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Flexion Therapeutics, Inc. (NASDAQ:FLXN)
Q2 2019 Earnings Call
Aug. 6, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Flexion Therapeutics' Second Quarter 2019 Financial Results Conference Call. My name is Brian, and I will be your coordinator today. At this time, all participants are in a 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 *0 and a coordinator will be happy to assist you.

I'll now turn the call over to the company.

Scott Young -- Vice President of Corporate Communications and Investor Relations

Good afternoon. This is Scott Young, Vice President for Corporate Communications and Investor Relations. Before we being, I would call your attention to the Metrics slide that we will discuss in today's presentation. Those slides can be viewed directly via the webcast, in the 8-K we issued this afternoon, under the Investors tab on our website flexiontherapeutics.com. In addition, our Q2 earnings press release and an archive of this conference call can also be found there.

Today's call will be led by Flexion's Chief Executive Officer, Dr. Michael Clayman, and he is joined by David Arkowitz, Flexion's Chief Financial Officer.

On today's teleconference, we will be making forward-looking statements 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 form 10-Q for the quarter ended June 30th, 2019, filed with the SEC today, and other filings, which are available at www.sec.gov as well 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.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Thanks, Scott, and thank you all for joining the call. It's my pleasure to provide an update on Flexion's second quarter business performance. Today, I'll summarize ZILRETTA's progress in the market, discuss our recent regulatory and clinical activities, and then provide an update on FX201, our preclinical gene therapy program for osteoarthritis. After that, I'll turn it over to David, who will review our latest commercial metrics and our second quarter financial results and provide some color on the debt financing we announced in our press release and in our 10-Q. Following David's update, we will open the line and take questions.

To begin, we recorded ZILRETTA net sales of $17 million in the second quarter, which represents growth of 60% over the first quarter. We're very pleased by this performance and are reaffirming our revenue guidance of $65-80 million for full year 2019. We believe that the second quarter marked an important step in the evolution of the commercialization of ZILRETTA, and we attribute these results to three main drivers: organizational changes we have implemented over the past several months, traction we are gaining from the permanent J-code, and the positively reinforcing clinical experiences patients and prescribers are having with the product.

While I'm pleased to say that performance across each area of Flexion was strong, clearly, our sales team, and in fact, our entire commercial organization deserves special recognition for their work in Q2. As David will discuss in detail, the momentum in the field continues to build with respect to increasing utilization of ZILRETTA in existing accounts, and in the second quarter alone, we saw nearly 500 new accounts order ZILRETTA. While we still have much work ahead of us, we believe these metrics bode well for both the near and long-term prospects for ZILRETTA and Flexion.

Regarding our search for a Chief Commercial Officer, I can report that there is substantial interest in the role. The search is progressing well, and we will hire the right person at the very earliest feasible time.

Moving to ZILRETTA's label, we continue to have productive conversations with the FDA regarding our supplemental NDA to remove the limitation of use statement. While we cannot make any assurances, based on the strength of the data from our repeat administration trial, we remain optimistic about a positive FDA decision by our PDUFA date of October 14.

Next, I'd like to discuss our clinical development activities. On our last call, we mentioned that we paused enrollment in the Phase 3 trial of ZILRETTA in hip OA pain due to a non-safety-related issue which resulted in the inability to deliver a full dose in a small number of trial participants. Based on laboratory simulations, we've developed a working hypothesis about the root cause of the issue, and we are now testing solutions informed by those insights in a small clinical study. Pending positive data from that study, we expect to resume registration trial enrollment in the fourth quarter. In addition, we remain on track to initiate a Phase 2 trial before the end of the year which will investigate the safety and efficacy of ZILRETTA in shoulder OA and in adhesive capsulitis, also known as frozen shoulder.

In July, we presented new findings from a post-hoc analysis of the repeat administration trial of ZILRETTA in patients with knee OA at the American Orthopaedic Society of Sports Medicine. This evaluated the efficacy of initial and repeat administration of ZILRETTA in patients with symptomatic knee OA, ranging in radiographic severity from Kellgren-Lawrence, or KL, Grades 2 to 4. KL Grade 4 is the most advanced form of knee OA, is often referred to as bone-on-bone and had not been studied in ZILRETTA clinical trials previously.

