Flexion Therapeutics Inc.(FLXN) Q4 2020 Earnings Call Transcript

Flexion Therapeutics Inc  (NASDAQ: FLXN) Q4 2020 Earnings Call dated Mar. 10, 2021.

Corporate Participants:

Scott Young — Vice President, Corporate Communications and Investor Relations

Mike Clayman — Chief Executive Officer and Co-Founder

Melissa Layman — Chief Commercial Officer

David Arkowitz — Chief Financial Officer

Analysts:

Jack — Goldman Sachs — Analyst

Mark — Credit Suisse — Analyst

Randall Stanicky — RBC Capital Markets — Analyst

Elliot Wilbur — Raymond James Financial Inc. — Analyst

Gary Nachman — BMO Capital Markets — Analyst

Serge Belanger — Needham & Company — Analyst

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

Carl Byrnes — Northland Securities Inc. — Analyst

Francois Brisebois — Oppenheimer & Co. — Analyst

Bruce Jackson — The Benchmark Company — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen and welcome to the Flexion Therapeutics Fourth Quarter and Full Year 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session at the end of today’s call. [Operator Instructions]

I’ll now turn the call over to Scott Young, Flexion’s Vice President of Corporate Communications and Investor Relations.

Scott Young — Vice President, Corporate Communications and Investor Relations

Good afternoon. A short while ago, we issued a press release summarizing our Q4 and full year 2020 financial results and recent business highlights. That press release and our most recent 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 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.

Mike Clayman — Chief Executive Officer and Co-Founder

Thanks, Scott, and thank you all for joining the call. Today, I’ll recap our business performance in 2020, review recent progress with our pipeline and discuss our priorities for this year. Following that, Melissa will provide an update on our commercial activities, and then David will summarize our 2020 financial performance before we open the line and take questions.

To begin, as we reported today, we recorded full year ZILRETTA net sales of $85.6 million for 2020. This represents growth of approximately 17% over 2019. And considering the unprecedented challenges we experienced last year due to the pandemic, we are very pleased with these results. As we’ve discussed on previous calls, the pandemic had a tremendous impact on patient flows to doctors’ offices and corresponding demand for ZILRETTA in late Q1 and Q2. However, we saw sales recover nicely throughout the second half. As we’ve discussed, it is our intent to reintroduce ZILRETTA sales guidance once we return to a point where we can do so with a high degree of confidence and precision. That said, the impacts of the pandemic are still being felt today, and we believe it is still premature to reinstate guidance at this point. Nonetheless, the need for ZILRETTA has never been greater, nor has our belief in its potential to make a real difference in the lives of the 5 million people who receive intra-articular injections for OA knee pain each year.

We ended 2020 with slightly more than 2% penetration of the intra-articular injection market. And our view is that this is just scratching the surface of ZILRETTA’s potential, which includes becoming a frontline treatment for knee OA patients. Our first priority has been and remains accelerating the utilization and adoption of ZILRETTA. In this year, we intend to initiate a trial to investigate its potential in shoulder OA. Although a smaller indication than knee OA, shoulder represents a sizable growth opportunity for ZILRETTA, with a potential total addressable market of roughly 600,000 injections per year.

And the need for ZILRETTA has never been greater. Despite the fact that opioids are not recommended for the management of OA knee pain, have modest efficacy for that condition and possess potentially devastating risks associated with their long-term use, a recent paper estimates that more than 850,000 knee OA patients in the US use opioids chronically to manage their pain, a truly alarming statistic. As we’ve consistently stressed, Flexion is committed to the development of non-opioid treatments for musculoskeletal conditions like OA. That commitment begins with ZILRETTA and also extends to our pipeline as evidenced by FX201 and FX301, which I’ll turn to now.

Regarding FX201, our locally administered gene therapy product candidate, which aims to provide meaningful pain relief and functional improvement for at least 6 to 12 months following a single injection. Today, we announced that we have treated the first patient in the high-dose cohort of our Phase I single ascending dose trial. While this is a small safety and tolerability study with only five to eight patients in each cohort, we have seen some encouraging, albeit early signs of clinical activity in even the lowest dose cohort and we intend to share data at a scientific meeting in the first half of this year.

