Mike Clayman - Chief Executive Officer Dan Deardorf - Senior Vice President of Commercial Operations Scott Young - Vice President for Corporate Communications, Investor Relations.

David Maris - Wells Fargo Dan Busby - RBC Capital Markets Gary Nachman - BMO Capital Elliot Wilbur - Raymond James Serge Belanger - Needham & Co Frank Brisebois - Laidlaw Carl Byrnes - Northland Securities Bruce Jackson - Lake Street Capital Eric Donaldson - Berenberg.

Good afternoon ladies and gentlemen and welcome to the Flexion Therapeutics Q4 and Full Year 2017 Financial Results Conference Call. My name is Bruce and I will 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..

Thank you, Bruce. Good afternoon. This is Scott Young, Vice President for Corporate Communications and Investor Relations. 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 led by Flexion’s Chief Executive Officer Dr.

Michael Clayman. And he is joined by Dan Deardorf, Senior Vice President of Commercial Operations. 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 net sales, 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.

Additional 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 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..

Thanks Scott. Good afternoon thank you all for joining the call. Today we will recap the major highlights of 2017 provide color on how the early days of the ZILRETTA launch have been progressing and quickly summarize the Q4 financial results. After that we will open the line and take questions. In short 2017 was a monumental year for Flexion.

The FDA approval of ZILRETTA on October 6 was indisputably the single biggest achievement in our 10 year history. It’s not hyperbole to say that we barely paused for a breath before we shifted into full launch mode.

We had our plans, people and resources in place and literally upon receiving the word of the FDA approval of ZILRETTA, our team started executing our commercial strategy.

Between October 6 and November 20 we hired, trained and deployed our entire filed organization, which includes our musculoskeletal business managers, our reimbursement experts known as field access managers and our key account leaders.

Whereas our focus in 2017 was on ZILRETTA’s approval, in 2018 we have a laser focus on executing the commercial launch and positioning ZILRETTA for long term success. We believe ZILRETTA’s potential is significant and 2018 is all about establishing a solid foundation for the product.

There are several dynamics that will govern the early uptake and adoption of ZILRETTA, specifically building prescribers, comfort and confidences in their ability to get reimbursement under a miscellaneous J code; navigating the internal formularies of key institutions which have under gone high levels of consolidation in recent years, and finally the cycle time to complete the clinical feedback loop from time of treatment to follow-up between patient and physician, which could take, three, four or more months in the real world setting.

With those aspects in mind, we expect momentum will continue to build as the year progresses. That said, although we are still in the early days of the launch, we have been encouraged by the high clinical interest in ZILRETTA, the feedback we’ve heard from physicians and the payer coverage we’ve experienced to-date.

We have always had great confidence in the clinical benefits of ZILRETTA and we’ve heard positive feedback from patients during our clinical trials.

However I’ve been impressed by the spontaneous outreach from physicians across the country who have contacted us to describe their positive experiences with ZILRETTA and to share compelling stories of patients who have experienced unprecedented benefit from the product. Clearly these are only anecdotes, and the sample size is small.

But these stores are tremendously gratifying and they reinforce our confidence in the potential ZILRETTA holds for millions of patients who confront OA knee pain. Dan will describe the launch in much more detail, so at this point I’ll provide a few updates on our clinical activities.

With respect to our ongoing Phase III study of repeat administration of ZILRETTA in patients with OA of the knee, in January of this year we reported exciting initial data which showed that 95% or 195 out of 205 patients experienced clinical benefit by week 12 following the initial injection of ZILRETTA.

As of today, approximately 92% of eligible patients received a second dose of ZILRETTA between weeks 12 and 24.

While this trial is specifically designed to evaluate the safety of repeated administration of ZILRETTA, the open label study design has enabled us to glean real-world information about how patients respond to initial treatment and the duration of benefit they experience before opting for a second injection.

As we previously indicated we continue to expect to-line data in Q3 of this year. In December of 2017, we initiated a Phase II clinical trial to evaluate the pharmacokinetics and safety of concurring injections of ZILRETTA in patients with bilateral OA of the knee.

