SEC Filing | Flexion Therapeutics, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission file number: 001-36287

Flexion Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware		26-1388364
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

10 Mall Road, Suite 301 Burlington, Massachusetts		01803
(Address of Principal Executive Offices)		(Zip Code)

(781) 305-7777

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	FLXN	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☒

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 1, 2020, the registrant had 49,298,390 shares of Common Stock ($0.001 par value) outstanding.

FLEXION THERAPEUTICS, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2020 and 2019 (Unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4. Controls and Procedures	37
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	38
	Item 1A. Risk Factors	38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
	Item 3. Defaults Upon Senior Securities	70
	Item 4. Mine Safety Disclosures	70
	Item 5. Other Information	70
	Item 6. Exhibits	71
	Signatures	72

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Flexion Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited in thousands, except share amounts)

	June 30, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	183,099		$	82,253
Marketable securities		17,509			54,407
Accounts receivable, net		21,524			37,115
Inventories		19,392			16,529
Prepaid expenses and other current assets		5,043			5,371
Total current assets	$	246,567		$	195,675
Property and equipment, net		17,795			13,662
Right-of-use assets		7,414			8,223
Total assets	$	271,776		$	217,560
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	7,886		$	15,258
Accrued expenses and other current liabilities		15,410			19,610
Deferred revenue		5,000			—
Operating lease liabilities		1,422			1,351
Current portion of long-term debt		7,639			—
Total current liabilities	$	37,357		$	36,219
Long-term operating lease liability, net		6,790			7,609
Long-term debt, net		52,829			40,176
2024 convertible notes, net		157,990			153,413
Other long-term liabilities		295			251
Total liabilities	$	255,261		$	237,668
Commitments and contingencies
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2020 and December 31, 2019 and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019		—			—
Stockholders' equity
Common stock, $0.001 par value; 100,000,000 shares authorized; 49,270,392 and 38,361,476 shares issued and outstanding, at June 30, 2020 and December 31, 2019, respectively		49			38
Additional paid-in capital		754,483			648,391
Accumulated other comprehensive income		3			62
Accumulated deficit		(738,020	)		(668,599	)
Total stockholders' equity (deficit)		16,515			(20,108	)
Total liabilities and stockholders' equity	$	271,776		$	217,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

Flexion Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited in thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Revenues
Product revenue, net	$	15,451		$	16,953		$	35,578		$	27,517
Operating expenses
Cost of sales		5,481			1,398			7,757			3,160
Research and development		12,507			16,125			33,641			31,550
Selling, general and administrative		24,730			33,103			54,029			65,325
Total operating expenses		42,718			50,626			95,427			100,035
Loss from operations		(27,267	)		(33,673	)		(59,849	)		(72,518	)
Other (expense) income
Interest income		95			831			522			1,842
Interest expense		(5,002	)		(3,949	)		(9,723	)		(7,885	)
Other (expense) income		(197	)		304			(123	)		536
Total other (expense) income		(5,104	)		(2,814	)		(9,324	)		(5,507	)
Loss before income taxes		(32,371	)		(36,487	)		(69,173	)		(78,025	)
Income tax expense		248			—			248			—
Net loss	$	(32,619	)	$	(36,487	)		(69,421	)		(78,025	)
Net loss per common share, basic and diluted	$	(0.76	)	$	(0.96	)	$	(1.71	)	$	(2.05	)
Weighted average common shares outstanding, basic and diluted		42,776			38,010			40,664			38,001
Other comprehensive (loss) income:
Unrealized (losses) gains from available-for-sale securities, net of tax of $0		(3	)		125			(59	)		307
Total other comprehensive (loss) income		(3	)		125			(59	)		307
Comprehensive loss	$	(32,622	)	$	(36,362	)	$	(69,480	)	$	(77,718	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Flexion Therapeutics, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited in thousands)

	Common Stock				Additional		Accumulated Other						Total Stockholders'
	Shares		Par Value		Paid-in- Capital		Comprehensive Income (Loss)			Accumulated Deficit			Equity (Deficit)
Balance at December 31, 2019		38,361	$	38	$	648,391	$	62		$	(668,599	)	$	(20,108	)
Issuance of common stock for equity awards, net of shares withheld for taxes		201		1		8								9
Stock-based compensation expense						4,651								4,651
Net loss											(36,802	)		(36,802	)
Other comprehensive loss								(56	)					(56	)
Balance at March 31, 2020		38,562	$	39	$	653,050	$	6		$	(705,401	)	$	(52,306	)
Issuance of common stock net of issuance costs		10,615		10		96,754								96,764
Issuance of common stock for equity awards, net of shares withheld for taxes		11				1								1
Employee stock purchase plan		82				891								891
Stock-based compensation expense						3,787								3,787
Net loss											(32,619	)		(32,619	)
Other comprehensive loss								(3	)					(3	)
Balance at June 30, 2020		49,270	$	49	$	754,483	$	3		$	(738,020	)	$	16,515

