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Flexion Therapeutics, inc (NASDAQ:FLXN)
Q2 2021 Earnings Call
Aug 4, 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 Second Quarter 2021 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Scott Young, Flexion's Vice President of Corporate Communication and Investor Relations.

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

Good afternoon. A short while ago we issued a press release announcing our second quarter financial results. That press release and our latest 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 Fred Driscoll, Flexion's Chief Financial Officer.

On today's conference call, 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 and Co-Founder

Thanks, Scott. And thank you all for joining. In the press release we issued this afternoon, we provided a number of important updates on our commercial performance, R&D progress, and a recent debt refinancing, all of which we will discuss in more detail on today's call. However to begin, I would like to officially welcome Will Anders, our new Chief Medical Officer. Will joined us in early July and his presence and leadership is already being felt across the organization, and I look forward to his important contributions in the years ahead.

Moving to our commercial performance, we recorded $28.2 million in ZILRETTA net sales during the second quarter, which represents solid growth of 15% over the first quarter. This result was in line with our expectations and we are reiterating our full year ZILRETTA sales guidance in the range of $120 million to $130 million barring any unanticipated impact from COVID 19 in the second half. Stated simply, we believe ZILRETTA is a product that makes a real difference for patients confronting OA, knee pain. Our charge is to ensure that we are bringing its benefits to as many of them as possible, and that's exactly what Melissa and her team are focused on. They've been making excellent progress executing against our three commercial priorities and I will look to her to provide more color on those efforts and to share perspectives from the field on patient flows at healthcare practices.

Before I move to recent clinical progress, I want to acknowledge the impact of Fred Driscoll has made since rejoining us as CFO in June. Under his leadership, we have introduced important cost containment initiatives across all functions within the company to ensure that we are scrutinizing every aspect of our spend and utilizing our resources judiciously. Consistent with this we have curtailed our hiring with each new position requiring justification that it addresses an immediate and critical need. In addition, we've bolstered our cash position by recently refinancing our term loan, which in non-dilutive fashion extends our estimated cash runway into 2023. I'll look to Fred to provide more color on that agreement and our financials in just a few minutes.

With respect to our life cycle management activities and clinical progress, expanding ZILRETTA label to include shoulder OA remains a priority, while shoulder OA is a smaller total addressable market than knee OA with roughly 6,000 injections this year versus 8 million for knee OA. The dearth of effective pharmacologic treatments in shoulder OA creates the potential for ZILRETTA to play a particularly meaningful role in helping this patient population, manage their pain and improve their function. We remain on track to initiate a registration trial of ZILRETTA and shoulder OA before the end of the year. Regarding our pipeline, we are efficiently progressing both FX301 and FX201. FX301 is our investigational locally administered thermo sensitive hydrogel formulation of a NAV 1.7 inhibitor funapide, targeted as a peripheral nerve block for control of post-operative pain. Unlike currently available nerve blocks, we believe the unique formulation and selective pharmacology of FX301 have the potential to deliver at least three to five days of effective pain relief while preserving motor function which could enable early ambulation, rapid discharge from the hospital, and enhanced rehabilitation following musculoskeletal surgery. We have fully enrolled the single ascending dose portion of our Phase 1b proof of concept trial of FX301 in patients undergoing bunionectomy. Based on the data, a decision will be made whether to expand a selected dose and volume cohort by another 36 patients. Results from this trial are expected by late this year. With respect to FX201, our investigational locally administered gene therapy, which aims to provide at least six to 12 months of knee OA pain relief and functional improvement while also potentially modifying disease progression, in June we fully enrolled the high dose cohort in our Phase 1 single ascending dose trial. The multi-center open label study is evaluating three doses low, mid and high of FX201 in cohorts of five to eight patients for two years.

