Flexion Therapeutics Inc (FLXN) Q1 2021 Earnings Call Transcript

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Flexion Therapeutics Inc (FLXN)
Q1 2021 Earnings Call
May 12, 2021, 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 First Quarter 2021 Financial Results Conference Call. [Operator Instructions] We will be facilitating a question-and-answer session at the end of today's call. [Operator Instructions]

I'll now turn the call over to Scott Young, Flexion's Vice President of Corporate Communications and Investor Relations.

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

Good afternoon. A short while ago, we issued a press release announcing our Q1 2021 financial results. In addition, today, we are introducing refreshed metrics to provide increased visibility and insights into the commercial performance of ZILRETTA. Our earnings press release and the commercial metrics slide can be found under the Investors tab on the company's website and a replay of this call will be accessible there shortly after its conclusion.

Today's discussion will be led by Flexion's Chief Executive Officer, Dr. Michael Clayman, and he's joined by Melissa Layman, Flexion's Chief Commercial Officer; and David Arkowitz, Flexion's Chief Financial Officer.

On today's teleconference, we will be making statements relating to future financial and business performance; market conditions; strategies and other business matters, including expectations regarding revenue, cash utilization, clinical, regulatory and commercial developments; and anticipated milestones, which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to various assumptions, risks and uncertainties, which change over time, and such statements speak only as of the date of this call. Additional information on the factors and risks that could affect Flexion's business, financial conditions and results of operations are contained in Flexion's filings with the SEC, as well as on Flexion's website.

I will now turn the call over to Mike Clayman.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thanks, Scott. And thank you all for joining. In April, we pre-announced preliminary net ZILRETTA sales of $24.6 million for the first quarter of 2021. And in this afternoon's press release, we confirmed those results and reiterated our full-year net sales guidance of $120 million to $130 million. On today's call, we will provide an update on our commercial progress and walk through the refreshed commercial metrics that Scott mentioned. In addition, I'll share updates on our pipeline programs and then, we will recap our first quarter financial results. However, I would like to first discuss an important personnel update.

As you all know, David Arkowitz is capably served as our Chief Financial Officer since May of 2018, and I was truly disappointed when he recently informed me at his decision to leave the company to pursue new opportunities. David has been a key member of our senior management team, and I'm very grateful for all of his contributions throughout the past few years, I know I speak for our entire organization in wishing him continued success as he embarks on a new phase of his career. I'll look to him to share some additional color on his decision when he provides the financial update. While we will miss David's leadership, I'm tremendously pleased to announce that Fred Driscoll will be stepping in as David's successor. Fred was our Chief Financial Officer beginning in 2013, led us through our IPO in 2014 and was at the financial helm at the launch of ZILRETTA. With that as backdrop, Fred is uniquely qualified for this important role. He possesses an intimate knowledge of our organization and a deep understanding of ZILRETTA's value proposition. And we are fortunate to have him back. Fred and David will be working together in the coming weeks to ensure a seamless transition. Fred is currently joined us on the call today, and I would invite him to make a few remarks later in the agenda.

Shifting to other recent news, yesterday, at the American Academy of Gene & Cell Therapy or ASGCT, we presented new preliminary data on FX201, our investigational, intra-articular gene therapy for the treatment of knee OA pain. While the primary aim of our Phase 1 single ascending dose study is to establish the safety and tolerability of FX201 in low, mid and high dose cohorts with five to eight patients in each, we are encouraged to see that two patients in the low dose cohort experienced durable improvements in pain extending out to one year post-treatment. As we reported yesterday, FX201 was generally well tolerated in the initial low dose cohorts. Two patients had self-limited Grade 2 index-knee adverse events of pain, swelling and effusion, which were possibly related to treatment and were managed conservatively.

In addition to safety and tolerability, we are also investigating exploratory endpoints assessing pain relief using WOMAC-A and functional improvement using KOOS tools. At ASGCT, we showed that four of the five patients in the low dose group reported improvement in WOMAC-A pain scores compared to baseline at weeks 12 and 24, and two of the three patients for whom we have week 52 data were still reporting improvements in pain one year after treatment. Applying validated criteria, a 50% decrease in pain is considered substantial, and two out of the five patients experienced such a response at weeks eight, 12 and 24 following treatment, and one of the three patients who has been on study for at least a year continued to report substantial improvement in pain at week 52. Importantly, all five patients remained in the study at 38 to 56 weeks post-treatment, which is encouraging as it indicates that they have not felt compelled to seek alternative treatments to manage their knee OA pain.

