Preliminary Q3 2020 Flexion Therapeutics Inc ZILRETTA® Corporate Sales Call
[music].
Good morning, ladies and gentlemen, and welcome to the Flexion Therapeutics Conference call. My name is Liz and I will be your coordinator today.
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.
If at any time during the call you require assistance. Please press star followed by zero and a coordinator will be happy to assist you.
I'll now turn the call over to the company.
Good morning. This is Scott Young Vice President for corporate Communications and Investor Relations earlier. This morning, we issued a press release, which amounts preliminary July weather net sales for the third quarter.
That will lease in our latest commercial metrics like <unk> under the Investor.
Under the investors tab of the Companys website.
Therapeutics Dot com.
Today's discussion will be led by flexing Chief Executive Officer, Dr., Michael Clayman, and he is joined by Melissa Lehman Flexions, Chief Commercial officer, and David Archuleta, Watson's Chief Financial Officer.
On todays conference call, we will be making statements relating to future financial and business performance market conditions strategies, and other business matters, including expectations regarding revenue cash utilization clinical regulatory and commercial developments and anticipated milestones, which are forward looking strong.
Agents 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.
Forward looking statements speak only as of todays call inflection assumes no duty to update such statements.
Additional information on the factors and risks that could affect flexions business financial conditions and results of operations are contained inflection filings with the FCC, which are available at www Dot that's you see that as well as flux and website.
I will now turn the call over to Mike.
Thanks, Scott and thank you all for joining the call.
Throughout the COVID-19 pandemic it has been ever intend to provide investors with updates on quarterly sales performance as soon as feasible.
Consistent with that goal today, we're sharing preliminary results for the third quarter and as we announced in this mornings press release, we saw strong zilretta sales of approximately $23.6 million in the quarter representing substantial growth over Q2.
While it remains impossible to fully predict how COVID-19 might impact our business over the coming months. It is highly encouraging but she sales that are more in line with our pre pandemic expectations and we are bullish about continued sales progress and momentum on our way to realizing the potential.
It is already up to make a real difference for so many patients suffering the often debilitating effects of away knee pain with.
With roughly 15 million patients experiencing symptomatic neo way and.
And 8 million intra articular injections administered each year for this condition.
Unmet medical need is massive and zilretta based on its outstanding clinical profile is well positioned to address this need.
Melissa will describe what we have seen and heard from health care providers over recent months as well as our plans to accelerate buying patterns and behaviors and even more effectively penetrate accounts that care for especially large numbers of away patients.
In addition to our solid commercial progress we continue to advance our pipeline of innovative and potentially transformative product candidates we.
We are now enrolling patients in the second cohort of the phase one single ascending dose study for FX to a one our investigational intra articular gene therapy product candidate for all way.
The vision for this potential new medicine is to provide meaningful pain relief and functional improvement for at least six to 12 months following a single injection.
Yes, a D trial is designed to evaluate the safety and Tolerability of low mid and high doses of FX two or one in.
In cohorts of five to eight patients and data from this study are anticipated in 2021.
Just this week, we presented an overview of the FX to a one program at.
At the American Society of gene and cell therapies virtual meeting on the Mesa.
With respect to FX three L. One our locally administered peripheral nerve block candidate for control of post operative pain. The program is advancing nicely toward R&D filing next year.
FX threefold, one utilizes our proprietary thermo sensitive hybrid gel.
To enable local delivery over three to seven days of a NAV 1.7 inhibitor known as funded.
Because funded Pieties motor sparing, we see this entity, having the potential to confer unprecedent in duration of pain relief, while preserving motor function.
Either one of these attributes would represent meaningful advantage over currently existing peripheral nerve blocks.
Having both would be transformative there.
The preclinical data, which compared FX three a one to life goes on we'll be pivoting compellingly support this transformative vision and these data were recently featured in a podium presentation at the Anesthesiology 2020 virtual meeting one of.
One of the Premier conferences for the Anesthesiology community.
Pending successful submission and acceptance of an eye in D. for FX real one in the first half of next year.
We plan to initiate a phase twob proof of concept trial in funding that can be patience and we believe that study could enroll and read out relatively quickly. We look forward to providing more specifics about the trial design and potential data communication timing in the months ahead.
Before I close I'll reiterate something many of you have heard me say over recent weeks.
I believe there has never been a more exciting time for reflection we have.
We have an outstanding product.
Our pipeline of innovative product candidates and remarkable team talent with unrivaled passion and tenacity.
