Flexion Therapeutics Inc (NASDAQ:FLXN) just offered up some insight into its development pipeline prospects, and while the inference is positive, wider markets have taken a critical stance on the release. The company is down close to 10% on its Friday open as we head into this morning’s bell, and looks set for further losses premarket. So, with this in mid, what’s behind the negative sentiment, and is it an opportunity to pick up an exposure to Flexion and its pipeline at a discount? Let’s take a look.

First, it’s worth mentioning that the initial market response was not a selloff. Flexion, pre-announcement, traded at a little over $11 a share. By the time markets had digested the news, the company traded for $17 a share – a close to 55% gain across the session. By the close of Friday’s session, however, the above mentioned 10% correction had taken hold.

So, that out of the way, what’s caused all the volatility?

The announcement relates to the company’s lead development candidate Zilretta. It’s an osteoarthritis indication – specifically, an alternative pain management therapy that bypasses the need for opioid administration. It’s a sustained release corticosteroid – a reformulation of what’s called triamcinolone acetonide (TA). TA is currently used as a topical administration for things like skin inflammation, itching etc. Flexion has developed an injectable version that is specially formulated to sustain release when compared to other currently available steroid injections.

More specifically, current injections are instant onset, and last anywhere from 24 hours to a week at the high end. Zilretta takes TA and encloses it in something called polylacticoglycolic acid. It then releases from the enclosed capsule gradually. The sustained release means it lasts for up to three months per injection.

Why is this important?

In patients with osteoarthritis (which is a condition that affects the knee, in most instances), the end game is a joint replacement. The majority of sufferers will end up with a new knee joint. This is extremely costly (circa $50K). Until the point at which the patient gets a replacement, the condition is very painful (and debilitating) and current treatments are limited to the above mentioned steroidal injection, which only lasts a short time and can be painful in its administration, or opioid treatment programs. Opioids are a big problem in the US at the moment (abuse is at epidemic levels and the US government is scrambling to try and control the costs that this abuse incurs) and so a number of companies are rushing to develop treatments that fall in line with the government’s aims.

Flexion’s treatment, Zilretta, ticks the box for abuse deterrence (it’s administered by a physician and is not addictive like an opioid pill) and also checks the long lasting box – as mentioned, up to three months on the one injection.

So what did the latest announcement tell us? We already know the efficacy data is promising, and it’s something we’ve discussed here on Market Exclusive in the past, so we won’t go into too much detail on that. Safety is also in line with expectations, as outlined in the pivotal on which Flexion hopes to base its NDA. What was in question was whether the FDA would agree with the primary endpoints set for the latter mentioned trial, and in turn, whether they would accept the data as indicative of tolerability and efficacy. The release detailed a written response from the FDA to Flexion, in which the agency stated it would class the data from a registration program for Zilretta as acceptable to support an NDA, and that the written response could be used in lieu of an in-person meeting.

What does this mean? Essentially, it’s a big thumbs up from the FDA, and is strongly indicative of an approval come PDUFA.

Of course, Flexion hasn’t submitted its NDA yet, so PDUFA is a ways down the line, but it offers us a few of key milestones going forward. First, NDA submission, which is slated for the fourth quarter of this year. Second, acceptance of the submission for review. Finally, PDUFA.

So to answer the question, is the current decline a opportunity to get in at a discount – yes, it looks as though it may be. With three key potential upside drivers slated for this year and early next (the company has fast track review status for Zilretta) there is plenty of further upside potential on its current circa $300 million market cap as things play out. One to watch going forward.