Flexion Therapeutics Inc (Form: 10-Q, Received: 08/08/2017 16:37:54)

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, 2017

☐	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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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	☐ (Do not check if a smaller reporting company)	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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 3, 2017 the registrant had 31,905,664 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, 2017 and December 31, 2016 (Unaudited)	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2017 and 2016 (Unaudited)	4
	Condensed Consolidated Statements of Stockholder’s Equity (Deficit) (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	24
	Item 4. Controls and Procedures	25
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	26
	Item 1A. Risk Factors	26
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3. Defaults Upon Senior Securities	32
	Item 4. Mine Safety Disclosures	32
	Item 5. Other Information	32
	Item 6. Exhibits	33

PART I. FINANCI AL INFORMATION

Item 1. Financial Statements

Flexion Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited in thousands, except share amounts)

	June 30, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	197,179		$	30,915
Marketable securities		162,680			174,688
Prepaid expenses and other current assets		2,334			3,790
Total current assets	$	362,193		$	209,393
Property and equipment, net		11,863			11,664
Long-term investments		—			4,725
Restricted cash		600			480
Total assets	$	374,656		$	226,262
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,741		$	2,161
Accrued expenses and other current liabilities		7,097			6,245
Current portion of long-term debt		9,967			9,134
Total current liabilities	$	19,805		$	17,540
Long-term debt, net		17,584			21,399
2024 convertible notes, net		133,484			-
Other long-term liabilities		404			291
Total liabilities	$	171,277		$	39,230
Commitments and contingencies
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2017 and December 31, 2016 and 0 shares issued and outstanding at June 30, 2017 and December 31, 2016		—			—
Stockholders’ equity:
Common stock, $0.001 par value; 100,000,000 shares authorized; 31,904,926 and 31,667,469 shares issued and outstanding, at June 30, 2017 and December 31, 2016, respectively		32			32
Additional paid-in capital		467,874			398,757
Accumulated other comprehensive income		(77	)		(71	)
Accumulated deficit		(264,450	)		(211,686	)
Total stockholders’ equity		203,379			187,032
Total liabilities and stockholders’ equity	$	374,656		$	226,262

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 June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenue	$	—		$	—		$	—		$	—
Operating expenses:
Research and development		11,769			8,905			22,524			20,886
General and administrative		15,133			5,215			28,158			9,907
Total operating expenses		26,902			14,120			50,682			30,793
Loss from operations		(26,902	)		(14,120	)		(50,682	)		(30,793	)
Other income (expense):
Interest income		797			295			1,355			631
Interest expense		(2,887	)		(202	)		(3,520	)		(478	)
Other income (expense), net		112			(158	)		83			(360	)
Total other income (expense)		(1,978	)		(65	)		(2,082	)		(207	)
Net loss	$	(28,880	)	$	(14,185	)	$	(52,764	)	$	(31,000	)
Net loss per share basic and diluted	$	(0.91	)	$	(0.63	)	$	(1.66	)	$	(1.40	)
Weighted average common shares outstanding, basic and diluted		31,826			22,666			31,765			22,115
Other comprehensive (loss) income:
Unrealized (loss) from available-for-sale securities, net of tax of $0		(17	)		(18	)		(6	)		(108	)
Total other comprehensive (loss) income		(17	)		(18	)		(6	)		(108	)
Comprehensive loss	$	(28,897	)	$	(14,203	)	$	(52,770	)	$	(31,108	)

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

Flexion Therapeutics, Inc.

Condensed Consolidated S tatements of Changes in Stockholder’s Equity (Deficit)

(Unaudited in thousands)

	Common Stock
	Shares		Par Value		Additional Paid-in-Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholder's Equity (Deficit)
Balance at December 31, 2014		21,440	$	21	$	238,402	$	(5	)	$	(93,477	)	$	144,941
Exercise of stock options		109		1		592							$	593
Employee Stock Purchase Plan		21		—		276								276
Stock-based compensation expense						4,583								4,583
Net loss											(46,315	)		(46,315	)
Other comprehensive loss								(92	)					(92	)
Balance at December 31, 2015		21,570	$	22	$	243,853	$	(97	)	$	(139,792	)	$	103,986
Issuance of Common Stock net of issuance costs		10,040		10		147,491								147,501
Exercise of stock options		30		-		167								167
Employee Stock Purchase Plan		27		—		476								476
Stock-based compensation expense						6,770								6,770
Net loss											(71,894	)		(71,894	)
Other comprehensive loss								26						26
Balance at December 31, 2016		31,667	$	32	$	398,757	$	(71	)	$	(211,686	)	$	187,032
Exercise of stock options		182		—		1,457							$	1,457
Employee Stock Purchase Plan		56		—		453								453
Stock-based compensation expense						4,741								4,741
Convertible debt						62,466								62,466
Net loss											(52,764	)		(52,764	)
Other comprehensive loss								(6	)					(6	)
Balance at June 30, 2017		31,905	$	32	$	467,874	$	(77	)	$	(264,450	)	$	203,379

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,
	2017			2016
Cash flows from operating activities
Net loss	$	(52,764	)	$	(31,000	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		927			269
Stock-based compensation expense		4,741			3,260
Amortization of premium (discount) on marketable securities		259			345
Loss on disposal of fixed assets		—			2,278
Amortization of convertible debt discount and debt issuance costs		1,190			18
Premium paid on securities purchased		(580	)		(22	)
Changes in operating assets and liabilities:
Accounts receivable		—			(6	)
Prepaid expenses, other current and long-term assets		1,456			(353	)
Accounts payable		736			412
Accrued expenses and other current and long-term liabilities		1,796			(517	)
Net cash used in operating activities		(42,239	)		(25,316	)
Cash flows from investing activities
Purchases of property and equipment		(1,682	)		(7,678	)
Change in restricted cash		(120	)		—
Purchases of marketable securities		(118,320	)		(10,804	)
Sale and redemption of marketable securities		135,363			21,997
Net cash provided by investing activities		15,241			3,515
Cash flows from financing activities
Proceeds from the issuance of 2024 convertible notes		201,250			—
Payment of debt issuance costs		(6,470	)		(42	)
Proceeds from the offering of common stock		—			77,644
Payments on notes payable		(3,333	)		—
Payments of public offering costs		(95	)		(31	)
Proceeds from the exercise of stock options		1,457			56
Proceeds from Employee Stock Purchase Plan		453			240
Net cash provided by financing activities		193,262			77,867
Net increase in cash and cash equivalents		166,264			56,066
Cash and cash equivalents at beginning of period		30,915			62,944
Cash and cash equivalents at end of period	$	197,179		$	119,010
Supplemental disclosures of cash flow information:
Cash paid for interest	$	921		$	477
Supplemental disclosures of non-cash financing activities:
Purchases of property and equipment in accounts payable and accrued expenses	$	66		$	154

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 specialty pharmaceutical company focused on the development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis (“OA”), a type of degenerative arthritis. In May 2016, the U.S Food and Drug Administration, or FDA, informed us that the safety and efficacy data from the registration program for Zilretta ^TM (FX006), our lead investigational product candidate, were acceptable to support the submission of a new drug application, or NDA. In December 2016, we submitted the NDA for Zilretta, and in February 2017, we announced that the FDA accepted the Zilretta NDA for filing and has established a user fee goal date under the Prescription Drug User Fee Act, or PDUFA, of October 6, 2017.

The Company is subject to risks and uncertainties common to pre-commercial 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. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities. The Company’s product candidates are all in the development stage. There can be no assurance that development efforts, including clinical trials, will be successful. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements as of June 30, 2017, and for the three and six months ended June 30, 2017 and 2016, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and Generally Accepted Accounting Principles (“GAAP”) for consolidated financial information including the accounts of the Company and its wholly-owned subsidiary after elimination of all significant intercompany accounts and transactions. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2017.

The information presented in the condensed consolidated financial statements and related notes as of June 30, 2017, and for the three and six months ended June 30, 2017 and 2016, is unaudited. The December 31, 2016 consolidated balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP for complete financial statements.

Interim results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017, or any future period.

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, 2017 the Company had cash, cash equivalents, marketable securities, and long-term investments of approximately $359,859,000. Management believes that current cash, cash equivalents and marketable securities on hand at June 30, 2017, which includes the net proceeds of its convertible note offering of approximately $194,780,000 described in note ten, should be sufficient to fund operations for at least the next twelve months from the issuance date of these financial statements. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations, to fund increased research and development costs in order to seek approval for commercialization of its product candidates, and to successfully commercialize Zilretta, if approved. The Company’s failure to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategies as this capital is necessary for the Company to perform the research and development activities required to develop and seek approval for commercialization of the Company’s product candidates, to establish a commercial infrastructure in order to generate future revenue streams, and to successfully commercialize Zilretta, if approved.

In May 2014, the FASB issued guidance which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to

customers in an amount that reflects the consideration that the company expects to receive for those goods or services. In August 2015, the FASB issued Accounting Standards Update 2015- 14, Revenue from Contracts with Customers: Deferral of the Effective Date. This latest standard defers the effective date of revenue standard ASU 2014-09 by one year and permits early adoption on a limited basis. Since the Company has not generated revenue to date, this guidance will only impact future periods, if any, when revenue is earned. This update will replace existing revenue recognition guidance under GAAP when it becomes effective for the Company beginning January 1, 2018, with early adoption per mitted in the first quarter of 2017. The updated standard will permit the use of either the retrospective or cumulative effect transition method. The Company adopted this guidance as of January 1, 2017 and is currently evaluating the potential impact that the adoption of this guidance may have on the Company’s future financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU 2015-17 became effective for the Company’s 2017 fiscal year. Given the Company has a full valuation against its deferred tax assets and liabilities, the impact of adopting this guidance was not material to the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), to increase transparency and comparability among organizations by recognizing lease assets and liabilities, including for operating leases, on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the adoption of this guidance may have on the Company’s financial statements.

In March 2016, the FASB released ASU 2016-09, which amends ASC Topic 718, Compensation-Stock Compensation, to require changes to several areas of employee share-based payment accounting in an effort to simplify share-based reporting. The update revises requirements in the following areas: minimum statutory withholding, accounting for income taxes, forfeitures, and intrinsic value accounting for private entities. For public companies, the new rules became effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods within such annual period. The Company adopted this guidance beginning on January 1, 2017 and no longer records stock compensation expense net of forfeitures. The Company adopted this guidance using a modified retrospective approach to reflect forfeitures as they occurred in the total stock based compensation expense recorded in the Company’s financial statements. The impact of this adoption was not material to the Company’s financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of cash flows (Topic 230), to increase the consistency of presentation in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 will become effective for fiscal years, and the interim periods within those years, beginning after December 15, 2017. The Company is currently evaluating the potential impact that the adoption of this guidance may have on the Company’s financial statements.

Consolidation

The accompanying condensed consolidated financial statements include the Company and its wholly-owned subsidiary, Flexion Securities Corporation, Inc. The Company has eliminated all intercompany transactions for the three and six months ended June 30, 2017 and the year ended December 31, 2016.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities, expenses and related disclosures. The Company bases estimates and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. The most significant estimates in these condensed consolidated financial statements include useful lives with respect to long-lived assets, such as property and equipment and leasehold improvements, accounting for stock-based compensation, and accrued expenses, including clinical research costs. The Company’s actual results may differ from these estimates under different assumptions or conditions. The Company evaluates its estimates on an ongoing basis. Changes in estimates are reflected in reported results in the period in which they become known by the Company’s management.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation and amortization expense is recognized using the straight-line method over the following estimated useful lives:

		Estimated Useful Life (Years)
Computers, office equipment, and minor computer software		3
Computer software		7
Manufacturing equipment		7-10
Furniture and fixtures		5

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Costs of major additions and improvements are capitalized and depreciated on a straight-line basis over their useful lives. Repairs and maintenance costs are expensed as incurred. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Property and equipment includes construction-in-progress that is not yet in service.

Foreign Currencies

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 and indicate the level of the fair value hierarchy utilized to determine such fair value:

	Fair Value Measurements as of June 30, 2017 Using:
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	—	$	168,473	$	—	$	168,473
Marketable securities		—		162,680		—		162,680
	$	—	$	331,153	$	—	$	331,153

	Fair Value Measurements as of December 31, 2016 Using:
(In thousands)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	—	$	9,830	$	—	$	9,830
Marketable securities		—		179,414		—		179,414
	$	—	$	189,244	$	—	$	189,244

As of June 30, 2017 and December 31, 2016, the Company’s cash equivalents that are invested in money market funds and overnight repurchase contracts are valued using Level 2 inputs and primarily rely on quoted prices in active markets for similar securities. The Company measures the fair value of marketable securities, which consist of U.S. government obligations, commercial paper, and corporate bonds, using Level 2 inputs and primarily relies on quoted prices in active markets for similar marketable securities. During the six months ended June 30, 2017 and year ended December 31, 2016, there were no transfers between Level 1, Level 2, and Level 3.

The carrying values of accounts receivable, prepaid expenses, other current assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these balances.

The Company has a term loan outstanding under its 2015 credit facility with MidCap Financial Funding XIII Trust and Silicon Valley Bank (the “2015 term loan”). The amount outstanding on its 2015 term loan is reported at its carrying value in the

accompanying balance sheet. The Company determined the fair value of the 2015 term loan using an income approach that utilizes a discounted cash flow analysis based on current market interest rates for debt issuances with similar remaining years to maturity, adjusted for credit risk. The 2015 term loan was valued using Level 2 inputs as of June 30, 2017 and December 31, 2016. The result of the calculation yielded a fair value that approximates its carrying value.

The Company issued convertible notes on May 2, 2017 with embedded conversion features. The Company estimated the fair value of the convertible notes using a discounted cash flow approach to derive the value of a debt instrument using the expected cash flows and the estimated yield related to the convertible notes. The significant assumptions used in estimating the expected cash flows were: the estimated market yield based on an implied yield and credit quality analysis of a term loan with similar attributes, and the average implied volatility of the Company’s traded and quoted options available as of May 2, 2017. The Company recorded approximately $136.7 million as the fair value of the liability on May 2, 2017, with a corresponding amount recorded as a discount on the initial issuance of the 2024 Convertible Notes of approximately $64.5 million. The debt discount was recorded to equity and is being amortized to the debt liability over the life of the 2024 Convertible Notes using the effective interest method. As of June 30, 2017 the debt liability had a fair value that approximated fair value at issuance.

4. Marketable Securities

As of June 30, 2017 and December 31, 2016 the fair value of available-for-sale marketable securities by type of security was as follows:

	June 30, 2017
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government obligations	$	46,475	$	—	$	(9	)	$	46,466
Commercial paper		14,445		—		—			14,445
Corporate bonds		101,837		3		(71	)		101,769
	$	162,757	$	3	$	(80	)	$	162,680

	December 31, 2016
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial paper	$	7,769	$	—	$	—		$	7,769
U.S. government obligations		75,524		5		(12	)		75,517
Corporate bonds		96,193		1		(66	)		96,128
	$	179,486	$	6	$	(78	)	$	179,414

As of June 30, 2017 and December 31, 2016, marketable securities consisted of approximately $162,680,000 and $174,688,000, respectively, of investments that mature within twelve months and as of December 31, 2016 approximately $4,725,000 of investments that mature within fifteen months. As of June 30, 2017 there were no marketable securities with maturities beyond twelve months.