In addition, in the first quarter of 2021, we expanded the trial to include up to 20 additional patients in both the low and mid dose treatment groups. To date the most commonly observed treatment-related adverse events in the trial had been pain, swelling and a fusion in the injected knee. While these events have been tolerable, we recently made the strategic decision to investigate pre-treatment with an intra articular injection of an immediate release steroid prior to FX 201 administration as a means of mitigating these potential AEs. Vector based gene therapies are known to elicit acute immune reactivity and the approach we are investigating is similar to the way other gene therapies employed pre-treatment with immune suppressing steroid regimens to mitigate acute AEs and potentially improve durability of response. As of August 1, 40 patients have been treated across all cohorts, including the expansion groups of the low and mid doses. In total, we expect to treat up to an additional 38 patients across all dosing cohorts with the pre-treatment regimen, assuming the high dose is cleared soon for expansion by the Data Monitoring Committee. Additional data readouts are anticipated by the end of 2021, including the interrogation of synovial fluid from patients to assess biological activity of FX201 locally in the joint and potential correlation with clinical endpoints over time. At this point, I'll turn it over to Melissa.

Melissa Layman -- Chief Commercial Officer

Thank you, Mike. As Mike mentioned, net sales in the second quarter were $28.2 million which represents 15% growth over the first quarter. Overall, we were pleased with this performance and we feel very good about the opportunity for continued growth in the second half. Just last week we conducted another round of surveys with a sample of 25 physicians to gauge the current impact of COVID on orthopedic practices. The respondents indicated that throughout the second quarter, patient flows to offices were back to about 90% of pre-COVID levels. Based on the recency of the survey, we were able to obtain a sense for if and how the proliferation of a variant could impact practices and approximately 20% of practices surveyed indicated they have seen a recent reduction in both surgical and in-office patient flows. In the event that we see more states or more major metropolitan areas reintroduce lockdown, there could potentially be further disruptions to orthopedic offices. We are monitoring developments closely and our teams are prepared to work remotely should that be required in individual territories.

Moving on to our three strategic priorities, amplification of the patient voice, pricing and physician reimbursement, and positioning and market segmentation, we are making progress against each. With regard to our first priority amplification of the patient voice, we have revised our messaging to even more effectively articulate and emphasize the unique product attributes of ZILRETTA that distinguish it from other intra articular injections, and we are rolling out several new tools and programs intended to enhance physician awareness of the unique patient experience that ZILRETTA delivers. Related to our second strategic priority, on August 2 we implemented a 5% price increase for ZILRETTA which took the wholesale acquisition cost from $570 to $598.50. This is the first price increase we have taken since the product was introduced in 2017 and it is supported by market research that indicates such an increase is aligned with the perception of the value ZILRETTA delivers to patients and providers. In conjunction with the price increase, we are also refining our rebate program and have introduced off invoice discounting. ZILRETTA is a buy-and-bill product an off invoice discounting can help smaller accounts in particular adjust to the change in price and more effectively manage their cash flow. Since we are combining an off invoice discount program with the price increase, we are not anticipating the implementation of this strategy will have any meaningful impact on net sales for the remainder of this year. In addition, we are now equipped to contract with accounts that have the ability to an interest and buying ZILRETTA in larger volumes. Our third strategic priority largely centers on our footprint optimization efforts, which will be implemented later this year. I expect to be able to share more specific details about these efforts in coming months.

Moving on to our commercial metrics then, on slide 2 here we have provided a dashboard view of the current quarter versus the prior quarter and the current quarter versus the same period in the prior year. As you can see in the bar chart, net sales in the second quarter grew by 15% over the first quarter of this year and by 82% versus Q2 of last year when we were facing the height of the COVID 19 impact. We also saw growth in demand for ZILRETTA from HealthCare providers with Q2 demand growing by 7% over the first quarter of this year and by 55% as compared to the same quarter over last year. In the second quarter, 2105 accounts purchased ZILRETTA as compared to 2044 accounts in Q1 2021, and of the accounts that purchased ZILRETTA in Q2, 90% purchased product in the prior quarter.

On slide 3 and 4, we highlight quarterly net sales and quarterly demand respectively. As a reminder, we primarily sell ZILRETTA to specialty distributors and we recognize sales upon receipt of product by those distributors. Demand refers to the actual orders placed by account such as physician practices, clinics and certain medical centers or hospitals with the specialty distributors.