As we have previously discussed, our vision for FX201 is that in addition to providing at least six to 12 months of pain relief, it will also help improve function. In the low dose cohort, functional improvement from baseline assessed via KOOS was observed in four of the five patients at week 24 and all three of the patients with week 52 data. Preliminary data from the mid and high dose cohorts of the single ascending dose study are anticipated in the second half of 2021. And as we announced in an 8-K yesterday morning, one participant in the high dose cohort experienced gastrointestinal bleeding and atrial fibrillation, which required hospitalization. An adverse event resulting in hospitalization is deep serious, but the investigator determined this to be unrelated to study drug.

As dictated by the protocol, any serious adverse events or SAE regardless of relatedness requires a pause in study enrollment followed by a review of the event by the independent Data Monitoring Committee or DMC for the study and subsequently, the FDA. Those reviews were completed as of Tuesday afternoon. Both the DMC and FDA agreed with the investigator's assessment and endorsed the reinitiation of the trial. Accordingly, we are resuming enrollment.

While the data are preliminary, we are encouraged by the results we are seeing and they support our belief that FX201 holds the potential to provide a differentiated durability of therapeutic effect at the site of disease. We look forward to sharing additional data in the second half of the year, including the evaluation of synovial fluid from patients to assess biological activity of FX201 locally in the joint, which could potentially correlate with clinical endpoints over time.

Briefly touching on FX301, our investigational locally administered peripheral nerve block for control of post-operative pain, we continue to enroll patients in our Phase 1b proof-of-concept trial and remain on track to share preliminary efficacy data later this year.

At this point, I'll turn it over to Melissa.

Melissa Layman -- Chief Commercial Officer

Thank you, Mike. While it has only been a few weeks since our last update, in that time, we held a virtual national sales meeting where we focused on our strategic priorities and rolled out a number of new supporting tools, all of which was met with great enthusiasm by the entirety of our sales organization. Access to these new tools in conjunction with the return to pre-COVID field travel levels has resulted in a level of focus and excitement that I have to say is unprecedented within my tenure here at Flexion, and we believe will serve as an impetus for potentially growing our business in 2021 and beyond, allowing for increasing numbers of patients to experience the impact that ZILRETTA can have in managing their knee OA pain.

As we discussed on our last call, we have three strategic priorities: first, positioning in market segmentation; second, pricing and physician reimbursement; and third, amplification of the patient voice. And I can say that following our recent meeting, our entire commercial organization is hyper-focused on executing against each of them.

Regarding our commercial metrics, we've been providing the same metrics for the past several years. Now that we have more than three years in market, we believe that this is the right time to introduce revised commercial metrics that can provide greater and more meaningful visibility into our commercial performance. Historically, we have presented a cumulative view of ZILRETTA utilization spanning back to the earliest days of launch. Since comparisons to our early days on market are no longer as relevant as they once were, our revised metrics, among other things, provide views of ZILRETTA's performance on a more current quarterly basis. At this point, I'll walk through the refreshed metrics that we introduced today.

Starting with Slide 2, we're providing revenue and unit demand for the current versus prior quarter and for the current quarter versus the same period in the prior year. In addition, this dashboard view provides a summary of key metrics and a few highlights, specifically, net revenues for the quarter of $24.6 million and that of the 2,044 accounts that purchased in Q1, 90% had purchased in the prior quarter. With Slide 3, we changed the view to provide the last four quarters of net sales versus the previous view, which describes quarterly sales going back to launch. As we discussed on our last call, we are pleased with our net sales performance of $24.6 million in Q1, which is particularly encouraging in light of the headwinds that we detailed on that call.

On Slide 4, we are now presenting demand on a quarterly basis. As a reminder, we primarily sell ZILRETTA to specialty distributors, and we recognized sales upon receipt of product by those distributors. Demand refers to the actual orders placed by accounts such as physician practices, clinics and certain medical centers or hospitals with those specialty distributors. From a demand perspective, we are particularly pleased with Q1 performance as demand grew by 6% over Q4 in a period that is typically down in demand by roughly 10% across the intra-articular injection market.