This trial is designed to compare the systemic exposure from two 32 milligrams of ZILRETTA versus two 40 milligram doses of immediate release triamcinolone acetonide. This trail has been fully enrolled and top line results are anticipated in the next quarter.

With respect to potential line extension studies of ZILRETTA in December we announced the initiation of a Phase II clinical trial to investigate ZILRETTA in OA of the shoulder and hip know as the SHIP study. That trial is now well underway and on track to read out in the second half of this year.

Combined, there are roughly 1.5 million patients who confront OA of the shoulder and hip, while a smaller populating in OA of the knee this is still a very substantial number of patients and we believe these indications represent an important growth opportunity for ZILRETTA.

Additionally, the SHIP study could also provide important information for the potential investigation of ZILRETTA in other shoulder indications which are commonly treated with IA steroids such as adhesive capsulitis, so called frozen shoulder; and subacromial bursitis, which is also known as impingement syndrome.

This week we are attending the American Association of Orthopedic Surgeons Annual Meeting, and our presence has been to all aspects of the conference, including two clinical presentations; an oral podium presentation that describes ZILRETTA's potential to provide effective pain relieve in patients who have been previously treated with an immediate release steroid, and a poster highlighting data which suggest that treatment with ZILRETTA may lead to improvements in key quality of life measures.

From the attention garnered by the presentations to the activity at our booth and the impressive attendance at the physician events we hosted, the interest in ZILRETTA from the orthopedic community is clearly high.

Regarding the publication of the Phase III data as I mentioned on our last call, the data has been accepted by a leading orthopedic journal, however we are still waiting for the paper to run.

While the process has been a bit protracted, we are very pleased by the caliber of the journal that accepted paper and once it has been published we will communicate that news. With that let me provide a few updates on our pipeline. While ZILRETTA is our first, second and third priority, we are also committed to securing Flexion’s future.

In December we announced that we acquired the rights to a compelling pre-clinical program now known as FX201 which holds the potential to provide pain relief from OA of the knee for at least a year and importantly we believe it may hold the potential to modify disease.

FX201 is a locally administered gene therapy that produces IL-1Ra, a clinically validated anti-inflammatory protein at the site of disease. FX201 is under the control of an inflation sensitive promoter, which means that IL-1Ra is produced only when there is local inflammation. So you can think of this as on demand anti-inflammatory effect.

The preclinical data indicate the potential that FX201 could express, IL-1Ra reduce inflation and provide pain relief for at least a year following a single intra-articular injection. The preclinical data also suggest the potential for FX201 to be disease modifying.

We are in the process of generating our own IND enabling preclinical data and we aim to hold a pre-IND meeting with the FDA later this year, with a goal of initiating human trials in 2019.

In addition, our research teams continue to conduct preclinical studies on FX101, an extended-release formulation of fluticasone, which may provide up to six months of relief from OA related pain. We expect to have key data this year which will inform our next steps for the program.

With FX201 and FX101 still in preclinical research, we continue to evaluate additional in-licensing opportunities with a bias towards clinical stage programs that are aligned with our strategy of advancing local therapies for musculoskeletal conditions.

At this point, I will turn the call over to Dan Deardorf to provide an update on our commercial progress and the launch of ZILRETTA. .

Thanks Mike. Now that we are about 3.5 months into launched, I’d like to start by providing some qualitative commentary on how things have been progressing and I’m please to say that overall our launch activities are going well.

Coming out of the gate, the clinical interest in ZILRETTA has been high and we attribute this to the fact that there has been very little innovation in the OA space for a long time and physicians are excited about the efficacy and safety profile of the product.

As Mike mentioned, we are hearing encouraging stories from physicians about patients experiencing deep magnitude of pain relief. That’s encouraging for us on many levels. Since it’s the patients experience that will ultimately shape the prescribers decision making and it’s this type of feedback that physicians will share with their peers.

With respect to reimbursement, to-date only a handful of payers have issued a formal medical policy for ZILRETTA. However as we have previously explained, commercial payers do not need to have formal policies in place to reimburse for the product and we are seeing broad coverage from both Medicare and commercial payers.

