Intersect ENT, Inc.
Q4 2019 Earnings Call Transcript

Published: 24 Feb 2020

[Operator:]

Good day and welcome to the Intersect ENT Fourth Quarter and Full Year 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Randy Meier, Executive Vice President and Chief Financial Officer. Please go ahead.

[Randy Meier:]

Thank you, Keith and thank you all for participating on today’s call. Joining me today is Tom West, President and CEO of Intersect ENT.Before we begin, I would like to remind you that we will make forward-looking statements within the meaning of the Federal Securities laws. Actual results and timing of events could differ materially from those anticipated in such forward-looking statements as a result of those 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 statement contained herein.I will now turn the call over to Tom.

[Tom West:]

Thank you, Randy and good morning and thank you to all of those joining our call today. With 2020 well underway, I feel confident in saying that Intersect ENT is off to a solid start to the year and focused on fully meeting the goals and objectives we’ve set out for ourselves. To that end, I can confirm the 2020 revenue guidance we offered in early January, full year revenue of $115 million to $119 million with a full year gross margin between 70% and 75%. However, as much as I might wish to continue to talk about 2020 as this is the Q4 2019 earnings call, I will focus my comments on what we accomplished in the latter part of 2019 and why it gives me confidence as we enter 2020.First, let me state openly that I am more excited about Intersect ENT’s prospects today than I was last summer when I elected to join the company. The criteria that attracted me to the company, a large market, novel technology, great clinical evidence and outstanding reputation among physicians and engage board and most of all the significant growth potential of Intersect ENT, each of these elements remain solidly positive today. And now, I have had the benefit over the last 6 months of getting to know and working closely with the talented and committed teams here at Intersect ENT. We truly have terrific talent as well as an innovative portfolio of current products and an attractive pipeline. As we look to 2020 and beyond there are many foundational strengths from which to draw. But as I have said in recent presentations and in calls with many of you, there is still work we must do to realize our full potential.With that as backdrop, perhaps the most striking insight from the past 6 months that informs our strategies and plans is this simple notion that while clinical evidence is necessary, it is unto itself insufficient to drive growth to the level we seek. PROPEL and SINUVA are technologically differentiated best-in-class and clinically compelling. However, the strong clinical evidence we developed is not by itself sufficient to drive full adoption, deep market penetration and sustained double-digit growth. We must also consistently offer physicians, compelling examples and evidence of how and where to best use our products in their practices. Clinical evidence selling is crucial. In addition and perhaps more importantly, we need to ensure unencumbered access to our products via appropriate payer reimbursement with market access infrastructure that makes it easy for physicians and institutions to procure and use our products as they might wish. The simple insight that you need the combination of clinical evidence, strong targeted selling and ensured market access guided our actions in the back half of 2019 and informs our efforts going into 2020.To that end, we will continue our back to basics commercial efforts for both PROPEL and SINUVA that we have started in 2019 by focusing on clinical selling and market development of our novel solutions for treating chronic rhinosinusitis. These basics start with the clear segmentation of our physician universe to understand how they currently use our products and the nature of payer coverage and reimbursement at the individual physician level. The more granular individual physician level insights allow us to better tailor products and use recommendations, specific to individual doctor needs and to identify coverage obstacles that can be prioritized and moved over time. We began to systematically capture additional physician level data in 2019 enabling a more intentional and rigorous field sales execution effort as we go forward.To be clear, the Intersect ENT sales organization is very talented and has the deep understanding of our markets. We also enjoy strong and well-established relationships with the physicians and the institutions we serve. But we have an opportunity to grow beyond our strong knowledge and differentiated relationships to truly up our game. The enhanced use of data to drive commercial and payer insight and execution in the field will expand in 2020 and I believe may drive deeper physician practice penetration and rekindle greater growth. In addition in 2020, we will further refine commercial roles, sales direction and the rewards that tied to performance.With the launch of SINUVA, we were challenged to support both a medical device in the hospital ASC with PROPEL, while at the same time delivering a combination product regulated as a drug for use in the offices, SINUVA. The sales organization was pulled in multiple directions. In addition, and quite frankly, in spite of our best efforts, we do not previously have adequate infrastructure in place to support the necessary requirements of initiating drug therapy in ENT offices with SINUVA. With this learning, we made important changes in 2019. In addition to market development, clinical selling and improved analytical insight, we aligned our sales force and reward models to ensure that we were appropriately and proportionately driving our PROPEL franchise, something we did not sufficiently focus on in late 2018 and in the front half of 2019 with the launch of SINUVA.In doing so, the majority of our sales force is now aligned around in executing our strategy to drive PROPEL and to return growth to our core business. The bulk of the effort and incentive rewards for our core clinical selling team are focused on further penetration of PROPEL in all appropriate best surgical procedures. At the same time, we expanded and redeployed sales talent to address the specific and unique needs of SINUVA, while engaging the third-party specialists to provide much needed additional SINUVA market access infrastructure. Specifically, we deployed 12 one per sales region strategic account managers, SAMs, to focus on the clinical and procedure training for SINUVA in the office setting. And we also added an additional 12 regional reimbursement directors, RRDs, to support ENT office staff seeking guidance on reimbursement processing while also interfacing with local payers. Two, Intersect ENT employee teams of 12 in the field mirrored and coordinated, SINUVA focused, charged with maximizing the SINUVA clinical selling story and supporting appropriate reimbursement and ease of access in the office. We finalized this structure in Q4 and trained to it last month at our national sales meeting.In October, we also went live with a new patient hub to support ENT physician office staff in determining the extent and nature of patient insurance coverage for SINUVA. We also brought on board a new specialty pharmacy to complement our existing capabilities. Our new partner was specifically selected for their ability to manage both pharmacy and medical benefit designation used by payers in covering SINUVA. Likewise, we augmented our specialty distributor capability by adding McKesson