With an organizational commitment to delivering we are proceeding with tremendous confidence that the future of Zilretta and inflection is indeed very bright.
Well its a.
Thank you Mike.
We're encouraged by what we are seeing and hearing in the field.
Well the early days of the pandemic saw disruption across virtually every aspect of health care patients in practices have continued to adjust to the new normal and our most recent data indicate that most for their practices are now back to roughly 80% of their pre kobin patient flow.
Well, we continue to believe that surgical delays and postponement of total knee replacement provided a tailwind for zilretta due to the nature of buy and build product. It is impossible to firmly quantify that impact.
That said, we have extensive anecdotal feedback that many prescribers are using zilretta manage patient facing surgical delays and we believe there will be lasting impact from more prescribers, gaining clinical experience and feedback that gives them trust and confidence in the product and its potential to deliver persistent pain relief.
Across more and more of their awake patient population.
As we discussed before the initial drop in patient visits during the early days of the pandemic opened a window of opportunity to reach treating physicians, who had not been previously accessible for that.
Our field teams made great progress, reaching educating and informing those providers about opening the door.
Opening the door for continued access and it is our belief that the product experience beginning in Q2, and Q3 will translate to increased utilization in the months ahead.
Turning to our commercial metrics update slide two shows we have increased our number of target account to 5400, having now called on almost all of them.
As of the ended the third quarter 4072 of those that have had made at least one purchase of the Radisys launch, reflecting the addition of 214, new purchasing account versus Q2.
In addition, 3153 or 77% of the town had placed Reorders for Zilretta up from 2983 also 77% at the end of Q2 and consistent with reorder rate recorded in the preceding quarter of this year.
Slide three depicts our quarterly sales progression launch, including our Q3 net sales of 23.6 million.
Slide four reflects the cumulative number of accounts that have purchased zilretta since launch broken down by volume.
And most notably in Q3, we saw the greatest growth in the 51 plus category.
We believe this indicates our customers continue to move through these are racking utilization continuum from initial trials to broader adoption.
As we discussed on previous calls none of our target accounts have yet realize their full prescribing purchased some potential and we consider increasing our penetration across and within customer segment a strategic priority.
I'll share more about some of our plans to accelerate adoption and utilization in just a few moments.
Slide five shows the cumulative distribution of the retro purchases by account.
Here, you'll notice that account, having purchased 51 or more units since launch are increasingly contributing to our overall volume.
Further indication that its practices get experiences Loretta sales through the adoption continuum. We previously described.
Purchases by accounts in the third quarter totaled approximately 46600 units, which represents an increase of approximately 10000 units versus Q2.
We find it's very encouraging in light of the fact that though often patient flows have substantially recovered from the initial delays and damage. The new normal now represents approximately 80% of pre Kobe patient volumes.
By the end of the third quarter, we saw growth across all of the distribution breakpoint, but.
But notably the number of units purchased by the 51 slots group.
258562, which is an increase of 44841 unit versus Q2.
On the final slide number six we break out the red a purchasing by new and existing accounts and here you can see that the 214, new accounts added in Q3 referenced earlier purchase approximately 14600 units of the Red.
We believe these new accounts will move through the Red a continuum from trial to adoption as we previously described maintaining a continued balance a quarter over quarter growth coming from new accounts and deeper penetration of existing accounts.
Lead me to briefly address our plan for accelerating adoption across our customer base.
With now three years of in market experience, we are conducting positioning and segmentation research.
These research initiatives are expected to read out by the end of this year and will form the basis of a refined commercial strategy 2021 and beyond.
We anticipate the positioning and segmentation research will inform that types of physicians and practices that have a greater propensity to adopt zilretta and elucidate where across the very patient type and treatments continue on the red is assessed fit allowing us to tailor our reach frequency and messaging to the individual approach.
Lighter with the objective of most efficiently moving zilretta into the treatment continuing.
We look forward to keeping you apprised of our progress against these initiatives and future updates.
And at this point I'll turn it over to David.
Thanks, Melissa are preliminary Zilretta net sales of 23.6 million for the third quarter reflect an estimated gross to net reduction of 15%. This.
This gross to net reduction includes rebates to health care providers that are variable and based on the volume of product purchase and these provide rebates contributed 5% of the total Q3 gross to net reduction.
The remaining gross to net reduction of 10% is comprised of distributor and service fees returns reserve and mandatory government discounts and rebates such as Medicaid 340, B. institutions, and Veterans administration and department of Defense.
At the end of the third quarter the inventories held in total by our specialty distributors was within the one to three week level that we target.
