Pacira BioSciences, Inc. Q1 FY2021 Earnings Call

Good afternoon, everyone, and welcome to the Flexion Therapeutics' First Quarter 2021 Financial Results Conference Call. All participants are currently in a listen-only mode. We will conduct a question-and-answer session at the end of today's call. I will now hand the call over to Scott Young, Flexion's Vice President of Corporate Communications and 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 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.

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 has capably served as our Chief Financial Officer since May of 2018. And I was truly disappointed when he recently informed me of 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 has kindly 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 cohort. 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 8, 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 this 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 at 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 deemed serious. But the investigator determined this to be unrelated to study drug. As dictated by the protocol, any Serious Adverse Event 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 agree with the investigator's assessment and endorse the re-initiation of the trial. Accordingly, we're resuming enrollment. While the data are preliminary, we're encouraged by the results we're seeing, and they support our belief that FX201 holds the potential to provide a differentiated durability of therapeutic effects 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 blocks for control of postoperative 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.

Thank you, Mike. Well, 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 during my tenure here at Flexion. We believe this will serve as an impetus for potentially growing our business in 2021 and beyond, allowing for an increasing number 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. 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 providing utilization spanning back to the earliest days of launch. Since comparison to our early days on market are no longer as relevant as they once were. Our revised metrics, among other things provide views of the latest performance on a more current quarterly basis. At this point, I'll walk through the refreshed metrics that we introduced today. Starting with slide two, 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 2044 accounts that purchased in Q1, 90% had purchased in a prior quarter. With slide three, we've 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 four, we're now presenting demand on a quarterly basis. As a reminder, we primarily sell ZILRETTA to specialty distributors, and we recognize sales upon receipt of product by their 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 were 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 five, 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, 391 plus units, as well as the number of accounts purchasing these volumes within the quarter. In Q1, roughly 38% of the 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 OA diagnosed patients who received an IA injection within the 99 accounts that make up our top two purchasing tiers, we estimate the market share in these accounts may be as high as 46%. Our goal with these new metrics is 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. 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.

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 volume-based. We reported a 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. Costs 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 were primarily due to a decrease of $3.6 million in development expenses for ZILRETTA due to a reduction in lifecycle 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 one 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. 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. 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. The anticipated full-year 2021 ZILRETTA sale is 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 a 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.

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

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. The ramp-up of ZILRETTA and the addition of two potentially transformative pipeline drug candidates have made me optimistic. 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 share David's view of Flexion's future. I firmly believe that with this product, its winning commercial strategy, and the passionate people who make Flexion such a remarkable organization, the opportunity ahead of us is tremendous, and I am thrilled to be back.

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 at Flexion is committed to realizing it. Thank you. At this point, I would ask the operator to open up the line for Q&A.

Thank you. Our first question comes from Elliot Wilbur of Raymond James. Your line is open.

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

Elliot, the simple answer is yes. Any serious adverse event triggers the protocol pause. This is the first time this vector has been injected into the knee joint. Out of an abundance of caution, the FDA strongly recommended this direction because sometimes determinations of relatedness by investigators might be questioned after subsequent review. In this case, we were asked to take what I'll call a built-in suspenders approach. So, any serious adverse event would have triggered the cascade, as seen with the study pause, investigator determination, study pause, DMC review, and FDA ultimately giving the green light. That's how it worked this time, and it would be the case for anything that qualifies as a serious adverse event.

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 poster or abstract itself?

Yes, 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 from the low-dose cohort. It's still preliminary, it's not fully mature. I think people are looking to see not only what we have with the low-dose cohort, which has some promise, as delineated in the script, but also to see what happens with the mid and high-dose cohort, especially over time. So, I think it's just early. A lot of people are keenly interested in this gene therapy approach in this specific vector and are hungry for additional data. We are eager to share that data at the right time.

Okay. And just the last question here, I 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 a 30% reduction and 50% reduction for longer periods of time.

Yes. Yes, we have to have both. We have to have the magnitude of effect and we have to have durability. Our product profile indicates meaningful decreases in pain and improvements in function for at least six to 12 months. It would have to be at least 30%, and frankly ideally much closer to 50%.