in December. Regardless of payer benefit designation, we believe we can now better support our physicians as they go through the insurance adjudication process and take office delivery of SINUVA thereby providing a more seamless access to our product.Finally, we also furthered the adoption and utilization of our new J code, especially with commercial payers. The J code was published and went live in Q4 of last year and while we remain disappointed that we have yet to receive a specific J code reimbursement rate from CMS for the 10% of our population covered under Medicaid and Medicare. Commercial payers are increasingly using the new J code to streamline their reimbursement to the benefit of physicians and patients alike. No doubt there is a lot of complexity in navigating the reimbursement and payment landscape around initiating drug therapy in the office. But with the learnings and investment we have made we now see a much clearer path to simplifying the SINUVA experience for the physicians we serve and we have created substantially greater role clarity for our field teams.Reflecting on 2019, I am proud of the team’s accomplishments in preparing Intersect ENT for a return to growth in 2020. With PROPEL, we have renewed our sales force on the brand and our efforts are more proportionate to the importance of PROPEL as the foundational product of our company. With SINUVA, we have adopted a go-to-market approach that was more consistent with the demands of initiating drug therapy in the office. We have aligned the sales force to alleviate the distraction of the past by establishing SINUVA clinical and reimbursement specialist teams to provide specific capability and assistance to our office-based customers. To be clear, we do not have a finely-tuned SINUVA machine at this point.As one investor noted, you are still getting the sand out of the gears, but we have made great strides and are committed to further refining our go-to-market model for SINUVA in the front half of this year. To that end, we are confident in the foundation we have laid for meaningful and accelerated SINUVA growth and market penetration in 2020. Bottom line, our overall 2020 growth objectives are built upon both PROPEL and SINUVA reflecting the clinical utility of each asset as well as the enhanced commercial execution and market access infrastructure we have invested in over the back half of 2019.Now, let’s briefly look to the future and our pipeline. I steadfastly believe in the importance of delivering a steady cadence of new product and claims innovation to drive sustained and longer term growth. In my view, there is a continuum of innovation from substantial new platforms like PROPEL and SINUVA to more moderate product line extensions to incremental claims, publications and conference posters. It’s important to consistently deliver across this continuum to drive new news and growth in the market. In the area of organic, our R&D, substantial platform innovation, we remained bullish on the opportunity presented by our drug-coated balloon and see it as an excellent compliment to the PROPEL and SINUVA platforms. The drug-coated balloon offers localized drug delivery in a sinus procedure conducted in the hospital, ASC and office.Our ASCEND trial demonstrated our ability to provide statistically significant greater reduction in inflammation and polypoid edema with our drug-coated balloon versus a conventional balloon. Intersect ENT’s clinical and regulatory teams are meeting with FDA this week to discuss the requirements and appropriate next steps to bring the ASCEND drug-coated balloon PMA forward. We will share those learnings as appropriate and when available, but we are bullish. We also discussed publicly in January albeit at a very high level a further platform innovation that offers the promise of localized drug delivery in a longer acting format for different sinus used cases. We completed animal studies in 2019 and are fully funded in 2020 for development work that should allow us to initiate human trials in early 2021, more on this in the future.Beyond larger platform innovation, there is an important role for line extensions to play in expanding our product lines. Intersect ENT was able to address a broader range of post-surgical needs with the complementary, but distinct product offerings of PROPEL, PROPEL Mini and PROPEL Contour. Both SINUVA and the drug-coated balloon, lend themselves to further variance of their respective core platform technologies. We expect this work to inform our internal innovation funnel in the coming years. Product claims innovation offers an additional avenue to provide evidence of broader clinical utility as well as enhancing our health economic evidence.Lastly, our determined and intentional focus on organic product front and claims innovation can be further supplemented down the road with appropriate and complimentary tuck-in acquisitions. Taken together, this strategy is designed to provide a steady cadence of innovation, some substantial and some more incremental to drive and ensure sustainable long-term growth. With the dual levers of enhanced commercial access and execution, coupled with continued commitment to innovation, I believe the company is well-positioned to transition over time from an innovative technology company to a more comprehensive and integrated ENT player of scale. However, as with every aspect of this plan, we will need to earn that right by consistently executing and delivering on our commitments.Before I hand the call over to Randy, I would like to make a few final observations to close out 2019. First, as I have already mentioned, I am truly excited to be at Intersect ENT and continue to believe that future is bright. While there is certainly more work to be done, the foundation for growth is present and reflected in the unmet needs of the marketplace, the foundational products we have and the culture and commitment of our teams. Second, our teams really came together in the second half of 2019. And while we revised our initial 2019 guidance, I am proud of how the entire organization rallied around our back to basics commercial efforts and market access infrastructure development to achieve our revised 2019 guidance. Achieving these objectives provided us with the basis and the confidence to establish growth as a primary objective for both PROPEL and SINUVA in 2020.Third, I wanted to acknowledge and most importantly thank all of the teams at Intersect ENT for uniting together around our commitment to return the business to meaningful growth in 2020. Throughout the year, the organization endured a series of leadership transitions and while that’s never easy, the company demonstrated a lot of grip and perseverance. This is a testament to the organization in technology that Lisa, Jeri and others built over the last decade. And with Jeri’s retirement at year end, I want to thank her one more time for her service and assistance in the transition. The board has also played a pivotal role in the past year from ensuring a smooth transition engaging more deeply into the day-to-day operations and providing support to the entire leadership team. I would like to provide a special thanks to our Executive Chairman, Kieran Gallahue for stepping into provide interim leadership and guidance. And speaking on behalf of the entire company, we thank Kieran for his steadying leadership and guidance throughout this transition to the future, I am especially personally grateful. Overall, we remain confident in our future and in our outlook at the start of the year.Let me now turn the call over to Randy to take you through our financial results and our outlook.