This is consistent with previous quarters with the exception of the first quarter of this year when the total distributor inventory level was above our target due to the impact of COVID-19.
The Q3 quarter end inventory level was inclusive of a distributor buying for which the distributor received a modest discount in consideration for prioritizing zilretta in promotional communications with their customers that buy in accounted for approximately 5% to 7%.
Of our total third quarter net sales and had no meaningful impact on inventory levels.
As we have previously discussed we pause manufacturing a pay per contract.
Manufacturer earlier this year to ensure we did not build up excess inventory of finished product.
Also as we previously announced we will be re commencing zilretta manufacturing in the fourth quarter of this year.
Less throughout the entirety of the third quarter, while manufacturing was pause we continue to incur a fixed cost associated pantheon dedicated space and resources.
These costs will be recognized in our cost of sales as a result, our gross margin as a percent of net sales will be lower than what we have reported periods prior to those impacted by COVID-19.
Our gross margin percentage should become more normalized once the red of manufacturing is fully ramped back up and.
Although manufacturing will restart later this quarter we won't.
We won't experience the full effect of this on our gross margin percentage until the first quarter of 2021.
At this point I would ask the operator to open up the line for Q1 day. Thank you.
Thank you very much that concludes our prepared remarks, we will now open the call for questions.
I would like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to.
To withdraw your question press the pound.
Please standby, we compiled acuity roster.
Our first question comes from Randall Stanicky with RBC capital markets. Your line is now open.
Great. Thanks, guys and good to see the ramp in revenue, Mike you called out in the.
Second quarter pre announcement that June saw 18287 units and.
And just looking at Threeq, if we back into those injections on slide five it looks like it implies about 46000, 617000 total injections or 15000.
539 per month that number is a bit lower than June. So can you walk through the delta here is there seasonality or some other variability in how we should be thinking about the third quarter injection pattern and then I've got a couple of follow ups.
Sure I'd be happy to random, but it probably best to have moves to address that since GE Si so deeply into this.
Sure I'm, sorry, Randy can you repeat the question.
Yes, sure. So if we look at the June pre IND.
Pre announced.
The unit level. It was 18287 and if we look at the third quarter total injections and averaged those out it comes in a bit lower than that number and so I'm just trying to understand as we think about the yeah. The monthly ramp in injections.
Is there something in the third quarter that would create variability there I'm just trying to understand the monthly ramp and you know if there is any reason that would that would dip or how we should think about that going forward.
No I got it.
I think that when you're looking at the data from Jan you.
You were seeing that the.
The third month of the second quarter.
Which was really sort of peak recovery period for coal ash.
And or at least the peak recovery curious the cobot that we've experienced thus far and I think when you're looking at the cumulative injections for the third quarter, what you're seeing in bed is there a sort of a more.
Normalized.
Quarterly volume of injection.
Okay. That's helpful. I, just wanted to understand that Delta and then <unk> and <unk>.
The the segue to that would be.
You know if it's a third quarter preannounced numbers more normalized just to set expectations for folks as we look at the fourth quarter, obviously, we're coming out of a pandemic recovery and so.
Is the fourth quarter expected to be more normal as well and it in other words, if we look at growth rates.
Would that be informative as we think about the continued ramp in the fourth quarter or are you guys seeing anything else from a recovery perspective that we should be thinking about as we as we look at our fourth quarter numbers.
Sure Good question.
Theres just too much uncertainty with respect to the duration of the pandemic and it you know.
Full impact on future purchasing patterns or utilization of the rhetoric for us to provide any kind of meaningful guidance at this time, but with that said were very encouraged by the progress Youve made during both the third and second quarters and we definitely expect to continue to build upon that foundation and drive continued.
Growth in Florida in the fourth quarter and beyond.
Okay, Great and my last question here I know you touched on gross to net but.
Just to the extent there are questions can you can you talk maybe about comparability of gross to net as you think about the second quarter versus third quarter and perspective fourth quarter and how we should be thinking about that thanks.
Yeah Randall this is David let me address that so roasted.
Gross to net in both the second and third quarter were 15% EMEA and the provider rebates in each of those quarters was 5% of that 50% I wouldn't read anything into the fact that the provider rebates where the sales.
5% in Q2, and Q3, we're going to continue to be thoughtful and judicious in our approach is to enhance the value proposition of Zilretta for health care providers as well through intermediaries such as Gpos. We've also talked about this before and we'll continue to apply the things we learned from.