5. Property and Equipment, Net

Property and equipment, net, as of June 30, 2017 and December 31, 2016 consisted of the following:

(In thousands)	June 30, 2017			December 31, 2016
Manufacturing equipment	$	11,505		$	10,099
Computer and office equipment		772			573
Software		434			434
Construction—in progress		568			1,254
Furniture and fixtures		426			402
Leasehold improvements		461			278
		14,166			13,040
Less: Accumulated depreciation		(2,303	)		(1,376	)
Total property and equipment, net	$	11,863		$	11,664

Depreciation expense for the six months ended June 30, 2017 and 2016 was approximately $927,000 and $269,000, respectively. No property and equipment was disposed of during the six months ended June 30, 2017. Approximately $2,265,000 in

manufacturing equipment located at the Evonik facility was disposed of, resulting in a loss of $2,180,000 which was recorded in research and development expenses for the six months ended June 30, 2016. Construction in progress primarily consists of amounts related to equipment purchased for the Company’s portfolio expansion efforts.

6.	Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets and other assets consisted of the following as of June 30, 2017 and December 31, 2016:

(In thousands)	June 30, 2017		December 31, 2016
Prepaid Expenses	$	1,661	$	1,085
Deposits		61		2,099
Interest receivable on marketable securities		611		605
Employee Advance		1		1
Total prepaid expenses and other current assets	$	2,334	$	3,790

On December 1, 2016, Flexion paid a refundable NDA fee in the amount of $2,038,100 to the FDA. The Company evaluated each of the published criteria to qualify for a waiver and concluded all criteria were met and thus, obtaining a refund of the fee was probable. As of December 31, 2016 the NDA fee was classified as a deposit in other current assets. On May 16, 2017, Flexion received the full refund of this NDA fee.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

(In thousands)	June 30, 2017		December 31, 2016
Research and Development	$	402	$	1,606
Payroll and other employee-related expenses		3,154		3,393
Professional services fees		1,957		926
Other		319		159
Interest expense		1,265		161
Total accrued expenses and other current liabilities	$	7,097	$	6,245

8. Stock-Based Compensation

Stock Option Valuation

The fair value of each of the Company’s stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model. The Company currently estimates its expected stock volatility based on the historical volatility of its publicly-traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own publicly-traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The relevant data used to determine the value of the stock option grants for the six months ended June 30, 2017 and 2016 are as follows:

	Six months ended June 30,
	2017			2016
Risk-free interest rates	1.97-2.29%			1.08-1.90%
Expected dividend yield		0.00	%		0.00	%
Expected term (in years)		6.0			6.0
Expected volatility	69.9-72.8%			79.8-87.9%

The following table summarizes stock option activity for the six months ended June 30, 2017:

(In thousands, except per share amounts)	Shares Issuable Under Options			Weighted Average Exercise Price
Outstanding as of December 31, 2016		3,268		$	14.84
Granted		879			22.03
Exercised		(182	)		8.01
Cancelled		(89	)		17.17
Outstanding as of June 30, 2017		3,876		$	17.60
Options vested and expected to vest at June 30, 2017		3,876		$	17.60
Options exercisable at June 30, 2017		1,353		$	14.15

Approximately 189,300 outstanding restricted stock units (“RSUs”) are included in stock options outstanding at June 30, 2017. The RSUs are performance based awards which will only begin vesting if and when a specified corporate performance based milestone is achieved. No outstanding performance awards were vested as of June 30, 2017.

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. A total of approximately 182,000 options, with an aggregate intrinsic value of approximately $2,146,000, were exercised during the six months ended June 30, 2017.

At June 30, 2017 and 2016, there were options for the purchase of approximately 3,876,000 and 2,300,000 shares of the Company’s common stock outstanding, respectively, with a weighted average remaining contractual term of 8.3 years and with a weighted average exercise price of $17.60 and $15.07 per share, respectively.

The weighted average grant date fair value of options granted during the six months ended June 30, 2017 and 2016 was $14.14 and $11.85, respectively.

Stock-based Compensation

The Company recorded stock-based compensation expense related to stock options for the three and six months ended June 30, 2017 and 2016 as follows:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2017		2016		2017		2016
Research and development	$	923	$	576	$	1,802	$	1,113
General and administrative		1,440		1,043		2,939		2,147
	$	2,363	$	1,619	$	4,741	$	3,260

As of June 30, 2017, unrecognized stock-based compensation expense for stock options outstanding was approximately $27,369,000 which is expected to be recognized over a weighted average period of 3.0 years.

Restricted Stock Units

On January 4, 2016, the Company granted RSUs with performance and time-based vesting conditions to certain executives. These RSUs vest, and the underlying shares of common stock become deliverable, in the event the Company receives approval from the FDA of an NDA for Zilretta (the “ Milestone ” ). Depending on when and if the Milestone is achieved, the maximum aggregate number of shares of the Company’s common stock available to be earned under these awards is 189,300 with an approximate value of $3,997,000 as of the grant date. The amount of earned shares decreases the longer it takes to achieve the Milestone. If the Milestone is not achieved prior to July 1, 2018, these awards will not vest, will be forfeited in their entirety and no shares of common stock will be delivered. Since it is not possible for the Company to determine the probability of the performance condition being achieved, no compensation costs will be recorded until the Milestone is achieved. If the Milestone is achieved prior to the termination date, compensation costs will be recognized over the remaining requisite service period of these awards, beginning on the Milestone achievement date.

9. Net Loss per Share

Basic and diluted net loss per share was calculated as follows for the three and six months ended June 30, 2017 and 2016:

	For the three months ended June 30,						For the six months ended June 30,
(In thousands)	2017			2016			2017			2016
Numerator:
Net loss	$	(28,880	)	$	(14,185	)	$	(52,764	)	$	(31,000	)
Net loss:	$	(28,880	)	$	(14,185	)	$	(52,764	)	$	(31,000	)
Denominator:
Weighted average common shares outstanding, basic and diluted		31,826			22,666			31,765			22,115
Net loss per share, basic and diluted	$	(0.91	)	$	(0.63	)	$	(1.66	)	$	(1.40	)

The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated as including them would have an anti-dilutive effect:

	For the three months ended June 30,				For the six months ended June 30,
	2017		2016		2017		2016
Shares issuable upon conversion of the 2024 convertible notes		4,926,458		—		2,463,229		—
Stock options		3,479,243		2,208,247		3,413,197		2,249,559
Restricted stock units		189,300		189,130		189,300		186,078
Total		8,595,001		2,397,377		6,065,726		2,435,637

10. Debt

Term Loan

On August 4, 2015, the Company entered into a credit and security agreement with MidCap Financial Trust, as agent, and MidCap Financial Funding XIII Trust and Silicon Valley Bank, as lenders, (the “Lenders”), to borrow up to $30,000,000 in term loans. The Company concurrently borrowed an initial term loan of $15,000,000 under the facility. The Company granted the Lenders a security interest in substantially all of its personal property, rights and assets, other than intellectual property, to secure the payment of all amounts owed under the credit facility. The Company agreed not to encumber any of its intellectual property without the Lenders’ prior written consent. The Company also agreed to maintain a balance in cash or cash equivalents at Silicon Valley Bank equal to the principal balance of the loan plus 5% for so long as the Company maintains any cash or cash equivalents in non-secured bank accounts.

On July 22, 2016, the Company borrowed the remaining $15,000,000 under the credit and security agreement, in the form of a second term loan after receiving positive Phase 3 Zilretta clinical trial data meeting the trial’s primary endpoint and which is sufficient to file an NDA for Zilretta. The second term loan is subject to the same credit terms as the initial term loan under the facility.

The credit and security agreement also contains certain representations, warranties, and covenants of the Company as well as a material adverse event clause. As of June 30, 2017, the Company was compliant with all covenants.

Borrowings under the credit facility accrue interest monthly at a fixed interest rate of 6.25% per annum. Following an interest-only period of 19 months, principal will be due in 36 equal monthly installments commencing March 1, 2017 and ending February 1, 2020 (the “maturity date”). Upon the maturity date, the Company will be obligated to pay a final payment equal to 9% of the total principal amounts borrowed under the facility. The final payment amount is being accreted to the carrying value of the debt using the straight line method, which approximates the effective interest method. As of June 30, 2017, the carrying value of the term loan was approximately $27,551,000, of which $9,967,000 was due within 12 months and $17,584,000 was due in greater than 12 months.

In connection with the credit and security agreement, the Company incurred debt issuance costs totaling approximately $150,000. These costs are being amortized over the estimated term of the debt using the straight-line method which approximates the

effective interest method. The Company deducted the debt issuance costs from the carrying amount of the debt as of June 30, 2017 and December 31, 2016.

As of June 30, 2017, annual principal and interest payments due under the 2015 term loan are as follows:

Year	Aggregate Minimum Payments (in thousands)
2017	$	5,781
2018		11,082
2019		10,448
2020		4,383
Total	$	31,694
Less interest		(1,443	)
Less final payment		(2,700	)
Total	$	27,551

2024 Convertible Notes

On May 2, 2017 the Company issued an aggregate of $201.3 million principal amount of the 2024 Convertible Notes. The 2024 Convertible Notes have a maturity date of May 1, 2024 are unsecured and accrue interest at a rate of 3.375% per annum, payable semi-annually on May 1 and November 1 of each year, beginning November 1, 2017. The Company received $194.8 million for the sale of the 2024 Convertible Notes, after deducting fees and expenses of $6.5 million.

The 2024 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.375% per year, payable semi-annually in arrears on May and November 1st of each year. The 2024 Convertible Notes will mature on May 1, 2024, unless earlier repurchased or converted. Upon conversion of the 2024 Convertible Notes, at the election of each holder of a 2024 Convertible Note (the Holder), will be convertible into cash, shares of the Company’s common stock, or a combination thereof, at the Company’s election (subject to certain limitations in the 2015 term loan), at a conversion rate of approximately 37.3413 shares of common stock per $1,000 principal amount of the 2024 Convertible Notes, which corresponds to an initial conversion price of approximately $26.78 per share of the Company’s common stock.

The Conversion Rate is subject to adjustment from time to time upon the occurrence of certain events, including, but not limited to, fundamental change events and certain corporate events that occur prior to the maturity date of the notes. In addition, if the Company delivers a notice of redemption, the Company will increase, in certain circumstances, the conversion rate for a Holder who elects to convert its notes in connection with such a corporate event or notice of redemption, as the case may be. At any time prior to the close of business on the business day immediately preceding February 1, 2024, Holders may convert all, or any portion, of the 2024 Convertible Notes at their option only under the following circumstances:

(1)

during any calendar quarter commencing after the calendar quarter ending on June 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(2)

during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

(3)

if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; and

(4)

upon the occurrence of specified corporate events.

On or after February 1, 2024, until the close of business on the business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.

The 2024 Convertible Notes are considered convertible debt with a cash conversion feature. Per ASC 470-20, Debt with Conversion and Other Options , the Company has separated the convertible debt into liability and equity components based on

the fair value of a similar debt instrument excluding the embedded conversion option. The carrying amount of the liability component was calculat ed by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected our non-convertible debt borrowing rate for similar debt. The equity component of the 2024 C onvertible Notes was recognized as a debt discount and represents the difference between the proceeds from the issuance of the 2024 Convertible Notes and the fair value of the liability of the 2024 Convertible Notes on their respective dates of issuance. T he excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense using the effective interest method over seven years. The equity component is not re-measured as long as it continues t o meet the conditions for equity classification. The liability component of $136.7 million was recorded as long-term debt at May 2, 2017 with the remaining equity component of $64.5 million recorded as additional paid-in capital.

In connection with the issuance of the 2024 Convertible Notes, we incurred approximately $6.5 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total d ebt issuance costs, $4.4 million were allocated to the liability component and are recorded as a reduction of the 2024 Convertible Notes in our consolidated balance sheets. The remaining $2.1 million was allocated to the equity component and is recorded as a reduction to additional paid-in capital.

Debt discount and issuance costs of $68.9 million are being amortized to interest expense over the life of the 2024 Convertible Notes using the effective interest rate method. As of June 30, 2017, the stated interest rate was 3.375%, and the effective interest rate was 9.71%. Interest expense related to the 2024 Convertible Notes for the three months ended June 30, 2017 was $2,302,606, including $1,083,687 related to amortization of the debt discount.

The table below summarizes the carrying value of the 2024 Convertible Notes as of June 30, 2017:

	( in thousands )
Gross proceeds	$	201,250
Portion allocated to equity (additional paid-in capital)		(64,541	)
Debt issuance costs		(6,470	)
Portion allocated to equity (additional paid-in capital)		2,075
Amortization of debt discount and debt issuance costs		1,170
Carrying value 2024 Convertible Notes	$	133,484

11. Foreign Currency

The Company maintains a bank account denominated in British Pounds. All foreign currency payables and cash balances are measured at the applicable exchange rate at the end of the reporting period. All associated gains and losses from foreign currency transactions are reflected in the consolidated statements of operations. Foreign currency losses for the three and six months ended June 30, 2017 were $0.2 million and $0.4 million, respectively, compared to zero for the three and six months ended June 30, 2016.

12. Commitments and Contingencies

Operating Leases

In May 2013, the Company entered into a lease for office space in Burlington, Massachusetts. The lease is for a 42-month term with minimum monthly lease payments beginning at $17,588 per month and escalating over the lease term. The Company provided a letter of credit to the lessor in the amount of $98,000 as a security deposit pursuant to the lease agreement to secure its obligations under the lease. During 2015, this letter of credit was reduced to $50,000 pursuant to the original lease agreement.

In July 2015, the Company entered into a first amendment to its existing lease for approximately 4,700 square feet of additional office space (the “Additional Space”) in Burlington, Massachusetts, as well as approximately 6,700 square feet of temporary space to be leased prior to the delivery of the Additional Space (which occurred on May 1, 2016). The amendment extended the term of the original lease through October 31, 2019, contemporaneous with the Additional Space, and also provided the Company with an option to lease an additional 5,400 square feet of office space (the “Option Space”). On September 30, 2015, the Company exercised its option for the Option Space. In addition, the Company has the option to extend the term of a portion or the entire lease space for one additional three-year period. The Company may terminate the amendment for convenience with nine months’ notice upon the occurrence of certain events connected to its clinical stage programs. In addition to the base rent, the Company is also responsible for its share of operating expenses and real estate taxes.

On September 21, 2016, the Company entered into a second amendment to its existing lease for approximately 6,748 additional square feet of rented space located in Burlington, Massachusetts. The lease began October 1, 2016 and expires on October 31, 2017. During October 2016, the Company’s lease payment for this additional space was $18,300 per month in incremental rent. Beginning in November 2016, through October 2017, the Company’s lease payments for the additional space increased to $19,000 per month.

On April 7, 2017, the Company entered into an amendment to its existing lease for approximately 1,471 additional square feet of rented space located in Burlington, Massachusetts and an extension of the current lease term through October 2023. The amendment also gives the Company the option to lease approximately 6,450 of additional square feet beginning in 2018.

Future minimum lease payments under the Company’s lease obligations are as follows:

Year	Aggregate Minimum Payments
2017	$	589,554
2018		1,225,490
2019		1,261,051
2020		1,296,776
2021		1,332,670
2022		1,197,370
2023		990,561
Total	$	7,893,472

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2016 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed by us with the Securities and Exchange Commission, or SEC, on March 10, 2017.

Forward-Looking Statements

This discussion and analysis contains “forward-looking statements” that is statements related to future, not past, events – as defined in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act that reflect our current expectations regarding future development activities, results of operations, financial condition, cash flows, performance and business prospects, and opportunities, as well as assumptions made by and information currently available to our management. Forward looking statements, include any statement that does not directly related to a current historical fact. The Company has tried to identify forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Overview

We are a specialty pharmaceutical company focused on the development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, a type of degenerative arthritis, referred to as OA.