In addition, we are expanding the number of patients in the low and mid-dose cohorts by up to 20 additional patients each, as we believe that additional data can help further inform our understanding of dose response for both safety and efficacy, evaluate biological activity in the knee joint, and shape the design of a potential Phase II proof-of-concept trial in patients with knee OA. We expect to have data through week 52 for patients treated in the initial low and mid-dose cohorts by the end of 2021. In addition, preliminary data from the high-dose cohort and expanded treatment groups are also anticipated before year-end.

Shifting to FX301, our locally administered peripheral nerve block candidate for control of postoperative pain, we recently announced that the FDA-cleared the IND, and we intend to begin a Phase Ib clinical trial in bunionectomy patients in the first half of 2021. FX301 is a non-opioid, which utilizes a NAV1.7 inhibitor, funapide, formulated for extended release in a thermosensitive hydrogel with the aim of providing at least three to five days of postoperative pain relief while preserving motor function. Unlike ZILRETTA and FX201, which address chronic pain, FX301 is intended to treat acute pain with an endpoint that looks at days versus months. As a result, the FX301 development program has the potential to move relatively quickly, and we expect to share top line results from the planned Phase Ib trial late this year.

Finally, with respect to our management team, as many of you know, Dr. Scott Kelley has been serving as our Chief Medical Officer for the past several years. We are initiating a search for a new CMO, and Scott will continue as CMO until a successor has been appointed. At that point, Scott will transition to a new role at Flexion that leverages his extensive knowledge, clinical experience and business acumen, and we look forward to his continued contributions.

Before I turn to Melissa, I would simply restate what I’ve said before. This is, without question, the most exciting time in Flexion’s 14-year history. The opportunity for ZILRETTA is tremendous and our passion for the product and our commitment to commercial execution is reinforced by the patient stories we hear so often and very typically begin with, ZILRETTA changed my life. For the first time in years, I can do fill in the physical activity without pain. And while early days, we have made important strides advancing two compelling product candidates, each of which holds the potential to be transformative in its space. I look forward to providing updates in the quarters to come.

Melissa?

Melissa Layman — Chief Commercial Officer

Thank you, Mike. The passion for execution that Mike described was certainly a key driver of our performance throughout 2020 as our MBMs found ways to get ZILRETTA to practices and patients even at the height of the COVID-related impact to physicians and patient care. With the support of our revised marketing strategies and tactics, our field team delivered 17% growth over 2019, even though access to physicians and patients was compromised for a significant proportion of the year. In spite of the pandemic, we continued to make strong progress throughout the fourth quarter, as evidenced by ZILRETTA sales of $26.3 million.

We shared our usual commercial metrics when we preannounced sales back in January, so I won’t go through those slides in detail today. However, there are a few key points that deserve highlighting. We target roughly 5,400 accounts, and by the end of 2020, approximately 4,250 accounts had purchased ZILRETTA, reflecting growth of 176 new purchasing accounts versus the end of Q3. Of those purchasing accounts, 78% of them placed at least one reorder by year-end, indicating that the overwhelming majority of accounts have had more than just an initial experience with the product.

We’ve talked about the utilization continuum in the past and described how accounts typically start with smaller orders and often as they gain confidence in the product’s performance and comfort with reimbursement, buy with greater frequency and volume. This pattern is illustrated by the fact that approximately 1,240 accounts had made ZILRETTA purchases of more than 50 units since launch, contributing almost 308,000 units and indicating that initial experience begets use and ultimately adoption. This is further illustrated by the fact that approximately 10% of customers have purchased greater than 200 units since launch and that 30% of those have purchased 500 kits or more since launch.

With all that said, none of our accounts has yet fully adopted ZILRETTA, and there is still tremendous opportunity for growth across all of our target accounts. We know that our investors have appreciated these metrics over the past few years, but at more than three years in market, we feel the time is right to refresh our commercial performance indicators. We intend to introduce new metrics beginning with Q1 and look forward to sharing those in May.