In our last slide, number 5, we break out purchases by volume and accounts in discrete quarters as a method to more clearly illustrate how our business is moving from quarter-to-quarter. This view continues to illustrate how practices generally move through the ZILRETTA adoption continuum from trial to adoption and ultimately, to inclusion in standardized treatment protocols for knee OA pain management. This view shows you the total number of units purchased within the quarter in volumes of one to 100, 101 to 300 and 301-plus units as well as the number of accounts purchasing at these volumes within the quarter.

In Q1, roughly 38% of ZILRETTA units were purchased by accounts in quarterly volumes of more than 100 kits versus Q1 2020 when 27% of ZILRETTA units came from accounts purchasing in quarterly volumes of greater than 100 kits. Based on historical medical claims data for OAK diagnosed patients who received an IA injection within the 99 accounts that make up our Top 2 purchasing tiers, we estimate ZILRETTA share in these accounts may be as high as 46%. Our goal with these new metrics was to present them in a way that offers you more discrete performance indicators within and between the quarters versus continuing to look at our business performance cumulatively back to launch. While we believe these provide a more current and instructive view of our progress, we welcome feedback from you. And I look forward to sharing our progress against these metrics in the coming quarters.

With that, I'll turn it over to David.

David Arkowitz -- Chief Financial Officer

Thanks, Melissa. As Mike mentioned, ZILRETTA net sales in the first quarter were $24.6 million, which reflects a gross to net reduction of 18%. This reduction includes rebates to healthcare providers that are variable and based on the volume of product purchased. We reported net loss of $28.6 million for the first quarter of 2021 compared to a net loss of $36.8 million for the same period of 2020. Cost of sales were $6.1 million and $2.3 million for the three months ended March 31, 2021 and 2020 respectively.

Research and development expenses were $14 million and $21.1 million for the three months ended March 31, 2021 and 2020 respectively. The decreases in R&D expenses of $7.1 million was primarily due to a decrease of $3.6 million in development expenses for ZILRETTA, due to a reduction in life cycle management activities, a decrease of $2.2 million related to FX201 program costs, largely due to the $2.5 million milestone payment for the first human patient in the Phase 1 clinical trial, which occurred in the first quarter of 2020 as well as a decrease of $3.4 million in salary and other employee-related costs. The decreases were partially offset by an increase of $2.4 million in expenses to FX301 due to the achievement of certain development milestones, specifically, the clearing of the IND by the FDA, and the initiation of the Phase 1b clinical trial, both of which occurred in the first quarter of 2021.

Selling, general and administrative expenses were $27.6 million and $29.3 million for the three months ended March 31, 2021 and 2020 respectively. Selling expenses were $19.1 million and $20.5 million for the three months ended March 31, 2021 and 2020 respectively. The year-over-year decrease in selling expenses of $1.4 million was primarily because the majority of industry conferences and physician speaker programs remain virtual due to COVID-19 and although more physician offices are opening, business travel remains low compared to pre-pandemic levels.

General and administrative expenses were $8.5 million and $8.8 million for the three months ended March 31, 2021 and 2020 respectively. Interest expense was $5.2 million and $4.7 million for the three months ended March 31, 2021 and 2020 respectively. We anticipate full-year 2021 ZILRETTA sales in the range of $120 million to $130 million. In addition, we continue to expect that our full-year 2021 total operating expenses, including cost of sales. R&D expenses and SG&A expenses, will be in the range of $195 million to $205 million. As of March 31, 2021, we had $154.3 million in cash, cash equivalents and marketable securities compared with $175.3 million as of December 31, 2020. Based on our current operating plan, we believe that our current cash balance is sufficient to fund our operations into at least mid-2022.

In closing, I'd like to share some perspectives on my time at Flexion. It has been a privilege to work with Mike and the other members of the management team. I know that the departure of any CFO is always a notable event. Well, let me state unequivocally, it is in no way reflection of the confidence I have in this team, ZILRETTA or the prospects for Flexion as a whole. While I had no interest in leaving, I was presented with a rare opportunity, one that will allow me to more fully utilize my strengths and which expands my scope of responsibilities. Flexion is an amazing organization that is making a real difference in the lives of patients. And while I will have a different vantage point, I look forward to watching its continued success in the years to come.