In May 2016, the U.S Food and Drug Administration, or FDA, informed us that the safety and efficacy data from the registration program for Zilretta ^TM (FX006), our lead investigational product candidate, were acceptable to support the submission of a new drug application, or NDA. In December 2016, we submitted the NDA for Zilretta, and in February 2017, we announced that the FDA accepted the Zilretta NDA for filing and has established a user fee goal date under the Prescription Drug User Fee Act, or PDUFA, of October 6, 2017.

We were incorporated in Delaware in November 2007, and to date we have devoted substantially all of our resources to developing our product candidates, including conducting clinical trials with our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. From our inception through June 30, 2017, we have funded our operations primarily through the sale of our common stock, convertible preferred stock, convertible debt, and debt financing. From our inception through June 30, 2017, we have raised approximately $624 million from such transactions, including from our initial and follow-on public offerings and the issuance of convertible notes. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or third-party funding, and licensing or collaboration arrangements.

Product Candidates:

Zilretta (FX006) —Late Stage Candidate for Intra-articular Therapy for Patients with Moderate to Severe OA Pain

Zilretta is an injectable, extended-release, intra-articular, or IA, meaning “in the joint,” steroid that we are developing as a treatment for patients with moderate to severe OA pain. Zilretta combines a commonly administered steroid, triamcinolone acetonide, or TA, with poly lactic-co-glycolic acid, referred to as PLGA, with the goal of delivering a 32 mg dose to provide extended therapeutic concentrations in the joint and persistent analgesic effect. Zilretta is intended to address the limitations of current IA therapies by providing extended, local analgesia while avoiding systemic side effects, which are effects that can occur throughout the body as a result of drug that is released from the site of injection into circulating blood. The overall frequency of treatment-related adverse events in these trials has been similar to those observed with placebo and no drug-related serious adverse events have been reported. Both the magnitude and duration of pain relief provided by Zilretta in clinical trials have been shown to be clinically meaningful with the magnitude of pain relief amongst the largest seen to date in OA clinical trials.

Based on the strength of our pivotal and other clinical trials, we believe that Zilretta has the potential to address a signif icant unmet medical need for OA pain management by providing safe, effective and extended pain relief. Zilretta is an injectable, IA, extended-release investigational treatment for patients with moderate to severe OA pain, and we believe it is uniquely dis tinguished by the following attributes:

•

significant improvements in validated OA specific measures compared to the current injectable standard of care;

•

significant pain relief against placebo as measured by the weekly mean of the Average Daily Pain, or ADP, score in the Phase 3 trial:

•

demonstrating at week 12, the primary endpoint, at p value of <0.0001, 2 sided

•

at each week beginning at week 1 and continuing through week 16

•

demonstrating, on average, an approximately 50 percent reduction in pain from baseline over weeks 1 through 12

•

persistent therapeutic concentrations of drug in the joint and durable efficacy;

•

statistically significant (p<0.05, 2-sided) reduction in the rise of blood glucose compared to that observed following immediate-release TA injection in Type 2 diabetic patients who also have knee OA;

•

reduced rescue medicine consumption compared with placebo and immediate-release TA;

•

an acceptable safety profile with limited systemic exposures and the potential for fewer serious side effects compared to oral treatment options for OA pain, and

•

amongst the largest analgesic effects seen in OA clinical trials.

In December 2016, we submitted the NDA for Zilretta, and in February 2017, we announced that the FDA accepted the Zilretta NDA for filing and has established a user fee goal date under the Prescription Drug User Fee Act, or PDUFA, of October 6, 2017. Additionally, we have fully enrolled our clinical trial to evaluate the safety of repeat administration of Zilretta in patients with OA of the knee. The data readout is anticipated in 2018. Furthermore, we plan to initiate clinical trials of Zilretta in OA of the hip and shoulder by the end of 2017.

FX101 – Intra-articular Therapy for the Treatment of OA Pain

FX101 (fluticasone extended release) is a pre-clinical drug candidate which aims to provide extended pain relief for patients with OA. FX101 leverages our proprietary microsphere technology, and based on our pre-clinical, in vivo pharmacokinetic studies, we believe it has the potential to provide patients with pain relief for up to six months. We intend to conduct Good Laboratory Practice (GLP) toxicology studies, and pending successful results, we will file an Investigational New Drug to advance FX101 into clinical trials.

Financial Overview

Revenue

We have not generated any revenue since our inception. We do not have any products approved for sale, and we do not expect to generate any revenue from the sale of products in the near future. In the future, if our research and development efforts result in clinical success and regulatory approval, we may generate revenue from the sales of our product candidates, including Zilretta, or we may generate revenue from licensing rights to our product candidates to third parties. If we fail to complete the development of Zilretta or other product candidates, our ability to generate future revenue and our results of operations and financial position will be adversely affected.

Operating Expenses

The majority of our operating expenses to date have been related to the development and commercial launch preparation activities of Zilretta.

Research and Development Expenses

Since our inception, we have focused our resources on our development activities, including: preclinical studies, clinical trials, and chemistry, manufacturing, and controls, or CMC. Our development expenses consist primarily of:

•

expenses incurred under agreements with consultants, contract research organizations, or CROs, and investigative sites that conduct our preclinical studies and clinical trials;

•

costs of acquiring, developing and manufacturing clinical trial materials;

•

personnel costs, including salaries, benefits, stock-based compensation and travel expenses for employees engaged in scientific research and development functions;

•

costs related to compliance with regulatory requirements;

•

manufacturing costs in preparation for potential commercialization of Zilretta;

•

expenses related to the in-license of certain technologies from pharmaceutical companies; and

•

allocated expenses for rent and maintenance of facilities, insurance and other general overhead.

We expense research and development costs as incurred. Our direct research and development expenses consist primarily of external-based costs, such as fees paid to investigators, consultants, investigative sites, CROs and companies that manufacture our clinical trial materials and potential future commercial supplies, and are tracked on a program-by-program basis. We do not allocate personnel costs, facilities or other indirect expenses to specific research and development programs. These indirect expenses are included within the amounts designated as “Personnel and other costs” in the table below.

The following table summarizes our research and development expenses for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2017		2016		2017		2016
Direct research and development expenses by program:
Zilretta	$	4,700	$	5,322	$	9,471	$	13,430
FX007		—		47		1		252
Portfolio expansion		646		73		478		170
Other		245		3		974		141
Total direct research and development expenses		5,591		5,445		10,924		13,993
Personnel and other costs		6,178		3,460		11,600		6,893
Total research and development expenses	$	11,769	$	8,905	$	22,524	$	20,886

We previously performed research and development for the U.S. Department of Defense under a cost reimbursable grant for a Phase 2 clinical trial investigating Zilretta in active military and medically retired veterans with post-traumatic knee OA Reimbursements were recorded as an offset to research and development expenses when invoices for allowable costs were prepared and submitted to the U.S. Department of Defense. Due to the challenges of enrolling military personnel with post-traumatic knee OA, we discontinued this Phase 2 trial and terminated the grant. Payments under cost reimbursable grants with agencies of the U.S. government were provisional payments subject to adjustment upon audit by the U.S. government. We were reimbursed for approximately $757,000 under the grant.

Our research and development expenses are expected to increase in the foreseeable future. Specifically, our costs associated with Zilretta will increase as we conduct additional clinical trials, make initial investments for commercial product supply, and further the manufacturing process in anticipation of validation and commercialization. Evonik Corporation, or Evonik, our supplier of PLGA for Zilretta, had previously manufactured finished drug product for our Zilretta clinical trial materials; however, in early 2016 we decided to use Patheon as our sole supplier of Zilretta finished drug product for clinical trials and commercial supply. We impaired approximately $2,265,000 in manufacturing equipment located at the Evonik facility, resulting in a loss of $2,180,000 which was recorded in research and development expenses for the six months ended June 30, 2016.

We cannot determine with certainty the duration of and completion costs associated with future clinical trials or the regulatory approval process of Zilretta or any additional product candidates we develop. The duration, costs and timing associated with the development and commercialization of Zilretta or other product candidates will depend on a variety of factors, including uncertainties associated with the results of our clinical trials and our ability to obtain regulatory approval. As a result of these uncertainties, we are currently unable to estimate with any precision our future research and development expenses for any product candidate, when or if we will achieve regulatory approval, generate revenue from sales of any product candidate or achieve a positive cash flow position.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, including salaries, related benefits, travel expenses and stock-based compensation of our executive, finance, business development, commercial, information technology, legal and human resources functions. Other general and administrative expenses include an allocation of facility-related costs, patent filing expenses, and professional fees for legal, consulting, auditing and tax services.

We anticipate that our general and administrative expenses will increase in the future as we continue to build our corporate and commercial infrastructure to support the continued development and potential launch of Zilretta or any other product candidates. In

particular, if Zilretta is approved by the FDA in the fourth quarter, we expect to incur material and ongoing increases in general and administrative expenses related to our hiring of a field sales force to market Zilretta in the United States. Addit ionally, we anticipate increased expenses related to the audit, legal and compliance, regulatory, investor relations and tax-related services associated with maintaining compliance with the Securities and Exchange Commission and Nasdaq requirements and hea lthcare laws and compliance requirements, director and officer insurance premiums and other costs associated with operating as a publicly-traded company.

Other Income (Expense)

Interest income. Interest income consists of interest earned on our cash and cash equivalents balances and our marketable securities. The primary objective of our investment policy is capital preservation.

Interest expense. We issued approximately $201.3 million in convertible notes, or the 2024 Convertible Notes, which pay semi-annual coupon payments at a rate of 3.375%. We expect to pay coupon payments through the maturity of the 2024 Convertible Notes on May 1, 2024. We have also borrowed $30.0 million under our 2015 term loan facility, and we incur interest related to this borrowing at a fixed rate of 6.25% per annum. We expect to incur future interest expense related to this borrowing until February 1, 2020.

Foreign currency gain (loss). We maintain a bank account denominated in British Pounds. All foreign currency payables and cash balances are measured at the applicable exchange rate at the end of the reporting period. All associated gains and losses from foreign currency transactions are reflected in the consolidated statements of operations, within other income and expense.

Other expense. Other expense consists of the net amortization of premiums and discounts related to our marketable securities, and our realized gains (losses) on redemptions of our marketable securities. We will continue to incur expenses related to net amortization of premiums on marketable securities for as long as we hold these investments.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, and the reported revenue and expenses during the reported periods. We evaluate these estimates and judgments, including those described below, on an ongoing basis. We base our estimates on historical experience, known trends and events, contractual milestones and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the estimates, assumptions and judgments involved in the accounting policies described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016 have the greatest potential impact on our financial statements, so we consider them to be our critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates during the six months ended June 30, 2017.

RESULTS OF OPERATIONS

Comparison of the three and six months ended June 30, 2017 and 2016

The following tables summarize our results of operations for the three and six months ended June 30, 2017:

	Three Months Ended June 30,
(In thousands)	2017			2016			Change			% Increase/ (Decrease)
Revenue	$	—		$	—		$	—			—
Operating expenses:
Research and development		11,769			8,905			2,864			32.2	%
General and administrative		15,133			5,215			9,918			190.2	%
Total operating expenses		26,902			14,120			12,782			90.5	%
Loss from operations		(26,902	)		(14,120	)		(12,782	)		90.5	%
Other income (expense):
Interest income		797			295			502			170.2	%
Interest expense		(2,887	)		(202	)		(2,685	)		1329.2	%
Other expense		112			(158	)		270			(170.9	)%
Total other income (expense)		(1,978	)		(65	)		(1,913	)		2943.1	%
Net loss	$	(28,880	)	$	(14,185	)	$	(14,695	)		103.6	%

	Six Months Ended June 30,
(In thousands)	2017			2016			Change			% Increase/ (Decrease)
Revenue	$	—		$	—		$	—			—
Operating expenses:
Research and development		22,524			20,886			1,638			7.8	%
General and administrative		28,158			9,907			18,251			184.2	%
Total operating expenses		50,682			30,793			19,889			64.6	%
Loss from operations		(50,682	)		(30,793	)		(19,889	)		64.6	%
Other income (expense):
Interest income		1,355			631			724			114.7	%
Interest expense		(3,520	)		(478	)		(3,042	)		636.4	%
Other expense		83			(360	)		443			(123.1	)%
Total other income (expense)		(2,082	)		(207	)		(1,875	)		905.8	%
Net loss	$	(52,764	)	$	(31,000	)	$	(21,764	)		70.2	%

Research and Development Expenses

	Three Months Ended June 30,
(In thousands)	2017		2016		Change			% Increase/(Decrease)
Direct research and development expenses by program:
Zilretta	$	4,700	$	5,322	$	(622	)		(11.7	)%
FX007		—		47		(47	)		(100.0	)%
Portfolio expansion		646		73		573			784.9	%
Other		245		3		242			8066.7	%
Total direct research and development expenses		5,591		5,445		146			2.7	%
Personnel and other costs		6,178		3,460		2,718			78.6	%
Total research and development expenses	$	11,769	$	8,905	$	2,864			32.2	%


	Six Months Ended June 30,
(In thousands)	2017		2016		Change			% Increase/(Decrease)
Direct research and development expenses by program:
Zilretta	$	9,471	$	13,430	$	(3,959	)		(29.5	)%
FX007		1		252		(251	)		(99.6	)%
Portfolio expansion		478		170		308			181.2	%
Other		974		141		833			590.8	%
Total direct research and development expenses		10,924		13,993		(3,069	)		(21.9	)%
Personnel and other costs		11,600		6,893		4,707			68.3	%
Total research and development expenses	$	22,524	$	20,886	$	1,638			7.8	%

Research and development expenses were $11.8 million and $8.9 million for the three months ended June 30, 2017 and 2016, respectively. The increase in research and development expenses of $2.9 million was primarily due to a $0.8 million increase in preclinical expenses related to our portfolio expansion and other program costs and an increase of $2.7 million in personnel and other employee-related costs for additional headcount and stock compensation expense, partially offset by a $0.6 decrease in development expenses for Zilretta, including CMC and clinical trial costs.

Research and development expenses were $22.5 million and $20.9 million for the six months ended June 30, 2017 and 2016, respectively. The increase in research and development expenses of $1.6 million was primarily due to an increase of $1.1 million in preclinical expenses related to our portfolio expansion and other program costs, and a $4.7 million increase in personnel and other employee-related costs for additional headcount and stock compensation expense, partially offset by a decrease of $4.0 million in development expenses for Zilretta, including CMC and clinical trial costs.

General and Administrative Expenses

General and administrative expenses were $15.1 million and $5.2 million for the three months ended June 30, 2017 and 2016, respectively. The increase in general and administrative expenses of $9.9 million was primarily due to additional costs associated with building a commercial infrastructure to effectively support the potential commercialization of Zilretta, including increases in public relations and promotional expenses, market research expenses, and salary and related costs associated with additional headcount cost related to the creation of commercial marketing and sales capabilities, and stock compensation expense.

General and administrative expenses were $28.2 million and $9.9 million for the six months ended June 30, 2017 and 2016, respectively. The increase in general and administrative expenses of $18.3 million was primarily due to additional costs associated with building a commercial infrastructure to effectively support the potential commercialization of Zilretta, including increases in public relations and promotional expenses, market research expenses, and salary and related costs associated with additional headcount cost related to the creation of commercial marketing and sales capabilities, and stock compensation expense.

Other Income (Expense)

Interest income was $0.8 million and $0.3 million for the three months ended June 30, 2017 and 2016, respectively. Interest income was $1.4 million and $0.6 million for the six months ended June 30, 2017 and 2016, respectively. The increase in interest income was primarily due to an increase in average investment balance yield during 2017.

Interest e xpense was $2.9 million and $0.2 million for the three months ended June 30, 2017 and 2016, and $3.5 million and $0.5 million for the six months ended June 30, 2017 and 2016, respectively. The increase in interest expense for the three and six months ended June 30, 2017 was primarily due to interest incurred on the 2024 Convertible Notes and the $30 million borrowed under our 2015 term loan.