Before I turn it over to David, I would like to briefly outline our commercial priorities for this year. At a high level, our efforts are focused on three main areas; product positioning and market segmentation, pricing and physician reimbursements and amplification of the patient voice. We are developing various programs across all three of these strategic pillars, which are designed to increase growth. While I won’t get into the details of those plans today, I will say that they have all been shaped by the research initiatives that I’ve referenced over the last several quarters. I’m excited to report that the insights from these various studies consistently indicate that there are real opportunities to enhance our approach to the market and increase ZILRETTA adoption.

Key among these findings is the need for HCPs to become more consistently exposed to the quality of the patient experience with ZILRETTA, how it can change a patient’s life and how by gaining that exposure, physicians can and should become compelled to consider it across their broader patient population. To this end, and among other patient experience-based initiatives, Flexion continues to develop a roster of elite athletes who have benefited from ZILRETTA with the recent addition of Sheryl Swoopes, the first player to be signed to the WNBA, a three-time MVP, three-time Olympic gold medal winner, NCAA Championship winner and named one of the league’s top 50 players of all time. Sheryl, along with the other members of the ZILRETTA team, including Rod Woodson, NFL Hall of Famer; and 1980 USA Hockey Team Captain and gold medal winner, Michael Eruzione, will continue to work with Flexion as ambassadors, bringing awareness of what ZILRETTA has done for them and what it can potentially do for the thousands of amateurs who suffer with OA knee pain every day.

Mike said it in his opening; we have heard so many patient stories of their profound superlative experience with ZILRETTA and we are working to ensure that our customers hear about these experiences with every chance we get.

And at this point, I’ll turn it over to David.

David Arkowitz — Chief Financial Officer

Thanks, Melissa. I will briefly walk through the fourth quarter and full year 2020 financial results included in the press release we issued this afternoon and in our 10-K. We reported a net loss of $113.7 million for full year 2020 as compared to a net loss of $149.8 million for full year 2019. Net sales of ZILRETTA were $26.3 million for fourth quarter 2020 and totaled $85.6 million for full year 2020, an increase of 17% compared to full year 2019. The cost of sales for full year 2020 was $19.2 million.

As we reported in our pre-announcement of 2020 ZILRETTA sales, the inventory held by specialty distributors at year-end was slightly above the one to three weeks we typically target due to specialty distributor purchases in response to growing customer demand in Q4 and a modest distributor buy-in at a small discount also in Q4. For Q4, our net sales reflect a gross net reduction of 15%. This gross to net reduction includes rebates to health care providers that are variable and based on the volume of product purchased and these provider rebates contributed 6% of the total Q4 gross to net reduction. The remaining gross to net reduction of 9% is comprised of distributor and service fees, returns reserve and mandatory government discounts and rebates, including Medicaid, 340B institutions and Veterans Administration and Department of Defense.

For full year 2020, our gross to net reduction was 14%, of which health care provider rebates represented 5%. Research and development expenses were $54.3 million and $69.6 million for the years ended December 31, 2020 and 2019, respectively. The decrease in R&D expenses of $15.2 million was primarily due to expense reductions taken in response to COVID-19. In particular, a decrease of $13.2 million in development expenses for ZILRETTA due to a reduction in life cycle management activities, a decrease of $1.5 million related to our portfolio expansion and other program costs and a decrease of $2 million in salary and other employee-related costs. These decreases were partially offset by an increase of $1.5 million in expenses related to FX201 clinical trial and related manufacturing activities.

Selling, general and administrative expenses were $105 million and $129.7 million for the years ended December 31, 2020 and 2019, respectively. Selling expenses were $72.3 million and $96.3 million for the years ended December 31, 2020 and 2019, respectively. The year-over-year decrease in selling expenses of $24 million was primarily due to expense reduction measures taken in response to COVID-19, in particular, the elimination of live presence at industry conferences, reduction in in-person physician speaker programs and reductions in select marketing programs and materials as well as a reduction in travel expenses due to physician office limitations and travel guidelines and restrictions at the state and local level.