In fact of the benefits verifications that we have processed through our LEXFORWARD service, we have seen more than 95% of patients have coverage for ZILRETTA. As expected with any new buy-and-bill product with a miscellaneous J code, we are seeing some tentativeness from physician practices with respect to reimbursement.

There are many prescribers who have experienced reimbursement issues with HA products that were under a miscellaneous J code or other instances where product coverage has changed and as a result these practices want to be sure that they will not be out of pocket before they take significant inventory into their offices.

We anticipated this and we have three levels of support in place to build their confidence and comfort. To first in line is our MBMs, our Musculoskeletal Business Managers.

One of the key hiring criteria for the MBMs was previous experience with reimbursement for buy-and-bill products preferably with a miscellaneous J code and our MBMs are trained to walk to physicians and their staff through the process. Working in tandem with our MBMs are the Field Access Managers or FAMs.

They serve as a key resource available to step in where needed, to provide an even higher level of expert support for reimbursement issues and challenges. We hear regularly that this team provides an added layer of confidence for our customers.

And lastly we have FlexForward, which provides a comprehensive suite of access and support services to prescribers and their office staff. We’d made a significant investment in FlexForward and the feedback we receive from physicians both solicited and unsolicited, indicates the serve is working well.

So with the plans and resources in place, we are now focused on execution. We know that as physicians increasingly experience evidence of reimbursement for ZILRETTA their confidence with and demand for the product will grow. Now I’d like to turn to the six quantitative metrics that we’ll be reporting quarterly.

As a reminder, the intention of the first four metrics is to provide you with measures which when taken collectively can provide insights on the uptake of the product and adoption of ZILRETTA.

These are indicators that track progress as prescribers move from being introduced to ZILRETTA to the readiness to use the product, to administration and ultimately full adoption or reorder. In addition, we have two metrics that focus on payers and reimbursement.

To provide some context for Q4, it’s important to remember that our launch effectively began on November 20 when our sales force was fully deployed. That translate into 20 selling days in the middle of the holidays, so the metrics we’ll share today reflect the limited timeframe and are not a view of our progress to-date.

We know some of you would like us provide real time update but we will provide Q1 results in about eight weeks. So to start, of the approximately 9,500 target physicians and approximately 3,500 accounts we called on roughly 3,660 physicians.

Given the short timeframe and our intention to focus on depth versus breadth of our interactions with prescribers, we are pleased with this initial progress.

Again with our focused of the depth of our interactions we conducted in services at approximately 350 accounts, meaning our MBMs often in close partnership with our FAMs held in-depth discussions around reimbursement and conducted product preparation training.

In Q4 approximately 390 accounts gained experience with the product either through purchase or samples. Of those accounts that purchased ZILRETTA, approximately of 20% of them had already placed an order by December 31. On the payer front, by December 31 we engaged with about 20 key commercial insurers representing roughly 140 million covered lives.

As I mentioned earlier, we have been very pleased with the positive coverage determinations we have seen and of the benefits verifications which were processed through our FlexForward service in Q4 we saw greater than 95% coverage of ZILRETTA.

In closing I would just like to reiterate Mike’s comment that we see 2018 as a foundational year for ZILRETTA.

We believe that we have everything in place to successfully deliver and based on the metrics that I have discussed, we are pleased that we are seeing and hearing in these early days the progress that we had anticipated and I look forward to updating you further on our Q1 earnings call. .

Thanks Dan. Since Fred Driscoll is unable to join us due to an important personal commitment, I would just say that Fred remains intimately involved in Flexion as our financial advisor while we continue our very active search for this successor. So in his absence I will quick run through our Q4 and full year financial results.

For 2017, the company reported a net loss of $137.5 million as compared to a net loss of $71.9 million for 2016. Net sales of ZILRETTA in Q4 totaled approximately $355,000. Research and development expenses were $51.2 million and $41.3 million for the years ended December 31, 2017 and 2016 respectively.

The increase in research and development expenses of $9.9 million in 2017, as compared to 2016 was primarily due to an increase in personnel and related costs and preclinical expenses related to our portfolio expansion and other program costs.