Liquidity and Capital Resources

To date, we have not generated any revenue and have incurred losses since our inception in 2007. As of June 30, 2017, we had an accumulated deficit of $264.5 million. We anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through one or more equity offerings, debt and convertible debt financings, government or other third-party funding, and licensing or collaboration arrangements.

Since our inception through June 30, 2017, we have funded our operations primarily through the sale of our common stock and convertible preferred stock, convertible debt, and venture debt financing. From our inception through June 30, 2017, we have raised approximately $624 million from such transactions, including amounts from our initial and follow-on public offerings during 2014 and 2016 as well as our 2024 Convertible Notes issuance in 2017. As of June 30, 2017, we had cash and cash equivalents of $197.2 million and marketable securities of $162.7 million. Based on our current operating plan we anticipate that our existing cash, cash equivalents and marketable securities will fund our operations for at least the next twelve months from the date of issuance of the financial statements included in this report. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation.

The following table shows a summary of our cash flows for each of the six months ended June 30, 2017 and 2016:

	Six Months Ended June 30,
(In thousands)	2017			2016
Cash flows used in operating activities	$	(42,239	)	$	(25,316	)
Cash flows provided by investing activities		15,241			3,515
Cash flows provided by financing activities		193,262			77,867
Net increase in cash and cash equivalents	$	166,264		$	56,066

Net Cash Used in Operating Activities

Operating activities used $42.2 million of cash in the six months ended June 30, 2017. The cash flow used in operating activities resulted primarily from our net loss of $52.8 million for the period, partially offset by changes in our operating assets and liabilities of $4.0 million and non-cash charges of $6.5 million. Our non-cash charges consisted primarily of $4.7 million of stock-based compensation expense and $1.2 million of depreciation and amortization offset by $0.6 million of premium paid on marketable securities. Net cash provided by changes in our operating assets and liabilities consisted primarily of a $1.5 million decrease in our prepaid expenses and other current assets due primarily to the receipt of the refund of the NDA fee and an increase of $2.5 million in accounts payable and accrued expenses.

Operating activities used $25.3 million of cash in the six months ended June 30, 2016. The cash flow used in operating activities resulted primarily from our net loss of $31.0 million for the period and cash used for changes in our operating assets and liabilities of $0.5 million, partially offset by non-cash charges of $6.1 million. Our non-cash charges consisted primarily of $3.3 million of stock-based compensation expense and $2.3 million of loss related to the disposal of our fixed assets, and $0.6 million of depreciation and amortization. Net cash used for changes in our operating assets and liabilities consisted primarily of a $0.4 million increase in prepaid expenses and other current assets due primarily to insurance costs and a decrease of $0.1 million in accounts payable and accrued expenses.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $15.2 million in the six months ended June 30, 2017. Net cash provided by investing activities consisted primarily of cash received for the redemption and sale of marketable securities of $135.4 million, partially offset by cash used to purchase marketable securities of $118.3 million. In addition, $1.7 million of cash was used to purchase manufacturing equipment.

Net cash provided by investing activities was $3.5 million in the six months ended June 30, 2016. Net cash provided by investing activities consisted primarily of cash received for the redemption and sale of marketable securities of $22.0 million, partially

offset by cash used for the of purchase marketable securities of $10.8 million. In addition, $7.7 million of cash was used to purchase manufacturing equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $193.3 million for the six months ended June 30, 2017. Net cash provided by financing activities in the six months ended June 30, 2017 consisted primarily of net cash received from the issuance of the 2024 Convertible Notes of $194.8 million and $1.9 million received from the exercise of stock options and employee stock purchases through our employee stock purchase plan. These cash inflows were partially offset by $3.3 million related to the payment of principal on our 2015 term loan and $0.1 million in public offering expenses incurred as part of our November 2016 equity offering.

Net cash provided by financing activities provided in the six months ended June 30, 2016 was $77.9 million and consisted of $77.4 million in net proceeds from a follow-on public offering and $0.3 million related to the exercises of stock options and employee stock purchases through our employee stock purchase plan.

Contractual Obligations

In February 2017, we entered into a five year lease for laboratory space located in Woburn, Massachusetts with a total cash obligation of approximately $0.9 million.

On April 7, 2017, we entered into an amendment to our existing lease for approximately 1,471 additional square feet of rented space located in Burlington, Massachusetts and an extension of our current lease term through October 2023. The amendment also gives us the option to lease approximately 6,450 of additional square feet beginning in 2018.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary exposures to market risk are interest income sensitivity and equity price risk. Interest income is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of a majority of our investment portfolio and the low risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates on our investment portfolio.

Investments

We do not believe that our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cash and cash equivalents and marketable securities are invested with the goal of capital preservation, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.

Convertible Notes

On May 2, 2017, we issued $201.3 million aggregate principal amount of 2024 Convertible Notes. The 2024 Convertible Notes are senior unsecured obligations and bear interest at a rate of 3.375% per year, payable semi-annually in arrears on May and November 1st of each year. The 2024 Convertible Notes will mature on May 1, 2024, unless repurchased or converted earlier. The 2024 Convertible Notes will be convertible into cash, shares of our common stock, or a combination thereof, at our election (subject to certain limitations in the 2015 term loan), at a conversion rate of approximately 37.3413 shares of common stock per $1,000 principal amount of the 2024 Convertible Notes, which corresponds to a conversion price of approximately $26.78 per share of our common stock and represents a conversion premium of approximately 35% based on the last reported sale price of our common stock of $19.72 on May 2, 2017, the date the 2024 Convertible Notes offering was priced. As of May 2, 2017, the fair value of the 2024 Convertible Notes was $136.7 million. Our 2024 Convertible Notes include conversion and settlement provisions that are based on the price of our common stock at conversion or at maturity of the 2024 Convertible Notes. The amount of cash we may be required to pay is determined by the price of our common stock. The fair values of our 2024 Convertible Notes are dependent on the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. As of June 30, 2017, the debt liability had a fair value that approximated fair value at issuance.

Most of our transactions are conducted in the U.S. dollar. We do have certain agreements with vendors located outside the United States, which have transactions conducted primarily in British Pounds and Euros. As of June 30, 2017 we had no payables to vendors denominated in currencies other than the U.S. dollar, therefore a hypothetical 10% change in foreign exchange rates would have no effect on the value of our liabilities. As of June 30, 2017, we had approximately $5.7 million in cash denominated in British Pounds. A hypothetical 10% change in foreign exchange rates would result in either a $0. 5 million increase, in the event the U.S. dollar strengthens relative to the British Pound, or a $0.4 million decrease, in the event the U.S. dollar weakens relative to the British Pound, of cash denominated in British Pounds.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We are responsible for maintaining disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely decisions regarding required disclosure.

Based on our management’s evaluation (with the participation of our principal executive and financial officer) of our disclosure controls and procedures as required by Rule 13a-15 under the Exchange Act, our principal executive and financial officer has concluded that our disclosure controls and procedures were effective to achieve their stated purpose as of June 30, 2017, the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

ITEM 1A. RISK FACTORS

You should carefully consider the risk factors included in Item 1A of our Annual Report on Form 10-K. The occurrence of any of these risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock would likely decline.

Risks Related to Our Financial Condition and Need for Additional Capital

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

We have a limited operating history. To date, we have focused primarily on developing our lead product candidate, Zilretta. Any additional product candidates we develop will require substantial development time and resources before we would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. We have incurred significant net losses in each year since our inception, including net losses of $71.90 million, $46.3 million, and $27.3 million for fiscal years 2016, 2015, and 2014, respectively, and $52.8 million for the six months ended June 30, 2017. As of June 30, 2017 we had an accumulated deficit of $264.5 million.

We have devoted most of our financial resources to product development, including our non-clinical development activities and clinical trials. To date, we have financed our operations exclusively through the sale of equity securities and debt. The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to generate revenue. To date, none of our product candidates have been commercialized, and if our product candidates are not successfully developed or commercialized, or if revenue is insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval to market our product candidates in the United States, our revenue is also dependent upon the size of the markets outside of the United States, as well as our ability to obtain marketing approval and achieve commercial success.

We expect to continue to incur substantial and increased expenses as we continue our development activities with respect to Zilretta and FX101 and as we scale up manufacturing for and prepare to commercialize Zilretta. We also expect a continued increase in our expenses associated with our operations as a publicly-traded company. As a result of the foregoing, we expect to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.

If we fail to obtain additional financing, we would be forced to delay, reduce or eliminate our product development programs and planned commercialization activities.

Developing and commercializing pharmaceutical products, including conducting preclinical studies and clinical trials, and building and maintaining sales and marketing capabilities, is expensive. We expect our expenses to substantially increase in connection with our ongoing activities, particularly as we advance our clinical programs, including our ongoing and planned clinical trials for Zilretta, continue our manufacturing scale-up activities and build a sales and marketing organization to commercialize Zilretta.

As of June 30, 2017 we had cash, cash equivalents and marketable securities of $359.9 million and working capital of $342.4 million. Based upon our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital requirements for at least the next twelve months from the issuance date of these financial statements, including through the Prescription Drug User Fee Act, or PDUFA, action goal date of our NDA for Zilretta. Regardless of our expectations as to how long our cash, cash equivalents and marketable securities will fund our operations, changing circumstances beyond our control may cause us to consume capital more rapidly than we currently anticipate. For example, our clinical trials may encounter technical, enrollment or other difficulties that could increase our development costs more than we expect or the FDA could impose additional or different clinical development requirements on us prior to approving an NDA for Zilretta. In any event, we may require additional capital prior to commercializing Zilretta or any of our other product candidates.

Attempting to secure additional fina ncing may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to:

•

significantly delay, scale back or discontinue the development or commercialization of our product candidates;

•

seek corporate partners for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;

•

relinquish or license on unfavorable terms, our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or

•

significantly curtail, or cease, operations.

If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and prospects.

Our existing indebtedness contains restrictions that limit our flexibility in operating our business. We may be required to make a prepayment or repay our outstanding indebtedness earlier than we expect, which could have a materially adverse effect on our business, or may otherwise be unable to repay our indebtedness as it becomes due.

On August 4, 2015, we entered into a credit and security agreement with MidCap Financial SBIC, LP, or MidCap, as administrative agent, MidCap Funding XIII Trust and Silicon Valley Bank, as agent lenders, to borrow up to $30.0 million and contemporaneously drew down $15.0 million under the credit facility. The credit agreement contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to, among other things:

•

incur or assume certain debt;

•

merge or consolidate or acquire all or substantially all of the capital stock or property of another entity;

•

enter into any transaction or series of related transactions that would be deemed to result in a change in control of us under the terms of the agreement;

•

change the nature of our business;

•

change our organizational structure or type;

•

amend, modify or waive any of our organizational documents;

•

license, transfer or dispose of certain assets;

•

grant certain types of liens on our assets;

•

make certain investments;

•

pay cash dividends;

•

enter into material transactions with affiliates; and

•

amend or waive provisions of material agreements in certain manners.

The restrictive covenants of the credit agreement could cause us to be unable to pursue business opportunities that we or our stockholders may consider beneficial.

A breach of any of these covenants could result in an event of default under the credit agreement. An event of default will also occur if, among other things, a material adverse change in our business, operations or condition occurs, which could potentially include negative results in our clinical trials or unfavorable determinations by the FDA with respect to the potential approval of Zilretta, or a material impairment of the prospect of our repayment of any portion of the amounts we owe under the credit agreement occurs. In the case of a continuing event of default under the credit agreement, the lenders could elect to declare all amounts outstanding to be immediately due and payable, proceed against the collateral in which we granted the lenders a security interest under the credit agreement, or otherwise exercise the rights of a secured creditor. Amounts outstanding under the credit agreement are secured by all of our existing and future assets, excluding intellectual property, which is subject to a negative pledge arrangement.

In April 2017, we also issued $201.3 million principal amount of our 3.375% Convertible Senior Notes due 2024, or the 2024 Convertible Notes. The 2024 Convertible Notes will mature on May 1, 2024, unless earlier redeemed, repurchased or converted in

accordance with the terms of the indenture governing the notes. If specified bankruptcy, insolvency or reorganization-related events of default occur, or if certain other events of default occur and the tru stee or certain holders of the 2024 Convertible Notes elect, the principal of, and accrued and unpaid interest on, all of the then-outstanding 2024 Convertible Notes will automatically become due and payable. In addition, if we undergo certain fundamental change transactions specified in the indenture governing the 2024 Convertible notes, the holders of the notes may require us to repurchase their notes at a price equal to 100% of the principal amount of the notes, plus any accrued and unpaid interest.

We may not have enough available cash or be able to raise additional funds on satisfactory terms, if at all, through equity or debt financings to repay or refinance our indebtedness at the time any such repayment or repurchase is required. In such an event, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant to others rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our business, financial condition and results of operations could be materially adversely affected as a result.

Risks Related to Clinical Development and Regulatory Approval

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of subsequent clinical trials. In particular, the results generated in our completed Zilretta pivotal Phase 3 clinical trial do not ensure that any ongoing or future Zilretta clinical trial will be successful or consistent with the results generated in the Phase 3 trial.

We have conducted preclinical toxicology studies in healthy dogs with single and repeat doses of Zilretta, blank microspheres and immediate-release TA. The immediate-release TA and Zilretta groups produced similar findings in these studies. In the single-dose study, local cartilage findings of reduced extracellular matrix were completely reversed by the end of the nine-month recovery period in both the Zilretta and immediate-release TA study arms. With repeat administrations of Zilretta and immediate-release TA, a larger reduction in extracellular matrix in cartilage partially recovered by six months following the last dose; however, structural changes in cartilage were observed with repeat administrations of both Zilretta and immediate-release TA. Repeat administration of immediate-release TA has a long history of safe clinical use in patients with OA, and in a randomized, double-blind clinical trial conducted in 2003 by Raynauld et al, administration of immediate-release TA or saline every three months for up to two years in 68 OA patients was well-tolerated and demonstrated no deleterious effects in the knee joint when assessed by clinical exam and X-ray evaluation. Using a more sensitive MRI imaging technology in 2015, Driban et al again demonstrated that cartilage structure changes between OA patients treated with immediate-release TA and saline in patients were similar. In 2017, the same authors reporting on the same data set concluded that there was a relative loss of cartilage in the immediate-release TA group. We are studying Zilretta in a repeat dose safety clinical trial and if Zilretta is approved and the data from the repeat dose trial are supportive, we intend to seek inclusion of these data in the label. It is possible that we could observe detrimental effects on joint structure with repeated doses of Zilretta, similar to those outcomes observed in our preclinical studies and third party trials, which would limit Zilretta’s commercial potential and could harm our ability to maintain regulatory approval.

Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. In addition to the safety and efficacy trials of any product candidate, clinical trial failures may result from a multitude of factors including flaws in trial design, dose selection, placebo effect and patient enrollment criteria. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. We cannot guarantee that we won’t be required to conduct an additional pivotal trial which would delay our approval timeline and result in additional development costs. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. In any event, our future clinical trials may not be successful.

If Zilretta or any other product candidate is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be materially harmed. If the results of any of our ongoing or future clinical trials for Zilretta demonstrate unexpected safety findings or do not achieve the primary efficacy endpoint, the prospects for approval of Zilretta, or the commercial potential for Zilretta, if approved, as well our stock price and our ability to create stockholder value would be materially and adversely affected.

Risks Related to Com mercialization of Our Product Candidates

Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, healthcare payors, patients and the medical community.