With that, I'll turn it back to Mike.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thank you, David, and thank you for all of your hard work over the past few years. We have made tremendous progress during your tenure, and we deeply appreciate all that you have done. While David's tenure is coming to a close, a new chapter in Fred Driscoll's career at Flexion is just beginning.

And at this point, I would invite Fred to make a few remarks. Fred?

Frederick W. Driscoll -- Chief Financial Officer

Thanks, Mike. It's a real pleasure to be on the call today, and I'm extremely excited to be rejoining the company. Since my retirement, I have been closely following Flexion's progress, ZILRETTA's ramp, and the addition of two potentially transformative pipeline drug candidates. In the last few years, the company has evolved into a significant player in the musculoskeletal space, and the importance of its mission and the impact of ZILRETTA has only grown. I see David's view of Flexion's future. I firmly believe that with this product, it's winning commercial strategy and the passionate people who make Flexion such a remarkable organization. The opportunity ahead of us is tremendous, and I'm thrilled to be back.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thanks, Fred. And welcome back. Before I hand it over to the operator for Q&A, I would briefly summarize the first quarter as one of progress, building momentum and optimism about the improvements we are seeing across the nation. As Melissa mentioned, the energy in the field is at an all-time high. Our confidence in ZILRETTA's potential has never been greater. Our pipeline continues to advance, and we have a tremendous management team in place. Those are all the ingredients needed for a very bright future. And I know that each and every individual in Flexion is committed to realizing it.

Thank you. At this point, I would ask the operator to open up the line for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Elliot Wilbur of Raymond James. Your line is open.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Thank you. Good afternoon. First question for Mike, just a point of clarification on the 201 study protocol, does any SAE trigger the stoppage of the trial and review by the DSMC or just certain events?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Elliot, the simple answer is yes. Any SAE is a first time this vector had been injected into the knee joint out of an abundance of caution. The FDA really strongly pushed in that direction because sometimes determinations of relatedness by investigators might get called into question after a subsequent review. And in this case, we were asked to take what I'll call, belt and suspenders approach. So, any SAE would have triggered the cascade that was seen with this as a study pause -- investigator determination study pause DMC review, FDA ultimately green light, and that's how it worked at this time. And it would be the case for anything, that is an SAE.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Okay. And now that the initial data has been presented, can you just maybe describe for us some of the feedback, perspectives that you've received within the clinical community and maybe some of the important takeaways and subtleties that maybe just aren't so obvious in the post or abstract itself?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah. Elliot, I would say this. There's tremendous enthusiasm in many circles for the potential for FX201. The data that we presented at ASGCT was the low-dose cohort. It's still preliminary. It's not fully mature. And I think that people are looking to see not only what we have with the low-dose cohort, which has some promise in it as delineated, and we went through that in this script, but also to see what happens with the mid and high-dose cohorts, especially over time. So, I think it's just early. I think there are a lot of people who are keenly interested in this gene therapy approach, in this specific vector and are hungry for additional data. And we're eager to share that, all those data at the right time.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Okay. Just the last question here, understand there's only a sample size of five, so obviously teasing out efficacy data is incredibly difficult. But just in terms of thinking about the clinical benefit of the product, I mean you had two patients that basically, I think, responded all the way out to 24 weeks and then several where we saw 30% reduction and 50% reduction for longer periods of time.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah.

Elliot Wilbur -- Raymond James and Associates -- Analyst

I guess, how do you think about sort of what's clinically meaningful here in the context of a reduction from baseline versus the duration of effect? Because it seems like there were some patients where maybe the reduction wasn't as great, but you had benefit out to, I think it was, I can't remember, 38 weeks maybe at the end.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah. Yeah. Well, we have to have both. We have to have magnitude of effect, and we have to have durability out to -- I mean our product profile says meaningful decreases in pain and improvements in function for at least six to 12 months. And certainly, it would have to be at least 30% and frankly ideally much closer to 50%.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Okay. I'll jump back in the queue. Thank you.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thanks, Elliot.

Operator

Thank you. Our next question comes from the line of Madhu Kumar of Goldman Sachs. Your line is open.