General and administrative expenses were $32.7 million and $33.4 million for the years ended December 31, 2020 and 2019, respectively, which represents a decrease of $0.7 million year-over-year. We ended 2020 with total full year operating expenses, inclusive of cost of sales of $178.6 million, which was consistent with our prior guidance of $172 million to $182 million. Interest expense was $20 million and $17.1 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the company had approximately $175.3 million in cash, cash equivalents and marketable securities compared with $136.7 million as of December 31, 2019. Based on our current operating plan, we believe that our current cash balance is sufficient to fund our operations into at least mid-2022.

At this point, I would ask the operator to open up the line for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. That concludes our prepared remarks. We will now open the call for questions. [Operator Instructions] Our first question comes from Graig Suvannavejh with Goldman Sachs. Your line is now open.

Jack — Goldman Sachs — Analyst

Hi everyone. Congrats on the quarter. Just — this is Jack [Phonetic] on for Graig. Maybe a quick question on FX201. Have you had any discussions with regulators about what the clinical path looks like after the current trial you’re in and what kind of visibility you might have on your later stage trials and what they might look like? Thank you.

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. I’ll just say this, without getting into this Mike, without getting into too much detail, we certainly had discussions with regulators in the US and elsewhere, describing a development plan at a pretty high level and we will continue those discussions and get to refined assessment of downstream development needs. But I would just say this that the interactions with regulators have been very collegial and productive to-date.

Jack — Goldman Sachs — Analyst

Thank you.

Operator

Thank you. Our next question comes from Martin Auster with Credit Suisse. Your line is now open.

Mark — Credit Suisse — Analyst

Hey everyone. This is Mark [Phonetic] on for Marty. Thanks for taking my question. I guess on FX201, I was curious, are there any biomarkers that, at least in your preclinical studies for predictive of subsequent functional benefit in the animals? So for instance, in your preclinical studies was achieving a certain IL-1Ra expression predictive of benefit or was there anything else?

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. I would say this, Mark. We are — as you might imagine, we’ve collected a tremendous amount of data. We’re still sifting through that, premature for us to say that there is or there isn’t. We are keenly interested in assessing biomarkers in the clinical realm and we’re in the process of doing that. So I’ll simply say, stay tuned. To the extent that those are informative and correlate with response, we’ll certainly make that a topic of discussion.

Mark — Credit Suisse — Analyst

Got it. And then just in terms of a follow-up, I was curious, I realize, again, still early, but at this stage, how are you thinking about potentially defining a dose? Will this be driven by functional data or something else? And with that trial expansion, do you expect you’ll have what you need to define a dose at this stage or rule out having —

Mike Clayman — Chief Executive Officer and Co-Founder

A really good question. Obviously, Mark, it begins with safety and tolerability. So — but your question really would be if all three doses are well tolerated, for the sake of discussion, how will you choose amongst them. And we will use the data from the expanded cohorts to help inform that decision.

Mark — Credit Suisse — Analyst

Got it. Thanks for taking my questions.

Mike Clayman — Chief Executive Officer and Co-Founder

Thanks.

Operator

Thank you. Our next question comes from Randall Stanicky with RBC Capital Markets. Your line is now open.

Randall Stanicky — RBC Capital Markets — Analyst

Great. Mike, in the absence of guidance, I was hoping you could give us some color on pandemic impact, even if qualitative. So at a conference last week, you talked about patient flow still only around 80% of pre-COVID levels expected to stay there for six months. To me, that seems conservative. So can you dig into that a bit more? I mean could we see warehouse demand, so to speak, from folks who are waiting for a vaccine, frankly, who are probably getting that right now given the age group of your patient cohort before they venture back into doctor or physician offices for elective or treatment. So that’s number one.

And then, number two for David. I know you’re not giving revenue guidance, but how should we think about spend patterns for this year? We saw OpEx spend in 2019 close to $200 million, in 2020 closer to $160 million. So as we look ahead, what type of normalized spend level should we be thinking about, given all of the changes that we’ve seen in the business through the pandemic? Thank you.