In prior quarters as it relates to rebates in designing our rebate offerings going forward. So.
Summary, rebates rebates and discounts are an important factor, we're going to continue to use them as as appropriate as we continue to grow the business.
Got it thanks for all the color guys.
Okay.
Our next question comes from Graig Suvannavejh with Goldman Sachs. Your line is now open.
Hey, good morning hours, everyone can you hear me okay.
Yes.
Definitely there are great.
Great. Thank you so much congrats on the progress in the quarter.
One one question I, just want to know where there any changes in pricing in the second quarter that might contribute to the strong growth that you saw.
In the quarter, and then separately I had.
Just curious about the segmentation.
Segmentation research that youre going to conduct towards the end of the year and how that will inform kind of of the commercial strategy in 2021, perhaps more specifically what what specific questions will you will you be asking in that in that research that might.
That might either be different than what you've asked before or perhaps it's more of the same perhaps seeing how the prescriber receptivity to the product this change thanks.
So your first question you ask if there were any changes to pricing in the second quarter. I think you mentioned third quarter, though I mean, sorry third quarter, that's right, yes, okay, yes, so no.
No there were no.
Okay through our pricing in the third quarter.
We did offer a rebate program in the third quarter that was pretty consistent with the size and structure everyday programs offered in previous quarters, So no material change to pricing and.
Regard to the segmentation research.
It's really it's really designed very simply to understand whether or not there are particular types of healthcare providers are practices that.
Based on their own behaviors demographics have a greater propensity to adopt the red hat and others and in the event that the findings suggest that Medicaid.
It would potentially suggests to us that we might deploy a differential level of intensity, we focused around those providers that we recognized with a greater propensity to adopt.
Okay, maybe just.
Maybe just a follow up there is there is there a base case assumption ahead of the results of that segmentation research that.
There.
Is it likely to be a change in how youre, which are commercial tactics are or is this just hopefully a confirmation of what you've already been doing.
Yeah, There's no base case assumption that it's.
It's.
Likely to end up being a confirmation of what we're doing and we're not really providing much more detail than that at this point.
What I can say, though is that there has been a lot of great work done already and our efforts are really just focused on taking what's already working so well and building on that foundation.
To bring our sales and marketing activities to the next level.
Okay, great. Thank you so much and congrats again.
Pre announcement.
Yes.
Our next question comes from Barton Ulster with Credit Suisse. Your line is now open.
Hi, everyone. This is mark on for Marty Congratulations on the progress and thanks for taking my questions I guess I realize it's early but do you expect you'll be in a position early next year to provide sales guidance and perhaps more importantly, what do you want to see to feel like you are in the position to provide guidance.
Yeah I'll take that.
We had previously provided guidance at the beginning of the year.
And frankly, our orientation is to lean in that direction, but.
But.
There are so many variables in front of us it's premature to make a commitment to providing a lot will depend on how the the pandemic is playing out how that.
How the flu season has played out.
[noise] out what level of certainty we have in terms of line of sight going forward. So I'm.
The best we're going to be able to do is say stay tuned and we will make.
Make our investors and our analysts or the external community aware once we've made.
Once we've made that decision we were going to need substantial confidence around what.
What what the environment looks like before we will commit to providing guidance.
Got it and then with respect to FX pure run can you help frame for us what specific data you'll disclose next year and I realize the study is designed to assess safety, but are there any specific biomarkers that you think we should pay attention to that but could the evidence activity. After chemotherapy. Thank you yep yeah. It's.
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Good question an important question as you say this is a really a taller or the study five to eight page.
Patients with Neal a symptomatic meal way.
Dosing cohorts, we are capturing symptomatic data changes and osteoarthritis specific measures of.
Pain and function and we will serve.
We will certainly be looking at the data.
What we've said consistently is it's.
It would be premature for us to suit.
Suggest that those data will provide clear insight into what the product is doing.
Just because the numbers are small and in pain studies, there's a.
There is a small number is a lead to.
The potential for noise. So I'd, just say, we will look at those and to the extent that those data are illuminating.
We will provide that as part of our discussion of the data in 2021.
Great. Thanks for taking my question.
Thank you.
Our next question comes from Elliot Wilbur with Raymond James Your line is now open.
Hi, good morning.
Couple of questions for Melissa.
Just wanted to get a sense.
Of how the change in labeling.
With respect to.
Repeat utilization of Zilretta has impacted usage.
Key metrics you have on that in terms of.
In terms of a repeat dosing.