The analysis demonstrated that ZILRETTA consistently and substantially reduced OA knee pain for at least 12 weeks after each injection in patients with KL Grade 4 disease and that this was comparable to that seen in patients with KL Grade 2 and 3. This is particularly encouraging as one might intuitively expect patients with KL Grade 4 OA to be less responsive due to the advanced state of their disease. The incidence of treatment emergent adverse events was similar across all KL Grades and the most commonly reported adverse events were consistent with those reported in previous clinical trials of ZILRETTA.

As for new scientific publications, in May, the results from a pooled analysis of data from three Phase 2/3 randomized clinical trials on the use of rescue medications with ZILRETTA were published in the peer-reviewed journal Pain and Therapy. The analysis showed that the overall number of rescue medication tablets used per day through Week 24 was significantly less for ZILRETTA compared to both saline-placebo and immediate-release triamcinolone acetonide crystalline suspension.

Regarding our pipeline, we are making excellent progress with FX201, a locally administered gene therapy product candidate for OA and remain on track for filing an IND and initiating a clinical study this year. During the second quarter, we manufactured GMP clinical trial material and completed IND-enabling nonclinical studies, including GLP toxicology, biodistribution, and pharmacology studies. Based on those results, we've established a potentially safe and efficacious starting dose for initial clinical testing. Further, we have demonstrated efficacy in terms of both symptomatic and structural effects across multiple animal species. Additionally, in June, the USPTO issued a new patent, which covers the composition of matter and method of use of FX201 in the treatment of OA with a term through January of 2033.

While we have great enthusiasm for FX201 and we will continue to look for other opportunities to expand our pipeline, it is important to emphasize that the vast majority of our resources and investments are and will continue to be focused on ZILRETTA.

I'll now turn it over to David, but before I do, I'd just like to note that we're pleased with the new debt financing that he'll discuss in more detail. This provides up to $60 million in non-diluted funds to support our business operations and R&D activities.

David Arkowitz -- Chief Financial Officer

Thank you, Mike. I'll start by walking through our commercial metrics which, as Scott mentioned, can be found on our website and in the 8-K we issued today. I'll then briefly cover the second quarter financials and provide further details on the new debt financing which Mike mentioned. So, let me direct you to Slide 2 which includes several key metrics that provide important context on the progress of ZILRETTA's launch.

On the last call, I explained that we expect the number of accounts which we target to continue to increase over time as our sales reps broaden their reach, and as of the end of the second quarter, we had grown our target accounts to approximately 4,400. As of June 30, 2,733 accounts had purchased ZILRETTA, which is up from 2,247 purchasing accounts as of the end of the first quarter. With respect to reorders, as of June 30, 2,004 accounts, or 73% of purchasing accounts, had reordered ZILRETTA at least once, which is up from 1,601 accounts that had placed reorders by the end of the first quarter. This is highly encouraging, as it demonstrates that nearly three out of every four purchasing accounts have had more than an initial experience with the product, especially when one considers that our customer base continues to grow significantly.

Moving to Slide 3, this graph provides our quarterly sales since launch, and here you can see the impressive growth that we experienced in the second quarter. Our $17 million in net sales in the second quarter represents sequential growth of 60% over the prior quarter.

Switching to Slide 4, this slide and the remaining two slides reflect purchases of ZILRETTA by account, which represent physician practices, clinics, and hospitals of various sizes and purchasing potential. Here, we've provided the distribution of accounts that have purchased ZILRETTA since launch with account broken out into one of three groups: those that have purchased 1-10 units, purchased 11-50 units, or purchased more than 50 units. As you can see, the majority of the approximately 2,700 accounts that have purchased ZILRETTA have bought 1-10 units. This represents a strong and growing base, as new accounts generally start in this group with small initial orders, and then their purchasing increases in both frequency in size as they observe the clinical benefits of ZILRETTA and experience reliable and consistent reimbursement.

In addition, as of the end of the second quarter, there were 461 accounts that had purchased more than 50 units. This group is up by about 150 accounts, or approximately 50% over the first quarter. And while we are very pleased with this progression, even for these accounts whom we characterize as early adopters, we believe there is substantial further opportunity to fully incorporate ZILRETTA into their practices.