Mike Clayman — Chief Executive Officer and Co-Founder

Hey Randall, great questions. Let’s take them in order, and I’ll exert my prerogative as CEO and delegate the question – the first question to Melissa. And then obviously, Dave will weigh in on the second.

Melissa Layman — Chief Commercial Officer

Thanks, Mike, and thanks, Randall. So your question about the potentially conservative nature of the 80% patient flow, that is a statistic that we have pulled from a very recent survey of about 30 orthopedists from across the country. And that’s what they’re reporting to us, is that they’re still at about 80% of pre-COVID patient flow and that they anticipate that this will remain the new normal potentially well into the future. But based on what we asked and how they answered, the majority of them cited that they thought this would be the case for at least the next six months.

David Arkowitz — Chief Financial Officer

Yeah, this is David. Thanks for the question, Randall. So as you know, as everyone knows, we took meaningful steps and actions in 2020 to reduce our operating expenses, given the uncertainty to our business regarding COVID-19. We do clearly expect our operating expenses to increase this year. We’re very much committed to appropriately resourcing and investing in ZILRETTA to drive increased adoption, initiated the ZILRETTA shoulder OA trial and advance the exciting pipeline that Mike talked about. To provide just a little bit more color, though, on a year-over-year growth rate basis, given what I just said, we do expect R&D expenses to grow faster year-over-year percentage-wise than what we expect for SG&A expenses to grow on a year-over-year basis. And just one more additional point is we do think SG&A is going to be increasing in 2021 at a reasonable rate over what we spent in 2020.

Randall Stanicky — RBC Capital Markets — Analyst

Great. Thanks.

Operator

Thank you. Our next question comes from Elliot Wilbur with Raymond James. Your line is now open.

Elliot Wilbur — Raymond James Financial Inc. — Analyst

Thanks. Good afternoon. First question for David. Just going back to your comments on GTN trends in the quarter. It sounds like you expect the rate to actually improve a little bit in the course of 2021. Just want to get confirmation of that.

And then for Mike or Melissa, just thinking about the shoulder indication, I guess, given experience to-date in the knee and all the additional researches you’ve done in terms of primary research with physicians, any reason or rationale that the uptick curve in shoulder might look quite different than what we’ve seen in knee outside of just experience and greater awareness overall?

David Arkowitz — Chief Financial Officer

Let me take the first question on gross to net. So just a little history, Q2, Q3 and Q4 of last year, the total gross to net was 15% each one of those quarters. As we’ve talked about before, we are not going to provide projections as it relates to gross to net reductions and certainly one of the drivers of gross to net are the rebates and discounts to health care providers. We’re going to continue to evaluate and consider using rebates and discounts as a way to really enhance the value proposition of ZILRETTA for healthcare providers going forward. So I would not read anything into what we’ve done historically from a gross to net standpoint, we will evaluate things on a go-forward basis. We’re always going to be thoughtful and judicious about any future actions.

Melissa Layman — Chief Commercial Officer

And then, I’m happy to take the question about expectation of shoulder uptake. So it’s an interesting story. I think you might expect the adoption trajectory for ZILRETTA in shoulder to look different than it has for knee. And that’s because, first of all, the population is significantly smaller, 600,000 procedures versus 8 million injections every year into knee. However, based on anecdotal feedback, conversations that we’ve had with joint specialists who do both knee and shoulder work, there’s a real paucity of options out there available for management of the shoulder pain. And the shoulder replacement surgery is complex and challenging, and there’s a need for something to help manage these patients through to or an avoidance of that shoulder surgery. I would add to that, that for the number of physicians out there that do both knee and shoulder work, the opportunity exists for physicians who get experience with ZILRETTA in the shoulder where they may not have had significant experience with it in the knee. The opportunity does exist where there to be some spillover effect from shoulder experience back into their knee experience.

Operator

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

Gary Nachman — BMO Capital Markets — Analyst

Hi, good afternoon. First, Melissa, where are the sales reps now in terms of face-to-face interactions with the physicians. Any modifications you plan on doing, either to the sales force or the target physicians? How to stratify them in terms of the different buckets that they’re sitting in and how you want to shift that going forward?