[Randy Meier:]

Thanks, Tom and good morning everyone. I would like to start financial overview with a summary of our top line results and then provide a little more detail on our income statement.Intersect reported net sales of $31.8 million in the fourth quarter of 2019, a decrease of 3% from the prior year. Net sales for the full year of 2019 were $109.1 million, an increase of 1% over the $108.5 million of the year ago. These results were in line with the revised guidance that the company provided in the second quarter call in August of 2019. As Tom mentioned, we believe this performance has set the stage to return the PROPEL franchise to growth and to begin to see meaningful gains in our SINUVA business.For the year, the company continued to see gains in our ASPs across all product areas, with aggregate price improving by 3% to $832, up from $807 in 2018, while pricing was a bright spot in 2019, volumes declined by 2% from 2018 levels. Our gross profit margin for the fourth quarter of 2019 was 77% compared to 81% in the same period a year ago. For full year 2019, our gross margin was 80% compared to 79% in 2018. The most significant impact on gross margin and cost of goods sold for the year was a strategic decision in 2018 to build inventory levels this reduced unit costs by spreading our fixed costs over a larger number of units. More recently, the decline in gross margin in the fourth quarter resulted from a decline in our production volumes consistent with our revised 2019 guidance. Looking ahead, we believe product level volumes will remain relatively consistent which will result in incrementally higher cost of goods sold as absorption rates will be lower.Total operating expenses for the fourth quarter 2019 were $33.1 million versus $32.1 million, an increase of 3%. Operating expenses for the full year 2019 were $132.8 million compared to $110.9 million in 2018, an increase of 20%. The increase is related to the following

[Tom West:]

Thank you, Randy. Before I open the call for questions, I want to comment on 2020 and our commitment to providing incrementally more performance information as we move throughout the year. As we have discussed, we are investing in our commercial analytics and market access capabilities. These investments will allow us to get greater insight into the status, performance and progress of our core business drivers. It is still early days in building out and vetting this infrastructure, but we believe that some of this or similar data will be beneficial to share with investors in the future as this data will serve as leading indicators of the progress we foresee. We are committed to that transparency. Again, we are optimistic about our future, committed to delivering on our promises and grateful for your interest in Intersect ENT.Now, I would like to turn the call back over to the operator and open the call for your questions. Keith, would you please open the lines?

[Operator:]

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Robbie Marcus with JPMorgan.

[Robbie Marcus:]

Great. Thanks for taking the question. Tom, you did a great job outlining the changes you have made to processes you have put in place it is almost March now are you able to comment on the any improvements you have seen in the past few months since you have put these into place?