Moving to Slide 5, you can clearly see the significance of these early adopting accounts on the total purchases of ZILRETTA to date. While the total number of accounts that have purchased more than 50 units is 461, which is about 17% of the total purchasing accounts, these accounts purchased approximately 63,000 units, or roughly 70% of all purchases since launch. As we have mentioned previously, accounts generally move along this ZILRETTA utilization continuum from 1-10 units to 11-50 units, and then to more than 50 units, which highlights the potential for significant sales from our current customer base of approximately 2,700 purchasing accounts.

We expect our customer base will continue to grow as we add new accounts, and on Slide 6, you can see how the ZILRETTA purchasing breaks out by new and existing accounts. We continue to grow our base in a meaningful way with 400-500 new accounts coming on board every quarter. While we expect this will eventually slow down, it indicates the success we have had in continuing to grow our customer base and further bolsters our confidence that ZILRETTA can become the leading branded intraarticular therapy for OA knee pain.

So, now, let me briefly walk through the second quarter financial results, which we included in the press release issued this afternoon and in our 10-Q. We reported net sales of ZILRETTA for the second quarter of 2019 of $17 million, compared to net sales of $3.8 million for the second quarter of 2018. The cost of sales was $1.4 million and $0.9 million for the second quarter of 2019 and 2018, respectively. The net loss was $36.5 million for the second quarter of 2019, compared to a net loss of $43.9 million for the same period of 2018. The second quarter of 2019 net sales reflect a gross reduction of 8%. The gross and net reduction is primarily comprised of distributor fees, returns reserve, and mandatory government discounts and rebates such as Medicaid, 340B institutions, and Veterans Administration and Department of Defense.

Research and development expenses were $16.1 million and $13.1 million for the three months ended June 30, 2019 and 2018 respectively. The increase in research and development expenses of $3 million was primarily due to an increase of $1.2 million in salary and other employee-related costs for additional head count and stock compensation expense, as well as a $1.5 million increase in preclinical expenses related to our portfolio expansion activities and other programs costs and an increase of $0.4 million in development expenses for ZILRETTA.

Selling, general, and administrative expenses were $33.1 million and $31 million for the three months ended June 30, 2019 and 2018, respectively. Selling expenses were $24.8 million and $22.7 million for the three months ended June 30, 2019 and 2018, respectively. The year-over-year increase in selling expenses of $2.1 million was primarily due to salary and other employee-related costs and external costs related to marketing and reimbursement support activities. General and administrative expenses were $8.3 million for both the three months ended June 30, 2019 and 2018. Interest income was $0.8 million and $1.3 million for the three months ended June 30, 2019 and 2018, respectively. Interest expense was $3.9 million for both the three months ended June 30, 2019.

We expect that our operating expenses will continue to increase primarily driven by commercial activities in support of ZILRETTA, line extension clinical trials for ZILRETTA, continued development of FX201, and development activities associated with future additions to the pipeline.

As of June 30, 2019, we had approximately $176.6 million in cash, cash equivalents, and marketable securities compared with $217.8 million as of March 31, 2019. We believe that our current cash balance and the expected proceeds from our new debt financing with the expected future sales of ZILRETTA and the ongoing prudent management of our expenses will bring us to profitability. With that said, it is important to add that, as always, we will be opportunistic as it relates to potential funding decisions, and we will do what we believe is in the best long-term interest of Flexion and our shareholders.

Finally, as Mike mentioned, we are pleased to announce that we have secured $60 million in debt financing. The lenders are Silicon Valley Bank, MidCap Financial Trust, and Flexpoint MCLS Holdings. The debt financing is comprised of a $40 million term loan, which was fully drawn down at closing at a revolving credit facility secured by our accounts receivable of up to $20 million. The interest rate on the term loan is the greater of the prime rate plus 1.5% and 6.5%, and the interest rate on the revolver is the greater of the prime rate and 5.5%. In addition, both facilities mature January 2024. Today's financing replaces our $30 million debt facility with Silicon Valley Bank and MidCap and approximately $8 million of the proceeds from today's financing will pay off the remaining amount owed.

...

At this point, I would ask the operator to please open the line for questions.

Questions and Answers:

Operator

Thank you. This concludes our prepared remarks. We will now open the call for questions. Ladies and gentlemen, at this time, if you would like to ask a question over the phone, please press *1 on your telephone keypad. If your questions have been answered or you wish to remove yourself from the queue, simply press #.