Even if we obtain regulatory approval for Zilretta or any of our other potential future product candidates, the product may not gain market acceptance among physicians, healthcare payors, patients and the medical community, which is critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors, including:

•

the efficacy and safety as demonstrated in clinical trials;

•

the timing of market introduction of the product candidate as well as competitive products;

•

the clinical indications for which the product candidate is approved;

•

acceptance by physicians, the medical community and patients of the product candidate as a safe and effective treatment;

•

the ability to distinguish safety and efficacy from existing, less expensive generic alternative therapies;

•

the convenience of prescribing, administrating and initiating patients on the product candidate;

•

the potential and perceived advantages of such product candidate over alternative treatments;

•

the potential and perceived value of such products over alternative treatments;

•

the cost of treatment in relation to alternative treatments, including any similar generic treatments;

•

the availability of coverage and adequate reimbursement and pricing by third-party payors and government authorities;

•

relative convenience and ease of administration;

•

the prevalence and severity of adverse side effects; and

•

the effectiveness of sales and marketing efforts.

If our product candidates, including Zilretta, are approved but fail to achieve an adequate level of acceptance by physicians, healthcare payors, patients and the medical community, we will not be able to generate significant revenue, and we may not become or remain profitable.

If we are unable to achieve and maintain adequate levels of third-party payor coverage and reimbursement for Zilretta or any other product candidates, if approved, on reasonable pricing terms, their commercial success may be severely hindered.

Successful sales of any approved product candidates depend on the availability of adequate coverage and reimbursement from third-party payors. Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming we obtain coverage for a given product, the resulting reimbursement payment rates might not be adequate or may require co-payments that patients find unacceptably high.

Payors may require documented proof that patients meet certain eligibility criteria in order to be reimbursed for Zilretta, requiring that a patient first try and fail treatment with an injection of generic corticosteroid. Payors may even require that pre-approval, or prior-authorization, be obtained from the payor for reimbursement of Zilretta. Patients are unlikely to use our products, including Zilretta, if approved, unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. In addition, if approved, Zilretta may be sold to physicians on a “buy and bill” basis and they may be reluctant to purchase Zilretta in advance if there are issues with reimbursement.

In addition, the market for Zilretta and any of our other product candidates may depend significantly on access to third-party payors’ medical policies, drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies, and we will be required to offer discounted rates to state Medicaid programs to ensure Medicaid coverage of our drugs. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

Third-party pay ors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. The U.S. government, state legislatures and foreign governments have shown significant interest in implement ing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientifi c and clinical support for the use of our products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. Third party coverage and reimbursement for Zilretta or any of our other product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, or may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. If coverage and reimbursement are not available or only available at limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval, which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Risks Related to Our Intellectual Property

If we are unable to obtain or protect intellectual property rights related to our product candidates, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection, confidentiality agreements and proprietary know how, and intend to seek marketing exclusivity for any approved product, in order to protect the intellectual property related to product candidates, and to date we have only three issued patents covering Zilretta in the United States. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. If this were to occur, early generic competition could be expected against Zilretta and potentially our other product candidates in development. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed or invalidated. Also, a third party may challenge our ownership of patents and patent applications assigned to us, or may challenge our exclusive rights to patents and patent applications that we license from third parties. Furthermore, even if they are unchallenged, our patents and patent applications may not adequately protect our intellectual property or prevent others from designing around our claims. If the additional patent applications we hold with respect to Zilretta or our other product candidates fail to issue or if their breadth or strength of protection is threatened, it could dissuade companies from collaborating with us to develop them and threaten our ability to commercialize any resulting products. We cannot offer any assurances about which, if any, patents will issue or whether any issued patents will not be found invalid and unenforceable or will go unthreatened by third parties. Further, if we encounter delays in regulatory approvals, the period of time during which we could market Zilretta or any other product candidate under patent protection could be reduced. Furthermore, patent applications by third parties can result in an interference proceeding in the United States being provoked by a third party or instituted by us to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. See “Business—Patents and Patent Applications” for additional information regarding our material patents and patent applications.

In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug development process that involve proprietary know-how, information or technology that is not covered by patents. For example, we maintain trade secrets with respect to certain of the formulation and manufacturing techniques related to the TA-formulated PLGA microspheres in Zilretta, including those that relate to precise pharmaceutical release. Although we generally require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the non-patented intellectual property related to our technologies to third parties, and there is no guarantee that we will have any such enforceable trade secret protection, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, results of operations and financial condition.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent sales of Unregistered Securities

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit number		Description of document

3.1 ⁽¹⁾		Amended and Restated Certificate of Incorporation of the Registrant.

3.2 ⁽¹⁾		Amended and Restated Bylaws of the Registrant.

4.1 ⁽²⁾		Form of Common Stock Certificate of the Registrant.

4.2 ⁽³⁾		Indenture, dated May 2, 2017, by and between the Registrant and Wells Fargo Bank, National Association, as trustee.

4.3 ⁽³⁾		Form of Note representing the Registrant’s 3.375% Convertible Senior Notes due 2024 (included as Exhibit A to the Indenture filed as Exhibit 4.4).

10.1		Seventh Amendment of Lease, dated April 7, 2017, between the Registrant and CIP II/RJK 10-20 BMR Owner, LLC.

10.2 ⁽³⁾		Consent and Second Amendment to Credit and Security Agreement, dated April 24, 2017, between the Registrant and MidCap Financial Trust, as administrative agent.

10.3 ⁽⁴⁾		Change in Control Severance Benefit Plan and Form of Participation Agreement.

10.4		Offer Letter, dated February 15, 2017 and as amended July 19, 2017, between the Registrant and Yamo Deniz, M.D.

31.1		Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.


32.1		Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on February 19, 2014.

(2)	Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-193233), as amended.

(3)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on May 2, 2017.

(4)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed with the SEC on June 23, 2017.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Flexion Therapeutics, Inc.

Date: August 8, 2017	By:	/s/ Michael D. Clayman
		Michael D. Clayman
		Chief Executive Officer
		(Principal Financial Officer)

EXHIBIT 10.1

SEVENTH AMENDMENT TO LEASE

THIS SEVENTH AMENDMENT TO LEASE (" Amendment ") is made and entered into as of this

7th day of April , 2017 (" Effective Date ") by and between CIP II /RJK 10-20 BMR OWNER LLC , a Delaware limited liability company, with an address c/o R.J. Kelly Co., Inc., 55 Cambridge Street, Burlington, Massachusetts 01803 (successor landlord pursuant to an Assignment and Assumption Agreement dated as of December 20, 2013) (" Landlord "), and FLEXION THERAPEUTICS, INC ., a Delaware corporation, with a principal office located at 1 0 Mall Road, Burlington, Massachusetts 01803 (" Tenant "), with Landlord and Tenant sometimes hereinafter referred to collectively as the " Parties ".

R E C I T A L S

A. Pursuant to that certain Lease dated February 22, 2013 by and between Landlord and Tenant, as amended by the First Amendment of Lease dated July 13, 2015 (" First Amendment "), the Second Amendment of Lease dated December 15, 2015 (" Second Amendment "), the Third Amendment of Lease dated May 8, 2016 (" Third Amendment "), the Fourth Amendment of Lease dated June 29, 2016 (" Fourth Amendment "), and the Fifth Amendment of Lease dated July 21, 2016 (" Fifth Amendment ”) and the Sixth Amendment of Lease dated September 21, 2016 (" Sixth Amendment ") (the First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment and Sixth Amendment, together with the Lease, collectively the " Existing Lease "), Landlord is leasing to Tenant those certain premises known as Suites 210 and 301 in the building located at 10 Burlington Mall Road, situated in Burlington, Massachusetts 01803, together with all improvements located thereon, consisting of 21,874 rentable square feet of area, which is comprised of 11,754 rentable square feet of area (the " Original Premises "), the Phase I Expansion Space consisting of approximately 4,715 rentable square feet of area, and the Phase II Expansion Space consisting of approximately 5,405 rentable square feet of area, all as more particularly described in said Existing Lease (collectively, the " 2016 Combined Space "). In addition to the 2016 Combined Space, Landlord is also leasing to Tenant 6,748 rentable square feet of area (the " Suite 210 Temporary Space "), with the Original Premises, 2016 Combined Space and Suite 210 Temporary Space together consisting of approximately 28,622 rentable square feet, collectively, the " Existing Premises ". For the purposes of this Amendment and the Lease, the Existing Space, the 2017 Expansion Space and/or the 2018 Expansion Space (as such terms are defined below) shall be considered to be a part of the Premises (as such term is defined in the Lease) to the extent that, and for so long as, Tenant occupies the Existing Space, the 2017 Expansion Space and/or the 2018 Expansion Space.

B. Intentionally omitted.

C. Tenant desires to lease from Landlord and Landlord desires to lease to Tenant approximately 1,471 rentable square feet located on the 2nd floor of the Building currently designates as Suite 206 beginning on or about September 1, 2017 through the remainder of the Term (as defined herein) as further depicted and described on Exhibit A-2 (" 2017 Expansion Space "), upon the terms and conditions hereinafter provided.

D. Tenant desires to l ease from Landlord and Landlord desires to lease to Tenant approximately 6,450 rentable square feet located on the 2nd floor of the Building beginning on or about April 1, 2018 through the remainder of the Term (as defined herein) as further depicted and d escribed on Exhibit A-3 (" 2018 Expansion Space "), upon the terms and conditions hereinafter provided.

E. Landlord and Tenant desire to modify the Lease pursuant to the terms set forth in this Amendment to, among other things, extend the term of the Lease and to expand Tenant’s leased space within the Building, all upon the terms and conditions set forth below.

A G R E E M E N T S

NOW, THEREFORE , in consideration of the mutual covenants and conditions contained in this Amendment and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Recitals; Exhibits; Defined Terms . The above Recitals and any exhibits, schedules and/or attachments hereto are incorporated and made a part hereof by reference. Any term not defined in this Amendment will have the meaning for that term as defined in the Lease.

2. Extension of the Lease Term . The original term of the Lease is extended to October 31, 2023, the " Lease Expiration Date ".

3. Amendment to Section 1.1 of the Lease . Each of the following items of Reference Data as defined in Section 1.1 are deleted in their entirety and the following substituted in lieu thereof:

Landlord:

CIP II/RJK 10-20 BMR OWNER LLC

Landlord’s Original Address:

c/o R.J. Kelly Co., Inc.

55 Cambridge Street

Burlington, Massachusetts 01803

Annual Fixed Rent:

Remaining rental obligation for the Existing Premises for the balance of the Term shall be:

11/01/2016 - 10/31/2017:

$33.50 per rentable square foot per year

11/01/2017 - 10/31/2018:

$34.50 per rentable square foot per year

11/01/2018 - 10/31/2019:

$35.50 per rentable square foot per year

11/01/2019 - 10/31/2020:

$36.50 per rentable square foot per year

11/01/2020 - 10/31/2021:

$37.50 per rentable square foot per year

11/01/2021 - 10/31/2022:

$38.50 per rentable square foot per year

11/01/2022 - 10/31/2023:

$39.50 per rentable square foot per year

The rental obligation for the 2017 Expansion Space commencing on the later of September 1, 2017 or the 2017 Expans ion Space Commencement Date through October 31, 2023 shall be:

09/01/2017 - 10/31/2017:

$33.50 per rentable square foot per year*

11/01/2017 - 10/31/2018:

$34.50 per rentable square foot per year

11/01/2018 - 10/31/2019:

$35.50 per rentable square foot per year

11/01/2019 - 10/31/2020:

$36.50 per rentable square foot per year

11/01/2020 - 10/31/2021:

$37.50 per rentable square foot per year

11/01/2021 - 10/31/2022:

$38.50 per rentable square foot per year

11/01/2022 - 10/31/2023:

$39.50 per rentable square foot per year

*subject to adjustment based on the 2017 Space Extension Commencement Date.

The rental obligation for the 2018 Expansion Space commencing on the later of April 1, 2018 or the 2018 Expansion Space Commencement Date through October 31, 2023 shall be:

04/01/2018 - 10/31/2018:

$34.50 per rentable square foot per year*

11/01/2018 - 10/31/2019:

$35.50 per rentable square foot per year

11/01/2019 - 10/31/2020:

$36.50 per rentable square foot per year

11/01/2020 - 10/31/2021:

$37.50 per rentable square foot per year

11/01/2021 - 10/31/2022:

$38.50 per rentable square foot per year

11/01/2022 - 10/31/2023:

$39.50 per rentable square foot per year

*subject to adjustment based on the 2018 Space Extension Commencement Date.

Rentable Floor Area

of the Premises: Existing Premises: 28,622 rentable square feet

2017 Expansion

Space:

1,471 rentable square feet

2018 Expansion

Space:

6,450 rentable square feet

Base

Operating Expenses:Landlord’s Operating Expenses for calendar year 2016.

Base Taxes:Landlord’s Tax Expenses for fiscal year 2017, being

July 1, 2016 through June 30, 2017.

4. Intentionally Omitted .

5. 2017 Expansion Space .

(a) As used in this Amendment, " 2017 Expansion Space Commencement Date " shall mean the date Landlord substantially completes Landlord’s Work (defined below) and

tenders the 2017 Expansion Space to Tenant, such date also being the Landlord’s Work Completion Date (defined below), subject to force majeure and any delays caused or contributed to by Tenant . Notwithstanding the contemplated 2017 Expansion Space Commencement Date or the contemplated Landlord’s Work Completion Date , if for any reason Landlord cannot deliver possession of the 2017 Expansion Space to Tenant on or before said date s , Landlo rd shall not be subject to any liability therefor, nor shall such failure affect the validity of this Amendment or the Lease or Tenant's obligations hereunder or thereunder or further extend the Term or the Lease Expiration Date .

(b) On the 2017 Expansion Space Commencement Date, Landlord and Tenant shall execute and deliver a 2017 Expansion Space Commencement Date and Lease Expiration Date Memorandum in the form attached hereto as Exhibit B-1 .

(c) As used in this Section 5, " Landlord’s Work Completion Date " shall mean the date on which Landlord’s Work shall be substantially completed. Landlord’s Work shall be considered “substantially completed” when all tasks to be performed by Landlord to the 2017 Expansion Space to a condition where Tenant would reasonably be able to commence installation of its communications, network and furniture, are completed, which, so long as Tenant shall have delivered and Landlord shall have received and approved Tenant’s final plans, specifications and scope as further described on Exhibit C in sufficient time for Landlord to deliver the 2017 Expansion Space for Tenant’s use and occupancy on or before September 1, 2017; provided , however , that such substantial completion date is subject to force majeure and any delays caused or contributed to by Tenant.

6. 2018 Expansion Space .

(a) On or before October 7, 2017, Tenant shall provide notice to Landlord that it desires to exercise its option to lease the 2018 Expansion Space. Failure of Tenant to provide such notice shall be dee med that Tenant has not elected to lease the 2018 Expansion Space.

(b) As used in this Amendment, " 2018 Expansion Space Commencement Date " shall mean the date Landlord substantially completes Landlord’s Work (defined below) and tenders the 2018 Expansion Space to Tenant, such date also being the Landlord’s Work Completion Date (defined below), subject to force majeure and any delays caused or contributed to by Tenant. Notwithstanding the contemplated 2018 Expansion Space Commencement Date or the contemplated Landlord’s Work Completion Date, if for any reason Landlord cannot deliver possession of the 2018 Expansion Space to Tenant on or before said dates, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Amendment or the Lease or Tenant's obligations hereunder or thereunder or further extend the Term or the Lease Expiration Date.

(c) On the 2018 Expansion Space Commencement Date, Landlord and Tenant shall execute and deliver a 2018 Expansion Space Commencement Date and Lease Expiration Date Memorandum in the form attached hereto as Exhibit B-2 .