And then for Mike, I’ll just throw the second in. Are you aggressively looking to bring more assets into the pipeline? Do you have the capital to do that? You have a decent amount on your plate, ZILRETTA shoulders, 201, 301, are you satisfied with that or you want to build that up further? Thanks.

Melissa Layman — Chief Commercial Officer

So I’ll take the first part. The reps are at about a 70-30 split today with regard to live, in-person access versus remote [Phonetic] access, continuing to leverage the Zoom platform and other technologies to engage with physicians as much as possible. And with regard to reorganization of the sales effort, I’ve talked a number of times on previous calls about the ongoing research efforts to help us identify what is the optimal size and shape of our sales force. What I can say now is kind of stay tuned on that. Based on the segmentation work that I cited in the prepared remarks and the work that’s now ongoing relative to where our effort is best placed will be coming to you closer to the middle of the year to talk about any changes that, that might portend in terms of how we’re aligned against the field of some 5,000-plus orthopedic targets out there.

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. And Gary, as it relates to the pipeline, we’re not done. We will continue to judiciously add to the pipeline. I think Adam Muzikant, our Chief Business Officer, as enabled by our formulation expertise in the innovation lab, has done a tremendous job of cost effectively adding outstanding assets to the pipeline. And we’ve said consistently that we need at least three high-quality shots on gold to credibly argue that there’s a good chance of at least one making it to market. We have two. We’re looking for more. We’re going to be thoughtful, rigorous and ensure that whatever we do makes good business sense. But simply put, we are not done.

Gary Nachman — BMO Capital Markets — Analyst

Okay, great. Thank you.

Mike Clayman — Chief Executive Officer and Co-Founder

Thanks Gary.

Operator

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

Serge Belanger — Needham & Company — Analyst

Hey, good afternoon. First question for Melissa. I think in the past, you’ve talked about DTC advertising being dependent on reaching a certain level of education and awareness? Where are you relative to that level that you need to start a DTC campaign?

And secondly, it’s now been about a year since you launched with the updated ZILRETTA label. Do you have any indication if there’s been a change in the number of patients receiving repeat dosing or change in the number of physicians administering ZILRETTA more than once in the same patient? Thanks.

Melissa Layman — Chief Commercial Officer

Yeah, sure. So let me — I’ll take those in reverse order. So with regard to the repeat dose indication, it has been about a year since we’ve had that label change with regard to that language that was originally in the label. Anecdotally speaking, we hear from physicians all the time that they have very little hesitation to use ZILRETTA repeatedly in themselves as patients as well as in their [Indecipherable] population. And we definitely see positive trends with regard to HCP’s willingness to multiply inject patients. Where we have some work to do, still, is with the level of the — at the commercial plan, where there are some commercial payers that limit use of ZILRETTA to what is expressly stated within our label, which is a single injection. And we have ongoing efforts to make headway in removing those restrictions where they affect us the most.

And Serge, what was your — the first question again?

Serge Belanger — Needham & Company — Analyst

About DTC advertising.

Melissa Layman — Chief Commercial Officer

Right. The DTC advertising. So yeah. So I would say that DTC is always on the table. I would also say that I don’t think we are yet at a point of market penetration where investing in a full-blown direct-to-consumer advertising campaign would be a smart investment. That said, we do continue to advance on a number of different direct-to-patient initiatives that connects interested patients suffering with OA of the knee to known physicians who have good experience with ZILRETTA and who are willing to prescribe it for those patients. We also do a fair amount of local search engine work with ZILRETTA in markets where we have a large number of activated physicians and accounts as well as a lot of sort of local publications in newsletters and magazines where we know OA patients tend to seek out information.

Serge Belanger — Needham & Company — Analyst

Okay. And then one more for Mike. I think in the past, you’ve talked about the overall market, consisting about 8 million knee injections on an annual basis. What do you think that number was in 2020? And with the warehouse demand that you’ve talked about, where could it go in 2021? Thanks.

