That concludes our prepared remarks. We will now open the call for question. [Operator Instructions] And our first question comes from David Meyers from Wells Fargo Securities. Your line is open.

[David Meyers:]

Good afternoon. First and foremost, Fred, I think I speak for everyone in the investment community and saying we're saddened to hear that you're stepping down. Things won't be the same without you.

[Fred Driscoll:]

Thank you.

[David Meyers:]

Mike, one of the things that people always worry about profitable companies is spending the profits away or being distracted when they're doing their single most important things. So maybe if you could just explain why now is the right time to start the innovation lab and why not after you oversee the successful launch and maybe some of the activities or level of spending that you anticipate in the first year or two? Thank you.

[Mike Clayman:]

Yes. It's a very good question David, appreciate it. I would say this about innovation lab. Innovation lab creates a capability for us with very modest expense. And allows us to cost effectively identify internally originated ideas and translate them into product prototypes and also very cost effectively and rapidly assess accidental opportunities. I want to reassure you and everyone on the line that the vast majority of our resources are dedicated and will be dedicated to the successful launch of Zilretta and Zilretta’s approval and launch our jobs one, two and three for us. Having said that, we have very high hopes for Zilretta, we are committed to a flawlessly executed launch. We expect the product has potential to make a big difference for potentially millions of patients and based on the commercial success of that product. We intend to continue to grow to become a great company. And a great company can become one in the absence of sustainability and sustainability means having a pipeline. So we think it's the responsible thing to do to quite cost effectively invest in the pipeline but not lose sight of the highest priorities which is the flawlessly executed launch in commercialization of Zilretta once approved.

[David Meyers:]

Great. Thank you very much.

[Mike Clayman:]

Thanks, David.

[Operator:]

And our next question comes from Randall Stanicky from RBC Capital Markets. Your line is open.

[Randall Stanicky:]

Great, thanks guys and Fred all of the best from us as well we echo David’s comments. Mike, just a question and it's partly related to the prior question as you're looking to build out a platform. It feels like that was part of the theme of this call, can you prioritize the following the three things progressing the pipeline and I know you had the internal candidate that you had not yet named yet. Business development which you touched on the call and then also the ex-U.S. strategy for Zilretta and what should those three should we expect to see first and how partner are each of those three to you?

[Mike Clayman:]

Well, let me say this Randall, we see the internally originated in business development efforts equally important in terms of creating a pipeline we are agnostic about the best opportunities. We certainly do not suffer from not invented here, our pipeline previously was comprised of two assets that we had in-license and Zilretta was the third that we originated ourselves. So we are looking for the best athlete whether it comes from inside or from outside. And I would say that we are devoting attention to the ex-U.S. possibilities here. That is potentially important to us but I'll just be very frank with you at the present time, we see the vast commercial opportunity for this product residing particularly in the U.S. and we will not allow ex-U.S. considerations to distract us from that. I'll just say that we are having discussions with outside parties, we’ll continue those discussions and as I think you're well aware we've guided consistently in the past that we will not announce anything until we basically have a signed deal. But I think its way premature to commit to anything, and I'd say that on balance what I can commit to on the pipeline side is that I'm confident that by the end of this year, we will have added at least one or two assets to the pipeline. And we will ensure judicious spend on those. So that we don't in any way distract from the success of Zilretta.

[Randall Stanicky:]

You mentioned a couple others that you're interested in the post-op pain was one of those and you've also in the past talked about a focus on the local versus systemic?

[Mike Clayman:]

Yes, that’s correct.

[Randall Stanicky:]

Is that the right way to think about it and then where do you stand on opioids?

[Mike Clayman:]

So we are – just to answer the first part of your question. We are focused on local therapies for those musculoskeletal conditions particularly and we think having gained experience with sustained-release formulation and understanding how to characterize those products we think is an advantage for us going forward. So it is transformative medicine locally applied for musculoskeletal diseases good short hand for us. And where we stand on opioids at the risk of editorializing I think that it's fair to argue that opioids are not a great choice for chronic non-cancer pain. And we see Zilretta is having the potential to offer an alternative to the prescriptions of opioids in this OA space. It's my personal/professional belief that opioids are turn to out of frustration in the phase of inadequate other options. And because we see Zilretta being a highly effective option, it would logically translate into hopefully some fewer opioid prescriptions potentially being written.