(d) As used in this Section 6, " Landlord’s Work Completion Date " shall mean the date on which Landlord’s Work shall be substantially completed. Landlord’s Work shall be

considered “substantially completed” when all tasks to be performed by Landlord to the 2018 Expansion Space to a condition where Tenant would reasonably be able to commence installation of its communications, network and furniture, are comple ted, which, so long as Tenant shall have delivered and Landlord shall have received and approved Tenant’s final plans, specifications and scope as further described on Exhibit C in sufficient time for Landlord to deliver the 2018 Expansion Space for Tenant ’s use and occupancy on or before April 1, 201 8 ; provided , however , that such substantial completion date is subject to force majeure and any delays caused or contributed to by Tenant.

7. Continued Existence of Lease; Tenant’s Premises .

(a) Notwithstanding anything to the contrary contained in this Amendment, nothing shall be deemed to negate the continuous existence of the Lease.

(b) Intentionally omitted.

(c) On and after the 2017 Space Extension Commencement Date, the Premises shall be deemed to include the 2017 Expansion Space for all purposes under the Lease, upon the conditions herein and the provisions of the Lease not Specifically modified by this Amendment.

(d) On and after the 2018 Space Extension Commencement Date, the Premises shall be deemed to include the 2018 Expansion Space for all purposes under the Lease, upon the conditions herein and the provisions of the Lease not Specifically modified by this Amendment.

8. Obligation to Pay Rent; Proration; Rent Abatement .

(a) The obligation to pay Annual Fixed Rent at the rates set forth in this Amendment, Additional Rent and any other amounts due for the Existing Premises shall continue and payments shall be ma de as and when due, and by such means as required, under the Lease, except as modified by this Amendment. The obligation to pay Annual Fixed Rent at the rates set forth in this Amendment, Additional Rent and any other amounts due for the 2017 Expansion Space and the 2018 Expansion Space shall commence upon the 2017 Expansion Space Commencement Date and the 2018 Expansion Space Commencement Date, as the case may be, and payments shall be made as and when due, and by such means as required, under the Lease, except as modified by this Amendment.

(b) Notwithstanding anything to the contrary contained herein, if either the 2017 Expansion Space Commencement Date or the 2018 Expansion Space Commencement Date is a date other than the 1st of the month, Tenant shall on the respective commencement date pay rent equal to the proportion of the month Tenant will occupy such space.

(c) Notwithstanding anything to the contrary contained in this Amendment, Landlord shall grant to Tenant an abatement from the payment of t he installments of Base Monthly Rental due on the (i) intentionally omitted; (ii) 2017 Expansion Space for the first three (3) months following the 2017 Expansion Space Commencement Date and (iii) 2018 Expansion Space for the first three (3) months following the 2018 Expansion Space Commencement Date (each such period, a “ Free Rent Period ”). During the Free Rent

Period (A) intentionally omitted; (B) for the 2017 Expansion Space, the Annual Fixed Rent for such space shall be abated up to a total amount of $ 12,442.21 and (C) for the 2018 Expansion Space, the Annual Fixed Rent for such space shall be abated up to a total amount of $55,631.25 (each such rental abatement being a “ Free Rent Allowance ”). Notwithstanding anything to the contrary contained herein, during either above-described Free Rent Period, (1) Tenant shall remain obligated during each Free Rent Period to perform all of Tenant’s obligations under this Lease except as expressly set forth above (including, but not limited to, the payment of all el ectric charges, Additional Rent and other amounts coming due under the Lease, but specifically not including Operating Expenses or Taxes for the applicable space), and (2) in the event of any termination of this Lease by Landlord based upon a default hereu nder by Tenant that is not cured within any applicable notice and cure period, the entire amount of Fixed Monthly Rental which would have otherwise been due and payable for the 2017 Expansion Space or the 2018 Expansion Space, as the case may be, hereunder during the applicable Free Rent Period in the absence of the applicable Free Rent Allowance shall immediately become due and payable and any remaining Free Rent Allowance hereunder with respect to the 2017 Expansion Space or the 2018 Expansion Space, as a pplicable, shall be of no force or effect .

9. Landlord’s Work and Tenant’s Work – 2017 Expansion Space .

(a) The pre-occupancy improvements to the 2017 Expansion Space and the party responsible for such work shall be mutually agreed in writing by Landlord and Tenant prior to the 2017 Expansion Space Commencement Date. Notwithstanding the foregoing, the pre-occupancy improvements to the 2017 Expansion Space shall be performed by Landlord, whether such work is to be paid for by Landlord or Tenant, and shall include drop ceilings and building standard materials and finishes; provided , however , that any walls installed in the 2017 Expansion Space shall be at Tenant’s sole cost and expense.

10. Landlord’s Work – 2018 Expansion Space .

(a) Landlord, at Landlord’s sole cost and expense, agrees to improve the 2018 Expansion Space in accordance with mutually agreed upon Tenant’s final approved plans to a turnkey condition that shall include all base building systems in good working order and "turnkey" build-out of the 2018 Expansion Space using the scope and finishes set forth in Exhibit A-1 to the First Amendment (“ Landlord’s Work ”); provided , however , that in doing so, (i) Tenant shall be responsible for any costs associated with upgrading the finishes and specifications for the 2018 Expansion Space and (ii) Landlord is not required to perform or pay for any of the Tenant’s Work (defined below). Landlord shall deliver the 2018 Expansion Space in broom clean condition, freshly painted and carpeted with all mechanical, electrical and plumbing components serving the 2018 Expansion Space in good working order. Tenant agrees that Tenant’s taking possession of the 2018 Expansion Space is conclusive evidence that the 2018 Expansion Space is in good and satisfactory condition as of the 2018 Expansion Space Commencement Date; provided , however , that any early access as described in Section 10(c) below or as otherwise

provided herein shall not, by itself, be considered Tenant’s deemed acceptance of the 2018 Expansion Space.

(b) Landlord agrees to be responsible for obtaining all permits, approvals and certificates necessary for the Landlord’s Work and for obtaining an occupancy certificate upon the completion of Landlord’s Work and Tenant’s Work’s. Tenant agrees to be responsible for obtaining all permits, approvals and certificates necessary for the Tenant’s Work. Each Party agrees to cooperate as reasonably necessary with other Party's efforts to obtain such permits, certificates and approvals.

(c) Landlord acknowledges and agrees that, commencing thirty (30) days prior to the anticipated 2018 Expansion Space Commencement Date, Tenant shall have access to the portion of the 2018 Expansion Space that Landlord controls for the purpose of installing furniture, fixtures, equipment and any dedicated IT systems, telephones and other equipment at the 2018 Expansion Space; provided , however , that any such entry onto the 2018 Expansion Space prior to the Extension Commencement Date (i) shall be subject to all of the terms and provisions of this Lease (other than Tenant’s obligation to pay Fixed Annual Rent and Additional Rent), including, but not limited to, the insurance required of Tenant to cover such access to and work to be performed in the 2018 Expansion Space, and (ii) shall not interfere with Landlord’s ability to complete Landlord’s Work. Notwithstanding any provision to the contrary in this Amendment or the Lease, Tenant’s exercise of its right to access a portion of the 2018 Expansion Space pursuant to this Section 10(c) shall not be deemed evidence of Tenant’s agreement that the 2018 Expansion Space is complete or in good and satisfactory condition.

11. Tenant’s Work – 2018 Expansion Space .

(a) Landlord shall in no way be responsible for installation of Tenant’s audiovisual, telephone and data, furniture/fixtures/equipment, artwork, signage, move-related expenses or any related permits that may be required with respect to such items (" Tenant’s Work ").

(b) Landlord’s and Tenant's general contractors shall mutually agree on a schedule for elevator use to permit the timely completion of the Landlord’s Work and Tenant’s Work during normal business hours. Once the parties execute and deliver this Amendment and upon Tenant providing certificate(s) evidencing that Tenant and its contractors have the requisite insurance in place and subject to Section 10(c) above, Tenant shall have immediate access to the unoccupied portion of the 2018 Expansion Space to commence planning Tenant’s Work, but no Tenant’s Work shall be performed prior to the time set forth in Section 10(c) above.

(c) Other than the Tenant’s Work, Tenant will not make or permit anyone to make any alterations, additions, improvements or changes, structural or otherwise, to the Premises, the Building, the Additional Building or the Complex (collectively, " Alterations ") without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. If Tenant makes any Alteration without

the Landlord's prior written consent, Landlord may change or remove the Alteration at Tenant's expense.

(d) Prior to commencing work on any approved Alterations, Tenant agrees to furnish Landlord with: (i) copies of all necessary governmental permits and authorizations; (ii) 3 copies of all plans and specifications; and (iii) a certificate evidencing the insurance required under the Lease, including, but not limited to, workers' compensation insurance for all persons employed in connection with the Alterations.

(e) If any mechanic's lien is filed against the Premises, the Building, the Additional Building or the Complex for work or materials claimed to have been furnished at Tenant's direction, including, but not limited to, the Tenant’s Work, improvements or any Alteration, Tenant agrees, at its expense, to either bond over or obtain the release of such lien within 30 calendar days. If Tenant fails to timely obtain the release of such lien, Landlord may, at its option, discharge the underlying debt and treat the cost of such discharge as additional rent due on the next Rent Payment Date. Such discharge shall not waive the Tenant's default in failing to discharge the lien.

(f) Tenant acknowledges that, in accordance with the Lease, Tenant shall indemnify and hold Landlord harmless with respect to the Tenant’s Work and Alterations.

(g) All of the Tenant’s Work and Alterations shall remain upon and be surrendered with the Tenant’s Premises on the Lease Expiration Date, and become Landlord's property.

12. Right of First Refusal to Contiguous Expansion Space .

(a) Landlord hereby grants Tenant the right of first refusal with respect to any space in the Building that becomes available prior to the Lease Expiration Date and is contiguous to the Premises (the " Expansion Space "). All Lease terms as amended by this Amendment will apply to Expansion Space except: (i) Annual Fixed Rent for the Expansion Space will be set at the fair market rent with market escalations and concessions (including, without limitation, free rent periods, Landlord’s work, and work allowances to be provided by Landlord) based on the Burlington, Massachusetts office market then being offered by landlords for comparable space, taking into account all relevant factors (the “ Fair Market Value Annual Fixed Rent and Concessions ”); (ii) the amount of Tenant's Percentage Share will increase to reflect the addition of the Expansion Space; and (iii) those provisions that require modification due to the passage of time or any then-current uses of or demands on the physical attributes or limitations of the Complex, such as amenities, facilities, storage, services, parking, controls, and valet and/or shuttle system (provided that the same do not diminish any rights of (or increase any obligations of) Tenant under the Lease, or provide Tenant, with respect to such Expansion Space, with less than such Expansion Space’s proportionate share of the use of the applicable services and common facilities referenced above.

(b) If Landlord receives not ice that Expansion Space will become available, Landlord shall promptly provide Tenant with written notice identifying the space, setting forth its rentable square feet, the increase to Tenant's Percentage Share, Landlord’s determination of the Fair Market Value Annual Fixed Rent and Concessions, and any other terms that are favorable to a Tenant that Landlord proposes. Within 10 business days of the date of Landlord's notice, Tenant will notify Landlord in writing of Tenant's intent to exercise Tenant's right to the Expansion Space . Tenant’s failure to so notify Landlord within such 10-business day period shall be deemed Tenant’s waiver of the exercise of the right with respect to the Expansion Space described in Landlord’s notice, but not a waiver of th is right in the future should such Expansion Space become available again during the Term or a waiver of the right with respect to any other Expansion Space that may become available during the Term . Tenant's notice will indicate whether Tenant agrees to Landlord’s determination of the Fair Market Value Annual Fixed Rent and Concessions . If within 10 business days of Tenant's notice, Landlord and Tenant are unable to agree on Fair Market Value Annual Fixed Rent and Concessions , the same will be determined by “baseball arbitration” (i.e., each side will submit their version of the Fair Market Value Annual Fixed Rent and Concessions and the independent arbitrator will pick either Landlord’s or Tenant’s version as the applicable F air Market Value Annual Fixed Rent and Concessions ) utilizing an independent arbitrator under the rules for expedited commercial arbitration of the American Arbitration Association (and if the parties cannot agree on an independent arbitrator, they shall h ave the American Arbitration Association select one for them having at least 10 years of lease brokerage experience in the Burlington, Massachusetts commercial office market).

(c) If Tenant exercises its right to the Expansion Space in writing, the commencement date for the Expansion Space shall be upon the delivery to Tenant of such Expansion Space by Landlord vacant and in broom clean condition, with all mechanical, electrical and plumbing components serving the Expansion Space in good working order, and if part of the Fair Market Value Annual Fixed Rent and Concessions, substantial completion of any Landlord’s work to be provided by Landlord. All terms and conditions of this Amendment shall apply to the Expansion Space with the exception of the terms of the Fair Market Value Annual Fixed Rent and Concessions applicable to the Expansion Space.

(d) If Tenant has elected under this Section 12 to exercise its option for the Expansion Space, the Parties agree to incorporate their agreement (as finally determined by arbitration above, if applicable) into a Lease amendment and sign such amendment.

(e) To the extent not already exercised as of the Effective Date, all provisions in the Lease which grant Tenant the option to lease additional space in the Building whether by right of first refusal or right of first offer, including as set forth in the Lease, shall be of no further force and effect.

13. Any Existing Option to Extend Term . With the extension of the Term and Lease Expiration Date to October 31, 2023 pursuant to this Amendment, to the extent not already exercised as of the Effective Date, all provisions in the Existing Lease which grant Tenant the option to extend the term of the Existing Lease, shall be of no further force and effect.

14. No Brokers . E ach Party represents to the other Party that it has not dealt with any broker in connection with the consummation of this Amendment, and, in the event any claim is made against the non-representing Party relative to dealings by the representing Party with any brokers, the representing Party shall indemnify, defend and hold the non-representing Party harmless, with counsel of the non-representing Party’s choice of counsel (the approval or selection of which shall not be unreasonably withheld, conditioned or delayed) on account of loss, cost or damage which may arise by reason of such claim.

15. Severability . If any provision of this Amendment or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Amendment, or the application of such provision to a persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Amendment shall be valid and enforceable to the fullest extent permitted by law.

16. Construction . In the event an ambiguity or question of intent or interpretation arises, this Amendment shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Amendment.

17. Amendment; Ratification . Except as expressly amended hereby, the Lease remains unchanged and in full force and effect. In the event of any conflict between the terms and conditions of the Lease and the terms and conditions of this Amendment, the terms and conditions of this Amendment shall govern and control.

18. Binding Effect . This Amendment shall be binding upon and inure to the benefit of the Parties and the ir respective successors and assigns.

19. Counterparts; Facsimile Signatures . This Amendment may be signed in multiple counterparts, each of which shall constitute an original, with the same force and effect as if each of the signatories hereto has signed a single instrument. Facsimile or portable document format (.PDF) copies shall be deemed to be originals for all purposes. The transmission of a signed counterpart of this Amendment by facsimile or by .PDF shall have the same force and effect as delivery of an original signed counterpart of this Amendment and shall constitute valid and effective delivery of this Amendment.

[SIGNATURES APPEAR ON FOLLOWING PAGE.]

280956.8

IN WITNESS WHEREOF , Landlord and Tenant hav e s i g ned and delivered this Seventh Amendment to Lease as of the date first above written.