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

Thanks, Elliot.

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

Hey, guys, thanks for taking our questions. So, thinking about FX201 and the index-knee adverse events you got, could you give us a little more granularity on kind of what happened in those index-knee adverse events, which patients they were in, as much as you can kind of give us in terms of information? And then 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 of index-knee OA from the trial?

Yes, well, these were adverse events in two out of five patients in the low-dose cohort that played out over the course of days or weeks. They were 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 adverse events. It’s premature for us to speculate exactly what that balance will look like. Clearly, the more tolerable this product is the better. But everything is a benefit-risk equation, and if there is extraordinary benefit that would balance out to some extent some degree of local adverse event if they should persist. But I don't want to speculate in the absence of the data.

Okay, well then to the end, the patients who had the index-knee adverse events, were they patients who didn't achieve the 50% reduction? How should we sort out kind of which patients had these adverse events compared to the patients who received benefit?

Yes, we have 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.

Okay, great. Thanks very much.

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

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.

Melissa, do you want to take that first question?

Sure, yes, I can take the first one. So, the last time that we checked in on patient flows to practices was near the end of February. 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. When we did that check-in, back in February, we also asked a panel of about 30 orthopedists how long they expected that to remain, and they said they thought it would carry through to at least the middle part of this year.

Yes, hey, Serge, it's David. Regarding your question about COGS, as I had said previously, we were expecting to get back to normalized pre-COVID gross margin percentage levels this year. First quarter gross margin percentage was 75%, a bit lower than what we'd 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%.

Thanks. Best of luck, David.

Thanks, Serge.

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

Hi. This is Evan Hua on behalf of Gary. Thanks for taking my question. First, based on the initial cut of low-dose data, is there any modifications you're able to implement in terms of different 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? Are there any modifications you plan on doing either to the sales force or the targeted physicians? Thanks.

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?

In terms of safety and potential adjustments to dosing frequency.

Yes, I would say this. Based on the very mild nature of the adverse events in the low-dose cohort, there would not be a compelling reason to modify the protocol. We will look at the entire dataset, low, mid, and high-dose, ensuring 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 this dataset would have prompted us to consider a modification to the protocol.

Regarding 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, and in some cases 60%, 70%, 80% of their customers in terms of face-to-face office visits. This is based on what individual practices' policies are in the moment with regard to allowing industry visits to come back. In terms of any foreseeable changes to the sales force, we're still in the process of synthesizing our findings relative to our optimized footprint. At this time, we don't anticipate any material changes to the size of our sales organization; more to come on that.

Thank you.

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

Hi, good afternoon, and congrats on all the progress. I'm wondering should we think of the regulatory bar for approval of a gene therapy treatment such as FX201 has been 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 a benefit on both the pain scores as well as disease modification? And then related to disease modification, how would you be measuring or evaluating disease modification in the current trial underway or in a larger Phase 1 trial? I have a follow-up.

Pat, thanks very much for those questions, they're good questions. I think it's fair to say that there is far from a clear understanding of what the agency will accept for disease modification. The guidance is pretty high-level. 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. We are particularly interested in durability and magnitude of pain relief and functional improvement. If we get at least six to 12 months of meaningful improvements in those domains, that will be enormous. Icing on the cake would be evidence of disease modification. Patients generally make the decision to get their knee replaced not because of an imaging study, but because they cannot lead the lives they want to live due to refractory pain. Thus, having significant improvements in pain and function would provide tremendous benefit and may help delay the need for knee replacement surgery. Again, this is all in front of us, and we have to generate the data, but the logic here is about symptom improvement as a prelude to delaying the need for total knee replacement.

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

Thanks, Pat.

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

Hi, thanks for taking the questions and best of luck David on your next job. I was just wondering Melissa, in terms of the new metrics here, is there a particular reason for the order that they're presented in, and on slide five, I guess the purchase accounts go from 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?

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

Okay, great. And then Mike, in terms of the WOMAC-A score, can you just remind us, I think, back a few years ago, you had shown some serious improvement in WOMAC-A, B, and C. So I was just wondering why we only showed WOMAC-A this time?