Selling, general and administrative expenses were $78.8 million and $28.5 million for the years ended December 31, 2017 and 2016, respectively.

The increase in selling, general and administrative expenses of $50.3 million in 2017 as compared to 2016 was primarily due to the additional headcount required for the development of the corporate and commercial infrastructure to support the launch and commercialization of ZILRETTA.

Interest expense increased by $9.5 million over 2016 due to the May 2017 issuance of an aggregate of $201.3 million in convertible notes. As of December 31, 2017, the company had approximately $423.9 million in cash, cash equivalents and marketable securities compared with $210.3 million as of December 31, 2016.

As a matter of corporate practice, we do not provide financial guidance. However, we expect expenses to increase over the next several years due to the ramp in costs associated with commercial activities for ZILRETTA, line extension clinical trials for ZILRETTA in OA of the hip and shoulder.

Expenses associated with the development of FX101 and 201 and development activities associated with future additions to the pipeline. With that operator, please open the line for questions..

Thank you. [Operator Instructions]. And our first question comes from the line of David Maris from Wells Fargo. Your line is now open..

Good afternoon. Hi Mike and Dan. A couple of questions, first during the quarter you said you felt comfortable with consensus – I think in a presentation or a conference that you felt comfortable with the consensus sales number for the year. Is that still the case? Secondly, do you have any sense where you are share is coming from at this point.

Is it coming from transaction HA injectors or traditional steroid injectors? And then a couple of questions from clients have been this quarter, is there any risk to getting a J code in your experience, is that something that investors should be worried about or watching and what’s the timing for something like that. Thank you. .

I’ll answer the first question and then I’ll ask Dan Deardorf to answer the next two questions, David. We absolutely continue to be comfortable with the consensus estimates. It was all of roughly two weeks ago when we said that we were comfortable then, that comfort has not changed.

And I’d say we are encouraged by the things that we sighted in our comments just now in terms of the clinical response to this product and the enthusiasm that we are seeing out there for it. .

Yeah David, this is Dan. With respect to, what I think you’re getting at is any specific patient type of makeup that we are seeing early usage from physicians. The only real insight we have into that, would through our field sales force we are obviously monitoring that and we are on regular calls with them.

At this point in time we have not seen any particular type of patient, be they diabetic, be they are a previous steroid users, someone who might have gotten an HA. There is just nothing thus far that’s percolated up as the first place that many physicians are going to.

So we don’t have much more information on that as to where those patients are coming from. With respect to a J code we still remain fully confidence that we will get a J code.

We meet all the requirements for that, we are a single sourced drug, our label says that we are not substitutable, we have our own listing in FDAs orange book, so based on all those things we are fully confident that we will get our own J code.

The process for that, just to expand a little further, in April and May the CMS's HCPCS coding group sends out the products that they are proposing codes for 2019.

There is public meetings that general fall a month or two after that and then in the fall they issue the list of their final determination of products that will be receive a code January 1 of ’19 but again just to reiterate, our confidence remains full that we will have our own dedicated code. .

Great, thank you very much. .

And the next question comes from the line of Randall Stanicky from RBC Capital Markets. Your line is now open. .

Hey this is Dan Busby on for Randall. Just a couple of questions on the launch. First I don’t think is was in the launch metrics you provided? But have you seen doctors start to increase their order sizes, especially among the early adopters.

And two, can you give us a sense as to what percentage of commercial payers are acquiring prior authorization or have indicated that they might do so?.

Yes, so your first question was order sizes. It’s been variable. We’ve seen and let's caveat this by still early days obviously. But we have seen some accounts that have clearly increased order sizes. We’ve seen others that have decided take it in small bites as they are getting comfortable with the reimbursement coming back.

So we have seen some variability on that front. I’m sorry, I missed one....

The commercial payers….

It’s too soon for us to tell there. Like I said there are very – only a couple, a handful of medical policies that are written there. So we just don’t have enough insight at this point in time.

We are obviously engaged with top 40 or so payers that we have indented meeting with them regularly and trying to shape those policies to allow the optimal coverage for each one for ZILRETTA, but sill in front of us in early days. .

Got it, thanks. .

Thank you. .