I also wanted to get some perspective on how the delay in elective procedures, maybe impacting utilization of the product I know you had indicated that.
Tim Office visits are still down about 20%, but it looks like teekay procedures are still down kind of in the 30, 35% range year over year and just wondering if that's still a having a positive near term impact on zilretta utilization.
No. This is really for me I just want to provide a sense of front Elliot just to create perspective, because now we're looking at claims data.
Allow us to begin just begin to understand repeat dose utilization guidance and even in 2018, which was our first full year of launch without a J code and with the owner is not intended for repeated administration language and the label before.
Change to the more palatable language in a 2019, even then we saw a substantial percentages it patients receiving repeat injections.
[noise], Jerry and I think you know that so we think that's a reflection of the fact of where patients are treated patient comes in the guidance already injection. They have a good response, the clinical practice will dictate that it would be preferred.
It would be preferred to give that patient another shot of Zilretta wonder patient recurs, assuming it requires at least three months. After the first injection and we saw a fair amount of that and and we're seeing.
We're seeing more of that with Ah.
The label update and I'll turn it over to analysts to provide more color, but I just wanted to give the impression that even with what might be seen as restrictive, particularly rich language.
Patient care.
Overcame the barriers in many cases for repeated administration.
I think thats perfect color, Mike and I don't think theres much more I can offer it to bring that up by saying that.
The data that Mike was referring to it as he said claims data from 2018, so our view into repeat usage is retrospective.
Through database that has 18 month lag to it.
So prospectively in a moment, we don't have visibility to how a given doses are you in a given patient, but certainly very very encouraged by what Mike just referred to as the substantial number.
The rate of patients in 2018, when there were a number of headwinds.
That we face that were yet to be removed and still the the interest in delivering the best care patients.
Patients went out so.
Were to come on that but very very encouraged by it and your question on.
Surgical tailwind.
We have anecdotal data that many healthcare providers use.
Managed patients you faced delayed or deferred surgical procedures that we can't quantify the expenses, which already weve used in that capacity, we did have some anecdotal.
Survey data that told us across about 30 providers back in the.
The July August timeframe that they were using it in this way.
And.
30% of there's already a patient population that I'm.
Since then there has been.
Restoration of surgical volumes, but to your point they are still not at 100% and from what we hear again anecdotally not likely to return to pre cobot levels any time soon we heard a lot about that.
Yes.
Patient volumes in the office and.
Yeah Nikolay comp.
Hey, guys.
Maybe the new normal going forward at least for a period of time.
What we think though is that for clinicians having got exposure.
Do you think that way, where they might not have otherwise you on that.
That that some lasting effects.
On their perspective around me.
Future utility of the read across the Oh, we take patient spectrum.
Okay. One additional question for you I'm wondering if you could frame or characterize where what you believe is the bigger relative growth opportunity for zilretta going forward with respect to either penetrating the roughly 25% of called on accounts that are not purchasing units today.
Versus driving increased penetration amongst these very high high purchasing high utilization accounts and if there's any color that you can share in terms of where roughly understands it difficult measured too.
To to a comment on with precision, but just roughly where what the penetration might in some of these high utilization account.
The answer to that question is yes.
In your prepared remarks I commented on the fact that we expect to see continued growth coming from both of those plays. The addition of new accounts as well as more penetrating our existing accounts and you know the facts are that at this point, we don't believe that a single.
Summer is as deeply penetrated as they could be or should be from a risk standpoint.
And so on that.
Hi.
If I if I had that yes, I think that that is probably still and will always be the bigger opportunity for us, but the ability to continue to add new accounts.
And create new exposure.
A given.
Health care provider base, our account base.
Certainly also present significant upside opportunity for accelerated growth.
Yeah.
Okay. Thank you.
Our next question comes from Gary Nachman with the ammo capital markets. Your line is now open.
Hi, guys nice quarter and just following up on that last question. So so much of this or rather units are concentrated with the high volume users within that greater than 50 group is it even more concentrated with a small number at very high volumes like greater than a 100 or greater than 150.
Any color on that Melissa.
And then just with the new purchasing accounts I'm curious, where most of these coming from geographically.
And then big orthopedic practices curious that the profile of these new accounts that you're seeing.
Yeah, I think to your first question when you look at that the data that you're referring to recognize that you are seeing accumulatively.
Back dating back to launch and so overtime as we add more quarters to the mill.
Correct.
The expectation would be that you would see more customers over the course of their experience in the red.
Buying it in higher volume certainly.
We haven't yet tease out whether or not there is.