On slide 5, we breakout 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 shows you the total number of units purchased within the quarter in volumes 1 to 100, 101 to 300, and 301 plus units, as well as the number of accounts purchasing at these volumes within the quarter. In Q2, roughly 42% of ZILRETTA units were purchased by accounting quarterly volumes of more than 100 units. We believe this is the result of our team's continued focus on growing utilization in the accounts which hold the greatest purchasing potential. We know that broader use of the product typically starts with the prescriber realizing and appreciating the full benefits ZILRETTA provides to an individual patient eliminating the patient experience. From there, they expand use into

Different patient types and once convinced of its differentiated benefits extending the use of ZILRETTA to other physicians within the practice.

In Q2, 114 accounts purchased in the top two tiers, up from 99 accounts in Q1. And using their historical quarterly intra articular injection volumes as a proxy for their market opportunity we estimate ZILRETTA penetration among these 114 accounts maybe as much as 48%. As I mentioned on the last call, this does not suggest that those accounts have fully adopted ZILRETTA, rather it is an illustration of how our increased focus on the accounts with the greatest potential for increased adoption can accelerate ZILRETTA's growth. We know ZILRETTA is a product that is making a real difference in the lives of people who confront OA knee pain. The stories we hear on a daily basis reinforce the value this medicine can have for patients in need and we are working to make them more visible to the individual physicians and practices that manage these patients. We remain confident that our passion for getting ZILRETTA to more and more patients coupled with our expectation of successful execution against our three strategic priorities will enable us to realize ZILRETTA's true potential. With that, I'll turn it over to Fred.

Frederick W. Driscoll -- Chief Financial Officer

Thanks, Melissa. As Mike mentioned, ZILRETTA net sales in the second quarter were $28.2 million which reflect a gross to net reduction of 18.5%. This reduction includes rebates to healthcare providers that are variable and based on the volume of product purchased. Total provider rebates accounted for a gross to net reduction of approximately 9% in Q2 and the remaining gross to net reduction of approximately 9.5% is comprised of distributor and service fees, returns reserve, and mandatory government discounts rebates including Medicaid, 340 B institutions, and Veterans Administrations and Department of Defense. At the end of the second quarter, the aggregate inventory held by specialty distributors was slightly above the one to three weeks we target. We reported a net loss of $22.2 million for the second quarter of 2021 compared to a net loss of $32..6 million for the same period of 2020. Our loss per share for the second quarter of 2021 was $0.44 compared to $0.76 for the same period of 2020. This improvement is due to a variety of factors, particularly the impacts of COVID on our operations last year. However, I can say that cost containment is a top of mind consideration for our management team.

Cost of sales was $5 million and $5.5 million for the three months ended June 30, 2021 and 2020 respectively. Gross margin was $23.2 million or 82% compared to $10 million or 65% of sales for the three months ended June 30, 2021 and 2020 respectively. The improvement year-over-year reflects the scale up in production in 2021 as compared to the shutdown and unabsorbed overhead cost in 2020 caused by COVID. Importantly, we saw continued improvement in our gross margin rate in Q2 at the aforementioned 82% compared to 75% in Q1 as we move toward a more normalized manufacturing level. Regarding research and development expenses, they were $12.7 million and $12.5 million for the three months ended June 30, 2021 and 2020 respectively. The net result reflects the decrease of $900,000 in development expenses due to reduction in ZILRETTA life cycle management activities and a decrease of $500,000 in salary and other employee-related costs and stock-based compensation expense related to lower headcount. The decreases were offset by increases of $600,000 and $400,000 respectively related to the FX201 and FX301 pipeline programs due to increased clinical trial activity.

Selling, general and administrative expenses were $27.4 million and $24.7 million for the three months ended June 30, 2021 and 2020 respectively. Selling expenses were $18.9 million and $16.8 million for the three months ended June 30, 2021 and 2020 respectively. The year-over-year increase of $2.1 million was primarily due to the partial resumption of industry conferences and physicians' speaker programs and increases in business travel during the quarter. General and administrative expenses were $8.5 million and $7.9 million for the three months ended June 30, 2021 and 2020 respectively, which represents an increase of $600,000. Interest income was $200,000 and $100,000 for the three months ended June 30, 2021 and 2020 respectively. Interest expense was $5.2 million and $5.0 million for the three months ended June 30, 2021 and 2020 respectively.