And our next question comes from the line of Gary Nachman with BMO Capital. Your line is now open. .

Hi, good afternoon. Are most physicians getting the 90 day extended payment terms to all for a delay in reimbursement with the miscellaneous J code? And when do you actually book to revenue.

Are there any reserves for the 90 day terms that might be more of a Fred question, but Mike if you could answer that, that would be helpful? And then how aggressively have you guys been sampling. So I think Dan you said earlier 390 accounts gained experienced either purchasing or samples.

Could you break that down for us?.

Yeah, so your first question with respect to the dating. All customers purchasing through our specialty distributors get 90 day term. So that is universal for them. I can’t answer the question with respect to reserves on that.

I suspect there is some return reserves etc, but I believe we think they will be minimal, so that would be something we would need to follow up on with respect to the reserves. And with respect to samples versus purchase product we are not going to break those out specifically at this point in time.

Our focus in the early days is physicians’ merely gaining experience with the product. I can tell you where we will take a sale, we will take a sale, where there is some hesitancy around reimbursement and a sample of something that enables an ultimate sale that’s where we will use that.

So we are being judicious with them, but we are using them and leveraging them for the purpose that they are interned for which is to get experience on the way to sales..

And in terms of revenue recognition Gary, we recognize revenue at the point of movement of product from our third party logistics carrier, from our warehouse to our specialty distributor. .

Okay, then Mike just one follow up.

So on the repeat dosing study, I know you gave us little bit on that, but since its open label any additional data points you can share just on when these patients are coming back, the rough timeframe?.

Yeah, you know Gary we will, we are looking at ways to get this information to the public domain and I would simply say stay tuned. There is – at least I don’t want set expectations unduly, but there's but there is a pretty good change that you will be learning more in the coming months, potentially well before Q3. .

Okay. .

Just to put a fine point on it, we very much want to get these data out. It’s just a matter of collating them in a fashion that is completely understandable and consistent. So that’s in front of us, but we are doing our best to meet the expectation of seeing data at the earliest possible time point. .

Okay and if you’re still optimistic that these data are positive or show what you hope that you could potential update the label, correct. .

I would say, let me just say this. The optimism is guarded in the sense that we have to work through the agency on this. And I can tell you with certainly is that we will get these data presented and published as quickly as possible.

They will become the fodder for discussions with outside parties once presented, payers and physicians and certainly the FDA and we will move as expeditiously as we can to address the element of the label that can be directly addressed with repeat dose data..

Okay. Thank you. .

Thank you. .

And our next question comes from the line of Elliot Wilbur from Raymond James. Your line is now open. .

Thanks, good afternoon. Mike just shifting gears here and focusing maybe on your most recent in-license asset, the FX201.

Just curious, have you sort of given thought to potential incorporation of that into the PLGA microsphere technology platform? Not sure that we’ve discussed that yet or not but just curious if in fact that maybe some added advantage to incorporating that into your technology platform. .

Yeah, it’s a very interesting question Elliot. But if you just take a step back and look at the - how this gene vector works. It gets injected into the joint and then it’s taken up by the fibroblast that line the joint cavity.

Fibroblast are very slowly turning over and once the gene vector, it gains entrance to the cell, the DNA strand that dictates the production of IL-1Ra moves into [inaudible] and as long as that cell is not dividing and fibroblast are very slowly dividing you have a factory for the production of IL-1Ra under the control of this information sensitive promoter.

A long-winded way of saying that given all of that, there wouldn’t be a clear advantage to incorporating the virus itself into PLGA and if you are asking about incorporating the protein itself into PLGA that could be done.

The likelihood that you would get meaningful therapeutic concentrations of a protein in the joint for as long as year, I would say is vanishingly low. .

Okay, thanks. Just an additional follow-up question here. You recently presented some poster data at an event at ATS, on assay sensitivity between WOMAC and the ADP scale, and I guess that since you’ve already now clearly demonstrated rapid onset of ZILRETTA in the knee studies, how that may continue to impact.

So you are thinking about incorporating potentially WOMAC based endpoints versus ADP endpoints in some of the ongoing label and/or market expansion studies..

