[Updated 5/30/12 8:30 am. See below.] Today Woburn, MA-based Flexion Therapeutics announced that its treatment for osteoarthritis met its goal of significantly relieving joint pain in a mid-stage trial. Even though it’s a bit early to declare the drug a success, the results come as welcome news to the executives of Flexion, who have spent much of the last year completely revising their original business plan. “It’s gratifying to see this data,” says Flexion’s CEO Michael Clayman. “It gives us confidence in the rest of our portfolio.”
Flexion was founded in 2007 with a plan to take drugs that had been shelved by Big Pharma companies, and then run them through efficiently designed trials to quickly determine whether they should be developed to treat inflammatory diseases. The company raised $42 million from an impressive list of backers, including Pfizer (NYSE: PFE), AstraZeneca (NYSE: AZN), and Merck KGaA, which all wanted to test Flexion’s idea.
But Clayman and his co-founders quickly recognized a problem: Big Pharma deals were increasingly becoming less lucrative. “They were doing a lot of option-based deals with relatively modest up-front payments,” Clayman says. “We became concerned about the ability to adequately monetize our assets.”
At the same time, one of the drug candidates Flexion had acquired—a molecule called FX005, which came from AstraZeneca—was looking increasingly attractive. FX005 is injected straight into arthritic joints, and it works by inhibiting an inflammatory protein called p38 MAP kinase. The company believes that the data it announced today represent the first-ever proof that inhibiting this protein provides an effective therapy in osteoarthritis. During the 12-week trial, FX005 was proven to improve joint pain and function after the first month, when compared to placebo. Flexion hopes to present more details about the study at a medical conference later this year, Clayman says.
The main ingredient in FX005 is contained in “microspheres,” which slowly release the drug over a period of months. Clayman says that in early trials, the drug mostly stayed in the joint, which reduced the chances of it producing unwanted side effects. The drug is being tested in patients with knee pain.
FX005 is the lead drug candidate in a portfolio that is entirely focused on treatments for osteoarthritis. Flexion is also working on FX006, a long-lasting corticosteroid injection to suppress inflammation, and FX007, which is designed to control pain by inhibiting another kinase implicated in inflammatory diseases.
These drug candidates are aimed at a huge and rapidly expanding market. GBI Research estimates that sales of drugs to treat musculoskeletal disorders will grow from $33.4 billion in 2010 to $54.8 billion by 2017.
Another attribute of the osteoarthritis market, Clayman says, is that the company can take its molecules all the way to market in the U.S. with what he calls a “go it alone” strategy, as opposed to forming a partnership with a large drugmaker. “A small company can effectively commercialize a drug in this space because specialists like orthopedists and rheumatologists can be accessed with a salesforce of under 100,” he says. “So it’s not like we have to reach a certain point and then wave a flag and say, ‘now we want someone to buy us.’”
But there is one part of Flexion’s original strategy that survived the business-plan overhaul: its approach to early-stage drug development. Clayman and his co-founder Neil Bodick, both came from Eli Lilly (NYSE: LLY), where they worked in an incubator called Chorus. The idea of Chorus was to shorten the “proof of concept” stage of drug development, when molecules are tested mostly for safety and for early signs of efficacy.
Clayman and Bodick plan to apply what they learned at Chorus to transform proof of concept from a process that usually extends for three years and costs $15 million to one that takes half as long and costs no more than $5 million. “There’s every reason to believe that the value of Chorus-like principles will be as great or greater in a small company,” Clayman says. “It’s all about efficiency of drug development.”
Flexion does plan to look for commercialization partners overseas—a strategy designed to raise non-dilutive financing and gain expertise in hard-to-crack local markets, Clayman says. The company plans to seek another round of venture financing later this year, and it may consider an IPO down the road. “Depending on how things work out, we could be well-positioned to do that,” he says. Flexion extended its Series A round by $13 million in the first quarter of this year, bringing the total raised so far to $55 million. [Sentence added to provide further details on the company’s funding.]
As for the evolution of the company, Clayman says he’s finding it easier to persuade investors to back Flexion’s new model than it was to sell them on the old one. “In the original model, I had to go into a protracted discussion about how we were relatively agnostic” about which drugs the company was willing to study and in what diseases, he says. Focusing just on osteoarthritis—a multibillion-dollar market that’s growing with the aging of the population—is a simpler proposition for investors, he says. “I’ve told both stories. It’s easier to tell this one.”
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