A significant concentration purchasing at the Super high volume.
If you will but expectation is going forward that that may.
That is unmatched level of measurement for us.
And the second question about where the new accounts are coming from it's really.
It's really.
Okay.
I wouldn't say that there's a particular geographic pattern to it.
It really cuts across all geographic boundaries and even demographic.
Right.
Okay.
And then I guess sticking with you Melissa just how much of the sales rep interaction is now in person versus virtual.
Change the structure of the sales force at all or are you waiting to do that segmentation research.
We have not changed the sales force structure and at this point, we have no expectation that we would need to.
And with regard to the percentage of time that is in person versus remote it's pretty variable all of our sales force has been rediclinics band June and they're seeing their customers to varying degrees. So certainly some territories have.
Access that is comparable to what they enjoy pre cobot others have a handful of accounts that they can see lives and the rest they accessed remotely and I think that.
For the present time and going forward, we will continue to leverage both vehicles have access now what we can do live and in person as well as you know the incremental or increased access that we can get across our customer base for having reached them remotely primary.
During the peak.
Peak.
I'm still trying to maintain the ability to access them remotely today.
It fit with their schedule.
Okay, and then just lastly, I know what the segmentation restrict you look at the physician practices in depth, but what other promotional activities. Do you think you can do and you think you are right.
Our bigger DTC, yet going into next year at some point and will that come out of that research as well. Thank you.
[noise] BTC is always on the table and so part of the discussion.
We have spent considerable time over the last.
Year nine months at least Tony.
Tony our focus on patient to more of a DPP approach and that's really for a couple of reasons number one.
Wanting to to ensure that we have penetrated the market.
Sure certainly enough such that if we were to launch a broad based DTC campaign, the chance that we would drive patients into a practice, where there is experiencing familiarity with the right.
And so until we believe that we reach that point penetration.
Unlikely that we would invest in a broad base DTC type of campaign, along the lines of probably what you're thinking. However, we do believe that there is a lot of opportunity to lift the patient voice.
And driving Zilretta prescribing and so we have a number of different initiatives underway that seek to connect known patients those patients that haven't known diagnosis of away Kay with no zilretta prescribers.
To ensure that those patients are getting access is around oh.
From an experienced user as opposed to sending a patient into practice Auryxia prescribers, who may be just as likely to prescribe a corticosteroid or other intra articular injection.
Yeah, I'm, Gary did did move part of Melissa's answered cut out for years.
No I heard the whole thing so great. That's great. Okay, you never know southern called that Super.
Super.
Our next question comes from Jacob Hughes with Wells Fargo Securities. Your line is now open.
Hey, Good morning, two quick questions. One was just comment on if theres any geographical difference or is the recovery you're seeing pretty broad based and then I know it's.
I know, it's early but just what you're seeing through the first couple of weeks in October versus what you saw in August and September just to get a sense for where expectations are for the fourth quarter. Thanks.
As has been the case through out the coast no. The degree of recovery was really very proud and not geographically aligned individual practices.
Began opening up to the degree that they could you know as early as May in some cases and that trend has continued so we continue to see varying levels of practice reopening to upsell patient flow.
But on average they net out too.
As stated in the prepared remarks, roughly roughly 80% of pre Cove it.
On patient flows.
And with regard to fourth quarter.
That question within the context of expectations around continued reopening.
We anticipate that as I mentioned, we heard from the feedback.
That we collected anecdotally from our customers that we expect that 80% level sort of become the new steady state at least for the foreseeable future probably 2021. If the question was with respect to performance at this point I think it would be premature to offer any insights as to.
What kind of trend rock two in the fourth quarter.
Our next question comes from Serge Belanger with Needham and company. Your line is now open.
Hi, Good morning, a question on on payments.
With the rebound in demand has there been any changes and how payers are reimbursing zilretta.
Especially for these patients the may require.
Additional pain relief because of postponements or delays in there.
Two days.
Yeah, we get that question a lot certainly we have not seen.
Act earlier otherwise it there has been a change in the way payers are reimbursing for Zilretta, it's kind of been the standard fare.
The standard fare with regard to how they're covering today versus how the recovery.
Okay and then.
And then Mike you provided a bit of a punch line up that I don't know if I missed it but anything new on the.
Plans for shoulder studies in terms of protocol changes as well as the timing for restarting the trial.
No nothing new there surge we continue.
Continue to move in the direction of starting a shoulder study in.
In a 2021.
We will have a regulatory interaction with FDA to better define their expectations for.