As of June 30, 2021, the company had approximately $131.2 million in cash, cash equivalents and marketable securities compared with $175.3 million as of December 31, 2020. On July 29, 2021, we entered into a second amendment to our amended and restated credit and security agreement with Silicon Valley Bank, MidCap Financial Trust, and other lenders for providing for a non-dilutive term loan of up to $55 million available at closing and a revolving credit facility of up to $25 million. We borrowed the available amounts and used $48.1 million of the proceeds to repay our outstanding 2019 term loan and revolving loans. The credit facility requires interest only payments until August 1, 2023. We anticipate that the new agreement will result in an approximately $59 million improvement to cash flow through 2023, net of the term loan proceeds, payment of the outstanding 2019 term loan balance and deferring principal payments for two years. As Mike mentioned, the refinancing, strengthens our cash position and provides us with an estimated cash runway into 2023.

Finally, with respect to our operating expenses, we continue to guide full year OpEx including cost of sales. R&D expenses and SG&A expenses in the range of $195 million to $205 million. However, as Mike mentioned, in my first 60 days back as CFO, we have initiated a deep dive review into all aspects of spending in the company with a goal to reducing our operating costs. Once complete, we will have more to say on this in the future quarterly update. At this point, I would ask the operator to open the line for Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is going to come from Elliot Wilbur from Raymond James, your line is now open.

Unidentified Participant

Hi guys, this is actually Michael Larry [Phonetic] on for Elliot. Thanks for taking my questions. So first one I guess, the decision to pre-treat FX201 with the steroids, is that simultaneous with the administration of FX201 or is there a gap? And then also, is there potential to maybe use like ZILRETTA versus the IR steroid? And then secondly in terms of gross to net trends for ZILRETTA. I believe you guys were somewhere in the ballpark of like 18% last quarter, just wondering where that is and where you see it trending in the near term. Any update on rebate strategies and successes you're saying would also be helpful. Thanks.

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

I'll take the first two questions and I'll push the next two questions to Fred and Melissa. So in terms of timing of the steroid injection, it's done immediately prior to the FX201 injection. And what we're trying to accomplish here is to address a short-term phenomenon in terms of adverse events. So we don't think that that requires ZILRETTA and as a result we're going with a steroid that has been used in the clinical trials that have demonstrated a short-term and immediate release steroid has demonstrated its ability to quell these reactions. Fred?

Frederick W. Driscoll -- Chief Financial Officer

Yeah, I think the next question, could you just repeat that. The next question, I'm sorry.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Gross to net where you guys were last quarter and then trend in near term with like let's say, up until 2022.

Frederick W. Driscoll -- Chief Financial Officer

Yeah, gross to net I think as we said in the -- in our script was 18.5% for the quarter. I think what -- Melissa, 'll turn it to you to just to give some updates as to where you think where we go from here.

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

Melissa might be on mute.

Melissa Layman -- Chief Commercial Officer

Sorry about that. Can you hear me?

Elliot Wilbur -- Raymond James and Associates -- Analyst

Yeah.

Melissa Layman -- Chief Commercial Officer

I'd say, I don't think we're going to give forward-looking guidance on where we anticipate gross to net will go. Oh, and sorry, I should pass [Phonetic] back to me again probably too for the third question right, which I believe is around rebates and whether we've seen positive results coming from rebates. So, as you know we have been -- we have deployed a broad based rebate program going back to the third quarter of 2019, I would say that we have seen great success with that rebate program, which is why as I referenced in the prepared remarks earlier today that part of the new pricing strategy that we rolled out just earlier this week included a continuation of our rebate program.

Elliot Wilbur -- Raymond James and Associates -- Analyst

Got it. Thank you.

Operator

And thank you, and our next question comes from Madhu Kumar from Goldman Sachs. Your line is now open.