And our first question will come from the line of Randall Stanicky with RBC Capital Markets. Your line is now open.

Dan Busby -- RBC Capital Markets -- Senior Associate, Equity Research

Hey, guys. This is Dan Busby on for Randall. I have a couple questions on ZILRETTA to start and then a follow-up on FX201, but first on ZILRETTA, you're clearly making progress bringing new accounts on board, but for those accounts that have yet to purchase ZILRETTA, can you describe the primary factors preventing them from doing so? And second, it might still be a bit early, but do you have any qualitative or quantitative feedback that you can share from your DPC efforts to date? More broadly speaking, how important is patient advocacy in the knee OA market?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

All good questions and related to accounts that have yet to order ZILRETTA. I think it's a question of continued exposure of physicians in those practices to the data, gaining experience through samples of commercial product to have that first experience, and I think what you see from the metrics is that once there's a requisite experience with this product, the experience drives further adoption. And so, we're continuing to find ways to get product to ordering accounts and increase their familiarity, work with leading physicians at those accounts, and we're continuing to be bullish about our prospects going forward. The fact that we added 500 accounts this quarter suggests that, in fact, that progress is real.

As it relates to DTC, we're not going to speak about the data from those at this point. We may at some point in the future but not now. And then, we believe patient advocacy is an important element in the ultimate success story of ZILRETTA and realizing our full potential. We're devoting substantial resources to patient advocacy, and I would say stay tuned because there may be an opportunity to do even more there.

Dan Busby -- RBC Capital Markets -- Senior Associate, Equity Research

That's helpful. And just a two-part follow-up on FX201. Part 1, assuming it moves into the clinic later this year, can you give us a sense of the patient profile that you're likely to target for that? And then, Part 2, I think when a lot of people hear "gene therapy", they think expensive. And so, from an R&D perspective-this is probably a good one for David -- but how should we think about the cost associated with the Phase 1 and subsequent trials over the next couple years, assuming that program moves forward?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Well, I'll start, and David can add as he would like. We're targeting patients with moderate-to-severe knee OA to begin with, and we have every intention of considering the potential refinement to that population, but to begin with, we wanted to find signal in that patient population in terms of pain relief and potentially diseased modification. As it relates to expense, we totally get what you're saying, People hear the phrase "gene therapy", and assume very, very large price tags for those products. One of the beauties of FX201 is that it's injected locally into the knee, and in a volume of 5 mLs, which is roughly, roughly the need volume, it does not take much protein to achieve the therapeutic concentration, and as a result, the viral particle dose that's required to do that -- we expect and we'll have to show this -- will be literally orders of magnitude below what would be required with system therapy.

And as a result, the cogs associated with producing relevant doses are gonna be substantially less than for many other therapies, and the driver to the expense of clinical trials in this space is predominantly cogs drivers, and as a result, we believe that we can cost effectively develop FX201 to the point of proof-of-concept and beyond.

Dan Busby -- RBC Capital Markets -- Senior Associate, Equity Research

Great. That's helpful. Thank you.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Yup.

Operator

Thank you. And our next question will come from the line of Gary Nachman with BMO Capital Markets. Your line is now open.

Rafe -- BMO Capital Markets -- Analyst

Hi, good evening. It's Rafe on for Gary. What drove the strong growth margin in the quarter, and how sustainable is that?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Sorry, say that again?

Rafe -- BMO Capital Markets -- Analyst

What drove the strong growth margin in the quarter, and how sustainable is that?

David Arkowitz -- Chief Financial Officer

So, this is David. As you noted, we had a gross margin of 92% in this quarter that compares to the prior quarter when it was 83%. I think we've been very clear that there's inherent variability in our cost of sales. It's still relatively early days from a manufacturing standpoint. Once we reach manufacturing steady-state, then we think we're gonna have consistent gross margins in the 90% range. So, we will continue to experience some variability in the ensuing quarters until we achieve that steady stay.

Rafe -- BMO Capital Markets -- Analyst

Thanks. Can you talk about what the sales force and commercial organization may be doing differently, if anything, following some of the changes in the commercial leadership?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Sorry, changes that the commercial team has implemented since the organizational changes?

