Intersect ENT, Inc.
Q1 2017 Earnings Call Transcript

Published: 3 May 2017

[Operator:]

Good afternoon and welcome to the Intersect ENT First Quarter 2017 Earnings Conference Call. All participants will be in listen only mode. [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 Jeryl Hilleman, Chief Financial Officer, please go ahead.

[Jeryl Hilleman:]

Thank you, Phil and thank you all for participating on today’s call. Joining me today is Lisa Earnhardt, our President and CEO. Before we begin, I'd like to remind you we will make forward-looking statements within the meaning of the federal securities laws. Actual results and timing in 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 filed 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 Lisa Earnhardt. Lisa?

[Lisa Earnhardt:]

Thank you, Jeryl, and thanks everyone for joining us this evening. We started the year with the productive Q1 across the board. Key highlight were that we received FDA approved of PROPEL Contour, submitted the NDA filing for results and delivered strong financial results. Addressing these accomplishments, we received FDA approval of Contour the end of February. Including approval to market the use of this product in both the frontal and maxillary sinuses. We begin limited introductory sales of Contour in March and initiated broader product launch in April. At this early point our learnings anecdotal and indicate that Contour have been well received. We are seeing adoption in both maxillary and frontal sinuses, with physicians commenting favorably on the ease of placement and the implantability to conform to either a frontal and maxillary sinuses opdia [ph] or opening, which really maximizes drug delivery. Based on our very early product mix and sales force feedback, we believe the initial use of Contour represents incremental opportunity over the frontal use that had been initiated by PROPEL mini. This view is supported by the benefits offer by Contour’s distinction feature and as well as the approval in the maxillary sinus. We look forward to continuing to rollout Contour and expect to gain additional insights into usage patterns in the coming quarters. we see Contour as an important drive of growth for the year as it provide physicians with the broader range of product needed to customize treatment based on their patient’s disease and anatomy. Our top commercial priorities continues to be to expand adoption of the PROPEL family of product in the operating room. As a reminder, there are about 540,000 sinus surgeries a year. With the addition of Contour, we believe that our product have the potential to play a role in all sinus surgeries as they typically involve treatment of multiple sinuses. The ethmoid sinuses were PROPEL, PROPEL mini maybe use are treating in about 85% of procedures. The maxillary sinuses where Contour maybe used are treating in about 85% other procedures as well. And the frontal sinuses where mini and Contour maybe use are treating in about 30%. Our products each have a distinct purpose and design, which we believe will continue to expand adoption as steroid releasing implants overall, moving as closer to our goal of becoming the standard of care for sinus surgeries. Moving to our pipeline, we submitted the new drug application or NDA for resolve on March 7th, a significant milestone for the company which moved us one step closer to extending our presence into the physician’s office with a cost effective alternative to revision sinus surgery. As those of you familiar with the NDA process now, this is a considerable accomplishment and I’m grateful to the Intersect team for the hard work at making this filing happen well in advance of our initial timeline. In addition, the positive results of our Pivotal RESOLVE II study were important contributor to our being able to achieve this submission timing. We continue to expect approval during the first quarter of 2018 and we’ll keep your apprised of key progress along the way. On the commercial front, our first quarter went well delivering 23% revenue growth. We did not observe any impacts from the 2017 change in Medicare payment rates for sinus surgeries in the hospital outpatient setting or from any flow through changes that may have occurred in private care reinvestment. Our principle takeaway is that while Medicare reinvestment of the procedure facility fee decreased the budget impact the hospitals has not been significant enough to lead the changes in practice. What we do see and have seen through our experience selling our products is that we operate in a cost sensitive environment. Fortunately we provide unique innovative solutions and are able to leverage our extensive and compelling clinical data to support the value we bring to both patients and the cost of their care. We are encouraged by experience thus far and are beginning to view the Medicare payment changes as an element of a constantly involving cost cautious environment rather than a distinct driver of change. That said, we do recognize that customers continue to adapt as they go through purchase and reimbursement cycles. Based on these factors, we continue to forecast some impact for our business in our outlook. Integrating this view with the strength of our business in the first quarter and our outlook for the second quarter we are raising our revenue guidance for the year to $89 million to $91 million. On the sales force front, we expanded our field staff by about 5% during the quarter in line with our plan to grow this team by about 10% for the year. We ended the quarter with 109 field reps including 73 territory managers and 36 sales consultants. We continue to have very good continuity in our team as we introduce Contour and anticipate launching RESOLVE. I will talk further about RESOLVE in a moment, but please I will now turn the call over to Jerry to discuss our results and outlook.