Madhu Kumar -- Goldman Sachs -- Analyst

Hey, guys, thanks for taking our questions. So, thinking about FX201 and the index-knee AE regards, could you give us a little more granularity on kind of what happened in those index-knee AE, which patients they were in as much as you can kind of give us in terms of information? And then kind of stepping back from that, what do you think is an acceptable tolerability profile for a knee OA gene therapy drug given what you've seen so far, particularly in terms index-knee AE from the trial?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah. Well, these are adverse events in two out of five patients in the low-dose cohort that played out over the course of days or weeks. They're -- as you know, they are Grade 2, so they were not moderate-to-severe, and they resolved with conservative treatment. I think we're going to have to look at what the data tell us, Madhu, in terms of efficacy balanced by, in this case, modest and judged to be tolerable AE. So, I think it's really way premature for us to say chapter and verse on exactly what the equation will look like. Clearly, the more tolerable this product is the better. But everything is benefit risk. And if there's extraordinary benefit, that would balance out to some extent, some degree of local adverse event if that should persist. But I don't want to be in the mode of speculating in the absence of the data.

Madhu Kumar -- Goldman Sachs -- Analyst

Okay. Well, then, to the end, the patients who had the index-knee AEs, were they patients who didn't achieve the 50% reduction? Like how should we sort out kind of which patients had these AE events as compared to the patients who received benefit [Speech Overlap]?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah, we've not -- yeah, it's a great question, Madhu. We've not publicly disclosed that. And that's not something we're prepared to talk about. But we will absolutely be transparent with those data at the right time.

Madhu Kumar -- Goldman Sachs -- Analyst

Okay. Great. Thanks very much.

Operator

Thank you. Our next question comes from Serge Belanger of Needham & Company. Your line is open.

Serge Belanger -- Needham & Company -- Analyst

Hey, good afternoon. I guess my first question to Mike or Melissa, have you completed other spot surveys with your group of orthopedists since we last spoke, just to give us an idea if we're seeing improvements in patient volumes in the early part of the second quarter? And then, second question just a bookkeeping one for David. Since you've restarted manufacturing in the fourth quarter, are we now reaching steady-state levels of COGS or should we still expect to see some variability in the second quarter? Thanks.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Melissa, do you want to take that first question?

Melissa Layman -- Chief Commercial Officer

Sure. Yeah, I can take the first one. So, the last time that we checked in on patient flows to practices was on near the end of February. And we have heard no change in some one-off conversations with practices as well as with our field leadership team that patient flows remain at around 80% of pre-COVID levels. And when we did that checking back in February, we also asked a panel of 30 or so orthopedists how long they expected that to remain. And they had said they thought it would carry through to at least the middle part of this year.

David Arkowitz -- Chief Financial Officer

Yeah. Hey, Serge, it's David, on your question about COGS. So, as I had said previously, we were expecting to get back to kind of normalized pre-COVID gross margin percentage levels this year. First quarter gross margin percentage was 75%, a bit lower than what we had anticipated. We expect that to improve during this year, but to continue to have a certain level of inherent operational and cost variability as we are ramping up. Beyond this year, I think that's when we start thinking about steady state and getting to a target gross margin percentage of around 90%.

Serge Belanger -- Needham & Company -- Analyst

Thanks. Best of luck, David.

David Arkowitz -- Chief Financial Officer

Thanks, Serge.

Operator

Thank you. Our next question comes from Gary Nachman of BMO Capital Markets. Your line is open.

Evan Hua -- BMO Capital Markets -- Analyst

Hi. This is Evan Hua on filling in for Gary. Thanks for taking my question. First, based on the initial cut of the low dose data, is there any modifications you're able to implement, sort of, different other cohorts for the remainder of the trial? And secondly, for ZILRETTA, where are the sales reps now in terms of face-to-face interactions with physicians? Is there any modifications you plan on doing either to the sales force or the target physicians? Thanks.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

So, I'll answer the first question. Melissa, obviously, will take the second. But just if you would clarify for me, what kinds of modifications are you asking about?

Evan Hua -- BMO Capital Markets -- Analyst

I guess, in terms of the safety and anyways to -- and -- or dosing frequency or just -- anyways...

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah, I would say this. Based on the very mild nature of these AEs in the low-dose cohort, there would not be a compelling reason to modify the protocol. Obviously, what we will do is look at the entire dataset, low, mid and high dose and ensure that we're doing what's right for patients and for the product. So, there's certainly nothing I can tell you with confidence that there's nothing in this dataset that would have pushed us to consider a modification protocol.