[Tom West:]

Thanks, Robbie. I appreciate the call. Listen it would be premature for me to get into kind of how we are performing already in this year but we feel good momentum behind us and it is why I feel confident in confirming the guidance that we have given and feel good about where we are as I want to keep reminding we have got further to go I don’t want to get over my skies but various nice momentum behind it and as I said at the very close we will continue to provide more data as we progress and as we get more comfortable with the data that we have but to be a bit evasive on your question call it good momentum and we feel it behind us.

[Robbie Marcus:]

Great. And maybe just to follow up on that first quarter looks like it is going to be flat year over year with improvement throughout the year now as you sit here today what gives you the confidence that you will be able to accelerate your growth over the back part of the year should we think about it as a linear improvement and then same question for our gross margin as well? Thanks.

[Tom West:]

Yes, in terms of revenue momentum I think you heard it correctly we are still working out elements of our go to market model in particularly as it relates to SINUVA with the infrastructure that we put in place in the fourth quarter we would expect that too linearly improve over the course of the year as Randy noted on gross margin we expect that gross margin is going to take dip probably most in the most pronounced fashion in Q2 and that’s really as we work through inventory that was built in the later part of 2019 and then that should strengthen to reach a new kind of level in the back part of the year so not as linear a dip downwards in towards Q2 and then a recovery Q3, Q4.

[Robbie Marcus:]

Great. Thanks a lot.

[Operator:]

Thank you. And the next question comes from Richard Newitter with SVB Leerink.

[Tom West:]

Hey, Richard. Richard, are you there?

[Operator:]

Your line is open.

[Tom West:]

Rich, you might be on mute.

[Operator:]

Okay. Well, then we will move on to the next question will come from Bob Hopkins with Bank of America.

[Bob Hopkins:]

Thanks and good morning.

[Tom West:]

Hey Bob. How are you?

[Bob Hopkins:]

Good, good. Just two quick ones for me. First is maybe Randy a little more color on the cadence of growth throughout the course of the year on 2020 just given your comments just a second ago it seems that it looks like you must be assuming that exiting 2020 by fourth quarter that the company is up may be around 15% revenue growth in the fourth quarter kind of exiting the year just wondering if you could offer any comments on that. And then the second question just go ahead and say it upfront I was wondering if you had any kind of updated thoughts kind of after a couple of months of analysis now on the size of the adjustable market for SINUVA and the reason is I asked is that the original assumptions that we and many other had obviously those have been called into question and why I realize there is a lot of structural or lot of reasons why the launch has not gone as well as the company originally expected but it just seems like it’s been so different relative to the original set of expectations that perhaps there is also been thinking of the market opportunities. So any comments on updated thoughts on the market opportunity for SINUVA would also be appreciated? Thank you.

[Randy Meier:]

Sure. Well, it’s good to be back chatting with you, Bob. Again it’s been a while since I had the opportunity to do that. But regarding our growth, I think Tom outlined it very nicely in his comments, I think we have got a difficult first quarter comp with the year over. So we are seeing kind of a flattish type growth there. And then gradual growth throughout the year, I think 15% ending the year is probably a little bit on the aggressive side from my expectation. I think we are looking at finishing up the year with I think we have guided to high single low double-digit type growth so that as we get to a sustainable level in 2021. So I’d see a slightly more gradual rebound than sort of what you are suggesting on the revenue growth side. From the addressable market, I’d say, I am still going through a bit of a learning curve right now. I think we have talked a lot about SINUVA and Tom indicated that the team has really been reorganized to address growth. I don’t think we have had significant change in our feeling about the addressable market, but I am going to let Tom talk a little bit about that from this perspective.

[Tom West:]

Yes, Bob, it’s a good question and certainly one that we’ve wrestled with as well. But I think the key is there is ample upside in the SINUVA market to drive significant growth for the total company. The simple numbers that we have used in the past is if there are 560,000 FESS surgeries, of which we believe 400,000 would be PROPEL eligible at – with a bilateral placement at $800 per PROPEL, that would be $1,600 per procedure times 400,000 is a $650 million PROPEL market. If you now think of SINUVA as being the opportunity for revision surgery, particularly for the polyp patient, where a polyp patient is going to need revision surgery or revision intervention, you could cut that number in half and say maybe there is 200,000 that would be eligible at $1,200 apiece or $2,500 for bilateral procedure, that’s still a $500 million total available market in that case. The thing that I remind myself of is almost that number doesn’t matter. The number that matters is we only sold $4.5 million in all of 2019. There is substantial opportunity to capture tens of millions or more in that marketplace. We have got to go earn it. We have certainly tripped and stumbled over the challenges of initiating drug therapy in the doctor’s office. I feel confident that we now have the infrastructure in place necessary to tackle that. As I said in my comments, we are still getting the sand out of the gears to make that work as well as we would like. But I feel like we are now starting to see that momentum in a way that would begin to allow us to take on what is a much bigger market opportunity than what we have realized to-date.