LANDLORD :

CIP II/RJK 10-20 BMR Owner LLC ,

a De l aware limited liabilit y company

By: C IP II/RJK I 0-20 BMR H o ldin gs LLC ,

a Delaware limi ted liabilit y company , it s so le Member

B y: RJK 10-20 Mall Road LLC ,

a Delawar e limi ted liability company, i ts Admin i strat i ve Mana ger

By:

RJK 10 - 20 Mal l R oad Mana ge r LLC, a Massachusetts li ability compa ny ,

its Manager

By: /s/ Brandon D. Kelly

Brandon D. Kelly, President

TENANT :

FLEX ION THERAPEUTICS , INC. ,

a Delaware corporation

By: /s/ Fredirck W. Driscoll

Name: Frederick W. Driscoll

Title: Executive Officer

~~143510433 v3~~

By: Na me : Tit l e:

EXHIBIT A-1

Intentionally Omitted

EXHIBIT A-2

Depiction of 2017 Expansion Space

*Plan subject to minor modifications prior to commencement of construction and mutual approval from Landlord and Tenant.

EXHIBIT A-3

Depiction of 2018 Expansion Space

*Plan subject to minor modifications prior to commencement of construction and mutual approval from Landlord and Tenant.

EXHIBIT B-1

NOT TO BE SIGNED AT LEASE AMENDMENT EXECUTION

2017 EXPANSION SPACE COMMENCEMENT DATE AND

LEASE EXPIRATION DATE MEMORANDUM

By executing below of Landlord and Tenant hereby agree that the 2017 Expansion Space Commencement Date is , 2017 and the Lease Expiration Date is October 31, 2023.

LANDLORD :

CIP II/RJK 10-20 BMR Owner LLC,

a Delaware limited liability company

By:

CIP II/RJK 10-20 BMR Holdings LLC,

a Delaware limited liability company,

its sole Member

By:RJK 10-20 Mall Road LLC,

a Delaware limited liability company,

its Administrative Manager

By:RJK 10-20 Mall Road Manager LLC,

a Massachusetts liability company,

its Manager

By:

Brandon D. Kelly, President

TENANT :

FLEXION THERAPEUTICS, INC.,

a Delaware corporation

By:

Name:

Title:

EXHIBIT B-2

NOT TO BE SIGNED AT LEASE AMENDMENT EXECUTION

2018 EXPANSION SPACE COMMENCEMENT DATE AND

LEASE EXPIRATION DATE MEMORANDUM

By executing below of Landlord and Tenant hereby agree that the 2018 Expansion Space Commencement Date is , 2018 and the Lease Expiration Date is October 31, 2023.

LANDLORD :

CIP II/RJK 10-20 BMR Owner LLC,

a Delaware limited liability company

By:

CIP II/RJK 10-20 BMR Holdings LLC,

a Delaware limited liability company,

its sole Member

By:RJK 10-20 Mall Road LLC,

a Delaware limited liability company,

its Administrative Manager

By:RJK 10-20 Mall Road Manager LLC,

a Massachusetts liability company,

its Manager

By:

Brandon D. Kelly, President

TENANT :

FLEXION THERAPEUTICS, INC.,

a Delaware corporation

By:

Name:

Title:

EXHIBIT C

Tenant’s Final Plans, Specifications and Scope

2017 & 2018 Expansion Space

Carpentry

All new walls built to drop ceiling as shown on mutually agreed upon plan.

Landlord to provide Kwik-Wall Vinyl Selector collapsible conference room walls in the 2018 Expansion Space as shown on Exhibit A-3.

Installation of kitchen cabinets (uppers and lowers) in kitchen area in the 2018 Expansion Space as shown in Exhibit A-3.

Millwork

Kitchen – cabinets (uppers and lowers) as shown on Exhibit A-3. Cabinets to have plastic laminate finish, specific layout to be mutually agreed upon by Landlord and Tenant. Cabinet and countertop laminate to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

Doors and hardware

Provide 3’0” x 8’4” solid wood doors paint grade and building standard bright chrome latch sets.

Provide painted hollow metal door frames to match door size, as shown in Exhibits A-2 and A-3.

All doors and frames shall be painted to match existing space.

All electronic access control components and labor to be provided and installed by the Tenant.

Glazing

Provide Landlords upgraded sidelights to have ¼” tempered glass, framed to match door frame from floor to door height, 48” wide in all new offices and the conference rooms.

Tenant shall, at Tenant’s expense, provide any necessary connections to Premises main glass entry doors required to incorporate Tenant’s security access system into the Building fire protection systems.

All glazing film shall be purchased and installed by Landlord’s contractor at Landlord’s expense. Landlord to provide glazing film to match existing space.

Ceilings

Provide 2x2 Armstrong Dune Tegular ceiling tiles, style number 1774 (or similar Landlord standard), on Armstrong 15/16” grid for all areas of drop ceiling.

Flooring

Provide Mannington Commercial Essentials VCT in Kitchen with 4” Vinyl cove base, colors and pattern to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards.

Tenant may select from Landlord’s upgraded LVT planking samples for installation in mutually agreed upon areas.

Provide Carpet tile to be mutually agreed upon by Landlord and Tenant based on Landlord’s building standards in all offices and open areas as shown in Exhibits A-2 and A-3. Landlord will provide a matching/coordinating carpet to Tenant’s existing carpet.

Transitions to be black vinyl as appropriate for materials.

Paint shall be Benjamin Moore or mutually agreed upon equivalent to match Tenant’s existing paint colors.

Plumbing & Appliances

Landlord shall provide a standard stainless steel sink and faucet for Kitchen.

Fire Protection

Landlord to provide complete sprinkler coverage as required by local codes.

Landlord shall provide fire extinguishers as required by local regulations and codes.

Tenant, at its sole cost and expense, shall be responsible for all equipment and installation of any dedicated supplemental fire protection systems (preaction systems) in Server Room, if applicable.

10.

HVAC

Landlord shall rework existing HVAC as needed to provide adequate base heating and cooling within the space.

Tenant shall be responsible for any additional HVAC in server room or IT rooms.

Landlord shall provide operable thermostats spaced according to existing and reasonable zoning, and controls shall be tied into the existing building’s energy management system.

Landlord shall provide air balancing at completion of project.

11.

Electrical

Power

Landlord shall equip each office with a maximum of 2 duplex outlets.

ii.

Tenant to provide furniture that is prewired for power and is coordinated with the electrician’s power plan.

Lighting

Landlord shall provide 2”x4” direct indirect LED light fixtures.

ii.

Landlord shall provide building standard emergency and night lighting as required by local regulations and code.

12.

All Furnishings are not included in the scope of work and shall be the responsibility of the Tenant.

13.

ALL WIRING WHIPS, WIRING WITHIN FURNITURE, AND ALL TELEPHONE AND DATA WIRING ARE NOT INCLUDED IN THIS SCOPE OF WORK AND SHALL BE THE RESPONSIBILITY OF THE TENANT.

Notes:

•

All work to be completed in accordance with approved plans and construction schedule.

•

Legal removal and disposal of work related debris is included.

•

We have assumed all work to be done between the hours of 7:00am to 5:00pm unless otherwise specified. No Premium Time included.

•

Mutually agreed upon substitutions for any products mentioned herein may be used contingent upon product availability, supplier pricing increases and timing.

•

Any products and/or labor not stated to be performed in the above description are not included in this scope of work. Any deviations from this scope of work may result in a change order, the cost of which shall be paid for by Tenant.

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

February 15, 2017

By Overnight Mail

Yamo M. Deniz, MD

Dear Yamo:

We are thrilled to present you with this offer of employment! This letter agreement (the “Agreement”), along with the enclosed agreements discussed in more detail below, set forth the proposed terms of your employment with Flexion Therapeutics, Inc. (the “Company”), in the full-time position of Chief Medical Officer, reporting to Michael Clayman, Chief Executive Officer. Please note, however, that your official appointment as the Company’s CMO is subject to formal approval by the Company’s Board of Directors (the “Board”), which is expected to vote on this matter on or about March 15, 2017.

Subject to the Board vote described above, this Agreement will become effective upon your execution below, and your agreed upon start date will be April 3, 2017.

Initial Compensation : Your initial compensation package includes the following:

•

Base Salary : An initial base salary at the rate of $17,916.67 on a semi-monthly basis (which equates to $430,000 on an annualized basis), less payroll deductions and all required withholdings, payable in accordance with the Company’s standard payroll practices as may be modified from time to time (the “Base Salary”). The Company will typically review the Base Salary in connection with its general performance review cycle, which, at present, occurs once per year;

•

Target Bonus : A discretionary target performance bonus of 40% of the Base Salary (the “Bonus), calculated annually, subject to approval by the Board of Directors of the Company (the “Board ” ). The amount of the Bonus shall be based upon Company performance, individual performance and, if applicable, achievement of specific objectives, each as determined by the Company in its sole discretion. You must be employed in good standing at the time that bonuses are paid out to be eligible for the Bonus for a particular year. Bonuses are paid on or before March 15 of the calendar year following the applicable “bonus” year; and

•

Sign On Bonus and Retention Bonuses : The Company will provide you with these

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

additional payments, su bject to the terms herein:

(i)

A sign-on bonus of $75,000, to be paid to you with your first paycheck in April 2017;

(ii)

A retention bonus of $75,000, to be paid to you on or about April 3, 2018; and

(iii)

A retention bonus of $50,000, to be paid to you on or about April 3, 2019.

These three additional payments are referred to as the “Additional Bonuses”. To be eligible for the Additional Bonuses, you must be employed in good standing as the CMO on the specified payment date and be in full compliance with your Proprietary Information Agreement (as defined herein). Further, if your employment is terminated for any reason prior to the specified payment date, you shall receive no further Additional Bonuses. And, if your employment is terminated by the Company for “Cause” or by you without “Good Reason” (each term as defined herein) within 24 months of your receipt of any Additional Bonuses, you agree to immediately repay the Additional Bonus(es) in full (the net after-tax amount) to the Company. By way of example, if you terminate your employment without Good Reason on May 1, 2018, then (A) you would be required to promptly repay the $75,000 sign-on bonus and $75,000 retention bonus, and (B) you would not be eligible to receive the second retention bonus of $50,000.

•

Equity : Subject to Board approval, you will be granted an option (the “Option”) under the Company’s 2013 Equity Incentive Plan (the “Plan”), to purchase 150,000 shares of common stock of the Company at an exercise price per share equal to the fair market value per share of the Company's common stock on the date of grant. The Option will vest as to 25% of the shares of common stock underlying such Option on the one year anniversary of your start date and as to 1/48th of the shares of common stock underlying such Option in equal monthly installments on the last day of each month thereafter, subject to your continued employment with the Company. All other terms, conditions, and limitations of the Option will be set forth in a stock option grant notice, the Company’s standard stock option agreement and the Plan (collectively, the “Equity Documents”, which shall govern your Option). If there is a conflict between this Agreement and the Equity Documents, the Equity Documents shall govern.

In addition, s ubject to Board approval, you will be granted an additional option (the “Additional Option”) under the Company’s Plan, to purchase 25,000 shares of common stock of the Company at an exercise price per share equal to the fair market value per share of the Company’s common stock on the date of grant. The vesting of the Additional Option will begin and will be contingent upon you

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

achieving a performance rating of “Exceeds Expectations” or above for 2017, as determined by the Company in its sole discretion. The other ter ms of this Additional Option will be set forth in a stock option grant notice, a separate stock option agreement and the Plan (such documents, for purposes of this Agreement, to be included in the definition of the “Equity Documents”), which shall govern t he Additional Option). As noted above, if there is a conflict between this Agreement and the Equity Documents, the Equity Documents shall govern.

You also will be eligible for additional equity grants as determined by the Company and the Board in their sole discretion. Typically, the Company’s executive team (of which you will be a member) is considered for annual equity grants in connection with performance reviews. The Company expects that if such additional grants are made, it initially would target a grant of an option to purchase 60,000 shares of common stock of the Company for you, as determined by the Company in its sole discretion.

Taxes: The Company may withhold from any payments made under this Agreement all applicable taxes and other required withholdings, including but not limited to income, employment, and social insurance taxes, as shall be required by law. You acknowledge and represent that the Company has not provided any tax advice to you in connection with this Agreement and that you have been advised by the Company to seek tax advice from your own tax advisors regarding this Agreement and payments that may be made to you pursuant to this Agreement.

Benefits : You will be eligible to participate on the same basis as similarly situated employees in the Company’s benefit plans in effect from time to time during your employment. All matters of eligibility for coverage or employee benefits under any benefit plan shall be determined in accordance with the provisions of such plan. The Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion. For a brief overview of what is currently available, please see the attached summary.

Expenses; Temporary Housing Allowance; Relocation : During your employment, the Company shall pay (or promptly reimburse you) for documented, out-of-pocket expenses reasonably incurred by you during performance of your duties, which expenses are consistent with the Company’s policies in effect from time to time with respect to business expenses, subject to the Company’s requirements with respect to reporting of such expenses.

The Company will provide a monthly allowance, not to exceed $3,700, for an apartment rental near the Company’s office. The Company will provide this allowance for up to five months from your start date (i.e., it will be provided to you no later than August 2017).

Further, because you have agreed to relocate your family from New Jersey to the metro Boston area, the Company has agreed to reimburse you, up to a total maximum amount of

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

$125,000 (the “Relocation Expense Reimbursement Cap”), for your reasonable, approved relocation-related expenses (such as one house-hunting trip, shipment of personal goods, movers and related insurance coverage, utility costs for service hookups and related service charges, the closing costs for the sale of your personal residence in New Jersey, and reimbursement of taxes incurred by you with respect to any relocation-related expense reimbursements that are treated as taxable income to you, to the extent such expenses and tax reimbursements do not exceed the Relocation Expense Reimbursement Cap in the aggregate) (the “Reimbursed Relocation Expenses”), subject to the terms and conditions in this Agreement , any applicable Company policy, and the applicable IRS rules (such as the IRS Moving Expenses Guide, which has information and specific rules on reimbursement eligibility). You have agreed to use your best efforts to relocate to the metro Boston area by September 1, 2017, and you agree that to be eligible to receive the Reimbursed Relocation Expenses, you must relocate within 12 months of your start date. Further, if your employment is terminated for “Cause” or by you without “Good Reason” within 24 mont hs of your receipt of the Reimbursed Relocation Expenses, you agree to immediately repay said amount in full to the Company.

Payment Upon Separation: In the event of termination, regardless of the reasons for such termination , the Company shall pay your base salary and accrued but unused vacation up to and through the date of termination, less applicable payroll and tax withholdings (the “Accrued Obligations”).

Eligibility for Severance Pay: If, at any time, your employment is terminated by the Company without Cause, as defined below, or by you with Good Reason, as defined below and, provided that you (a) sign and do not revoke a general release of legal claims in a form and scope acceptable to the Company (the “ Release”, as more fully described in Appendix A) within the applicable deadline set forth therein and permit the Release to become effective in accordance with its terms, which must occur no later than the “Release Deadline”, as defined in Appendix A, and (b) fully comply with your obligations under the Proprietary Information Agreement (as defined herein), in addition to the Accrued Obligations, you shall be eligible to receive the following benefits:

(i)

You shall continue to receive your then-current Base Salary (ignoring any decrease that forms the basis for your termination for Good Reason, if applicable) for a 12-month period, paid over the Company’s normal payroll dates, that shall commence effective no later than on the day after the Release becomes fully effective.

(ii)

If you are eligible for and timely elect to continue your health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“COBRA”) following your termination date, the Company will pay the COBRA group health insurance premiums for you and your eligible dependents

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

until the earliest of (A) the close of the 12-month period following the termination of your employment (the “COBRA Payment Period”), (B) the expiration of your eligibility for the contin uation coverage under COBRA, or (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment. For purposes of this Section, references to COBRA premiums shall not include any amounts payable by you under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code . Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums withou t potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether you elect continued health coverage under COBRA, and in lieu of providing t he COBRA premiums, the Company will instead pay you on the last day of each remaining month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “Heal th Care Benefit Payment”). The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have otherwise paid for CO BRA premiums, and shall be paid until the earlier of (i) expiration of the COBRA Payment Period or (ii) the date you voluntarily enroll in a health insurance plan offered by another employer or entity.

