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 biopharmaceutical company focused on the discovery, development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, or OA, a type of degenerative arthritis. The Company has an approved product, ZILRETTA  , which it markets in the United States. ZILRETTA is the first and only extended-release, intra-articular, or IA (meaning in the joint), injection indicated for the management of OA knee pain. ZILRETTA is a non-opioid therapy that employs Flexions proprietary microsphere technology to provide pain relief. The pivotal Phase 3 trial, on which the approval of ZILRETTA was based, showed that ZILRETTA met the primary endpoint of pain reduction at Week 12, with statistically significant pain relief extending through Week 16. The Company also has two pipeline programs focused on the local treatment of musculoskeletal conditions: FX201, which is an investigational IA gene therapy product candidate in clinical development for the treatment of OA, and FX301, a preclinical product candidate, which is being developed as a locally administered peripheral nerve block for control of post-operative pain. 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 September 30, 2020, the Company had cash, cash equivalents, and marketable securities of approximately $185.3 million. The Company is subject to risks and uncertainties common to 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. Successfully commercializing ZILRETTA requires significant sales and marketing efforts and the Companys pipeline programs will require significant additional research and development efforts, including extensive preclinical and clinical testing. These activities will in turn require significant amounts of capital, qualified personnel and adequate infrastructure. There can be no assurance when, if ever, the Company will realize significant revenue from the sales of ZILRETTA or if the development efforts supporting the Companys pipeline, including future clinical trials, will be successful. The Companys operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (COVID-19) and the resulting volatility and uncertainty it has caused. In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has caused significant volatility and uncertainty, which could result in a prolonged economic downturn that has disrupted and is expected to continue to disrupt the Companys business. While there have been no material asset impairments recorded to date, any prolonged material future disruptions to the work of the Companys employees, suppliers, contract manufacturers, or vendors, or to the operations of physicians that administer ZILRETTA could negatively impact the Companys operations, availability of supplies, carrying value of assets, operating results or cash flows. In the Companys Quarterly Report on Form 10-Q for the three months ended March 31, 2020, the Company disclosed that there was substantial doubt about its ability to continue as a going concern as a result of conditions that existed as of March 31, 2020. Specifically, those conditions included an expected material decline in revenue due to COVID-19 as compared to its prior expectations, and as a result, it was deemed probable that the Company would fail to meet the revenue covenant within the Companys amended and restated credit and security agreement described in Note 9. In the months following March 31, 2020, the Company took certain actions designed to alleviate the substantial doubt, including reducing certain operating expenses through hiring and travel freezes, suspension and/or termination of active clinical trials, reduction of certain marketing expenses, and elimination of non-essential operating expenses, modifying the amended and restated credit and security agreement, and completing an equity offering of 10,615,385 shares of the Companys common stock which resulted in $96.8 million of net proceeds to the Company. Additionally, while purchases of ZILRETTA by physicians, clinics, and certain medical centers or hospitals (i.e., healthcare providers who administer ZILRETTA to patients) initially dropped precipitously in the latter part of March into early April due to the adverse impact of COVID-19 on the operations of these healthcare providers, as the second quarter progressed, there was an increase in demand for ZILRETTA such that total ZILRETTA purchases by healthcare providers for the second quarter were consistent with the first quarter of this year. The Company experienced continued growth in purchases of ZILRETTA by healthcare providers in the third quarter. Furthermore, net ZILRETTA sales in the third quarter of 2020 grew more than 50% over the second quarter. Taking these factors together, the Company currently expects to be able to maintain the liquidity threshold in the amended and restated credit agreement for at least 12 months following the issuance of these financial statements. As a result, the revenue covenant under the amended and restated credit and security agreement is not expected to be applicable through 12 months from the issuance of the financial statements. Based on the actions the Company has taken as described above and the Companys resulting current resources, the Company has alleviated the substantial doubt previously disclosed and has sufficient liquidity to satisfy the Companys obligations over the next 12 months and maintain minimum levels of liquidity as required by certain of the Companys debt agreements. Management believes that current cash, cash equivalents, and marketable securities on hand at September 30, 2020 will be sufficient to fund operations for at least the next 12 months from the issuance date of these financial statements . As of September 30, 2020, the Company was in compliance with all covenants under the amended and restated credit and security agreement. The future viability of the Company is dependent on its ability to fund its operations through sales of ZILRETTA, and/or raise additional capital, such as through debt or equity offerings, as needed. If the Company is unable to grow sales of ZILRETTA in future periods, it is possible that the Company may not maintain compliance with the revenue covenant in the period after 12 months from issuance of these financial statements and would need to seek additional financing. The Company may not be able to obtain financing on acceptable terms, or at all. In particular, as a result of the COVID-19 pandemic and actions taken to slow its spread, the global credit and financial markets have experienced extreme volatility and disruptions, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. If the equity and credit markets deteriorate, it may make any additional debt or equity financing more difficult, more costly and more dilutive. If the Company is unable to obtain funding on a timely basis, the Company may need to curtail its operations, including the commercialization of ZILRETTA and research and development activities, which could adversely affect its prospects.