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Edited Transcript of XENT earnings conference call or presentation 1-Nov-19 12:00pm GMT

Q3 2019 Intersect Ent Inc Earnings Call

Menlo Park Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Intersect ENT Inc earnings conference call or presentation Friday, November 1, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeryl L. Hilleman

Intersect ENT, Inc. - CFO

* Thomas A. West

Intersect ENT, Inc. - President, CEO & Director

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Conference Call Participants

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* Brian David Weinstein

William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst

* Christopher Thomas Pasquale

Guggenheim Securities, LLC, Research Division - Director and Senior Analyst

* Kyle William Rose

Canaccord Genuity Corp., Research Division - Senior Analyst

* Matthew Oliver O'Brien

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Ravi Misra

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Richard S. Newitter

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst

* Robert Justin Marcus

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Intersect ENT Third Quarter 2019 Earnings Conference Call. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Intersect ENT'S CFO, Jeri Hilleman. Please go ahead.

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Jeryl L. Hilleman, Intersect ENT, Inc. - CFO [2]

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Thank you, Andrew. Joining me today is Tom West, President and CEO of Intersect ENT. Before we begin, I'd like to remind you that we will make forward-looking statements within the meaning of federal securities laws. Actual results and timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, our outlook for financial performance, sales force growth, clinical studies, approval of new products and indications and procurement of reimbursement codes and coverage, which are based upon our current estimates and assumptions as well as other risks detailed from time to time in the reports we file with the SEC. We disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein.

I'll now turn the call over to Tom.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [3]

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Looking back on the third quarter and our further progress in October, I can confidently reflect that this is a time of new beginnings. I've now completed my first 100 days at Intersect ENT. And I'm happy to report on what I view as meaningful progress in that time. Our financial performance in the quarter was sound, and I believe, consistent with the expectations we communicated in August. We noted at that time that strengthening and refining execution would be a precursor to a return to revenue growth, and we remain focused on driving sustainable growth as we enter 2020 and are taking the necessary actions now to ensure our success.

Importantly, as we focus on execution, our priorities remain aligned with delivering the commitments we communicated to you during our August earnings call. One, reemphasizing and redirecting our PROPEL sales effort; while two, adding SINUVA market access partnership. Together, these efforts will open the door to growth on both businesses. In addition, we received the ASCEND drug-coated balloon clinical study results in the quarter and are applying the findings to further the development of this meaningful pipeline product.

I'll now walk you through each of these 3 areas, with a focus on how we see our current efforts, positioning us for 2020 and beyond. First, addressing PROPEL. This product family remains the backbone of our business, but recent growth has been impacted by bandwidth and distraction issues caused by a disproportionate focus on SINUVA. During our third quarter call, we committed to you that we were going to deliver on 3 specific actions to put ourselves in a position to restore growth over time to PROPEL. The first was to reprioritize market development activities to drive growth by leveraging our clinical evidence to support broader and deeper adoption. The second was to strengthen the balance of our sales team's efforts to bring a meaningful greater -- meaningfully greater focus on PROPEL, while still supporting the SINUVA launch. And finally, we communicated our intention to pull back on larger, often discounted bulk orders that could build up inventory and drive down ASP while simultaneously striving to work down any accumulated PROPEL inventory in the channel.

I'm pleased to tell you that we addressed all 3 of these points successfully in the third quarter. To share some specifics, we have put considerable effort into refocusing our interactions with physicians to emphasize market development and clinical selling activities. For PROPEL, market development means leveraging our substantial clinical evidence to: one, expand the number of physicians using PROPEL; two, encourage usage across a wider audience of chronic sinusitis patients; and three, expand use of PROPEL in all indicated areas of the sinus cavity. PROPEL's proven clinical benefits extend beyond just the toughest sinusitis cases.

In August, we held regional meetings across the country with our field teams designed to refresh our sales approach with a back-to-basics message. During these meetings, marketing and sales leadership led interactive skill building and best practice workshops that helped clarify our objectives, segment and prioritize our targeted physician universe and ensure mastery of our messaging. The clear direction was to prioritize growing our PROPEL franchise by a more targeted deployment and expert and tailored clinical selling in order to drive broader and deeper product adoption.

Regarding the sales force balance, Q3 was our first full quarter of partnership among our core 125-person ENT sales team, our new 7 specialist SINUVA account managers and our fully resourced 12-person regional reimbursement team.

