Zilretta Drives RBC’s Bullish View on Flexion Therapeutics (FLXN)

By Carrie Williams

HealthcareMassachusetts-based specialty pharmaceutical company Flexion Therapeutics Inc. (NASDAQ: FLXN) announced its third-quarter financial results on Monday and reported a Q3 EPS of -$0.65, missing the street estimates by $0.02. However, much of the investor focus revolved around the company’s lead drug candidate, Zilretta (FX006) and it certainly did not disappoint.

Flexion reaffirmed its intention to file the NDA for Zilretta in December and also emphasized Zilretta’s progress on the commercial preparations front. Post 3Q16 results, RBC analyst Randall Stanicky maintained his $44 price target today as well as an Outperform rating on Flexion. This PT is an upside of a massive 144.2% from the stock’s last close price of $18.24.

Zilretta injection is intended for the treatment of pain from osteoarthritis of the knee. The latest clinical trial for evaluating Zilretta in Type 2 diabetes patients with knee osteoarthritis was both statistically significant (p<0.05, 2-sided) and clinically relevant compared to immediate-release triamcinolone acetonide (TCA) injection. FLXN also completed the transfer of the Zilretta manufacturing technology to Patheon successfully, an important milestone for its NDA submission in December. The final approval for Zilretta is anticipated by 2H2017, if If Zilretta receives priority review as well as 1H2017 approval.

Stanicky reiterated his bullish view regarding FLXN specifically due to the numerous positives of Zilretta. The fact that 20% of the knee OA population suffer from Type II diabetes, gives Zilretta the advantage as many would pick Zilretta to avoid the TCA IR-related hyperglycemia. The brokerage firm estimates a conservative $500 per injection initial pricing translating to peak sales for knee OA at $1.05 billion , assuming a 26% peak penetration for Zilretta. Another added advantage is the news of a phase III trial requirement for the competitor drug CINGAL from ANIK, further clearing the field for Zilretta. A delay was also reported earlier for another competitor CBYL. The FLXN management is expected to plan a commercial strategy for Zilretta to benefit from the unexpected advantage of low competition.

The brokerage firm also sees the valuation of FLXN as compelling as see the company as a potential take-out target in near future. FLXN’s ~$162 million in cash reserves is also a huge plus, as it is adequate to fund the launch of Zilretta in 2018.

Flexion has an overall consensus rating of a Strong Buy according to TipRanks.com, the average analyst price target on the company is currently $38.00. The PT is an upside of 108.33% from current levels.