	Common Stock				Additional		Accumulated Other						Total
	Shares		Par Value		Paid-in- Capital		Comprehensive Income (Loss)			Accumulated Deficit			Stockholders' Equity
Balance at December 31, 2018		37,946	$	38	$	628,944	$	(77	)	$	(518,826	)	$	110,079
Issuance of common stock for equity awards		47		—		—								—
Stock-based compensation expense						3,853								3,853
Net loss											(41,538	)		(41,538	)
Other comprehensive income								182						182
Balance at March 31, 2019		37,993	$	38	$	632,797	$	105		$	(560,364	)	$	72,576
Issuance of common stock for equity awards		8		—		—								—
Employee stock purchase plan		106				1,040								1,040
Stock-based compensation expense						4,217								4,217
Net loss											(36,487	)		(36,487	)
Other comprehensive income								125						125
Balance at June 30, 2019		38,107	$	38	$	638,054	$	230		$	(596,851	)	$	41,471

The accompanying notes are an integral part of these condensed consolidated financial statements.

Flexion Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited in thousands)

	Six Months Ended
	June 30,
	2020			2019
Cash flows from operating activities
Net loss	$	(69,421	)	$	(78,025	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation		751			435
Amortization of right-of-use assets		809			553
Stock-based compensation expense		8,438			8,070
Non cash interest expense		292			—
Accretion of discount on marketable securities		(52	)		(836	)
Loss on disposal of fixed assets		262			—
Amortization of debt discount and debt issuance costs		4,577			4,184
Premium paid on securities purchased		(17	)		(26	)
Changes in operating assets and liabilities:
Accounts receivable		15,591			(9,468	)
Inventory		(2,502	)		(4,512	)
Prepaid expenses and other current assets		328			1,287
Accounts payable		(7,540	)		(271	)
Accrued expenses and other current liabilities		(4,375	)		787
Deferred revenue		5,000			—
Lease liabilities		(748	)		(541	)
Net cash used in operating activities		(48,607	)		(78,363	)
Cash flows from investing activities
Purchases of property and equipment		(5,538	)		(1,068	)
Purchases of marketable securities		(12,490	)		(96,198	)
Sale and redemption of marketable securities		49,398			138,061
Net cash provided by investing activities		31,370			40,795
Cash flows from financing activities
Proceeds from borrowings under term loan		15,000			—
Proceeds from revolving line of credit		20,000			—
Repayments of revolving line of credit		(15,000	)		—
Proceeds from the offering of common stock		97,289			—
Payments of public offering costs		(107	)		—
Payments on notes payable		—			(5,000	)
Proceeds from the exercise of stock options		10			—
Proceeds from employee stock purchase plan		891			1,040
Net cash provided by (used in) financing activities		118,083			(3,960	)
Net increase (decrease) in cash and cash equivalents		100,846			(41,528	)
Cash and cash equivalents at beginning of period		82,253			87,229
Cash and cash equivalents at end of period	$	183,099		$	45,701
Non-cash investing and financing activities
Right-of-use asset obtained in exchange for operating lease obligation		—			7,046
Purchases of property and equipment in accounts payable and accrued expenses		2,126			—
Public offering costs included in accounts payable or accrued		418			—
Supplemental disclosures of cash flow information
Cash paid for interest		5,048			3,699

The accompanying notes are an integral part of these condensed consolidated financial statements.

Flexion Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Overview and Nature of the Business

Flexion Therapeutics, Inc. (“Flexion” or the “Company”) was incorporated under the laws of the state of Delaware on November 5, 2007. Flexion is a biopharmaceutical company focused on the discovery, development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, or OA, a type of degenerative arthritis. The Company has an approved product, ZILRETTA^®, which it markets in the United States. ZILRETTA is the first and only extended-release, intra-articular, or IA (meaning in the joint), injection indicated for the management of OA knee pain. ZILRETTA is a non-opioid therapy that employs Flexion’s proprietary microsphere technology to provide pain relief. The pivotal Phase 3 trial, on which the approval of ZILRETTA was based, showed that ZILRETTA met the primary endpoint of pain reduction at Week 12, with statistically significant pain relief extending through Week 16. The Company also has two pipeline programs focused on the local treatment of musculoskeletal conditions: FX201, which is an investigational IA gene therapy product candidate in clinical development for the treatment of OA, and FX301, a preclinical product candidate, which is being developed as a locally administered peripheral nerve block for control of post-operative pain.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations. As of June 30, 2020, the Company had cash, cash equivalents, and marketable securities of approximately $200.6 million.

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry, including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations. Successfully commercializing ZILRETTA requires significant sales and marketing efforts and the Company’s pipeline programs will require significant additional research and development efforts, including extensive preclinical and clinical testing. These activities will in turn require significant amounts of capital, qualified personnel and adequate infrastructure. There can be no assurance when, if ever, the Company will realize significant revenue from the sales of ZILRETTA or if the development efforts supporting the Company’s pipeline, including future clinical trials, will be successful.