Numerous companies are vying for a piece of the large and growing market to treat osteoarthritis knee pain. Investors would be wise to keep an eye on the small-cap company, where success is likely to translate into great share appreciation.
One biotech is already marketing a novel therapy. Flexion Therapeutics’ (FLXN, Financial) Zilretta was approved by the Food and Drug Administration last October. It is the first and only approved extended-release intra-articular therapy for osteoarthritis-related knee pain. Intra-articular means the drug is administered into the joint.
Shares of the Burlington, Massachusetts-based company were knocked down about 22% in just two weeks in March, when a bigger-than-expected loss caused some investors to back off. But since then, Flexion’s stock price has clawed its way back, gaining about $5 to over $27.
The renewed optimism is attributed to a number of positive developments in the first quarter. Among them were encouraging sales of Zilretta, good news on reimbursement and progress in the company’s clinical trials. On a per-share basis, Flexion’s loss of $1.10 beat Wall Street's expectations.
Analysts continue to be bullish about the company’s shares. Of the nine analysts following the company, six rate it a buy and three a strong buy. RBC analyst Randall Stanicky has Flexion as a top pick for 2019 with a $44 price target. Meanwhile, Needham’s Serge Belanger expects wider insurance coverage for the drug and Medicare to cover it in 2019.
The opportunity is huge. Osteoarthritis, also known as degenerative joint disease, affects more than 30 million Americans and accounts for upwards of $185 billion in annual expenditures. In 2016, more than 15 million Americans were diagnosed with osteoarthritis of the knee and the average age of physician-diagnosed knee osteoarthritis has fallen by 16 years, from 72 in the 1990s to 56 in the 2010s.
The prevalence of osteoarthritis is expected to continue to increase as a result of aging, obesity and sports injuries. Each year, more than 15 million Americans are treated for osteoarthritis-related knee pain, and approximately five million osteoarthritis patients receive either an immediate-release corticosteroid or hyaluronic acid intra-articular injection to manage their pain.
Given the size of the opportunity, it’s no surprise the market is highly competitive. Among the contenders are:
- Halyard Health Inc. (HAL, Financial). It has a device called Coolief, which is used to ablate sensory nerves. It is expected to complete a trial comparing the device with an injection product in the second quarter of 2019.
- Ampio Pharmaceuticals Inc.’s (AMPE, Financial). It's therapy is Ampion, which is a derivative of human serum albumin and is in phase three development.
- Both AbbVie (ABBV, Financial) and Allergan (AGN, Financial) have candidates, too, but they have yet to enter phase three trials.
In addition, a number of well-known names have investigational nerve growth factor antibodies in development. They include Regeneron (REGN, Financial), Pfizer (PFE, Financial) and Eli Lilly (LLY, Financial).
Zilretta is a non-opioid therapy that employs the company’s proprietary microsphere technology to provide pain relief over 12 weeks. Intra-articular therapies like it are expected to steadily gain favor among clinicians. Because there is no cure for osteoarthritis, controlling pain and delaying surgery are the primary goals of treatment. However, the oral drugs used today have limited effects and are associated with serious side effects.
Flexion plans to add to its line of products to treat musculoskeletal conditions and is testing two of them. One is a gene therapy designed to treat inflammation in the joint. The company said it anticipates starting the first in-human clinical trials for this candidate in 2019.
Disclosure: The author has a position in LLY.