Data requirements for label expansion in terms of clinical trial data and that will better inform the protocol and our thinking about whether this next study will be a phase two study a pure phase two study.
Or a registration study so I'd say stay tuned on that.
That.
Gating item for the ultimate refiner the protocol.
Okay all right. Thank you.
Thank you.
Our next question comes from Dana Flanders, but second I missed your line is now open.
Oh, great. Thank you very much for the questions I guess, my first here and I I realize you're not giving guidance.
Given guidance.
Consensus does reflect a pretty nice ramp of Zilretta over the next couple of years do you feel like you have the pieces in place now to really inflect.
Revenues going into 2021 and does that magnitude of growth you know something you think the segmentation research can really support and drive.
Then second secondarily, how should we think about Opex. At this point is is the piano basically in place and as revenues grow we should see that incremental profit drop down or.
Is it possible we should see Opex, you know continue to increase with revenue growth and will that segmentation research.
Potentially hum.
Lead to a higher Opex you know based on those results. Thanks.
Hey, Ken let me just step in here, Dan and those are good questions. So you asked about future revenues segmentation and Opex. So let me let me just start out with future revenues.
We like the momentum that's building b.
On Zilretta, but as you can well imagine we're not going to say.
Speak to specific numbers, whether they're yours or other research analysts.
In future years, its just way way way premature for us to do that but we like the progress we're making with.
Which and that progress has reinforced by the patient stories, we hear on a regular basis.
We like Melissa's leadership, and what's what she's doing with her organization, we like the commitment of the sales organization to find a way to compliantly win even in the face of the challenges that covert have Matt has presented to everyone.
And we're proceeding with confidence that the future is bright, but we're not going to get into any kind of quantitative description of what things look like going forward and I'll turn it over to small is so to speak to segmentation and its potential impact.
Thanks, Mike.
I think you started off the question asking do we have all the pieces in place to be able to.
Be able to deliver on expected lift in future quarters, I think we have all the pieces being.
The increase.
That I think the segmentation work and other pieces of research that were doing will help us to refine.
And the output of the segmentation are likely to suggest to us as I mentioned before.
Perhaps it differential application of our voice again customers with.
A higher likelihood without the red or faster into a higher please.
And any comments on just on Opex and how you're thinking about kind of pina leverage at this at this point.
Yes. This is David I can I can speak to that at a high level I appreciate that in 2020, we undertook some pretty meaningful initiatives and actions to ensure that that we were conserving cash given the tremendous uncertainty that was facing us as it relates to coal bed.
As we as we go forward.
We're going to ensure that we're appropriately adequately resourcing zilretta in are in our pipeline.
And we'll continuously look for opportunities.
Where investment makes sense that will drive either development programs or drive drive increased sales with.
With that with that said you know I think I think our operating expense base is at a level, where where we are going to be experienced experiencing leverage as sales.
As sales will be growing more rapidly than operating expenses going forward. So we are very mindful and aware of that are we.
We also need to ensure that we're appropriately funding and resourcing, both zilretta and in the pipeline.
Okay. Thanks for the color.
Our next question comes from Patrick Trucchio with H.C. Wainwright. Your line is now open.
Hi, Thanks, Good morning, I just have a question on that.
A question on the competitive dynamics, specifically you know we have the anti TNF antibodies that have been in development for decades, and this quarter. We can finally, you know find out if that mechanism or the path forward in a way me and then there's some other compounds in development. There you know an extended release corticosteroid extended release can save some.
As well as a disease modifying drugs. So I'm I'm wondering how flexible use all right its place in this market.
Could become more competitive in the years ahead, and then specifically how flexible use yeah, CNG trucks, and where they fit in the market as compared to Zilretta. If they are in fact improved.
Yeah, and it's tough to predict the future, obviously, Pat but as it relates to the anti Ngs and other competitors. Obviously, we follow this very closely I'll simply say, we really like where we are with Zilretta and we.
See its path forward and its potential to continue to grow I'm very much in front of us and very much in our own control.
The anti NDF says you know are monoclonal antibodies current treatment regimens would be every eight weeks.
I think what's in front of us is their approval and what the label looks like and what patient population they be.
Particularly aimed at but in a world where steroids are injected in.
A million patients a year in constitute six and a half million injections a year.
The potential for Zilretta.
In that space and for those patients, who otherwise get hyaluronic acid.
Is is so much in front of us and the potential and as we've said many times, we're scratching the surface and our ability to control our own fate and be successful out there.