This coordinated approach has helped our team to greatly improve their balance of effort. Previously, our primary sales team was drawn away from clinical selling of PROPEL to attend to the inherent demands of introducing SINUVA in a new site of care with the distinct reimbursement requirements of a drug versus a device. PROPEL, you will recall, is classified as a device and is primarily used in the hospital and ambulatory surgical center, the ASC, whereas SINUVA is classified as a drug and is primarily used in the office. We now have smaller specialty groups that can with greater knowledge, skill and focus, address the specific clinical and reimbursement needs that come with SINUVA's introduction. This deliberate allocation of effort frees time and resources in our primary field force to reestablish PROPEL clinical selling to drive renewed growth in our core.

As the regional reimbursement directors and new SINUVA account managers manage much of the SINUVA work demands, our sales team can prioritize driving PROPEL and assist proportionately in SINUVA selling. We expect that this balance will continue to improve as we also strengthen our measurement and tracking of field efforts and adjust incentive compensation accordingly in the fourth quarter and into the new year. Finally, we consciously more tightly aligned PROPEL shipments to procedure-driven customer order flow, encouraging utilization of existing product on customer shelves for the limited customers where inventory had grown beyond quarterly usage.

In our assessment, at the end of the third quarter, we achieved our goal in reducing shelf inventory and we continue to believe this issue will be largely behind us by year-end. At this point, we hope that we are conveying both a sense of purpose and of progress. Though I know you will ask, it's premature to indicate what level of growth we expect to achieve next year with PROPEL. But with our renewed focus on market development and clinical selling, a better, more proportionate focus in our efforts on PROPEL and a more naturally flowing procedure-driven order pipeline, we are confident that we will reestablish PROPEL growth.

Turning to SINUVA. We have a number of coordinated initiatives, all designed to significantly advance product adoption. We continue to receive very strong clinical feedback from patients and physicians. But the key determinant of physician adoption remains ease of product access and assurance of reimbursement coverage in the office setting. As we discussed last call, we are committed to bringing in stronger partners, particularly in specialty pharmacy to support our efforts. And I'm happy to tell you that in our execution of these key deliverables we achieved and even exceeded the goals we set on our last call in August.

Specifically, in the last month, we added a new physician support hub as well as a new specialty pharmacy with ties to national payers, both focused on streamlining physician access to SINUVA. We are also supporting CMS and commercial payer use of the newly issued J code, and we are finalizing contracting on an additional specialty wholesaler.

Let me provide some further background on these new partners and capabilities. Since launch, we have engaged a third-party service provider referred to as a hub to work with physicians to facilitate patient benefits investigation.

Our first partner addressed the basics of this process. But we have been able to strengthen our hub services with a more technology-enabled hub, ConnectiveRx. In this case, we expect technology-enabled to translate to better, faster, more transparent benefits processing, making it easier for physicians to understand patient coverage and authorization status. Our new partner was up and running October 4. We are working through the start-up phase with an eye to expand these operations and services as well as the data analytics the new hub enables as we move into 2020. We also added an important new specialty pharmacy partner in mid-October, Orsini Healthcare. Orsini is a nationwide specialty pharmacy focused on providing exceptional care to patients throughout their journey. We see their services as a very strong fit with SINUVA in chronic rhinosinusitis. We are excited about the partnership addition as Orsini offers 2 critical ingredients we have been missing to date. First, Orsini has established arrangements with a broad array of payers, including major national payers. Second, Orsini processes medical benefit claims in addition to pharmacy benefit claims and a number of payer policies require medical benefits review for, SINUVA, meaning they look at the patient medical needs versus just checking that the product is on formulary. Up to now, medical benefit claims have required fulfillment via buy-and-bill at the specialty distributor. The Orsini capabilities open a door for physicians to receive SINUVA for medical benefit patients through specialty pharmacy. As a reminder, the advantage of specialty pharmacy fulfillment is that physicians do not need to purchase or seek reimbursement for the product as they do when buy-and-bill is required.

With only 3 weeks under our belt, it's clearly too early to give you a full assessment of Orsini's impact, but early reports from the field are very encouraging. Another element in the SINUVA mix is the specific J code, J7401, which became effective October 1st. Implementation of this code remains a work in progress on the Medicare side, as CMS has yet to assign a specific reference price. We are working with CMS and anticipate that this price will be posted effective January 1.