Madhu Kumar -- Goldman Sachs -- Analyst

Hey guys, thanks for taking our questions. So first one kind of following up on the earlier question about FX 201, kind of stepping back and bigger picture. What do you need to see in terms of a tolerability profile for the gene therapy to kind of give you confidence to move forward into larger scale randomized trials, and then kind of paralleling that what do you see in terms of efficacy and I guess like obviously our frame of reference is ZILRETTA here, like what do you [Phonetic] efficacy for FX201 to want to proceed moving forward with 201 randomized controlled trial? And I have a follow-up after that.

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

Yeah. Fair questions, Madhu. And bottom line, what we need to see in terms of safety is a substantial mitigation of the adverse events. What that looks like exactly, we've not reduced to some formulaic set of observations. We have data now on all three dosing cohorts. And what we believe is that this approach will make a meaningful difference in terms of reducing the prevalence of those. And even though they were modest, they were all mild to moderate, we expect that the severity, the mild to moderate characterization will be even less. So we're going to look at the data, I think we will know relatively quickly whether this intervention is making the kind of difference that we would hope and expect it would. In terms of efficacy, we're going to need to see meaningful pain relief and functional improvement -- clinically meaningful pain relief and functional improvement for at least six to 12 months following a single injection.

Madhu Kumar -- Goldman Sachs -- Analyst

Okay. And then a follow-up for [Indecipherable] Fred over there. As we think about kind of where you think cost savings could occur, how much of that could potentially be on the product pipeline from the clinical development front as compared to kind of improve the efficiency of selling of ZILRETTA. How are you guys thinking for that right now.

Frederick W. Driscoll -- Chief Financial Officer

Yeah, Madhu. I think we really need to see, as Mike just said, we need to see over the course of the remainder of the year where the clinical data sets come out on 201 and 301 as we guide toward and think about how research and development expenses move into next year. But as I said, we are really conducting an extensive review of all of our operating expense spending across every sector within the company. And once that's completed, we will have more to say about the impact about that in an upcoming call.

Madhu Kumar -- Goldman Sachs -- Analyst

Okay, great. Thanks everyone.

Frederick W. Driscoll -- Chief Financial Officer

Thank you.

Operator

Thank you. And our next question comes from Daniel Busby from RBC Capital Markets. Your line is now open.

Daniel Busby -- RBC Capital Markets -- Analyst

Hi, good afternoon. I've got a couple on ZILRETTA. So first, can you talk a little bit more about your current assumptions for patient flows in the second half of 2021 relative to the 90% level you referenced for the second quarter? And second, can you provide any qualitative color on the expected cadence of ZILRETTA sales in the third and fourth quarters? Is it reasonable to assume a fairly linear trend or are there other dynamics at play that could influence that?

Melissa Layman -- Chief Commercial Officer

Sure, Daniel. I'm going to take those in reverse order. So I think with regard to the second half, historically we do see our strongest sales in Q3 and Q4. We're continuing to guide to full year net sales in the range of $120 million to $130 million. We're not providing quarterly guidance at this point, but you can go back and look at our historical quarterly cadence to get a sense of how the quarters typically fall out. And with regard to your question around patient flows to practices in the back half of the year, I think we kind of said it in the prepared remarks that we saw an increase of patient flows to practices in this last fielded survey versus the one prior going from 85% to 90%. But we also at the same time asked those respondents about whether they anticipated they would see -- or if they were seeing or anticipated they would see any coming declines in flows again as a result of the proliferation of COVID. And what they told us was a third of the respondents that we spoke to said that they were seeing a decrease -- a real-time decrease in patient flows of between 40% and 50%. That was only a third of the survey respondents that we spoke to, which in total with 25.

Daniel Busby -- RBC Capital Markets -- Analyst

Okay, so fair to say you factored some of that into your second half assumption?

Melissa Layman -- Chief Commercial Officer

I think as we said in prior calls, right, we had always kind of assumed that patient flows to practices would remain around 80% through the mid part of the year with some modest improvement in that in the back half of the year. Declined to 90% now in certain parts of the country, it may be back down to something less than that. So I think yeah it's fair to assume that adequately baked into our plan for the rest of the year.