David Arkowitz -- Chief Financial Officer

So, I'd say that there are a number of different things that we're doing as it relates to the commercial organization. We've talked about a number of them, and I think we've actually cited them in the script. First of all, it starts with people, and I think we've done a very nice job, and the sales leadership in particular has done a nice job of ensuring we have the very best people in place to accomplish the strongest goals, and I think that that's reflected in our sales numbers. I think some of the things that David just has talked about in the script, including the ability for salespeople or NBMs to take orders directly, helps facilitate things and the use of contracting with group purchasing organizations we think have the potential to generate valuable data that can advantage us in the further growth of ZILRETTA.

Rafe -- BMO Capital Markets -- Analyst

Great. Thanks so much.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Yup.

Operator

Thank you. And just as a reminder, ladies and gentlemen, to ask a question over the phone, that is *1 on your telephone keypad.

Our next question will come from the line of Elliot Wilbur with Raymond James. Your line is now open.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Hey, it's Elliot Wilbur on for Elliot Wilbur. Couple of questions here. Mike, just any updates on the moving forward of the shoulder adhesive capsulitis, hip OA studies just in terms of timing? And then, thinking about those studies in terms of the dosing profile of the product, based on what occurred with the HIPAA way and you may have learned from those studies? Any thoughts around changing either the relative strength, or concentration, or viscosity of the product based on some of the data that has emerged from the earlier studies and those indications?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

So, first of all, Elliot, we are on track to start the shoulder studies in OA and adhesive capsulitis before the end of the year, and I would say that the experience in the SHIP study, the Shoulder and Hip Injection Study that was really a PK study, suggested in a small number of patients that one could inject on the shoulder without difficulty, and in the hip, we did see a couple of examples of what we saw in the registration trail. We ascribed those as situations to inadequate dose preparation at the site level and have subsequently learned that it's more than that for the hip, and that's why we had to go to the lab simulations and ultimately do some more clinical study to convince ourselves that there's an injection approach that will allow, routinely, administration of the full dose.

We saw no problems in the shoulder in the SHIP study, and we believe that fundamentally, the anatomy of the shoulder lends itself to more straightforward injection than the anatomy of the hip. And so, there is no plan to change the dose. We will inject our intent in the protocol that dictates that we will inject a full 32 milligram dose of ZILRETTA in shoulder for both adhesive capsulitis and osteoarthritis.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Thanks. And just a couple of follow-up questions around commercial activities. With respect to the increase in targeted accounts -- I think it was roughly 300 this period -- any anecdote or feedback you can provide in terms of just sort of the relative success or win percentage at these newer accounts, whether it's been incrementally easier just based on market experience to date? But anything you could share there in terms of success with these particular accounts would be helpful.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

I'd say, Elliot, it's a good question. I think the reasonable expectation is our ability to penetrate accounts generally is the same as our ability to penetrate new accounts. And at least some of those 500 newly penetrated accounts came from the expansion of the base of total accounts.

David Arkowitz -- Chief Financial Officer

And I would just add I think also it's important to look at the increase in the number of accounts that have purchased more than 50 units from Q1 to Q2. It's been approximately a 50% increase on top of that, the number of units on average at those accounts in that 50-units-or-more bucket have purchase increased from 120 units to 136 units in the second quarter, so we're seeing both an increase in higher purchasing accounts and the number of those accounts, and their utilization in the second quarter, which is [inaudible] about that.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Thanks. I wanted to ask you one follow-up question around that, David, as well. I know this is probably a difficult datapoint to actually get your hands on, but with respect to these high-prescribing accounts or practices, any sense of what ZILRETTA's penetration is in terms of their total overall PCA utilization in OA?

David Arkowitz -- Chief Financial Officer

Without getting into a lot of granularity, we feel that for the vast majority of those 461 accounts that have purchased 50 units or more, we are still just scratching the surface. We still have opportunities for greater adoption among additional physicians in the accounts and then across a broader set of patient types. So, we do think there's tremendous opportunity even with those. And there's a handful of them that have utilized more than 500 units to date, so there's just a lot of room to run, even with that existing 461 accounts.

Operator

Thank you. And our next question will come from the line of Patrick Trucchio, with Berenberg Capital Markets. Your line is now open.