Melissa Layman -- Chief Commercial Officer

And with regard to the second question around the degree to which our sales force is back to face-to-face interactions with our customers, I would say sort of what I've said previously, which is that across all of our 100 or so MBM territories, our reps are able to see some percentage of their customers; in some cases, all of their customers; in some cases, 60%, 70%, 80% of their customers in terms of face-to-face office visits. And that's just based on what individual practice policies are in the moment with regard to allowing industry visits to come back.

And with regard to the second part of your question around any foreseeable changes to the sales force, we're still in the process of synthesizing our findings relative to our optimized footprint. I would simply say at this time, we don't anticipate any material changes to the size of our sales organization, more to come on that.

Evan Hua -- BMO Capital Markets -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Patrick Trucchio of H.C. Wainwright. Please go ahead.

Patrick Trucchio -- H.C. Wainwright & Co. -- Analyst

Hi, good afternoon, and congrats on all the progress with ZILRETTA and the pipeline. I'm wondering should we think of the regulatory bar for approval of a gene therapy treatment such as FX201 as being consistent with the updated guidance FDA has provided on disease-modifying OA drugs. And if it is, can you discuss your level of confidence that 201 could demonstrate the benefit on both the pain scores as well as disease modification? And then related to the disease modification, how would you be measuring or evaluating disease modification in the current trial under way or in a larger Phase 1 trial to follow?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Pat, thanks very much for those questions. They're good questions. I think it's fair to say that there is far from clear understanding of what the agency will accept for disease modification. The guidance is pretty high level. And we are capturing X-ray and MRI data, but the key thing is to have a validated endpoint from the imaging studies that one can hang their hat on that will be endorsed by the FDA. And I'd say that's very much in front of us.

We are particularly interested in durability and magnitude of pain relief and functional improvement. And that -- if we get at least six to 12 months of that, of meaningful improvements in those domains, that will be enormous. Icing on the cake would be evidence of disease modification. And I know you know this, Pat, but I'll just kind of point out that patients make the decision to get their knee replaced, patients with advanced OA, which are patients with advanced pain and functional compromise make the decision to get their knee replaced, not because of an imaging study.

They get -- the decision to get their knee replaced based on the fact that they can't leave the lives they want to live, lead and have pain that's refractory to available therapeutics. So from our perspective, being able to hit on both of those cylinders, pain and function, would provide tremendous benefit to patients and have the great potential, the potential to not have those patients need to make a decision about knee replacement as soon as they might otherwise. Again, this is all in front of us. We have to generate the data, but the logic that hangs together here is around symptom improvement as a prelude to delaying the need to make a decision for total knee replacement.

Patrick Trucchio -- H.C. Wainwright & Co. -- Analyst

Yeah. That's helpful. Thank you very much.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thanks, Pat.

Operator

Thank you. Our next question comes from Francois Brisebois of Oppenheimer. Your line is open.

Francois Brisebois -- Oppenheimer -- Analyst

Hi, thanks for taking the questions and best of luck, David, on the next job. I was just wondering Melissa, in terms of the new metrics here, is there a particular order -- particular reason for the order that they're presented in. And on Slide 5, I guess, the purchase accounts to go 100 up to 300 and more, is there kind of a maximum threshold where you think accounts can only purchase a certain amount of units per quarter?

Melissa Layman -- Chief Commercial Officer

No intention behind the order of the slides. Just kind of thought that the summary slide upfront followed by revenue performance and demand performance, and then sort of a breakdown of where our demand performance came from seemed logical. And with regards to do we think there's sort of a ceiling on penetration at the account level, we don't and certainly, there's not one insight today. I think that even among our highest using customers, we continue to believe that we've only scratched the surface with the opportunity within a given HCP patient population, but also across practices, patient population.

Francois Brisebois -- Oppenheimer -- Analyst

Okay. Great. And then Mike, in terms of the WOMAC-A score, can you just remind us, I think, back a few years ago, ZILRETTA had shown some serious improvement over -- in both -- in all three WOMAC-A, B and C. So I was just wondering why only show WOMAC-A, is there a reason here?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Well, we are particularly focused on pain and function, and KOOS as an instrument actually encompasses WOMAC-C, the function domain for WOMAC and asks questions beyond that. It's a very -- it's an instrument that's very familiar to the orthopedic community. And we made the decision to use that this time around as maybe even a more robust characterization of functional improvement.