[Randall Stanicky:]

So it sounds like opioids are not on the top of your business development to delist?

[Mike Clayman:]

Well, to be blunt about I'd say is at the bottom in fact it’s not even at the bottom it's not on the list.

[Randall Stanicky:]

Okay, great. Thanks guys.

[Mike Clayman:]

Yes.

[Fred Driscoll:]

Thanks, Randall.

[Operator:]

And our next question comes from Gary Nachman from BMO Capital Markets. Your line is open.

[Gary Nachman:]

Fred, I'm also sorry to hear you'll be leaving but good luck to you. Mike, how soon after the October 6 to do so would you be able to launch if approved, I know you said 4Q but what has to happen logistically to be ready to go as quickly as possible. And with the reps when will you officially take them on board?

[Mike Clayman:]

Yes, it's a good question, Gary and I think it’d probably best answered by Dan.

[Dan Deardorf:]

Yes, thanks Gary. So at this point in time, we are planning to hire sales managers at risk. But not to hire a sales force at risk, we’ll have done all of our sourcing and recruiting and essentially have a stable of folks ready to go continuing upon approval. How quickly we can go after that there's a number of things that need to happen, they obviously need to give notice at their previous employer, we need to get them appropriately trained, we need to get product label since we probably won't have the final label until the PDUFA date so get product labeled in any channel. So those things take some time that said we're squarely focused on getting feet on the Street as quickly as possible understanding that as I said in my comments, we are most acutely focused on the long-term here and making sure we get appropriately trained people out there that can best take care of their customers, deliver the story, the value message about Zilretta, all of the support materials and do that at the appropriate pace again building for the long run.

[Mike Clayman:]

Yes, if I could just add to what Dan’s comments, we've gone back and forth internally about hiring on a contingency basis or hiring at risk. And we've come to believe based on the experience of our commercial team and John Magee, our VP of Sales that the very best people can be hired on a contingent basis not on an at risk basis. While we believe that the risk associated with the approval of Zilretta is very, very low. What we've learned is that there are many sales reps who would hesitate to join a company at risk until the approvals happened. So since our focus is on hiring the very best and brightest and most capable and experienced sales reps. We've gone to the contingent hiring model, which will mean a slight delay in the launch compared to the approval date.

[Gary Nachman:]

Okay. And Mike, as far as additional clinical data just comment thoughts on opioid reduction study, any more work you're planning on doing with diabetic patients and when could that diabetic data get published?

[Mike Clayman:]

Well, so let me take the second part of the question first. And then answer the first part, just in terms of diabetes data we’ve submitted the diabetes data to a national meeting. It will I'm confident it will be presented this year and I'm similarly confident that a manuscript that we submit will be published later this year. So, I think you can expect to see diabetes. The diabetes data in the near-term presented and in the longer term published as a full manuscript. And your first question, Gary?

[Gary Nachman:]

Just thoughts on doing opioid reduction study I know you’ve been going back and forth it's a difficult study but if you update anything there?

[Mike Clayman:]

Yes, its difficult to say, I think that there are may be other ways to get at that once we are approved and launched. There may be ways to do a naturalistic experiment where you actually in a large insurance plan say for the sake of discussion at Kaiser or something plan of that size, you might actually work with them to do a study where patients are randomized to Zilretta or usual care. And just gauge how long it takes them before an opioid is prescribed and compare the two groups. That's just Gary, I caution that's an idea, the point is that we're actively looking at that. Because I have to say that it's logical to expect that Zilretta can get in the way of opioid prescriptions. The question is how do we do that in a credible fashion and generate convincing data.

[Gary Nachman:]

Okay, and just with diabetics any additional work you're going to do or at this point satisfied with the data that you have that hopefully will get published.