On the commercial payer side, where we estimate that 90% of patients are covered, commercial payers determine their own pricing, and many of these payers are already starting to utilize the specific J code in their systems to ease billing for SINUVA. The J code is a true positive for SINUVA adoption.

In addition to providing specific coding for SINUVA, J code 7401 is also assigned for reimbursement for PROPEL in the office setting of care. I'll underscore in the office setting rather than the hospital or ASC. We are engaged with payers and physician practices to assess that the use of the J code for PROPEL in the office will serve to broaden coverage or on the flip side, potentially adversely impact the dollar value of reimbursement per PROPEL in the office. In either scenario, this is a small element of our PROPEL business, representing roughly 1% to 2% of product revenue. On a metrics basis, approximately 2,800 patients have now been treated with SINUVA since the start of commercial -- commercialization, with an increase of approximately 600 patients in Q3.

Since launch, about 850 physicians have treated patients with SINUVA, of which about 1/3 or 280 have successfully engaged in buy-and-bill ordering. Another very positive supporting factor is that our payer coverage for SINUVA continues to grow, with approximately 80% of covered lives currently having access to SINUVA. Looking ahead, we believe that the partnered channel changes and J code efficiency will stimulate growth in the breadth and depth of SINUVA adoption, with more physicians being able to use SINUVA against a broader patient population. The hub should streamline the workload at the physician's office. The new specialty pharmacy should increase the flows through pharmacy, reducing the buy-and-bill reimbursement burden in ENT offices, and we believe that the J code, once fully established, should further streamline insurance processing while increasing physician confidence in consistently obtaining reimbursement when our product is used. So a lot of change and a lot of progress over the past quarter as we look to unlock SINUVA's full potential.

With all that said, our work is by no means done. And at a minimum, we anticipate adding an additional national specialty pharmacy by next spring as a further enhancement to our reach. In addition, we intend to add additional specialty wholesaler in the near term, with a particular focus on improving support for our hospital clinic customers.

With the partnered channel infrastructure we have put in place and further expansion in the coming months, we are now better placed to effectively ramp up our clinical and patient demand generation efforts.

And now we come to our third subject area, ASCEND, our investigational drug-coated sinus balloon. As disclosed a few weeks ago, we completed the ASCEND trial and did not hit our primary endpoint, which was a superiority claim against a conventional balloon based upon an independent assessor's view of sinus patency or lack of obstruction. This endpoint proved to be challenging as the measurement and grading of patency was novel for our product and relatively unchartered territory for conventional balloons.

As 510(k) devices, conventional balloons have not had as much clinical study as our PMA and NDA governed drug delivering stents. Importantly, when looking at the ASCEND trial data, the observed and measured performance of our drug-coated balloon was at least comparable relative to the control across nearly all parameters of the study, including the primary endpoint of patency.

In addition, and importantly, our drug-coated balloon showed statistically significant positive differences in several important secondary endpoints of meaning to physicians that are directly attributable to the drug mometasone furoate. These endpoints include statistically significant reduction in inflammation and statistically significant reduction in polypoid edema, polyps, at all measured time points, including at day 30. We also demonstrated a statistically significant reduction in the need for oral steroid interventions through day 30. Further, there were no adverse events related to the drug component of our drug-coated balloon in the ASCEND trial and no device-related serious adverse events were observed.

As a first of its kind study, we communicated earlier that this study might not serve as a clear pivotal study. Our team is now assessing next steps, and we'll work with FDA to determine if further studies are needed prior to submitting a PMA. But based upon closer examination of the trial results, we are very encouraged by the role we believe our drug-coated balloon can play in our portfolio of localized drug delivery devices. We remain committed to leading innovation with the clinical evidence for the benefit of clinicians and their patients with chronic sinusitis.

To summarize all of this, renewed commercial focus and prioritization on PROPEL, new capabilities to support physician access to SINUVA, clear evidence and a pathway towards adding a drug-coated balloon platform to the portfolio in the future. Now let me turn the call over to Jeri to touch on our financials and outlook.

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Jeryl L. Hilleman, Intersect ENT, Inc. - CFO [4]

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Thank you, Tom. To touch on revenue from the quarter, our total revenue of $24.1 million included $23 million of revenue from PROPEL, down 4% from the third quarter of last year, and SINUVA revenue of $1.1 million, up 38% over Q3 of 2018. We also estimate that we cleared in the range of $1.5 million to $2 million of the customer inventory accumulation sold in prior quarters, which lowered our Q3 results commensurately. We maintain our outlook for approximately flat growth over 2018. Gross margin in the third quarter was 80% as anticipated and consistent with past quarters. Accordingly, we remain on track with our previous guidance of 80% to 81% for the year.