Francois Brisebois -- Oppenheimer -- Analyst

Okay. Great. And then just lastly on gene therapy, is there -- sometimes people think about astronomical costs here, can you just remind us why it might be a lot less expensive here for OA of the knee?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah, I mean, because we're injecting locally and we're asking the vector to produce sufficient protein to achieve a therapeutic concentration in five MLs, I mean, basically, a teaspoon full worth or about that anyway, a very small volume. It is -- if you compare that to the volume of the intravascular space, the blood volume that's about 6,000 ML. So this is three orders of magnitude less. So you can dose down proportionately to achieve the therapeutic concentration in the knee joint. And by dosing down, your COGS are less challenging and that creates pricing latitude that will allow you to charge a price that will be consistent with deriving value for the product, but will not be astronomical.

Francois Brisebois -- Oppenheimer -- Analyst

Okay. Great. And would someone, if six months their ability was shown, why would someone choose ZILRETTA over this? Is there any reason to or are they [Speech Overlap]?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah. We get asked this a lot, Franc, and I -- it's a fair question. But what you get with ZILRETTA is you get highly reliable pain relief for three months, four months and 93% -- by our own data, 93% of patients respond to ZILRETTA. That's pretty remarkable. And so, for a person who is entering ski season or is going on a trip somewhere and wants to have that reliable pain relief and knows that it's going to kick in within a matter of days, ZILRETTA will be -- in my humble opinion, I expect ZILRETTA will be -- continue to be the tried and true therapeutic that will address that need. For someone who has different circumstances and wants to have a longer pain relief, what we have in front of us is how -- what the magnitude will be and how durable it will be and how expensive it will be. And all those factors have to be put together in an equation that patient and physician decide on. But I can't -- given the unmet medical need here, Franc, let's pull way up 8 million knee injections a year. And many, many patients, over 1 million patients going to total knee replacement a year, the unmet medical need is vast and the field needs multiple effective therapies.

Francois Brisebois -- Oppenheimer -- Analyst

Okay. Great. Thank you very much.

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Thank you.

Operator

Thank you. Our next question comes from Carl Byrnes of Northland Capital Management. Your line is open.

Carl Byrnes -- Northland Securities, Inc. -- Analyst

Great. Thank you. Congratulations on the progress. Looking at the demand being up 6% sequentially over the fourth quarter despite the challenges of COVID and power outages, extended power outage that is in Texas and the deductible GAAP which you also get in the first quarter, do you have any sort of visibility or read into what the pent-up demand of these anomalies might be? Thanks.

Melissa Layman -- Chief Commercial Officer

It's a great question. I don't know that I would characterize it necessarily as pent-up demand, I think it's probably a combination of the reflection of us being back out there in fuller force, practices, catching up with their own patient populations that maybe, they've been seeing to a lesser degree in the quarters proceeding Q1 and just continued improvement with regard to our sales effort, our blocking and tackling at the account level.

Carl Byrnes -- Northland Securities, Inc. -- Analyst

Great. Thank you.

Operator

Our next question comes from Daniel Busby of RBC Capital Markets. Your line is open.

Daniel Busby -- RBC Capital Markets -- Analyst

Hi, everyone. I have a couple of questions on the commercial metrics that you disclosed today. First, if we look at the old commercial metrics, I think around 4,400 total accounts had purchased ZILRETTA since launch. But if I look at the slides today, only about 2,000 accounts purchased it during the first quarter. Can you help reconcile those two numbers for us? How much of the difference is accounted for by variability and the timing of orders versus accounts that have tried ZILRETTA, but are no longer using it?

Second, it looks like roughly 12.5% of all ZILRETTA demand in the first quarter came from your Top 15 accounts. Is there anything unique or different about those accounts that explains the large order sizes? Just trying to tease out whether that's an achievable target for what may be a more typical account? Thank you.

Melissa Layman -- Chief Commercial Officer

Both great questions. So I think the difference between what you saw in terms of cumulative accounts purchasing to date versus the 2,044 that purchased in Q1 is 100% what you've suggested, which is just a difference in the timing within a quarter when an account might make their purchases. And they may be purchasing based on when they might have, wanting to sort of shore up their access to rebating. It may have more to do with just the way that their patients are flowing. But I don't think that there is anything else that connects or disconnects the total number of cumulative accounts purchasing with those that purchased in Q1.