Yeah, so just so you understand, the actual ongoing trial or pharmacokinetic trials not WOMAC based trials or efficacy trials, but going forward you can be certain that we will take all of the learning from our work, including this assay sensitivity work and it would stand to reason that we would give very serious consideration to elevating WOMAC to a higher level than ADP.

I think that in fairness though Elliott, there are discussions that will happen internally and I think you should proceed with confidence that we will emerge from those discussions with the most optimal design we can create based on the available information..

Okay, then just the last question. I mean I would assume at this point that in order to get label indication for hip and shoulder we would in fact see full registration trials.

But with respect to potential communication of the benefit and the product in bilateral usage, I mean how should we be thinking about getting something with respect to some favorable data that are on the label..

Well, I’ll just say the initial response to that Elliott is that nothing that today precludes anyone from administering this product in both knees concurrently. The indication is for the treatment of knee OA pain and there is nothing in the label that point to one versus two knees. So as dictated by the judgment of the physician that can be done.

What we’re simply doing by generating these data is providing pharmacokinetic information, plasma concentration information that we expect will show substantially lower systemic exposures to triamcinolone acetonide after ZILRETTA injections compared with the immediate release steroid injections and I think it’s real intent is to reinforce the idea that we believe there is a meaningful pharmacokinetic which will translate into a pharmacodynamic advantage associated over the immediate release steroid..

Alright, thank you..

Thanks Elliott..

And our next question comes from the line of Serge Belanger from Needham & Co. Your line is now open..

Good afternoon. First question for Dan. I think in the past you talked about adoption by commercial payers with the three or 12 month process from approval. Now that you’ve met, I think you mentioned about 28 insured so far.

Has your thinking changed at all there?.

No, it’s not and good question because it’s an important dynamic for people to understand and that is we’ve met with number of payers, we’ve had clinical discussions with them, initial presentations of our clinical data or economic data etcetera, but many of these plans will take anywhere from three to 12 months to ultimately develop the medical policy.

They may want to wait and see how their products actually being used in their plan, get some experience there before they actually write the formal policy.

But in the interim what you will see is coverage of the product in advance of that medical policy and that’s what we’re seeing and that’s the stat that I gave, that of those patients that we process through FLEXFORWARD to say reach out to the payer. Is this patient covered for ZILRETTA? 95% of the time the answer that’s come back has been yes.

So we’re going to absent those medical policies. There is coverage for the policy. We will continue to try and influence the ultimate medical policies that are written over time..

In terms of the level of orderness of ZILRETTA, from your early feedback do you have additional visibility on when you want to undertake direct-to-patient campaigns?.

Yes, well I don’t know that anything has changed for us. We had always anticipated mid-year this year as the opportunity to really start to push that. I should state that we obviously have activities ongoing now. We’ve got a website, we’ve got search engine optimization, both paid and organic search out there to start to generate that interest.

But with effect to a broader DTP bush, that will be mid-year, that’s for two reasons.

One, pharma guidelines suggest that you wait six months post launch of a product in order for physicians to gain experience with the product before you start ‘sending patients their way’ and for us along those lines, we just we want to make sure that we’ve got a solid base of physicians out there utilizing the product, so that when we activate the patient they’ve got a significant likelihood of receiving ZILRETTA when they go to ask about it..

Okay. Thank you..

Sure. Thanks Serge..

And our next question comes from the line of Frank Brisebois from Laidlaw. Your line is now open..

Hey, thanks for taking the question. The first one here, I was just wondering how you depict I guess the difference between the importance in their field at KOLs versus just community docs for the use of ZILRETTA..

Yeah, so variably is the answer.

Obviously key opinion leaders are looked to in order for their perspective on the product and as we have for years focused on KOLs, that’s been a lot of our focus here at AAOS this week and I can say that we’ve met with a lot of very influential physicians over the course of the past few days to get them – many were already familiar with the product, but to get some of them, some new ones familiar, etcetera.

So KOLs obviously important. With that said, in this marketplace there is a large, large volume of product that’s used by people that would not be considered key opinion leaders. So those are just important.