Iris Long -- Berenberg Capital Markets -- Equity Research Analyst

Hi, good afternoon. This is actually Iris Long on for Patrick Trucchio. Can you tell us what the working hypothesis is regarding the issue in the Phase 3 hip OA pain study? And then, secondly, have you discussed this hypothesis with the FDA? And if so, can you share with us any of the feedback you've received? And then I have a couple follow-up questions. Thanks.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

So, we're not getting into detail about the working hypothesis. I'd just simply state that the laboratory simulations allowed us to understand the relationship to injection in the hip, the anatomy of the hip, and the material that's being injected in a way that allowed us to fashion a very slightly revised injection procedure that we think has the potential to solve the problem. Because there was no safety issue associated with this inability to deliver a full dose in a handful of patients, there was no need for FDA interaction.

Iris Long -- Berenberg Capital Markets -- Equity Research Analyst

Also, regarding the OA hip trial, how soon would you expect enrollment to complete, assuming that it resumed on schedule in Q4. And secondly, when should we anticipate top-line data submission of supplement NDA? And then, finally, can you explain to us the payer dynamics with the OA hip label expansion, as in would you need a separate J-code for OA hip or would the existing J-code cover this indication as well? Thank you.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

So, as we mentioned earlier in the Q&A, we are gonna take the hip study kinetics step-wise. Let's first be sure we have confidence that we can inject the full dose. At that point -- and we're not giving a timeline for that -- but at that point, we're reinitiate the registration trial, and it depends on when we reinitiate the registration trial, which we expect we could be doing in the fourth quarter. We'd be in a better position to guide to when it's reasonable to expect data. As it relates to permanent J-code, we fully expect that the permanent J-code for knee OA will apply for hip OA.

Iris Long -- Berenberg Capital Markets -- Equity Research Analyst

Thank you.

Operator

Thank you. Our next question will come from the line of Serge Belanger with Needham & Company. Your line is now open.

Serge Belanger -- Needham & Company -- Analyst

Hey, guys. This is Serge. First question on this quarter's sales, obviously a big jump from the first quarter. Can you just talk about the monthly progression through the second quarter? And I don't know if you wanna talk about July sales, but maybe just give us some color on whether we should expect some seasonality over the summer months.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Serge, we are very pleased with the progress throughout the quarter. We're not gonna continually talk about quarter-over-quarter sales. We're not gonna talk about July sales because we talked April sales by exception at a time when it was important to reveal what was a very healthy month as we followed that first quarter of sales to give our investors full confidence and the fact we were headed in a good direction. We don't feel the need to do that, and we don't think, frankly, it's good corporate hygiene to be guiding to month-by-month sales, and I'll stop there.

Serge Belanger -- Needham & Company -- Analyst

Seasonality?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Seasonality, sorry.

David Arkowitz -- Chief Financial Officer

I can take that.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Yeah, please.

David Arkowitz -- Chief Financial Officer

So, Serge, as you can appreciate, ZILRETTA sales are increasing. We anticipate quarter-over-quarter growth throughout the year, but it's not unreasonable to look at other interarticular products in terms of how they track through the course of the year. So, if you look at the historical hyaluronic acid data, you see that their weakest sales quarters are the first quarter and the third quarter. Again, we're in a different place, but that's just some additional context.

Serge Belanger -- Needham & Company -- Analyst

Thanks. And then, in terms of formulary coverage, has there been any significant changes over the last couple quarters? I think you had previously discussed contracting. Has there been any progress there?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

I'd simply say as it relates to coverage, the coverage continues to be excellent, Medicare, 100% private, commercial insurance is between 95-100%, so we're very pleased with that. I'll let David answer the question on contracting.

David Arkowitz -- Chief Financial Officer

So, with respect to contracting, that relates to agreements such as purchase arrangements with GPOs, for example. As you can appreciate, we're not gonna get into specifics on that. It is something that we did initiate, embarked upon, once we had the J-code earlier this year, so it's still relatively early days with respect to contact, so we put in place and appreciate that we're not gonna break out sales in any detail related to contracts, but it will be an important component tactic on a go-forward basis.