With regard to your second question about the percentage of our accounts that purchased in Q1 in the top tiers, we actually -- we looked at this data a bunch of different ways and got to the conclusion, as I stated in my prepared remarks, that among those 99 accounts that comprise the Top 2 tiers of purchasers in the first quarter, our penetration rate could be as high as 60%-plus. I think we look at that as a potential model for where we can go with some more significant proportion of our accounts in the event that we're able to apply the same level of voice and intensity around a broader base of accounts, the way that we have with those 99 accounts that today sits in the Top 2 tiers for first quarter purchasing.

Daniel Busby -- RBC Capital Markets -- Analyst

Okay. And if I could ask a quick follow-up, are those Top 99 accounts, they tend to be larger than your average account?

Melissa Layman -- Chief Commercial Officer

They're -- it's really across the board in terms of the number of docs, the number of patients that they see the size of the opportunity. There's no sort of unique or set of unique characteristics that tie those 99 accounts together.

Daniel Busby -- RBC Capital Markets -- Analyst

Got it. Appreciate the color.

Operator

Thank you. Our next question comes from Bruce Jackson of The Benchmark Company. Your line is open.

Bruce Jackson -- The Benchmark Company -- Analyst

Good afternoon, and thanks for taking my questions. So for Melissa, a couple of quarters ago, we were talking about the increase in the backlog for total knee replacement surgeries. Have you seen any change in that backlog in the market and with your physician survey, they said things might back to normal middle of this year. How long do you think that the backlog in surgeries might persist?

Melissa Layman -- Chief Commercial Officer

So when we did our last checking with our panel of orthopedics back in February, we asked about both the resumption of patient flow to practices versus pre-COVID levels, as well as sort of where things stood from the OR standpoint. And they cited in both cases, if they were still living around 80%, I would translate that to mean that we've probably worked through the majority of the backlog of TKA procedures. But certainly as we get above 100% -- get above 80% in both settings of care, we might expect to see some dribbling in upside as we get back to normative levels of TKA procedures as well as more normative levels of patient flow to practices.

Bruce Jackson -- The Benchmark Company -- Analyst

Okay. And then one follow-up if I could, the other thing that was discussed a few quarters ago is the ability to access some of the high-prescribing accounts, who had finally had some time to evaluate ZILRETTA, what's the experience been like in those accounts? Are they reordering? And are you getting more of the physicians within those practices to start using ZILRETTA?

Melissa Layman -- Chief Commercial Officer

Yeah. I think what you're referring to is the fact that, during the height of the pandemic, where physicians were out of their offices and relegated to their home offices and not seeing patients who gave us the opportunity through remote means to be able to access some HCPs that we maybe previously had a harder time accessing. And I think that our experience has been that, A) not insignificant percentage of those HCPs that we were able to access remotely during that sort of heightened period of the pandemic have resulted in some new customers coming on.

Bruce Jackson -- The Benchmark Company -- Analyst

Okay. Thank you very much.

Operator

Thank you. At this time, I'd like to turn the call back over to Mike Clayman for closing remarks. Sir?

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Yeah. I'd like to just thank everybody for their time and attention. I appreciate your support. We're excited about where we're and what the future holds for us. And we're looking forward to updating you on our progress over time. Be well, everybody.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

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

Michael D. Clayman -- Chief Executive Officer & Co-Founder

Melissa Layman -- Chief Commercial Officer

David Arkowitz -- Chief Financial Officer

Frederick W. Driscoll -- Chief Financial Officer

Elliot Wilbur -- Raymond James and Associates -- Analyst

Madhu Kumar -- Goldman Sachs -- Analyst

Serge Belanger -- Needham & Company -- Analyst

Evan Hua -- BMO Capital Markets -- Analyst

Patrick Trucchio -- H.C. Wainwright & Co. -- Analyst

Francois Brisebois -- Oppenheimer -- Analyst

Carl Byrnes -- Northland Securities, Inc. -- Analyst

Daniel Busby -- RBC Capital Markets -- Analyst

Bruce Jackson -- The Benchmark Company -- Analyst

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