Looking forward to next year, as we noted in the last earnings call, we do expect to see some modest lowering of gross margin, resulting from the rate of overhead utilization and an anticipated ramp-up of spending for certain process improvement designed to develop more efficient and effective manufacturing operations. Beyond this, we do anticipate returning to our current strong gross margin levels over time as we ramp revenue, regain efficiency and overhead utilization and work through our process improvement plan.

Regarding operating expenses, we are maintaining our outlook in this $135 million to $137 million range, with increasing spending in Q4 as we incur expenses such as onetime setup costs supporting the market access changes.

Finally, our cash position at the end of the third quarter was $89 million with a net cash usage in the quarter of approximately $4 million, similar to our burn in the second quarter. We believe that we continue to have a strong cash position as we work to ramp revenue in 2020.

Let me now turn the call back to Tom.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [5]

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Before we conclude our prepared remarks, let me emphasize how proud I am of the Intersect ENT team for their focus and commitment to execution, embracing the direction we set to strengthen both our sales effectiveness and market access. Further, the R&D and clinical teams are responding quickly and deliberately to chart the forward course following the ASCEND study results. We remain a company with a history of innovation and success, and I believe we are making true progress. Our goals remain to restore growth to PROPEL, establish broad usage of SINUVA and create exciting future opportunities through our pipeline. I am delighted to have the opportunity to lead this team at such an important moment in the company's history.

Thank you for your time and your attention, and we will remain on the line to address your questions. Andrew, would you please open the lines.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Robbie Marcus of JPMorgan.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [2]

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Congrats on a good quarter here. Tom, I was hoping we could start out, just get your thoughts on since you've come in, what have you changed at the company, both from a functional level and practice of the company? And was there anything you needed to do in terms of company morale to turn around? And what impact have you had so far and plan to have?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [3]

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Yes. Thanks, Robbie. Good questions and certainly, nuanced, too. I think the most important kind of change and cultural change is really a focus on execution rigor. How do we get more deliberate, more measured in how we go about tackling the problems at hand and the opportunities that we have. It's really about being very intentional in what we're doing. And it manifests itself in chartering key programs internally, adding new metrics in how we measure sales force performance in the field. But being that more deliberate, more intentional about how we execute. And I think that's a shift that in many ways is being very positively received as people have a greater sense of clarity on the direction of the company.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [4]

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And maybe shifting over to SINUVA. You now have the J code in place. What are some of the steps that investors should be focused on as you relaunch the product here now with reimbursement? How much of this is, there's awareness out there it should be an easy launch? How much of it is you need to reeducate everyone on the benefits of J code? And just help set expectations for how we should think about the revenue acceleration here going forward?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [5]

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Thanks, Robbie. I think to set expectation, I think it's going to be a slower build. We have to be cognizant of the fact that we're really changing behavior in the ENT office. Initiating drug therapy in the office setting is new to the ENT community. While in oncology and ophthalmology, that's been a practice that's been in place for some time. It's a new practice to discern between pharmacy benefit, medical benefit, buy-and-bill, J code assignment, and we've got to train the capability not only of the physician's desire to use it clinically, but of the office-based staff on how to bill for it most appropriately.

We think we've put the tools in place. But with anything, it takes time for people to adopt them and use them. And I think that's true of the J code, which will simplify, but also really taking advantage of the benefits of the hub and of the pharmacy -- specialty pharmacy capability that we've built.

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Operator [6]

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The next question comes from Richard Newitter of SVB Leerink.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst [7]

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I have a couple here. Just I know that the PROPEL business was impacted by some inventory work down in the quarter. I was just hoping you could update us on how we should think about that working its way through into the fourth quarter if anything and beyond? And on that same topic, I know that part of the reacceleration thesis on PROPEL or why you have confidence there is better execution? Does that mean that until you start to just see some of the reimbursement benefits, which should naturally help the SINUVA launch, does that mean that you're just going to put more focus or as much focus as you can at PROPEL for the time being, rather than trying to have them kind of do 2 things at once with a lower productivity angle on the SINUVA until the reimbursement is in place? I guess, just I'm trying to get a sense, basically, for the -- how we should think -- how quickly that PROPEL business can truly reaccelerate into the end of '19 into 2020?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [8]

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Sure. So 2 parts to your question. First, relative to inventory. As we just stated, we took about $1.5 million to $2 million of inventory out of the channel that had been built up. I believe on our last call, we said we were in the range of $2 million to $3 million overall. So we still have a bit of work to do in the fourth quarter. But as I noted, I think that will be largely behind us as we close out the year.