Daniel Busby -- RBC Capital Markets -- Analyst

Got it. Thank you.

Operator

Thank you. And our next question comes from Gary Nachman from BMO Capital Markets. Your line is now open.

Unidentified Participant

Hi, thanks for taking the question. This is M. Fla [Phonetic] filling in for Gary. So for ZILRETTA, are there a lot more new accounts you are able to tap into? And what will be the focus going forward once they are tapped? Thanks.

Melissa Layman -- Chief Commercial Officer

So I think I would say that there's not a lot more new accounts for us to tap into. We're four years in the market. We do continue to bring on new accounts to the tune of I'll say 100 to 120 quarter-over-quarter, but that number is declining over time because there are fewer new accounts to come on as we start to penetrate more and more accounts. I would say that our primary focus going forward is to deepen or increase our penetration among our existing user accounts, and part of the work that I talked about in the past related to our footprint optimization aims to get exactly at that, either helping us to identify and understand which accounts out there that are already existing users have the propensity to move further and faster and there's already [Phonetic] adoption and increasing our focus around those types of accounts we believe is the right way to accelerate growth in the near term.

Operator

And thank you. And our next question comes from Serge Belanger from Needham & Company. Your line is now open.

Serge Belanger -- Needham & Company -- Analyst

Good afternoon. First question for Melissa, do you believe there is still kind of pent-up demand in the market either from patients who have had their knee replacement surgeries postponed or patients who have stayed away from seeing their positions [Phonetic] over the last year and can that pent-up demand add to the ZILRETTA volumes in the second half?

Melissa Layman -- Chief Commercial Officer

Hey Serge, it's a good question. I think it's a little bit of a complicated answer. If we had stopped at the response from our survey that that patient flows to practices were back to 90%, I think my answer to that would have been there may still be a little bit of pent-up demand out there that has yet to be realized by us. I think we realized the majority of the pent-up demand as we were sort of in the mid and latter part of last year. But when you add to that statistic the 90% patient flow statistic from the recent survey, when you add to that that there was a not insignificant number of respondents who actually said that they were seeing real time decreases in their patient flows because of COVID proliferation to the tune of 40% to 50%, I would suggest that whatever pent-up demand may still be out there that we would have otherwise been able to realize in the back half may be muted by what's happening in pockets across the country relative to practices slowing down and elective procedures being delayed.

Serge Belanger -- Needham & Company -- Analyst

Okay. And my second question again from Melissa or maybe for Fred related to the recent 5% price increase. It doesn't sound like you will be able to realize it in 2021. But when you do, what amount of that price increase do you think will impact the net price?

Melissa Layman -- Chief Commercial Officer

Well, I think, I think there's -- that's a bit of a complex answer as well because as you heard in the prepared remarks, not only do we rolled out a price increase, but we also rolled out off invoice discounting. And in the near term, i.e. sort of 2021, we anticipate that the material impact from the combination of those 2 things will be -- it will be awash. As we go further out and contemplate what we'll be doing from a price increase and discounting strategy in 2022, we'll certainly share those insights with you but we're not prepared at this point to talk further than what we're -- what we planned and what we've executed for 2021.

Serge Belanger -- Needham & Company -- Analyst

Okay, thank you.

Operator

And thank you. [Operator Instructions] And our next question comes from Patrick Trucchio from HC Wainwright, your line is now open.

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

Hi, thanks and good afternoon. Just a follow-up regarding FX301. I'm wondering if you can remind us the advantages in terms of the formulation of FX301 versus prior attempts at this pathway. And secondly, should we expect to have a better understanding of those advantages after Part 1 or Part 2 of the Phase 1 trial or would we need additional data from a Phase 2 trial? And then what would you need to see from this -- from the Phase 1 trial overall to give confidence to move forward in the Phase -- to a Phase II program?