[Mike Clayman:]

Yes, it's a topic of very active discussion. We will certainly publish a data and I've said this before when you see the curves, the continuous glucose monitoring curves. You don't have to be a scientist to see the difference between the effect of the immediate-release steroids versus Zilretta. I’ll just say that is please stay tuned because we are actively discussing ways to expand on that initial study in diabetic populations, doesn't guarantee we will do another study but there's some interesting wrinkles that might be worth pursuing that we're discussing internally and with outside thought leaders.

[Gary Nachman:]

Okay, thanks and all the best, Fred.

[Fred Driscoll:]

Thanks Gary. Thanks so much.

[Operator:]

And our next question comes from Jim Molloy from Laidlaw & Company. Your line is open.

[Frank Breeze:]

Hi, this is actually Frank on for Jim. Thanks for taking the questions. My first question is obviously a lot of talk in the news about opioids and actually on this call as well. And I was just wondering why do you think that opioids are used so much for OA and how much and how quickly do people start to tolerize to the analgesic effect over time.

[Mike Clayman:]

Yes, well, I think my personal view based on the experiences we've had in discussions with KOLs and patients is that opioids are prescribed in the phase of patients having intractable pain that's been refractory to other available therapeutic modalities. And in the U.S. that frequently translates into an opioid prescription so I think it's reflection of what I'll just characterize as less than optimal therapeutic alternatives out there. And I think just as so 50% of patients with osteoarthritis roughly are prescribed opioids. And it's hard to interpret that as anything other than the desire for pain relief in a population that's not getting adequate pain relief. In terms of tolerizing to the pain relieving effects of opioids I don't think this is in any way peculiar to the OA population but it is well-known that you do tolerize to the analgesic effects but tragically your respiratory centers don't. And that can become the basis of unintentional overdose deaths. So anything that can move patients away from opioids, in our humble opinion it would be a step in the right direction.

[Frank Breeze:]

Okay, great. And then in terms of diabetics, how many diabetics don't opt for a second steroid shot for worrying at risk of hyperglycemia and how do doctors feel about giving that second shot when they see the glucose reaction?

[Mike Clayman:]

Yes, so I would say this, we don't have comprehensive data on the diabetic population and reluctance to get a second steroid injection but I will say this, if you look at the 4.2 million patients who receive a steroid injection each year 800,000 of those being diabetics roughly, roughly. The average number of injections patients get a year is one and a half and this is for a therapy that generally wanes in a fact over the first two to four weeks. And we think that there are many patients out there who are one in done after steroid injection. And it would not be surprising that a significant percent of those are diabetic patients and I’d supplement that by anecdotal reports that we have – through discussions with individuals where we know that there are patients who will not get a steroid injection because they are concerned about their glucose is bumping. And we know of people who have gotten steroid injections and have had symptoms and have claimed that they will never get another one. We also know from some survey work that there are percent of docs who will not prescribe steroids for their diabetic patients.

[Frank Breeze:]

Great. And then one last one if I can here and in terms of premium pricing obviously data is very important here, in your opinion what's the most impressive part of the data is it especially is the analgesic effect when you superimpose that Phase 2b and Phase 3 curves that are practically super-imposable or is it the medical community it's really the WOMAC scores or what is this year that makes you feel confident that premium pricing shouldn’t be an issue?

[Dan Deardorf:]

Yes, this is Dan. I would frankly say it's the entire package, it's the fact that we've got a quick onset of pain relief, a huge – significant magnitude of pain relief we've got duration and we've got a fantastic safety profile for the product. So I think it's all those things and then the addition of the potential safety advantage for diabetic patients when we talk to payers it's essentially the whole package that resonates with them as they factor in that they're thinking about pricing coverage reimbursement et cetera.

[Frank Breeze:]

All right, thank you very much. That's it for me and all the best to Fred.

[Fred Driscoll:]

Thank you.

[Operator:]

And our next question comes from Chiara Russo from Cantor Fitzgerald. Your line is open.