So that should not be a headwind as we end -- head into 2020. Relative to balance between PROPEL focus and SINUVA, clearly, our emphasis is to free resource to spend more time back on PROPEL to provide expertise that can address questions of reimbursement in the SINUVA office environment and not look to our clinical selling team to be burdened by that, and that's why we've built out our regional reimbursement directors and have SINUVA experts as well. But clearly, both products in the end are the key to driving success. So we don't want to be too much to the extent that the pendulum swings the other way. And that's really where better metricing, better measurement and better segmentation of our physician universe and called-on audience will enable us to get that balance. And that's what we're striving for is a better balance. I think you'll see a steady rise in both businesses, neither one is going to tear it up overnight, but our goal is to build predictable, steady growth on both.

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Richard S. Newitter, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Research Analyst [9]

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Got it. And then maybe just one last one, Tom. We're all thinking about 2020. I appreciate you're probably going to be reluctant to give too much color on the specifics there. But just as we think of some of these positive reimbursement developments unfolding. Realistically, what -- when do you think we can start to see them actually impact and move the needle for SINUVA? And is this something we should be thinking of? Or maybe you could just give us a sense as to when you think we should start thinking about sequential improvement in SINUVA sales? Is that 3 quarters away? 2 quarters away? I think any color there just to help us think of the ramp, so we don't get ahead of ourselves.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [10]

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Yes. I think the way to think about it is look for steady progress. It's not going to turn overnight on either business. In one case, we have PROPEL, which is a somewhat more mature business that we think we can get back to steady, predictable growth by better execution, better targeting, better focus, and that really was the theme of our back-to-basics message. With SINUVA, we're still training the market to use new tools in order to provide patients access to the product, new tools of the hub, the specialty pharmacy, the J code. And that -- any time you're teaching somebody new behaviors, it takes time to ramp. We feel good about it. I think you should see steady progress. But don't expect it to suddenly flip in the next quarter or in an immediate time frame.

Steady progress, steady growth, predictable is what you should look for from us.

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Operator [11]

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The next question comes from Brian Weinstein of William Blair.

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Brian David Weinstein, William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst [12]

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Tom, maybe we can start on your team. Are there any additions that you need to make to your executive team and then as it relates to other team members? Have you had any regrettable departures on the sales force, as you're kind of coming in and shaking the trees a little bit? Can you just give us an update on where all that stands?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [13]

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Sure. Thanks, Brian. Most obvious one is to bring in a new CFO, and that is a process that we've been conducting through the fall, and we would expect to have an announcement to you in relatively short order. Jeri has been gracious in bringing me up the learning curve and supporting me through these early months. And we're committed to honoring our commitment to her to allow her to move on in the early part of the new year. So CFO is clearly the first order of business, and we feel that we've got the right groundwork there to be able to make an announcement relatively soon. In terms of other capabilities, absolutely, continuing to build on analytics as well as program management. It's back to the fundamentals of execution internally and how it is that we measure the performance of the business in order to be more deliberate and more intentional. And while that's a little bit under the radar relative to kind of the bigger titles one might think, it is deeply in the culture that I wish to create around a culture of execution and delivery on our commitments.

And to your question about the sales force, we have not had any abnormal sales turnover, even though we have been kind of dialing up the demands a bit. And I'm grateful for the sales leadership team that had embraced the executional performance that I'm looking for and their commitment. So no changes there and no unusual turnover. But again, we're going to keep striving for strong performance and look for the team to respond.

