Flexion Therapeutics: The Bottom Could Now Be In

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About: Flexion Therapeutics, Inc. (FLXN)
by: Bret Jensen
Summary

Despite the recent turbulence in the market, the stock of Flexion Therapeutics has rallied nicely in recent sessions despite the downward tilt of the overall market.

The company reported Q1 results last week that provided encouraging signs around its ramp up of recently approved Zilretta.

We examine the highlights of the first quarter and why the bottom might finally be in for these beaten down shares in the paragraphs below.

"How easy it is for so many of us today to be undoubtedly full of information yet fully deprived of accurate information." - Criss Jami

One biotech stock that has held up very well during the recent turbulence of the market is Flexion Therapeutics (FLXN). The stock was up over 15% last week on the back of Q1 results that showed the company was making progress rolling out its recently approved product Zilretta. This feels like it could have been an inflection point for the company as a possible bottom for the beaten down shares. We revisit Flexion and its first-quarter results in the paragraphs below.

Company Overview:

Flexion Therapeutics is a Tier 3 biopharmaceutical company based in Boston. The company is focused on the development and commercialization of anti-inflammatory and analgesic therapies for the treatment of patients with musculoskeletal conditions. Its primary compound is Zilretta. Zilretta got approved to treat the pain associated with osteoarthritis (NYSE:OA) of the knee was approved in October of 2017. Osteoarthritis affects some 30 million Americans annually with the knee being the most common joint impacted.

Zilretta Market Potential

Source: Company Presentation

The stock currently sells for just north of $12.00 a share and sports a market capitalization of $460 million.

First-Quarter Highlights:

  • Earnings came in line to first-quarter expectations. Revenues came in a tad light at $10.6 million. Even so, that was an almost 400% increase over the same period a year ago.
  • More importantly, initial sales for April came in at $5.1 million showing an acceleration of sales growth. The company also confirmed full year revenue guidance of $65 million to $80 million. April sales numbers gave those estimates credence.
  • Just over half (2,247 out of 4,100) of target accounts have purchased Zilretta. 71% of those have already reordered Zilretta at least once.

Analyst Commentary and Balance Sheet:

Helping the stock rally were three analyst firms that reiterated Buy ratings on the stock of Flexion post Q1 results. Benchmark also upgraded the shares to a Buy rating. These included Raymond James and Northland Securities. Price targets proffered ranged from $19.00 to $25.00 a share.

The company ended the first quarter with just under $220 million in cash and marketable securities on the balance sheet. Flexion burned through approximately $40 million during the quarter. Burn rate should start to ebb in the coming quarters as Zilretta sales ramp up.

Verdict:

It is good to see Zilretta gaining traction. I would look for $16 million to $18 million in Zilretta revenues in the second quarter. The company submitted an aNDA in mid-December to the FDA seeking approval for repeat injections of Zilretta. This approval should come on or before Oct. 14th. Enrollment in a Phase III trial using Zilretta to treat OA of the hip was stopped in May due to a non safety issue. That trial should get back under way in the coming months.

"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." - Churchill

Given this, Flexion could continue to gain traction in the months ahead and perhaps a bottom has been put in for the stock.

Options Strategy:

Image result for Stock Purchase

An efficient way to add exposure or to Flexion is via a Buy-Write order. Using the November $12.50 call strikes, fashion a Buy-Write order with a net debit in the $9.70 to $9.90 range (net stock price - option premium). This mitigates considerable some downside risk and sets up a great potential return for its approximate six-month hold period.

"It is the same in all wars; the soldiers do the fighting, the journalists do the shouting, and no true patriot ever gets near a front-line trench, except on the briefest of propaganda-tours." - George Orwell

Bret Jensen is the Founder and author of articles on The Biotech Forum, The Busted IPO Forum, and The Insiders Forum. To receive these articles as published on Seeking Alpha, just click the appropriate link and hit the orange follow button.

Disclosure: I am/we are long FLXN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.