What happened

Shares of Flexion Therapeutics (NASDAQ:FLXN) rose over 20% last month, according to data provided by S&P Global Market Intelligence. The business reported third-quarter 2018 earnings and an important business update regarding Zilretta, a treatment for osteoarthritis-related knee pain and the first commercialized drug from the company. 

While the drug's slow start has worried analysts eyeing blockbuster potential (read: greater than $1 billion in annual sales at its peak), Flexion Therapeutics announced progress on its most pressing issue regarding the drug. That was enough to reignite excitement for the small-cap biopharma, despite Zilretta's putting up quarterly sales of only $7 million.

A man holding an arrow cut out pointing up.

Image source: Getty Images.

So what

It's something that's not always on the radar of investors, but one of the biggest obstacles facing Zilretta to date has been a lack of easy-to-use reimbursement codes for doctors. Without those, it's simply easier to not order the drug at all.

So when Flexion Therapeutics announced that a new product-specific reimbursement code for Zilretta will go into effect on the first day of 2019, it was bigger news than it first appeared. In fact, analysts expect $129 million in product sales next year, compared to an expected $28 million in 2018, according to FiercePharma.

Considering the business exited September with roughly $112 million in cash, demonstrating a healthy increase in market traction in the first half of 2019 will be critical for Flexion Therapeutics. Ramping up sales and marketing activities will be expensive and require more cash in the near future, especially considering it lost $121 million from operations in the first nine months of 2018, but hitting the mark in the next six months will make it easier to raise capital at more favorable costs.

Now what

Flexion Therapeutics appears to be on the right track -- now it just needs to execute. However, as the $550 million market cap and 42% year-to-date share slide indicate, there's little room for failure in 2019. While Zilretta appears to have several market advantages on paper (it's not an opioid, has demonstrated the ability to improve important markers of osteoarthritis, and just showed favorable results in a trial that could expand its market opportunity), the company has a lot of work left ahead in educating physicians about the drug. A small FiercePharma poll reported 39% of doctors had never even heard of it. That could be normal for this stage in the product's life, but it also could come back to haunt investors next year.