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Brian David Weinstein, William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst [14]

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Great. And then as a follow-up, you continue to reference this idea of better metricing and putting in analytics, but can you be a little bit more specific about what you're looking at specifically when you're evaluating field reps, other than, of course, revenue to ensure that the focus is being appropriately put on what it is that you guys want them to do?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [15]

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Yes. So really, it goes back to a much more granular level of segmentation and understanding our physician universe. What is their prescribing behavior? How do they -- how would we segment them in understanding their use in different types of procedures and where there was opportunity to appropriately expand utilization? One of the things we hear a lot is, I use PROPEL for my most difficult patients. The reality is the use of PROPEL is clinically proven in a much broader audience of chronic sinusitis sufferers. So by metricing and measuring, it's really understanding at a granular level, how is an individual physician using our product and how are we changing that behavior appropriately within our indications in order to grow the business. It's about being detailed, and it's about the follow-through that comes with it.

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Brian David Weinstein, William Blair & Company L.L.C., Research Division - Partner & Healthcare Analyst [16]

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And do you need to add IT infrastructure, still, at this point, to be able to do that? I mean it is something that additional spending is anticipated for?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [17]

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No, not of a material level. I don't think we'll need to expand IT infrastructure. I think we will need to take better advantage of the CRM systems that we have in place already and better populate them with data and third-party data and then use that and train our teams to be able to be more analytically rigorous and data driven, but new additions, I don't see.

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Operator [18]

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The next question comes from Matthew O'Brien of Piper Jaffray.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [19]

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I just wanted to follow up on Rich's question on the PROPEL side of things. I think you said you took $1.5 million to $2 million out of inventory in Q3. Is that all PROPEL revenue first of all, or PROPEL product, first of all? And then secondly, if you back that out, did your procedure growth in the quarter, was it something in the 3% to 4% range? So you actually would have grown a little bit here in Q3, had not been for that inventory reduction?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [20]

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Yes. So first, relative to the $1.5 billion to $2 million is it all PROPEL? Yes, it is. And yes, I mean, if you think about the fact that we took down inventory, demand would have been -- procedure demand would have been higher and revenue would have been higher had we not pulled down that amount of inventory. But we were clear in our direction to the field sales organization, and candidly, our commitment to you, that we were going to bring that back down and get to a much more procedure-driven order flow, a much more predictable way of managing the business and understanding where we stand. So we feel good about what we've done. Yes, it took a little bit of a bite out of the revenue line, but that was the right move to do, and I would do it again.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [21]

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And okay, that's great, Tom. And so that was all done at the same time where you were changing up the way that you were selling into the field in terms of no more bulk discounting? And then also retraining or reeducating your sales force on how to go after this market? So is it fair to say there was probably some additional disruption in Q3 to the PROPEL business based on some of those activities as well.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [22]

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Yes, maybe a little bit. I mean we had folks out of the field in order to have our regional meetings in the month of August. We're pressing some demands on folks, but I don't think anything undue. Nothing that would really fall significantly out of the norm of how you bring the team up to speed throughout the course of the year in terms of direction and training. So I don't think it was unusually disruptive. I wouldn't take credit for that, in terms of another headwind we may have been encountering.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [23]

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Okay. I'm just -- I think you can see what I'm trying to triangulate [it not here] is that the base business, the PROPEL business actually would have grown probably something more like mid-single digits without all these activities which you were doing during the quarter. So again, not wanting to get into 2020 too much, but just a general sense of what the base business is doing despite some of the early efforts that you have on refocusing the organization.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [24]

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Yes. And I appreciate what you're doing, and I'll confess that I do the same back-of-the-envelope calculations myself. But I think the important thing is let's get the engine running well again in terms of a real clarity of intention, right messaging in the field, and we should be able to bring back a predictable level of growth. Again, PROPEL is not likely to go back to the 20% grower. But can we make it a predictable, steady piece of the business, while SINUVA then begins to take off. That's what I'm playing for.

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Matthew Oliver O'Brien, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [25]

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Got it. And then just 1 more real quick one. You've got the spec pharma providers in place now? How critical are the new -- is the new spec pharma distributor/wholesaler to really accelerating growth for SINUVA next year? Or do you kind of have what you need right now to do meaningfully better in 2020 with what I think everybody on this call would say is a good product?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [26]

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Yes. I think we're in good shape with the addition of our new specialty pharmacy, but we want to make it better. So we're looking to potentially bring on another in addition. But I think we have a materially better capability in our new specialty pharmacy, particularly because they can process both the medical benefit and the pharmacy benefit, that's a key add in our equation.