[Chiara Russo:]

Hey, guys. Thank you for taking my questions. I apologize if this has been asked and answered. I jumped on a little bit late. But I think my first question sort of has to do with the growth of steroid injections I know that in the past as you deployed that sort of population growth that it’s a double-digit annually. I was wondering if there was any sort of update to that population, are you continuing to grow double-digit year-over-year?

[Dan Deardorf:]

Yes, hi Chiara, this is Dan. The latest data is available through IMS is 2015 and that data showed a 12% growth in patients being injected for – with the steroids for osteoarthritis for the knees, its 12% growth 2015 over 2014 my best recollection is 2014 over 2013 was about 7%. So significant growth rates that we've seen at least over the last two year-over-year comparisons.

[Chiara Russo:]

Okay, all right. That’s helpful. And then again I apologize. Obviously you're going to be focusing on watching the product first and getting traction there in terms of expanding to the joint hip, shoulders. How do you sort of look at that in terms of your clinical profile. And how do you look at that in terms off-label use.

[Mike Clayman:]

Yes, so we think Chiara, good questions. We think that there is opportunity for label expansion both in OA of other joints and in other musculoskeletal conditions, particularly interested in shoulder subacromial bursitis in particular. But I think it's premature for us to say chapter and verse on exactly what we're going to initiate when I can tell you that is a topic of very high priority internally. And we will be finalizing the plan on that in the course of this year.

[Chiara Russo:]

Okay. And I guess my last question is for Fred. I know I think I was looking at my model and I think I thought that some principal payments start this year, is that something that you're looking to refinance?

[Fred Driscoll:]

Hi, Chiara, you are correct. The principal payments start this year but we are not thinking about that right now obviously cash preservation is number one. And we're happy with the financing that we did there it was – might be very inexpensive. So I think we're just going to continue on with that.

[Chiara Russo:]

Okay, all right, great. Thank you guys for taking the questions. I appreciate it and good luck.

[Mike Clayman:]

Thanks Chiara

[Fred Driscoll:]

Thanks Chiara

[Operator:]

And our next question comes from Bruce Jackson from Lake Street Capital Markets. Your line is open.

[Bruce Jackson:]

Hi, thanks for taking my question. Just to follow-up on the post surgical pain market. How much work have you done and do you have to make any changes to the formulation of the dosing in order to pursue that market?

[Mike Clayman:]

Yes, just to be – first of all, we've done a lot of work analyzing that market and we believe a substantial unmet medical need persist there. But just to be clear, we are not suggesting that we're developing Zilretta for post-op pain. What we would be looking for is a more classical likely analgesic approach to that long lasting analgesic approach. So that would be a different compound and that work is still in front of us.

[Bruce Jackson:]

Okay. And then given that you've got the repeat trial going you've got the innovation center opening. How should we think about R& D in 2017 compared to 2016?

[Mike Clayman:]

Well, I think in terms of spend.

[Bruce Jackson:]

Yes.

[Fred Driscoll:]

Yes, Bruce, this is Fred. As I said, we are not giving guidance at this point but obviously we do expect in our R&D expense, it does include our manufacturing costs. So we still expecting growth in R&D for sure as Mike said we do plan on line extension with Zilretta that obviously will entail clinical trials. So we do expect that R&D will grow year-over-year.

[Bruce Jackson:]

Okay. Then last question on the sales and marketing rep, which should we expect that most of the reps come on board after the PDUFA date and then to get to the 100 target by the end of the year?

[Mike Clayman:]

First of all, yes, at this point our plans are to bring them on after the PDUFA date very, very shortly after the PDUFA date. But our intention will be to fill as many if not all of those physicians coming out of the gate.

[Bruce Jackson:]

Okay, great. Thank you very much.

[Mike Clayman:]

Thank you.

[Fred Driscoll:]

Pleasure.

[Dan Deardorf:]

Thank you.

[Operator:]

And at this time, I'm showing no further questions.

[Mike Clayman:]

Great. Well, I just want to thank everybody for their time and attention. And again thanks Fred for an extraordinary contribution to this company. Take care.

[Fred Driscoll:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.