[Bob Hopkins:]

Great. Thank you. Very helpful.

[Operator:]

Thank you. And the next question is an attempt from Richard Newitter with SVB Leerink.

[Tom West:]

Hey, Richard.

[Jaime Morgan:]

Hi, guys. This is Jaime on for Rich.

[Tom West:]

Yes, okay. Got it.

[Jaime Morgan:]

Sorry about that. So just quickly going back to your commentary around SINUVA expectations for the year, you had mentioned, Tom, linear improvement over the course of the year. So I just was wondering if you could kind of calibrate us a little bit more, does this mean revenue on a dollar basis kind of consistent with 4Q in the first half of the year and then maybe ramping a little bit more so quarter-over-quarter in the back half or should we really be thinking about sequential improvement off of 4Q dollar amount moving through the year?

[Tom West:]

Yes. So we haven’t – and deliberately haven’t been that specific on it. As we have said with the first quarter being relatively flat, it would be premature to think that SINUVA is suddenly taking off and given that the investments we have made, particularly around our sales force deployment and our specialty pharmacy and hub capabilities were put in place at the end of the fourth quarter. I think your instincts are right which is a slower ramp coming out of Q1 and then acceleration thereafter as we go into the year.

[Randy Meier:]

And I’d also like to just remind everybody the business is a little seasonal. So looking at sequential revenue growth is sometimes a bit challenging, particularly from the fourth quarter to the first quarter, so just sort of reminder of that.

[Jaime Morgan:]

Got it. Okay. I think in the past you guys have kind of said it’s a 20% dip, is that fair – at least with the PROPEL business, is that kind of fair to assume the same sort of things with 1Q, especially as maybe there is still some lingering impact from the inventory build?

[Randy Meier:]

Well, I think we’ve….

[Jaime Morgan:]

But the inventory was down…

[Randy Meier:]

I am not sure I go as far as seeing a 20% dip, I probably haven’t looked at it that way. So I don’t want to comment on precisely, but I think the seasonality has been fairly well documented, particularly with the PROPEL business over the past couple of years. But on the SINUVA side, we would continue to see – we expect to see reasonably nice growth throughout the year.

[Jaime Morgan:]

Okay, great. That’s helpful. And then just my second question just around the CMS pricing for SINUVA, just curious if you could provide a little bit more detail on your thoughts there and as to whether specifically a blended ASP is likely for the for the product what this amount could potentially be and how you think it is going to impact SINUVA adoption over time? Thanks.

[Tom West:]

So related to this CMS, I mean I am going to be honest with you we are a little baffled that we haven’t even gotten the reimbursement rate to this point so for me to speculate whether it is going to be the blended rate or a single SINUVA rate I am out of my league I am surprised that we have not heard already the next time when the rate can be published it would be announced in mid march with implementation in early April we continue to lobby CMS and work with outside counsel to support us in that regard but ultimately it is their call and we are a bit frustrated that we have not been able to breakthrough again I would remind folks though that reimbursement rate on the J code specifically applies to the 10% or so of Medicare, Medicaid patients we are now seeing much greater adoption of the J code by commercial payers who were providing their own rate related to that and we are pleased with the kind of rates that we are seeing.

[Operator:]

Yes thank you and the next question comes from Matthew O'Brien with Piper Sandler.

[Matthew O'Brien:]

Good morning. Thanks for taking my questions. Just a couple of housekeeping ones real quick upfront here, but did you say you took pricing up by about $32 per stent this past quarter and something that we should expect as pricing goes in the future we have to keep increasing pricing and then gross margin degradation I know there are some volume you are eating right now can we get back up to the 80% range in the next year or two?

[Randy Meier:]

On the pricing what I was quoting was just more of our aggregate ASP from 2018 to 2019 we did see a very nice increase from 100 I believe it is 108 to 132 over the course of the year so that was more of just sort of our average pricing throughout the for the entire organization we did take a modest price increase this year but and we do expect ASP’s to gradually continue to move up but we have not given any guidance as to the significance of that gain year over year on the gross margin side we would expect the year again to be a little bit choppy as Tom and I indicated the first half of the year will continue to see some of the inventory that we built last year come through so you will see a gradual decline from the lower cost units that would be coming out in the first quarter to beginning to start seeing a higher cost units in the second quarter and then we will begin as the second half of the year get to a more normalized cost to goods sold as we go into the third and fourth quarter which should be a modest increase from the second quarter levels as far as getting back to 80% that’s is going to be entirely volume related but we would expect mid to low 70s to be somewhat the new normal for at least the next couple of years and as we continue to build our business we continue to give you a better outlook as we look out into the 2022, 2023 timeframe.