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Operator [27]

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The next question comes from Chris Pasquale of Guggenheim.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [28]

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Tom, I just want to push a little bit on the SINUVA trajectory from here? I mean it sounds like you've checked all the boxes that were previously mentioned in terms of the things that needed to happen to resolve the market access challenges that have been holding that product back. You've got the J code, you've upgraded the hub, you have the new specialty pharma partner on board, so what's left? And why shouldn't things start to pick up this quarter?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [29]

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I think the key that's left is teaching offices and practice groups how to use all the tools that we've now put in place. We're changing behavior in the office environment. The good news is, we know that physicians and patients alike like the product, see the benefit of the product. But we've changed behavior in terms of how the office staff has to manage reimbursement, the burden that comes with initiating drug therapy in the ENT office. These are all things that can be overcome. And we've seen it overcome in other categories. I mentioned oncology and ophthalmology that are much more used to this kind of initiation of therapy in the office. It's really about building the practice and the experience now that the tools are lined up, and we'll get that. It's just -- again, I don't want to set an expectation that it's going to happen overnight.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [30]

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Okay. And then you mentioned on the balloon sinuplasty side, the competitors there are 510(k) products. So my impression has been that the randomized superiority trial that you guys were going for was really something you are pursuing to enhance the commercial potential of the product rather than a specific regulatory requirement. Is that the right way to characterize? And how do you think about now that you have maybe more of a mixed trial, the trade-off between just getting that product approved and going back to the clinic to try and generate a stronger claim relative to the competitors that are out there?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [31]

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That's a really good question, Chris. You hit the nail on the head. I give credit for the courage of the team that was here that preceded me in going after the superiority claim in the area and attribute for which conventional balloons are quite good. They went for the home run. Interestingly, we got directional superiority but not statistically significant superiority in that claim. But you're 100% correct. There is a very viable product that performs well in terms of reducing inflammation, reducing polyps and reducing oral steroid use, while still delivering all the benefits of a balloon. That is a very, very viable commercial product and one that, we believe, can capture share in an established market. Unlike my commentary on SINUVA, where we're building a market; in the case of the drug-coated balloon, we have the potential to perform in a market that's already there with incremental beneficial claims, and that's worth playing for.

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Operator [32]

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The next question comes from Ravi Misra of Berenberg Capital Markets.

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [33]

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I appreciate the structured comments on the call. My question was on SINUVA. Some of our checks and kind of the competitive environment around it. We were at AAO, and there's -- it seems to be a very large gathering of doctors around devices or drugs that can treat nasal polyps. And I'm just wondering, with reimbursement kind of being established and the distribution being established. In those accounts that are actually using this device regularly, how is it being used again, say, some of the pharmaceutical options that are out there, either from a steroid basis or an injectable basis? Just curious in terms of how it's fitting into the doctor's armamentarium.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [34]

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Yes, it's still early days in terms of the level of usage to be able to say what the kind of definitive pattern of use within the armamentarium. I think the thing that I would highlight relative to the other alternatives that we bring in our unique combination of drug and device is that we bring the physical benefit of the radio expansion of the stent itself, of the SINUVA stent. We also bring the localized drug delivery, the drug that you need in the location it should be, and we also bring a level of kind of enforced compliance of that corticosteroid because it's an implantable. You're going to get the full 30 days of coverage against that. That puts us in a unique position to provide real benefit where other offerings don't have that same combination of physical radial expansion, localized drug delivery and imposed compliance.

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [35]

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Great. And then just on PROPEL, I appreciate that you're not going to get ahead of your skis for 2020. But can you help us calibrate maybe in terms of what you see the market growth there is? And is this longer term, do you still view PROPEL as an above-market growth device?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [36]

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Yes. So market growth is tough to come by because in terms of, are we talking about the total number of FESS surgeries? Are we talking about site of care for those surgeries? I guess the simple back-of-the-envelope that I would offer that certainly is very encouraging to me is of the roughly 400,000 FESS surgeries for which PROPEL is eligible, and if you assumed 2 PROPEL for each of them, you come up with a total available market in excess of $600 million, and we're at $100 million. So to me, that suggests there's ample room to grow into it. It will take time. It will take continued effort on our part. I'm not here to say that the end game is that we are a $600 million PROPEL brand, but I certainly see a lot of upside, where more disciplined, rigorous efforts in our execution against targeted audiences should be able to deliver us a fairly predictable and steady level of growth.