Serge Belanger -- Needham & Company -- Analyst

And then, sorry, one last follow-up on sampling. I think in the past, you've talked about sampling representing about 10% of the purchase units. Where does that number kind of reside now?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

So, we appreciate that we shared that information in the slides last quarter. We didn't this time because we expected it to be pretty consistent quarter-over-quarter, and in fact, sample for Q2 was in the 5-10% range of purchases, and we expect it to be in that range on a go-forward basis. Also, I'd just add that out philosophy around sampling is the same. Where we can make a sale, we're gonna make the sale, and we're gonna use samples to facilitate adoption or utilization.

Serge Belanger -- Needham & Company -- Analyst

Thank you.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Thank you.

Operator

Thank you. Our next question will come from the line of Frank Brisebois with Laidlaw. Your line is now open.

Francois Brisebois -- Laidlaw & Company -- Equity Analyst

Hey, guys. Thanks for taking the questions. Congrats on the quarter. Just a couple here. You talked about a lot of the metrics just now in the sampling with Serge and with Elliot, but I was wondering from your perspective, what have you guys learned the most about these metrics so far, and should we expect you guys to add -- or I guess you pick out sampling, but are you guys looking at different metrics, maybe switching the 1-10, 11-50, or should this be pretty consistent for the headquarters to come?

David Arkowitz -- Chief Financial Officer

I think this is a good base set of metrics at this juncture, as you indicated and as we indicated. We dropped sampling because we didn't feel like it added a whole lot of value at this juncture. We will undoubtedly think about the different groupings of purchases, so expect that we will change the break point going forward. And in all fairness, we'll reevaluate the metrics on a regular basis. So, if we feel like there's limited utility and including particular metrics down the road because there's nothing meaningful coming out of it, we'll modify accordingly. But we feel good about the metrics that we have right now.

Francois Brisebois -- Laidlaw & Company -- Equity Analyst

Great. And I was just wondering if your couple years of launch here, I remember the average injections for patients with OA problems was about 1.5 injections a year, which is interesting for the amount of time that the drug actually works. Are you guys seeing any change in that, or are you expecting this 1.5 to actually increase?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

It's difficult to say, Frank, but I think that it is fair to say that once the limitation of use is removed, what we'll be able to understand, reinjection in a clearer way than we can now. Just to provide a frame, that 1.5 injections per year in the media-released steroid population, realize that 60% of those patients are one and done. So, the one-and-a-half injects are concentrated in the 40% of patients who have satisfactory response in terms of magnitude and duration. It would not be illogical to expect that was ZILRETTA providing better and longer pain relieve that the incentive to be injected a second time would be higher. And I think that it just remains to be seen exactly how that plays out, but we won't have a fair appraisal of that until the limitation of use is removed.

Francois Brisebois -- Laidlaw & Company -- Equity Analyst

Understood. It makes sense. And then, lastly, just in your search for a new Chief Commercial Officer, is one of the checkbox to look for someone with XUS experience or should more expect kind of a partnership. I guess how long does this launch go for us to start thinking about the potential outside the US?

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Well, I would say this, Frank. What's top of mind for us is an outstanding commercial leader who's done it, who's been successful, and leads with US experience. This is a US launch for the time being at least. We believe the potential for this product is enormous in the US, and so what's top of mind for us is finding the best leader who's been successful with US launches. We would not in any way preclude the potential for going outside the US at the right time. Top of mind for us though is the US.

Francois Brisebois -- Laidlaw & Company -- Equity Analyst

Thank you. That's it for me.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Thank you.

Operator

Thank you. There are no additional questions.

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

Well, thanks very much, everybody for your time and attention. Appreciate the good questions, and we look forward to reporting back to you our third quarter results sometime in November. Take care.

...

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and we may all disconnect. Everybody, have a wonderful day.

Duration: 42 minutes

Call participants:

Scott Young -- Vice President of Corporate Communications and Investor Relations

Mike Clayman, M.D. -- Chief Executive Officer and Co-Founder

David Arkowitz -- Chief Financial Officer

Dan Busby -- RBC Capital Markets -- Senior Associate, Equity Research

Rafe -- BMO Capital Markets -- Analyst

Elliot Wilbur -- Raymond James and Associates -- Analyst

Iris Long -- Berenberg Capital Markets -- Equity Research Analyst

Serge Belanger -- Needham & Company -- Analyst

Francois Brisebois -- Laidlaw & Company -- Equity Analyst

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