Flexion Therapeutics (NASDAQ:FLXN) is about to find out if its research efforts will pay off. The U.S. Food and Drug Administration is expected to issue a go/no-go decision on its treatment for osteoarthritis pain of the knee -- Zilretta -- on Oct. 6, and because Zilretta is the company's closest drug to commercialization, the regulators' decision could create a wild swing higher or lower in the company's stock price.

Is this company about to become the standard of care or will the FDA give Zilretta a red light?

A big market opportunity

Flexion Therapeutics thinks quarterly Zilretta injections can deliver greater pain relief for osteoarthritis of the knee patients than corticosteroids. Results from one phase 3 trial suggest that's true.

A man in shorts rubbing his knee.


Currently, about 5 million Americans receive quarterly corticosteroid shots, but these shots offer inadequate relief for many. Pain reduction can begin to wane only a few weeks after injection, and often the benefit of the treatment has disappeared altogether prior to the next scheduled dose. As a result, patients may increase their use of rescue pain relievers, including opioids. 

Zilretta is an extended-release formulation of a long-used, short-acting corticosteroid called triamcinolone acetonide. Flexion Therapeutics uses a proprietary microsphere technology to combine the corticosteroid with a poly lactic-co-glycolic acid. The formulation allows for a slow release of triamcinolone acetonide that appears to provide more sustainable pain relief.

In trials, Zilretta reduced pain in patients with osteoarthritis of the knee by a median 50% at the 12-week mark. If the drug is approved, its efficacy and duration of effect may allow it to replace the use of corticosteroid shots in millions of patients, especially since it could reduce the need for rescue drugs, including habit-forming ones.

Management suggests a price of $500 per injection, or $2,000 annually, would be supported by insurers. If so, then a big patient population could turn Zilretta into a nine-figure drug. For perspective on the market opportunity, Sanofi's Synvisc-One, a hyaluronan injection for knee pain, produces about $400 million in annual revenue.

Risks remain

There are about 14 million people who suffer from osteoarthritis of the knee, and roughly 40% of osteoarthritis patients are prescribed opiate pain relievers. Given the big need for treatment alternatives that could reduce opioid prescriptions, Zilretta's solid efficacy and potential to decrease the need for rescue drugs may position it nicely for a regulatory OK. In the past, the FDA has been vocal in encouraging the development of new pain treatments, and that objective may tilt its decision on Zilretta in favor of Flexion Therapeutics.

That said, there's no guarantee that regulators will green-light Zilretta. They could ask for more data to confirm its benefit, question manufacturing, or reject it outright. A rejection would undeniably be bad news for Flexion Therapeutics' shareholders because Zilretta is the only drug in its pipeline.

Unquestionably, this makes buying shares ahead of tomorrow's FDA decision a risky proposition. An OK could catapult shares higher, particularly since 27% of Flexion Therapeutics' share float is held short. Alternatively, a rejection would probably cause shares to crash. Overall, Flexion Therapeutics has a solid shot at winning a Zilretta approval, but buying its shares ahead of this decision may be too risky for most investors.

Todd Campbell owns shares of Flexion Therapeutics. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.