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. It’s a great question, and I would be speculating on exactly what the entire size of the market. We’re going to look at that, Serge. But I don’t have a firm number. I mean the expectation, based on everything we know in terms of patient throughput into practice is that it was less than 8 million, but I can’t give you anything more than a qualitative assessment of that. And as I say, we track these things very closely and we’ll be in a better position to make that assessment or make that determination in the not-too-distant future. As it relates to what we expect it to be in 2021, that is the realm of firm speculation or in-firm speculation. So I just — I’m not going to go there because too many moving parts and too tough to predict. But these are both good questions.

Serge Belanger — Needham & Company — Analyst

Fair enough. Thanks.

Mike Clayman — Chief Executive Officer and Co-Founder

Thank you.

Operator

Thank you. Our next question comes from Patrick Trucchio with H.C. Wainwright. Your line is now open.

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

Thanks. Good afternoon. First question is on FX201. Can you tell us how many patients have been enrolled in the expansion phase of Phase I trial for the data expected at the end of 2021 and how many patients would you anticipate generating data? And what, if any, efficacy data should we expect from the low and mid-dose cohorts? And then just your expectations around that data release?

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. So just — we’re not going to — Pat, thanks, they’re all good questions, and I’ll try to keep them all in my head, keep me honest here. The expansion cohorts have been initiated. We expect those to enroll relatively rapidly and we expect to have data on all those patients, the 20 additional patients in low and mid-dose by the end of the year. Obviously, they will be limited in that they will not have a long-term follow-up. So we fully expect that by the end of this year, just to be clear, we will have reasonably long-term follow-up on low and mid-dose patients in the single ascending dose portion of the FX201 study. We will have some data, efficacy data on the expansion cohorts for low and mid-dose by the end of the year and we should have a reasonable amount of data on the high-dose cohort, which, as you understand, just started enrolling. We’re looking at the classic measures of efficacy. Nothing — we’re not inventing new measures. Of course, we’re looking at biomarkers, but the measures of efficacy in osteoarthritis are, I would say, reasonably straightforward and reprise what we’ve looked at before.

And I suspect I’m missing at least one or two of your questions, so please have at it.

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

No, I think that pretty much covers it. I guess just a follow-up then on ZILRETTA. I’m wondering if you can tell us the status of the OA program in shoulder and when we can expect the Phase II study to start. And then just on ZILRETTA in China, just the status of that program, when the regulatory filing could be submitted in China and how significant could go right in China opportunity be?

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. Regarding shoulder, Pat, and I just want to point out that you’ve married two completely disparate questions into one, so you’ve now exceeded your limit, but that’s okay. As it relates to shoulder, I would simply say stay tuned. We’re working through the details of fully incorporating FDA feedback into the design of that study. There is some back and forth with the agency. We want to be sure that once we commence that study, we are creating a data set that will best meet regulatory expectations. So I’ll typically say stay tuned, and we’ll let you and everyone else know when we’ve initiated that study. But we are certainly guiding to initiating it this year.

As it relates to China, there are a lot of moving parts there, and I think it’s simply premature to provide any detail on regulatory filings there that would ultimately culminate in the approval of the product. As we gain additional information from our partners in China, and there’s been very good flow of information in both directions, and we’re in a position to provide clarity on status there, we will.

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

Got it. That is helpful. Thank you very much.

Mike Clayman — Chief Executive Officer and Co-Founder

Thanks Pat.

Operator

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

Carl Byrnes — Northland Securities Inc. — Analyst

Thanks. Just kind of following up on manufacturing, can you provide us with an update on manufacturing? And when you might expect cost of goods to revisit more normalized levels?

And then a follow-up question to Melissa, which is what is your current observation of TKA procedure volume relative to pre-COVID levels? Thanks.

David Arkowitz — Chief Financial Officer

Hey Carl, it’s David. Let me take the first question and the second question. I think, as you know, we resumed manufacturing of ZILRETTA in the fourth quarter of last year. So we’re back to manufacturing ZILRETTA. And going forward, so this year, 2021, we expect COGS, cost of goods sold, and gross margin percentage should be more normalized. And by more normalized, I mean, what we were experiencing in the quarters prior to COVID-19. With all that said, I’d appreciate that there’s a certain amount of continued inherent variability in our cost of sales as sales continue to ramp.

