Summary
- Flexion has gone through its fair share of woes, but things seem to be at an inflection point.
- A significant ramp in sales has just begun.
- Most downside risks have been corrected, and many positive catalysts are just around the corner.
- The stock has bottomed, and now is the time to buy for multiples of the current price.
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Flexion Therapeutics (FLXN) has seen its stock fall from a high of $30 at the time of the FDA approval for Zilretta in October 2017 to sub-$10 as of the date of this article. Many aspects of the launch have gone wrong, from limitation of use labeling issues to personnel issues. The company is now burning through cash, with sales trailing even Flexion's expectations. However, in this article, we will demonstrate why we believe the stock has bottomed in price and why a significant ramp in sales has just begun. We will also discuss Flexion's competitive advantage with Zilretta and why we believe the stock price will be multiples of today's price in a couple years.
Background
Flexion's flagship product is Zilretta, which treats knee pain due to osteoarthritis (OA). No one knows for sure what causes OA, therefore developing a cure will be a challenge. Studies show that major knee injuries and systemic inflammation are contributing factors in the development of OA. Systemic inflammation is caused by a variety of reasons, such as diet and stress. So the cure might have to be a complete lifestyle change. These lifestyle changes may include eating right, quitting your job, divorcing your wife, and winning the lottery. Considering this is pretty much impossible for most, the next best option for now is pain relief, and then, ultimately, a knee replacement.
There are basically 4 current ways to treat OA knee pain: 1) immediate release steroids, 2) hyaluronic acid, 3) opioids, or 4) knee replacement. 1) Immediate release steroids are effective but have limited use because they cannot be injected every few weeks when the pain relief wears off. They also can spike blood plasma levels, as the steroid does not stay in the knee but quickly becomes systemic. 2) Hyaluronic acid (HA) seems to work for some, but the jury is out on whether it is really effective. There are studies that show both its effectiveness and ineffectiveness. Anecdotally, the few doctors we have spoken to don’t think HA works at all. 3) Opioids are effective short term but become less effective over time and subject the patient to risk of addiction. 4) And of course, a knee replacement works but is highly invasive, requires a long period of rehabilitation, and is generally considered a last resort.
How is Zilretta different? Simply put, Zilretta is an injection that combines a steroid with microsphere technology that stays in the knee. The microspheres slowly dissolve, releasing small amounts of steroids locally. Studies show that pain relief lasts 4 months on average. There are many studies. The most recent can be found here, here, and here. There are also many anecdotal stories of life-changing pain relief. Below are some charts that show its benefits compared to immediate-release steroid and placebo. We'll let you read about these studies yourself, as we want to now focus on sales and why now is the time to buy.
(Source: Company Presentation)