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Is very much in our own hands and we we will follow with interest what happens with the anti ngls than any other competitor.
Where we don't minimize anyone else, who may be coming to market.
But we concentrate on what we can control and we believe we can control a lot in this space. We've said it many times, we're scratching the surface and our ability to more deeply penetrate and provide zilretta to many more patients.
With all that anything we do not see.
As anything other than being predominantly our control.
That's helpful. Thank you very much.
Thank you.
Our next question comes from Bruce Jackson with Benchmark Company. Your line is now open.
Thank you just a follow up question for David on the gross margin commentary can you can give us a sense of where the growth when the gross margins are going to trough and then when they get back up to the previous levels.
Yes, Bruce so as I.
As I have indicated in the prepared remarks, we expect gross margins to get back to their previous levels.
Starting the first quarter of next year, we're going to be as I mentioned, we're going to be re commencing manufacturing later this quarter.
And but we won't we won't see the full effect of that production on our gross margins in Q4 of this year. So it will really be starting Q1 of next year.
Okay, great. Thank you very much.
Our next question comes from the line of France, Bob response with Oppenheimer. Your line is now open.
Hi, Thanks, just a couple of quick ones here in terms of the FX three or one.
I was just wondering you guys discussed or hard tissue at the bunyan that can meet trial any thoughts on soft tissue trials, there and then on the ethic two or one I heard you mentioned the six month to 12 month kind of thought process. There any how should we think about six months potentially Canada.
Cannibalizing zilretta.
Oh, well it will start with real one in tissue.
Our focus rank is in the near term.
Let's do a study that helps us understand the value proposition for this product.
And that we think the blending activity study will allow us taking a big step in that direction and then we will develop a full fledged development program that will allow us to have a label for the most important.
Procedures, the largest number and most important procedures that would lend themselves to peripheral nerve block so I'd say.
So I'd say stay tuned it's premature for me.
I need to be describing any details.
Studies at this point beyond the blending that can be study, but what we like about the funding equity studies and should read out next year.
That's a pretty quick.
Pretty quick path to initial assessment of the value proposition for that product so stay tuned on that.
And then as it relates to FX, two or one in six months to 12 months.
You know you you asked a question if it were only six months could that cannibalize. Some zilretta I think the way we're thinking about this I'm just more broadly Frank is that so red is always going to have a place in the armamentarium and that to a one which we are in.
Extremely excited about.
Sure those data play out favorably in proceeding with confidence they will but it's all about the clinical data and there's no.
No one can be certain what the preclinical data that will tell us the product profile at least 60 lumped of meaningful pain relief and functional improvement.
If we had at least six months that would would be in advance, but also realize is a gene therapy and we believe that it's initially will be we're thinking about how we can be focused on patient populations that can differentially benefit.
From that intervention to begin with it will be a more expensive therapy logically.
We're not guiding to price up and so we can absolutely see.
FX to a one and EPS and does already.
Very comfortably coexisting and treating many patients I mean again in a world of 5 million patients who receive intra articular injections and remember Frank that's out was 15 million patients who see their doctors each year.
Neil way.
The opportunity is so large that it's hard to imagine that it would not be a growing place for zilretta and a growing opportunity for FX, two or one assuming the data support is advanced too.
To approval.
It would be and repeated one versus the other so it's just.
We're not going to get into kind of granular detail about this but there's an ocean of need out there.
And we believe that.
And FX to a one have the potential to be absolutely complementary.
Understood. Thank you.
There are no additional questions.
Okay.
Well I just wanted to Oh just.
Just want to thank everybody for their their time and attention. This morning, we're super excited about where we are this is this is the most interesting Joe.
Juncture in the evolution of selection as a company.
In Zilretta, we have a product that we know makes a real difference for so many patients.
Suffering from symptomatic be away, we're incredible enthusiasm stick about our pipeline and believe that each.
Each of those entrance FX two old one the gene therapy for Neal a and ethics three old one that the completely novel peripheral nerve block have the potential to become best in class transformative medicines in their respective spaces and we're knocking on the door of the defining clinical data, which.
Should at the beginning of.
Right.
Which will in 2021 begin to read out and to begin didn't find the value proposition for both so I'd simply say thank you for your time it doesn't stay tuned forward to reporting back to you and.
I'd be remiss, if I didn't mention that a lot of our enthusiasm about our future.
Rests on the people that we've been able to attract and retain to the company.
We think we have an outstanding team.
And we believe the future is very bright books already and for what.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may.
Now disconnect.
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