[Matthew O'Brien:]

Okay, that’s helpful. Thank you, Randy. And then for Tom, just on the pipeline side of things can you just talk a little bit about the new platforms I know you never want to say too much but is the market opportunities similar much smaller bigger than PROPEL/SINUVA and I am a little surprised on the line extension side I things to hear you talk about that just because you are so lately penetrated with PROPEL and SINUVA so why even go down that path at this point?

[Tom West:]

Couple of things. First I am really not at liberty to say a great deal about the new platform we think that it is an attractive space it is a new used case for us it is sizable and it allows us to leverage our capability with bio-absorbable polymer as well as the drug coating capabilities we have so I don’t want to go into too much detail there other than to suggest that we are committed to the study cadence of innovation relative to the line extension I think what we did with PROPEL was appropriate in order to have the right used cases for customers based on different size and different parts of the sinus cavity and I think it has been a source of strength of the business that we will be able to leverage as we grow it. I completely agree with you that we have to earn the right to go with the further line extension in SINUVA. So we will not start the development of that work until we’ve proven that we’ve got the market model set and we see strong growth going. By the same token we also have to anticipate our own success and we know when speaking with physicians that there are opportunities for a slightly different configuration on SINUVA in terms of meeting fully their needs. Again, have to conquer the business model the market access model in order to earn that right before we go forward. And then relative to the balloon is the other place as we continue to look with confidence and where the balloon may take us, there are obvious opportunities within the balloon segment as well in terms of the configuration, the size, the amount of atmospheres of pressure that you might have on a balloon in order to perform and deliver drug the way we would wish. So again, I think your caution is right, which is we are not going to get too far over our schemes in terms of launching items when we don’t have the market, but at the same time, we also have to anticipate success and begin that, that early skunk works in order to be able to provide the steady cadence of innovation that will be the hallmark of what I believe will be continued growth well into the future.

[Matthew O'Brien:]

Very helpful. Thank you.

[Operator:]

Thank you. [Operator Instructions] And the next question comes from Chris Pasquale with Guggenheim.

[Chris Pasquale:]

Thanks. Tom, you took off all the upgrades that you made in the commercial organization to support SINUVA over the last 6 months or so distributors, specialty pharmacy partners, the new subgroups within the organization on the sales side. Are you confident that you now have all the pieces in place that you need and going forward, it’s really just going to be a question of maybe adding a little bit here or there or there is still key holes in your portfolio there in terms of surrounding that product with the right support? Thanks.

[Tom West:]

Yes, great question, Chris. I think we have the right mechanics in place. The language that I used it, actually somebody else have quoted when we were at a recent conference, there is still sand in the gears. We filled a lot of new capability as you noted. And we have introduced it to the – for the first time to the ENT community. What we are doing is not brand new in the world of healthcare, you see it in oncology, you see it in rheumatology, you see it in other segments where you are initiating drug therapy in the doctor’s office, but it certainly is new for our ENT physician universe. And as we just kind of work that through, again, I think we have got the right infrastructure in place. We just got a kind of prime the pump, get the sand out of the gears, whatever your right analogy is and get usage and comfort and confidence with our physician community. And I think that’s what we will start to get this picket flowing at a more appropriate rate. To your comment, we may add a little bit more. We have talked about whether or not we have got the full capacity of what we need in specialty pharmacy and the reach that we need. We like our partner very much that we have brought on board, but that’s one area as an example where we may add a little bit further. But again, I think we have got the basics in place and it’s now really about priming the pump and getting the sand out of the gears.

[Chris Pasquale:]

That’s helpful. Thanks. And then I appreciate the pipeline update. It sounds like you may have some more clarity on the regulatory path for the balloon very soon here, but I’d love some more color on how you are approaching that discussion? Is the goal there still to launch that product with a superiority claim or would you consider pushing forward to commercialization without that?

[Tom West:]

The goal is clearly to leverage the capability that is inherent in having the corticosteroid coated on the balloon itself. And so I was deliberate in the language I chose which is to speak to the statistically significant reduction in inflammation and polypoid edema. That is absolutely directly attributable to the mometasone furoate that we have coated on the balloon. It’s very consistent with the kind of claims that we have made for PROPEL and for SINUVA. And we think that is an important point of differentiation that will allow for the balloon to take its place in a market that already exists and to capture share in doing so.

[Chris Pasquale:]

Alright. Thanks.

[Operator:]

Thank you. And the next question comes from Brian Weinstein with William Blair.

[Brian Weinstein:]

Hey, guys. Good morning. Thanks for taking the question. Maybe one on 2021 kind of a broader picture question but on 2020 everything obviously been reset here but if you look at your guidance across the top line as well so the P&L where do you see some of the biggest risks that you guys have to navigate and also where would if upside were to matriculate throughout the year where would that mostly come from?