We were particularly focused on pain and function, and KOOS is an instrument that actually encompasses WOMAC-C, the function domain for WOMAC, and asks questions beyond that. It's a very familiar instrument to the orthopedic community. We made the decision to use KOOS because it allowed for a more robust characterization of functional improvement.

Okay, great. And then just lastly on gene therapy, some people might think about astronomical costs here; can you remind us why it might be a lot less expensive for OA, if any?

Yes, because we're injecting locally and asking the vector to produce sufficient protein to achieve a therapeutic concentration with a very small volume, about a teaspoonful or so. If you compare that to the volume of the intravascular space, which is about 6,000 ML, this is three orders of magnitude less. You can dose down proportionately to achieve the therapeutic concentration locally in the joint. By dosing down, your cost of goods sold are less challenging, which creates pricing latitude and will allow you to charge a price that reflects the value of the product but will not be astronomical.

Okay, great. And would someone, if six months durability was shown, why would someone choose ZILRETTA over this? Is there any reason to?

We get asked this a lot Frank, and it's a fair question. With ZILRETTA, you get highly reliable pain relief for three months, four months, 93% of patients respond to ZILRETTA. That's pretty remarkable. For a person who is entering ski season or is going on a trip and wants reliable pain relief that is going to kick in within a matter of days, ZILRETTA will be, I expect, the tried and true therapeutic. What we have in front of us is the magnitude and duration we will achieve. All these factors will be assessed by the patient and physician. Given the vast unmet medical need—over 8 million knee injections a year and over a million patients undergoing total knee replacement annually—the field needs multiple effective therapies.

Okay, great. Thank you very much.

Thank you.

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

Great, thank you. Congratulations on the progress. Looking at the demand being up 6% sequentially in the fourth quarter despite the challenges of COVID and the extended power outage in Texas, do you have any sort of visibility into what the pent-up demand from these anomalies might be?

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 being back out there in fuller force, practices catching up with their patients who maybe they've seen to a lesser degree in preceding quarters, and just continued improvement with regard to our sales effort and our blocking and tackling at the account level.

Great, thank you.

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

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 looking 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 in the timing of orders versus accounts that have tried ZILRETTA but are no longer using it? The second question 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.

Both are great questions. So, I think the difference between what you saw in terms of cumulative accounts purchasing to-date versus the 2044 that purchased in Q1 is 100% what you've suggested, which is just a difference in the timing of when an account might make their purchases, which may have more to do with when they want to shore up access to rebates rather than any underlying change in ZILRETTA usage. Regarding your second question about the percentage of our accounts that purchased in Q1, in the top tiers, we looked at this data and came to the conclusion, as stated in my prepared remarks, that among those 99 accounts that comprise the top two tiers of purchasers in the first quarter, our penetration rate was we estimated to be as high as 60% plus. I think we view that as a potential model for where we can go with a more significant proportion of our accounts if we're able to replicate the same level of effort we have with those 99 accounts today, which sit in the top two tiers for first quarter purchasing.

Okay, and if I could ask a quick follow-up, are those top 99 accounts generally larger than your average account?

It's really across the board in terms of the number of docs, the number of patients that they see, and the size of the opportunity. There's no unique characteristics that tie those 99 accounts together.

Got it. Appreciate the color.

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

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

When we did our last check-in 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 the operating room standpoint. They cited if they were still living around 80%, I would translate that we've probably worked through the majority of the backlog of total knee arthroplasty procedures. As we 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.

Okay. And then one follow-up if I could, the other thing that was discussed a few quarters ago was the ability to access some of the high prescribing accounts, who 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?

Yes, during the height of the pandemic, where physicians were out of their offices and relegated to their home offices, it gave us the opportunity through remote means to access some healthcare professionals that we may have previously found it more difficult to reach. Our experience has been that a significant percentage of those healthcare professionals that we accessed remotely during that heightened period of the pandemic have resulted in some new customers coming on.

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

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

This concludes today's conference call. Thank you for participating. You may now disconnect.