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

Okay, Pat. Thanks. Thanks for those questions. Let me just start out by saying FX301 is unique in two dimensions. First it is formulated in the thermo-sensitive gel that is liquid at room temperature and gels at body temperature so that when the formulation with the active is injected around the nerve of interest, it gels within a minute and creates a depot for prolonged payout, thereby supporting our intended vision for the product of providing at least three to five days worth of meaningful pain relief. That would already set it apart. And secondly, the active is a selective sodium channel blocker that blocks channels on sensory fibers, spares motor fibers, and translates into the potential for pain relief without compromising motor function. That would also be unprecedented in the field. So between the two, we're super excited about the potential for this product to generate the kind of profile that could make a real difference for many, many patients, and there are millions, literally millions of peripheral nerve blocks that are done each year.

The data we are getting from the first phase of this trial will allow us to make a decision about expanding the trial by another 36 patients. We believe that by assuming the data support expansion, and we'll know that in the relatively near-term, the data is on -- this is on clinicaltrials.gov, 12 patients per cohort, four different dosing cohorts. We will look at the data in their totality, make a decision whether there is a sufficient signal in terms of efficacy and support for tolerability to then expand to 36 patients. If there is, we'll go ahead and do that, and by the end of the year we should have a data set that will tell us whether in bunionectomy which is a very painful surgery this product performs the way we might hope it would. Of course if the data when we look at it from the four cohorts does not support continued development then we'll make the hard decision and consider the cessation of development, but will be guided by the data in their totality.

I think my view -- our view is there should be a substantial step-up in terms of overall probability of technical success assuming a positive bunionectomy trial.

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

And just to follow-up. So would we have some of the data from Part Two by the end of this year or would that be more next year?

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

No, no, we will have the -- we fully expect bunionectomy trials in general enroll rapidly and we have guided and continue to guide to the expectation that we will have the full dataset by the end of the year.

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

Got it. That's really helpful. Thank you.

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

Thank you, Pat.

Operator

And thank you. And our next question comes from Francois Brisebois from Oppenheimer. Your line is now open.

Unidentified Participant

Hi guys. This is Daniel on behalf of Francois Brisebois. Thank you for taking the question. Two questions, one is, any developments on hyaluronic acid products getting reimbursement pressure. And the second question, can you remind us once again of the convertible note when it's due and the terms there? Thank you.

Melissa Layman -- Chief Commercial Officer

So I can take the first one and hand the second one to Fred. As you may be aware, may be the impetus for the question that the proposed rules -- CMS proposed rules came out in July, and there was a piece of that proposal that called for all products, all drugs reimbursable under Medicare Part B to begin reporting their ASPs and HAs, the interpretation of that proposed rule is that HAs would be included in that in the event that they were included in that, and all of the HAs needed to start reporting their ASPs, it would I think definitely -- it will result in a change in reimbursement for the HAs and perhaps subsequent change in their pricing structure and strategy.

Francois Brisebois -- Oppenheimer -- Analyst

Thanks.

Frederick W. Driscoll -- Chief Financial Officer

Yeah, that's right, convertible note is just over $200 million and it's due on May 1, 2024.

Francois Brisebois -- Oppenheimer -- Analyst

Thank you. Thanks for taking the questions.

Operator

And thank you. And I am showing no further questions. I would now like to turn the call back to Michael Clayman for closing remarks.

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

Thanks very much and thanks for all of your time and attention this afternoon. Exciting inflection point for the company in terms of our ability to extend runway to 2023 in a non-dilutive way, continued progress in the commercialization of ZILRETTA, and knocking on the door of defining data for our two very exciting pipeline assets. So simply say stay tuned, we'll look forward to communicating with you in the future as more information becomes available. Take care.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

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

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

Melissa Layman -- Chief Commercial Officer

Frederick W. Driscoll -- Chief Financial Officer

Unidentified Participant

Elliot Wilbur -- Raymond James and Associates -- Analyst

Madhu Kumar -- Goldman Sachs -- Analyst

Daniel Busby -- RBC Capital Markets -- Analyst

Serge Belanger -- Needham & Company -- Analyst

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

Francois Brisebois -- Oppenheimer -- Analyst

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