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [37]

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Great. And if I could just ask one more on the pipeline. Just from an R&D perspective, I appreciate the comments on the balloon. So just anything you can kind of talk to us about what else should we expect out of this company. Historically, you guys have been, until the balloon at least, very good at hitting your clinical targets. Just curious in terms of where you see opportunities for growth from an organic perspective?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [38]

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Yes. Well, first order of business is to complete the work we have on the balloon. No doubt about that. And that, obviously, it's going to be informed by our upcoming conversations with FDA with the ASCEND data in hand. Beyond that, I'm not going to comment in terms of pipeline, other than to say we are working on other things, and we look forward to continuing to bring a steady cadence of innovation. And I would just say, for me, the definition of innovation is both product and clinical claims. Are we bringing new news to the marketplace that enhances our physician community's ability to understand how and when and where to use our products? But I am committed to bringing that steady cadence of innovation. First order of business is the balloon.

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Operator [39]

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Was there a follow-up, Mr. Misra?

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Ravi Misra, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [40]

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No.

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Operator [41]

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The next question comes from Kyle Rose of Canaccord Genuity.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [42]

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So Tom, I just wanted to kind of think from a -- you've been in this seat for 100 days. You've obviously made a lot of structural changes. I guess when you take a step back and think about turning around the organization and putting it on the path towards growth moving forward. How do you view, in broad strokes, the time line here? I mean is this something that we should think about 2020 is probably more of a transition year, setting up for a growth year in 2021? Or can the turnaround actually happen in 2020? And then I'll ask my second question just quickly here. You made a lot of investments in the team, and you've talked about the analytical rigor and things of that sort. Help us understand, have we seen those investments already? Or will you need to continue to invest in 2020 and beyond?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [43]

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Got it. So your first question really is when can we expect to see kind of "the turnaround." I don't think there's going to be a momentous occasion when this is the moment of the turnaround. What I'm endeavoring to do is show steady progress against a growth and accelerating growth over time. And it will show signs clearly in 2020, more towards the latter part than the front part of the year because it will build with time as we get better and build new rigor and new muscle in how we go about it. I don't think there's going to be a pivot moment that you would point to and, say, on July 31, that was the beginning of the turnaround. I think it's going to be slow and steady, and that's what we're planning for. In terms of investment, I don't expect any precipitous change in our investment approach. We have the dollars necessary to do the things that we need, and we will make the changes necessary as we go. So again, I'm really seeking to convey a story of steady progress rather than of big jolts and big changes.

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [44]

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Great. And then just 2 more questions from me. One, have you made any changes to sales force compensation and just kind of incentives. And how we should think about that structure in 2020? And then you've also talked about changing some of the selling dynamics, focusing more on -- focusing away from large orders with having price compression? How should we think about the pricing dynamic in 2020 because it feels like if you're starting to drive more utilization and just a more focused selling effort, we should see positive unit mix, but then if you're also showing less discounting, we should see positive pricing mix as well. Am I thinking about that appropriately?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [45]

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Yes, I think you are. So let me take the pricing first. We've been pretty steady in holding price. We had some [bulking] that adversely impacted ASP, but we've been able to sustain our ASP with very minimal effect. And I think you should continue to see modest increases in ASP over time. Nothing dramatic, but not the pressure downwards that you might see in other segments. So I feel good that we're in a strong position in that regard. Your other question was...

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Kyle William Rose, Canaccord Genuity Corp., Research Division - Senior Analyst [46]

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Sales force compensation and kind of how you're thinking about those incentives?

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [47]

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Yes. So sales comp. Right. Thank you. Sorry about that. We made some minor tweaks within this year, not major. We don't want to change the whole comp plan on the year. But the sales leadership team and I are engaged right now in determining the -- whether or not a more substantial change is appropriate for 2020. And it's premature to say that because we also haven't announced that to our field sales organization. But it would be consistent with our priorities that we're placing on the products that we have, upping our game on PROPEL, continuing to make sure the appropriate incentives are there for SINUVA, recognizing that we've got specialty teams that are particularly focused on SINUVA, and therefore, their comp structure should reflect their priorities. That's the direction we're headed in.

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Operator [48]

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(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Tom West for any closing remarks.

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Thomas A. West, Intersect ENT, Inc. - President, CEO & Director [49]

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Yes. Thanks, everyone, for joining us today. Really, we greatly appreciate your interest and support and look forward to staying in touch. And I know we'll be speaking with a number of you in the coming moments, coming days. Again, grateful for your interest and your attention. Thank you.

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Operator [50]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.