So as we think about our prioritization and our targeting of our accounts, some of the top tier accounts will be key opinion leaders and some of them will be frankly more community based physicians that just see and treat a whole lot of patients..

Okay, and then when you mentioned the feedback from patients, you know what kind? Is there anything anecdotally feedback from patients or physicians on how they are feeling or you know can you go into any more detail on that?.

Yeah, and again, I just want to stress upfront Frank that these are anecdotes but they are real. We’ve had a number of reports from the field of patients getting injected with ZILRETTA and saying to their physicians that they’ve never had pain relief like this with any other therapy they’ve received.

We’ve had a number of reports where the onset of pain relief was literally within 24 hours.

We’ve had physicians who have been so impressed with their patient response that they’ve arranged to have themselves injected and we’ve gotten very positive feedback from those physicians, including some KOLs, one of whole has bad osteoarthritis and said for the first time in several years he was able to walk downstairs in the morning following his injection.

So there are many stories out there and we’re not prepared to conclude anything other than it increases our confidence that this product is performing the way we expected it would. Frankly its exceeding our expectations.

As confident and bullish as we were about this product at launch, these anecdotes not only reinforce that confidence, but extend it..

Yeah, if I can just add to that I think a lot of people look at – their first glance at ZILRETTA is ‘oh! That’s going to be a longer steroid’ and well, we got data to show that as well.

What’s really coming through is magnitude which we’ve always believed internally would be a key if not the key differentiator for this product and that’s the anecdotes that’s we’re hearing are along those lines..

Okay great.

And then when you talk about the length of the efficacy, for FX101 is there you know – how do you guys think about the possible cannibalization of ZILRETTA with that or is that just a great problem to have down the road or how should we think of that?.

Frank, I think it’s a great problem down the road. I mean our view is a product like FX101, well because it would be longer lived, it will take logically a longer time to develop, because the follow-up in terms of toxoicology studies, in terms of clinical studies will be longer.

It will be certainly a number of years before that product would make it to the market and ZILRETTA would be doing quite well we fully expect at that time and we harbor the following view. If in fact there is a product out there that’s going to cannibalize ZILRETTA, who better than us to do that..

Right, right. Are you hearing of any competition in that space trying to do something that’s a little longer..

Well, not beyond what we've talked about before in terms of competitors that are frankly at very early stages of development. .

Okay great and then just lastly I had couple of question. But last question just you presented again the diabetic data recently.

Anything in terms of patient – physician feedback or patient feedback on the potential spikes with the IR that basically there’s no blood glucose elevation with ZILRETTA?.

Yeah, I would say that it is certainly the case that essentially – the essential absence of a hyper glycolic spike with ZILRETTA certainly captures the attention of a number of prescribing physicians.

I think that we are still in education mode, many physicians are injecting their diabetic patients with immediate release steroids today and many patients are experiencing those hyperglycemic spikes. I think that we have in ZILRETTA the potential to provide solution to a problem that never could be addressed before.

So there is for some physicians they are all over this and for some physicians it’s going to be a little bit more of getting comfortable, not getting comfortable, getting excited about the potential for this drug to make the care of their diabetic patients more optimal. .

Excellent. Thank you very much. .

Thanks Frank. .

And our next question comes from the line of Carl Byrnes from Northland Securities. Your line is now open. .

Yeah, I had a just a quick question. Just for clarification the number of healthcare plans that represented the 140 million lives.

Could you repeat that number? And two, when might we expect the initiation of a phase three trial around hip and shoulder?.

Let me take the second one first and then I’ll turn it over to Dan for your first question Carl. I’d say this, we – the way we are thinking about this, and its still, you know there are confidence intervenes around this description, so take this with a grain of salt.

What we want to do is generate the hip and shoulder pharmacokinetic data, look at those data, and I think synthesize our understanding of the data and then plot the path forward. So the phase three registration trail is still in front of us.

We – our default position is that it will likely in be efficacy trail for each indication to get label expansion. And the timing, it’s premature for us to guide to the timing of that. .

And with respect to your payer question, it’s was approximately 20 plans that are represented around 140 million covered lives. .

Great. Thanks so much. .

Thanks Carl. .