[Tom West:]

Hey Brian good question. Where is the greatest risk and where my upside not come from that’s a hard question though I feel we have got a pretty stable plan in place it is not outrageous growth by any standard obviously the piece that we have yet to prove is SINUVA but I hate to anchor on that because I do feel very good about the work that we have put in place and the momentum that we are starting feel so it is hard to hang it on that the general market malaise may be is a source of risk the healthcare uncertainty with back half elections I think there are almost more exogenous variables than internal right now it is about us getting out work done and moving forward with what remains a compelling clinical and medical story and execute better against it and I think we are doing that so I am being a bit evasive but maybe that’s is a good sign.

[Randy Meier:]

Just to expand on that little bit I think the other area is really not a 2020 risk as Tom and I have talked about where we head it in the future it can we accomplish the things and laying the foundation to get to that sustainable growth that Tom is talking about both from a revenue side but putting the pieces in place internally to support our return to growth that the company have not seen in the past couple of years well we don’t see that as a risk just making sure that’s accomplished so that we can move ahead into the next few years and accomplish our goals.

[Brian Weinstein:]

That’s a good segue actually. I mean, you talked a lot this morning about everything you are doing with sales force and the different capabilities that you are putting in place throughout the organization but in order to get deeper market penetration data is a big is going to have to be a big part of that you have referenced it a bit upfront in your comments but can you talk about plans and thoughts around developing clinical evidence via registry trials or a longitudinal prospective trial to really establish the health economics which really appears to be the biggest impediment kind of broader uptake at this point? Thanks/

[Randy Meier:]

Yes there is no doubt that adding to our arsenal of health economic evidences an important piece of the puzzle and one that we are investing in and looking at with greater intensity than perhaps was true before it comes back to the comment I made at the outside which is the simple insight that clinical evidences are necessary but insufficient condition which you then need to execute in the field and need to ensure that market access and in order to be able to do that we are going to have to bring stronger and more compelling evidence of health economic benefit and again the manner in which we look at that is better utilizing the tools that we have already and we do have strong tools as it exists as the business impact models that we have in fact we just got one published in the UK and we got to bring what we have today but then we got to build upon that which has us out there as you alluded to looking at real world evidence from captive systems that are out there independent networks as well as looking at registry trials as a basis by which we can bring new data to the market place and ultimately if that is insufficient then we got to look at prospective trials as a basis for establishing that health economic benefit critical to what we are doing absolutely on the radar takes a bit more time but that’s part of cracking the puzzle and creating sustainable growth as we go forward.

[Operator:]

Okay, thank you. And your next question comes from Ryan Zimmerman with BTIG.

[Ryan Zimmerman:]

Thanks for taking my questions, Tom and Randy. Tom at the conversation you talked about just segment in your physician universe I would love to dig a little deeper there and get some color on kind of what are you seeing over the past 6 months in terms of physician segmentation how you would characterize those buckets by user type and then my second question is just around the operating expense guidance for the year end and if you could just kind of talk about what’s that split looks like? And is that new heads in sales and marketing just a little more color there on the increase in OpEx? Thanks guys.

[Tom West:]

Yes. So relative to the segmentation piece of it, there are clear segments that emerge as we begin to carve the data itself. There are those physicians out there that are only using our product for their polypoid patient. Others that may only use it for those that, are more extreme or are coming back in for revision surgery. The key to the whole thing is really understanding what is the individual practice behavior of a particular doctor, so that we can tailor our messaging as well as the clinical evidence that we bring into the surgical suite and into the office environment very specifically to how they are using the product today. There are other segments that you can look at where they are using PROPEL for instance, only in the frontal and not relative to the maxillary or other areas within the sinus cavity. Again understanding the specific use of the physician in order to be able to highlight the utility and other places becomes at really a means by which you can grow the business. I think the other piece that we are really working on with our reps to talk a lot about is understanding also the underlying payer coverage at the individual doctor level, so that you can go in and be even more prescriptive around where it maybe appropriate for certain patients with certain coverage in order to ensure their access. That comes into play in a very large way with SINUVA as we start to bring on different players who have already uploaded the J code in their commercial systems to be able to know that it’s going to be comparatively easy to gain access with certain patients who are covered by a particular payer group. Again, we have got to get that granularity and get it into the hands of our sales force and make sure that they are comfortable using it in an appropriate fashion. That’s really where data becomes our friend and we become much more intentional about how we go to market rather than merely relying on our broader reputation and the relationships that we have enjoyed.