(iii)

If your termination occurs within twelve (12) months following a Change in Control (as defined in the Plan), then (A) the vesting of all of your outstanding equity awards (including the Option and the Additional Option) that are subject to time-based vesting requirements shall accelerate in full such that all such equity awards shall be deemed fully vested as of the date of such termination, and (B) you shall be eligible to receive the payments and benefits as described in the Change in Control Bonus Plan (the “CIC Plan”).

For the avoidance of doubt, you shall not be eligible for severance and continued benefits (other than the Accrued Obligations) if you resign without Good Reason, are terminated by the Company for Cause or due to your death or “Disability” . For purposes of this Agreement, the following terms shall have the following meanings:

“Cause” means the occurrence of any of the following events: (i) your commission of any felony or any crime involving fraud , dishonesty or moral turpitude under the laws of the United States or any state thereof ; (ii) your attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) your material violation of any contract or agreement

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

between you and the Company, including the Proprietary Information, Inventions, Non-Solicitation, and Non-Competition Agreement (“Proprietary Information Agreement”), or of any statutory duty owed to the Company; or (iv) your willful failure to satisfactorily perform your job duties after receiving written notice of such deficiency and an opportunity t o cure (of at least 15 business days); or (v) your engaging or participating in any activity which is injurious to the Company, which remains uncured after 15 days written notice thereof. The determination whether a termination is for Cause shall be made by the Company in its sole and exclusive judgment and discretion.

“Change in Control” is as defined in the Plan. For the avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company. Notwithstanding the foregoing or any other provision of this Agreement, the Board may, in its sole discretion and without your consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations there under.

“Disability” is as defined in the Plan.

“Good Reason” means the occurrence of any of the following events, conditions or actions taken by the Company without Cause and without your written consent: (i) a material reduction of your Base Salary; provided, however, that Good Reason shall not be deemed to have occurred if a reduction in your Base Salary is pursuant to a salary reduction program affecting substantially all of the employees of the Company at your level and that does not adversely affect you to a greater extent than other similarly situated employees; (ii) a material reduction in your authority, duties or responsibilities; provided, however, that a change in your title or reporting relationships shall not alone provide the basis for a voluntary termination with Good Reason; (iii) a relocation of your principal place of employment with the Company to a place that increases your one-way commute by more than fifty (50) miles as compared to your then-current principal place of employment immediately prior to such relocation (excluding regular travel in the ordinary course of business and your relocation from New Jersey to the metro Boston area ); or (iv) a material breach by the Company of any material agreement between you and the Company concerning the terms and conditions of your employment; provided, however, that in each case above, for your resignation to be deemed to have been for Good Reason, you must first give the Company written notice of the action or omission giving rise to “Good Reason” within thirty (30) days after the first occurrence thereof; the Company must fail to reasonably cure such action or omission within thirty (30) days after

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

receipt o f such notice (the “Cure Period”); and your resignation must be effective not later than thirty (30) days after the expiration of such Cure Period .

Section 409A and Section 280G: Please see Appendix A, which sets forth key provisions regarding Internal Revenue Code Sections 409A and 280G.

Additional terms and conditions : Please review these additional terms and conditions of your employment carefully.

At-Will Employment : Your employment with the Company will be “at will”, and either you or the Company may terminate your employment at any time for any or no reason, with or without prior notice. Along these same lines, please note that nothing in this offer letter is a promise or guarantee of employment for any specific period or for continued employment.

Proprietary Information Agreement; Other Conditions : In addition, please be advised that this offer is contingent on: (a) your executing this offer letter within the time set forth herein and a Proprietary Information, Inventions, Non-Solicitation, and Non-Competition Agreement (“Proprietary Information Agreement”) as attached hereto; (b) your satisfying the eligibility requirements for employment in the United States; and (c) your satisfying a background and/or reference check.

Representations : In addition to the above, by signing this Agreement you are representing that you have full authority to accept this position and perform the duties of the position without conflict with any other obligations and that you are not involved in any situation that might create, or appear to create, a conflict of interest with respect to your loyalty to or duties for the Company. You specifically warrant that you are not subject to an employment agreement or restrictive covenant preventing full performance of your duties to the Company. You agree not to bring to the Company or use in the performance of your responsibilities at the Company any materials or documents of a former employer that are not generally available to the public, unless you have obtained express written authorization from the former employer for their possession and use. You also agree to honor all obligations to former employers during your employment with the Company.

Compliance with Rules, etc. : You will comply at all times with (i) all Company policies, rules and procedures as they may be established, stated and/or modified from time to time at the Company’s sole discretion, and (ii) the terms of the Proprietary Information Agreement that you sign with the Company. In this regard, among other things, you will be expected to comply at all times to the Company’s standards of professionalism, loyalty, integrity, honesty, reliability and respect for others. You will also comply at all times with all laws and regulations applicable to the Company’s business and performance of your duties for the Company. After receipt, you will sign and deliver to the Company acknowledgement of receipt forms for any policy statements provided to you. As and when requested, you will also sign periodic forms to

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

certify your continuing full compliance with the Company’s policies. You also agree that, during the term of your employment with the Company and at all times thereafter, up on reasonable request, you will fully cooperate with the Company and/or its representatives, without additional compensation, concerning any business matters or disputes of any kind about which you have, or may have, any relevant information.

Entire Offer; Miscellaneous : By signing below, you acknowledge that the terms described in this Agreement, together with the Proprietary Information Agreement and Equity Documents referenced herein , set forth the entire understanding between us and supersedes any prior representations or agreements, whether written or oral; there are no terms, conditions, representations, warranties or covenants other than those contained herein, with the exception of standard Company employment policies (e.g., its Handbook), Code of Conduct, etc. No term or provision of this Agreement may be amended waived, released, discharged or modified except in writing, signed by you and an authorized officer of the Company, except that the Company may, in its sole discretion, adjust salaries, incentive compensation, stock plans, benefits, job titles, locations , duties , responsibilities, and reporting relationships.

* ****

Yamo, we look forward to your joining the Flexion team! Please indicate your acceptance of this offer, and our Agreement, by signing below and returning to me.

Sincerely,

/s/ Michael D. Clayman

Michael D . Clayman, M . D . Chief Executive Officer

ACCEPTED AND AGREED TO:

Name: /s/ Yamo Deniz Date: February 15, 2017

Yamo Deniz

Attachments:

Proprietary Information, Inventions, Non-Solicitation, and Non-Competition Agreement

Employee Benefits Overview

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

Appendix A

This Appendix A is incorporated into the Agreement, as if fully set forth therein.

Section 409A : Notwithstanding anything in this Agreement to the contrary, the following provisions apply to the extent severance benefits provided in the Agreement are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”). Severance benefits shall not commence until you have a “Separation from Service” (as defined under U.S. Treasury Regulation Section 1.409A-1(h), without regard to any alternative definition thereunder). Each installment of severance benefits is a separate “payment” for purposes of Treasury Regulations Section l.409A-2(b)(2)(i), and the severance benefits are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections l.409A-l(b)(4), l.409A-l(b)(5) and l.409A-l(b)(9) . However, if such exemptions are not available and you are, upon Separation from Service, a “specified employee ” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after your Separation from Service, or (ii) your death .

You shall receive severance benefits only if you execute and return to the Company the Release within the applicable period set forth therein and permit such Release to become effective in accordance with its terms, which date may not be later than sixty (60) days following the date of your Separation from Service (such latest permitted date, the “Release Deadline”). If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which your Separation from Service occurs, the Release will not be deemed effective any earlier than the Release Deadline. None of the severance benefits will be paid or otherwise delivered prior to the effective date of the Release. Except to the minimum extent that payments must be delayed because you are a “specified employee” or until the effectiveness of the Release, all amounts will be paid as soon as practicable in accordance with the schedule provided herein and in accordance with the Company’s normal payroll practices.

The severance benefits are intended to qualify for an exemption from application of Section 409A or comply with its requirements to the extent necessary to avoid adverse personal tax consequences under Section 409A, and any ambiguities herein shall be interpreted accordingly.

Notwithstanding anything to the contrary in this Agreement, all reimbursements for costs and expenses hereunder shall be paid in no event later than the end of the taxable year following the taxable year in which you incur such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

permitted by Section 409A, (i) the right to reimb ursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (ii) the amount of expenses eligible for reimbursements or in-kind benefits provided during any taxable year shall not affect the expenses eligible for re imbursement or in-kind benefits to be provided in any other taxable year.

The Company shall have no liability to you or to any other person if any of the provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A but that do not satisfy an exemption from, or the conditions of, that section.

Section 280G : If any payment or benefit you will or may receive from the Company or otherwise (a “280G Payment’ ) would (i) constitute a “parachute payment ” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax ” ) , then any such 280G Payment pursuant to this Agreement or otherwise (a “Payment’) shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment (after reduction) being subject to the Excise Tax or (y) the largest portion , up to and including the total, of the Payment, whichever amount (i . e., the amount determined by clause (x) or by clause (y)), after taking into account all applicable federal, state and local employment taxes , income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt , on an after-tax basis , of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax . If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence , the reduction shall occur in the manner (the “Reduction Method”) that results in the greatest economic benefit for you. If more than one method of reduction will result in the same economic benefit , the items so reduced will be reduced pro rata (the “ProRata Reduction Method”).

Notwithstanding the foregoing , if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxe s pursuant to Section 409A that would not otherwise be subject to taxes pursuant to Section 409A , then the Reduction Method and/or the Pro Rata Reduction Method , as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A as follows : (A) as a first priority, the modification shall preserve to the greatest extent possible , the greatest economic benefit for you as determined on an after - tax basis ; (B) as a second priority, Payments that are contingent on future events (e.g . , being terminated without cause) , shall be reduced (or eliminated) before Payments that are not contingent on future events ; and (C) as a third priority, Payments that are “ deferred compensation ” within the meaning of Section 409A shall be reduced (or eliminated) before Payments that are not deferred compensation within the meaning of Section 409A .

Unless you and the Company agree on an alternative accounting firm, the accounting firm engaged by the Company for general tax compliance purposes as of the day prior to the

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

effective date of the change of control transaction triggering the Payment shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the change of control transaction , the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. The Company shall use commercially reasonable efforts to cause the accounting firm engaged to make the determinations hereunder to provide its calculations, together with detailed supporting documentation, to you and th e Company within fifteen (15) calendar days after the date on which your right to a 280G Payment becomes reasonably likely to occur (if requested at that time by you or the Company) or such other time as requested by you or the Company.

If you receive a Payment for which the Reduced Amount was determined pursuant to clause (x) of the first paragraph of this section and the Internal Revenue Service determines thereafter that some portion of the Payment is subject to the Excise Tax , you shall promptly return to the Company a sufficient amount of the Payment (after reduction pursuant to clause (x) of the first paragraph of this section) so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) in the first paragraph of this section, you shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

July 19, 2017

Yamo Deniz

RE: Amendment to Offer Letter Agreement re Severance Benefits

Dear Yamo:

Reference is made to that certain letter agreement (the “ Agreement ”), dated February 15, 2017, by and between you and Flexion Therapeutics, Inc. (the “ Company ”), which sets forth the terms of your employment with the Company. This letter agreement (this “ Amendment ”) shall serve as an amendment to the Agreement. The purpose of this Amendment is to provide you with a greater amount of severance benefits if you are terminated under certain circumstances. Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Agreement.

Upon your execution of this Amendment in the space provided below, subsections (i) and (ii) of the section of the Agreement entitled “Eligibility for Severance Pay” shall be amended to read in their entirety as follows:

(i)

You shall continue to receive your then-current Base Salary (ignoring any decrease that forms the basis for your termination for Good Reason, if applicable) for a 15-month period, paid over the Company’s normal payroll dates, that shall commence effective no later than on the day after the Release becomes fully effective.

(ii) If you are eligible for and timely elect to continue your health insurance coverage under the Company’s group health plans under the Consolidated Omnibus Budget Reconciliation Act of 1985 or the state equivalent (“COBRA”) following your termination date, the Company will pay the COBRA group health insurance premiums for you and your eligible dependents until the earliest of (A) the close of the 15-month period following the termination of your employment (the “COBRA Payment Period”), (B) the expiration of your eligibility for the continuation coverage under COBRA, or (C) the date when you become eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment. For purposes of this Section, references to COBRA premiums shall not include any amounts payable by you under a Section 125 health care reimbursement plan under the U.S. Internal Revenue Code. Notwithstanding the foregoing, if at any time the Company determines, in its sole discretion, that it cannot pay the COBRA premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), then regardless of whether you elect continued health coverage under COBRA, and in lieu of providing the COBRA premiums, the Company will instead pay you on the last day of each remaining month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premiums for that month, subject to applicable tax withholdings (such amount, the “Health Care Benefit Payment”). The Health Care Benefit Payment shall be paid in monthly installments on the same schedule that the COBRA premiums would otherwise have been paid and shall be equal to the amount that the Company would have otherwise paid for COBRA premiums, and shall

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

be paid until the earlier of (i) expiration of the COBRA Payment Period or (ii) t he date you voluntarily enroll in a health insurance plan offered by another employer or entity.

The Agreement, as updated by this Amendment, sets forth the entirety of the severance benefits and payments to which you may be entitled from the Company and supersedes any prior representations or agreements with respect to severance benefits and payments, whether written or oral, with the exception of any severance benefits you may be entitled to under (i) the Company’s 2013 Equity Incentive Plan or any other equity incentive plan maintained by the Company and the equity award grant documents thereunder that apply to your outstanding equity awards covering Company common stock and (ii) the Company’s Change in Control Severance Benefit Plan (the “ CIC Severance Plan ”). The CIC Severance Plan provides for severance benefits upon your termination under certain circumstances in connection with a Change in Control (as defined in the CIC Severance Plan); if as a result of your termination or resignation you become entitled to such severance benefits under the CIC Severance Plan and you are also entitled to severance benefits under this Agreement, the severance benefits under the CIC Severance Plan shall be provided in lieu of the severance benefits you are entitled to under the Agreement, as updated by this Amendment (other than those you are entitled to by law). Except for the matters set forth in this Amendment, all other terms of the Agreement shall remain unchanged and in full force and effect.

If the foregoing correctly conforms to your understanding of the agreement between you and the Company, please sign and date this Amendment and return it to us by August 18, 2017.

Very truly yours,

Flexion Therapeutics, Inc.

/s/ Michael D. Clayman

Chief Executive Officer

Accepted and agreed:

/s/ Yamo Deniz

Yamo Deniz

Date: July 19, 2017 ____________________

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Flexion Therapeutics

10 Mall Road, Suite 301, Burlington MA 01803

www.flexiontherapeutics.com

info @ flexiontherapeutics.com

781.305.7777

FLEXION THERAPEUTICS INC • 10 MALL ROAD • SUITE 301 • BURLINGTON • MA • 01803 • (781) 305 • 7777

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Clayman, M.D., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Flexion Therapeutics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2017		/s/ Michael D. Clayman, M.D.
		Michael D. Clayman, M.D.
		President, Chief Executive Officer and Principal Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Clayman, M.D., President and Chief Executive Officer of Flexion Therapeutics, Inc. (the “Registrant”), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based upon my knowledge:

(1)	this Quarterly Report on Form 10-Q of the Registrant, to which this certification is attached as an exhibit (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: August 8, 2017		/s/ Michael D. Clayman, M.D.
		Michael D. Clayman, M.D.
		President, Chief Executive Officer and Principal Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.