Melissa Layman — Chief Commercial Officer

And Carl, with regard to your question around the observations of TKA volumes versus pre-COVID levels. In the research that I referenced earlier that we’ve conducted very recently to see where trends are in general relative to COVID impact [Indecipherable], we also queried on return to pre-COVID elective procedure levels. And the feedback that came back there was again around 80%. So considering that if TKA is considered by a marginal elective procedure, I would say that, that’s probably a safe assumption that TKA volumes are around 80% of pre-COVID levels.

Carl Byrnes — Northland Securities Inc. — Analyst

Understood. Thanks so much.

Operator

Thank you. Our next question comes from Francois Brisebois with Oppenheimer. Your line is now open.

Francois Brisebois — Oppenheimer & Co. — Analyst

Hey, thanks for taking my question. I was wondering if you can touch on maybe — we think a lot about the immediate-release steroids versus the extended-release steroids, but I was wondering any update you can give on the HA market and maybe the dynamics there through COVID, how that’s going there?

Melissa Layman — Chief Commercial Officer

[Speech Overlap] Thanks. Francois, relative to changing dynamics in the HA market relative to COVID, we’ve been fairly silent on that front. We haven’t heard of a significantly different change in the market dynamics relative to either short-acting corticosteroids or HA injections as it relates to sort of what we’ve seen from a ZILRETTA standpoint, which is the degree to which patient flow is compromised versus pre-COVID levels is likely the degree to which volumes of injectables are similarly compromised.

Francois Brisebois — Oppenheimer & Co. — Analyst

Okay, great. And any updates on maybe reimbursement pressure on the HA side since it doesn’t seem to show much clinical efficacy compared to placebo?

Melissa Layman — Chief Commercial Officer

Well, I’d like to answer that question differently than I’m going to, but we haven’t heard much about a change in reimbursement related to the lack of efficacy data that’s out there. There are a couple of HA injectables that do not report their ASP, and that gives them a lot of latitude with regard to how they play with price, and ultimately, cost recovery for the practices. So more to come on that, hopefully, but sort of status quo from where we were in prior quarters when we talked about this dynamic.

Francois Brisebois — Oppenheimer & Co. — Analyst

Okay, thank you very much.

Operator

Thank you. [Operator Instructions] Our next question comes from Bruce Jackson with The Benchmark Company. Your line is now open.

Bruce Jackson — The Benchmark Company — Analyst

Hi, thank you for taking my question. Looking at the China agreement, can you tell us where they are right now in terms of the development program?

Mike Clayman — Chief Executive Officer and Co-Founder

Did you say the China development program?

Bruce Jackson — The Benchmark Company — Analyst

Correct.

Mike Clayman — Chief Executive Officer and Co-Founder

Yeah. And that’s — the status of that program, Bruce, is they are getting clarity from regulatory authorities on exactly what’s expected to be required to get to registration. So it’s a work in progress. And when we learn more and we’re in a position to share it, we will.

Bruce Jackson — The Benchmark Company — Analyst

Okay. And then a quick follow-up. Is there potential for any other international agreements?

Mike Clayman — Chief Executive Officer and Co-Founder

Well, Bruce, we never speculate on what might or might not happen, but we are completely open to the possibility of partnering ZILRETTA, wherever it makes business sense outside the US.

Bruce Jackson — The Benchmark Company — Analyst

All right. Thank you very much.

Mike Clayman — Chief Executive Officer and Co-Founder

Thank you, Bruce.

Operator

There are no additional questions.

Mike Clayman — Chief Executive Officer and Co-Founder

Well, thanks. I just wanted to say thanks to everybody who joined us today. We genuinely look forward to sharing updates with you in the coming weeks and months, and appreciate your time and attention. Be well. Take care.

Operator

[Operator Closing Remarks]