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

Hi, thank you for talking my question. I just wanted to dig in a little bit more of physician adoption. You kind of gave a range for the number of months that it takes for physicians to adopt the product.

What are some of the rate limiting factors and what are the indicators that would say to you that its more likely that a physician adopts more quickly as opposed to more slowly?.

So if I think I heard the question, physician feedback is variable within this population, particularly orthopedists which drive a bulk of the market. In general they are less proactive in following up with their patients.

It is generally a patient driven phenomenon when the patients’ returns to paying that they will reschedule and come back to their physicians. So that can be variable, but just based on when the patient returns or does not return to the physician as to what their perspective of how long the product is working.

So if you were to get a standard steroid and it worked for a few weeks or even a month and you generally suffer in silence for a few months and then go back to your physician when you can ultimately make an appointment and you five them that feedback on that product, that’s their feedback loop.

So with the product like ZILRETTA which works longer, you can imagine if that feedback loop could take several months longer before that patient ultimately returns to tell their physician about their experience.

I think the interesting point, to the antidotes that Mike was just sharing is unlike anything I’ve heard in my previous life offering operating in this space, the quick feedback within days, weeks to say, ‘that stuff worked really well doc’ is actually something that we had not anticipated with this product.

So therein lies the variability of when physicians will get that feedback, because in general there is a not a lot of proactively they say. In two you are coming back and we are going to talk about this or four or whatever the case maybe, so that’s the variability.

If the product continues to perform as these anecdotes have shown us then that feedback loop could be happening quicker for many physicians..

Okay, that’s perfect. Thank you very much..

Thanks Bruce..

And our next question comes from the line of Patrick Trucchio from Berenberg. Your line is now open..

Hi there, good afternoon guys. This is Eric Donaldson speaking on behalf of Patrick today. We just have a couple of question and our first question kind of builds off of what other people have been asking.

After speaking with some KOLs they suggest that OA hit and shoulder indication could be very meaningful in terms of share with the market, perhaps multiples of OA knee. So for instance one KOL told us that for OA knee ZILRETTA maybe 15% of its practice in two years, while ZILRETTA share of OA shoulder could be 50% two years post approval.

Is this type of differential in shares consistent with your research and is it reasonable to expect a much share in OA shoulder as compared to OA knee. .

I’ll say this Eric, I think its way premature for us to be guiding towards penetrations in the different conditions. I think the one thing that is clear is that there are 5.3 million patients a year who receive knee injections and you multiple times the number of injections per patient per year you will end up with almost eight million injections.

That contrast with about 1.5 million patients who receive injections into shoulder and hip combined.

So just in terms of absolute numbers you are staring out with very different, a large base in either case but clearly knee is substantially larger and I think that we will be guided by the uptake of this product in terms of unit sales and the penetration where we proceed with confidence on the penetration numbers and the penetration will be directly proportional to the quality, the experience of the patients and the physicians.

So I just would be very uncomfortable concluding based on the insight of a single KOL that, that will likely predict the future..

Alright great, and thank you very much. And then our next question just in terms of the payers.

Can you tell us if ZILRETTA is being place ahead of HA on any formularies commercial, Medicare, Medicaid and if so in which states and is this something we should anticipate in our modeling?.

Let me just start and I’ll ask Dan for his comments.

You ask whether ZILRETTA is being placed ahead of HAs? Well I don’t want to sound impudent, but we know that Anthem has withdrawn its reimbursements for HA, so I would say that for the Anthem population yes, we are ahead, and there is no formal placement yet established in the different plans that’s ahead of us.

Having said that, that will depend ultimately on the policies that are written and we know that are physicians who are using ZILRETTA in preference to HAs, we know that there are physicians who are using ZILRETTA after HA. So I think it’s – we are so early Eric that it will be premature for us to claim that we have a clear line of sight on that. .

Alright great. Thank you so much for answering the questions..

Yeah pleasure. Well, with that everybody I want to thank you for your time and attention. I’ll leave you with the sense that we continue to confidence in terms of where we are and where we are headed and we look forward to updating you on the first quarter numbers in a matter of weeks. .

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..