[Randy Meier:]

Ryan, on the OpEx question, I don’t see anything coming up that would be significantly different than last year. We would have an incremental rise in some R&D spending as we look to get some feedback from the FDA and we continue to pursue the continued development of some of the products that Tom has talked about. We have got some incremental cost as we have continued to work and develop our market access programs on the sales and marketing side and we have some general relative year-over-year incremental rise in the G&A side of the fence. So fairly significant increase year-over-year from 2018 to 2019, I’d say a more normal increase in the operating expenses as you go 2019 to 2020, but nothing would stick out in particular year-over-year.

[Ryan Zimmerman:]

Thank you.

[Operator:]

Thank you. And the next question comes from Kyle Rose with Canaccord Genuity.

[Kyle Rose:]

Great. Thank you for taking the questions. A lot has been asked, but I want to circle back a little bit on one of the previous questions just about some of the changes in the sales force focus in some of execution there. I wondered if you could just give us a little bit of a better understanding specifically about what the additional rigor and the sales force data and analytics provides you? Does that – do you see a bigger opportunity in going deeper into existing accounts or does this help you better tailor some of your marketing and clinical stories to open up new accounts? And then the second question kind of dovetails off of that is just in your experience with similar exercises in the past, how long does some of these exercises really take to play out such that you would see an impact to top line execution in commercial sales? And then what is kind of your guidance assume the contribution of some of these executional changes?

[Tom West:]

Yes, a lot to your questions there and made more complicated by the fact that you have PROPEL and SINUVA which are at very different stages. But relative to the impact that I think that the deeper sales force analytic rigor will have. In the case of PROPEL, it’s really is about deepening the relationship in existing accounts, identifying opportunities beyond just those most difficult or the polypoid patient or the expansion beyond the ethmoid to other areas of the sinus cavity. So that’s about deepening the level of penetration by really understanding with greater granularity, how it is that a physician is currently using the product and being able to identify incremental opportunities that will help expand usage. While there is still some further growth of new accounts with PROPEL, the bulk of the growth that we will get is through deeper penetration. Almost the opposite is the case with SINUVA, it’s can we identify those opportunities with SINUVA where there has been a high receptivity to PROPEL, but perhaps not the adoption in the office setting of SINUVA. So, that’s opening new SINUVA accounts if you will or deepening SINUVA in accounts where we have seen PROPEL and really understanding where is it that we are most likely to have the traction for SINUVA adoption given the nature in which they have been attracted to PROPEL and as I alluded to before and the kind of coverage that they have within that specific office what particular payers do you have and does it allow for easier access without necessarily the impediment of buy-and-bill. So, it’s really around carving that out in order to identify where we can get the greatest traction on SINUVA with adoption. In terms of how that plays out over the course of the year and the magnitude of it, it does take time, your changing behavior in the field both of our own sales force as well as the behavior of physicians and behavior change takes a level of reputation, I think that we have started those early reps if you will, in Q4, we are starting to see that in Q1, but won’t take off right away and that’s why we see the ramp through the course of the year as we get deeper penetration with PROPEL and a greater level of adoption with SINUVA with time given stronger messaging, MMM and greater targeting that comes from our analytics. Does that make sense?

[Kyle Rose:]

It does. Thank you. And then just one housekeeping question and another one is just on the housekeeping side, can you give us your sales headcount, I don’t know if I missed it earlier? And then I think Tom in some of your prepared remarks, you talked about changing some of the reward structures with respect to SINUVA versus the base business, can you just flush that out a little bit for us, what does that really mean from an incentive perspective?

[Tom West:]

Yes. So what we have shared in the past is our kind of core clinical selling team, it’s about 140ish with 80 territories and about 40 plus of those mirrored with sales consultants where we have particularly high volumes. On top of that, as I indicated in my comments, we build out 12 SAMs, the strategic account managers, focused on clinical selling of SINUVA, one per region and we have 12 RRDs, regional reimbursement directors, also primarily focused on SINUVA and looking at helping office staff better understand and supporting them in the adjudication process to determine the level of coverage. In terms of the incentive systems and the like making sure that there is appropriate and proportionate focus in that 145 group on PROPEL and at the same time making sure that we have strong support and reward models in place for the SINUVA side of the house with the SAMs and the RRDs. So it’s really intended to be more substantially proportionate to the relative sizes of those businesses and the direction that we are giving the sub-teams if you will against it.

[Kyle Rose:]

Great. Thank you for taking the questions.

[Operator:]

Thank you. And this concludes our question-and-answer session. I would like to turn the call back over to Tom West for any closing comments.

[Tom West:]

Just to close, I just want to thank everybody for joining us today. We do greatly appreciate your interest in Intersect ENT. We think we are making great progress. We have further to go, but we remain optimistic about our current year and as well as optimistic about our future. So with that, I will just thank everybody again and wish you a great day. Take care.

[Operator:]

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