[Jeryl Hilleman:]

Thank you, Lisa. We were pleased to deliver revenue of $20.5 million in the first quarter, which compares favorably to our guidance of $19 million to $19.5 million and represents a 23% increase over the first quarter of last year. The quarter included sales of Contour, which became the focus of our sales force in the later part of the quarter. We also implemented a modest price increase at the start of the year. Our gross margin of 86% reflected the benefit of selling our initial quantities of Contour at a 100% gross margin. As you may recall we’ve produced limited units of Contour in the fourth quarter prior to approval where the product costs was accounted for as an R&D expense, excluding this one-time benefit our margins would have been 85%. Operating expenses for the first quarter were $24.5 million, an increase of 12% driven largely by sales related headcount growth and personnel costs. R&D was flat with last year reflecting lower outside clinical trial spending offset by continuing R&D activities associated with RESOLVE and with our pipeline. We ended the quarter with $98.4 million in cash, reflecting a net use of cash of $5.6 million compared with $7.3 million in the first quarter of last year. Regarding our revenue guidance, our outlook for second quarter revenue is in the range of $22.5 million to $22.7 million in line with historical Q1 to Q2 changes in seasonality. Further as Lisa mentioned ,we are raising our outlook for 2017 revenue from $87 million to $89 million compared to $89 million to $91 million. Regarding gross margin, we are raising our outlook from 83% to 84% for the year to approximately 84% consistent with our year-to-date performance, while still reflecting the need to slightly increase overhead if we ramp Contour production. We continue to expect full year operating expenses to be in the range of $96 million to $98 million. I’ll now turn the call back to you Lisa.

[Lisa Earnhardt:]

Thanks, Jerry. With our NDA submission completed, we are starting to lay the ground work for the successful launch of RESOLVE. As a refresher RESOLVE is designed to help physicians treat chronic sinusitis patients who have had prior surgery, but who continue to suffer from this chronic disease typically in the form of polyps. Such patients have already had one or more surgeries with treatment often involving repeat surgeries and or high dose steroids. Instead RESOLVE is design to be delivered in a simple procedure under local anesthesia in the physician’s office. The targeted addressable market in the U.S. for this product is approximately 635,000 patients a year, reflecting patients who have had previous surgeries and continue to see their ENT for ongoing disease management. We anticipate that physicians could use RESOLVE to treat patients across the spectrum from early recurrence of symptoms to fully excluded sinuses. We are continuing efforts to optimize coding to support in office reimbursement to ensure physicians and patients have broad access to our products. At present our product have an assigned procedure and product code, which may be used to submit claims for both the implant delivery procedure and the implant itself. For RESOLVE, due to CMS application deadlines, we note that virtually all new physician administering drugs launched without a product specific J-code yet instead are reported during the first year with code-J 3490, which is used specifically for unclassified drugs along with the assigned NDC number which is specific to the product. We anticipate having an assign J-Code in place effective January 2019. Regarding payer coverage, we continue to work expand the number of lives covered under positive payer policies, which deem the use of our products to be medically necessary. We expect to publish two key studies this year that pivotal Contour and RESOLVE studies, which will provide further critical evidence of the efficacy of our products when added to the standard of care. In summary, pulling together our view of reimbursement dynamics, the potential impact of Contour on our 2017 growth and our outlook for approval and launch of RESOLVE in 2018, we believe that Intersect ENT is at an exciting inflection point. We have established the value of steroid eluding implants in the surgical setting and are now moving to expand treatment innovation into the office setting of care. Thank you so much for being part of the journey. Jeryl and I will remain on the line to address any questions you might have. Phil will you please open up the line for questions?

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Bob Hopkins of Bank of America Merrill Lynch. Please go ahead.

[Brad Mas:]

Hey guys, this is actually Brad in for Bob. Just first on RESOLVE, can you talk about the discussion that you have had with the FDA both recently and when you went through the design in the RESOLVE clinical trials. And I mean is there any concern in your part that it's just three month data that's going to submitted for an NDA and have you received the PDUFA date yet or are there any other milestones that you can point us to, to follow the RESOLVE approval process?

[Lisa Earnhardt:]

Yes Brad, thank you so much for the question. So as it relates to the clinical study design and the overall clinical program for RESOLVE, we did have extensive discussions with the FDA in advance and in fact ran the RESOLVE II trial under an IND. So that’s something that they signed off in advance of doing the trial. So we believe the strength of that clinical data combined with the three previous studies that we have done are sufficient for demonstrating both efficacy and safety of the product. So we are full steam ahead as it relates to that. We did submit the NDA as I alluded to on the phone on March 7th, we have not yet received our PDUFA date we'd expect to receive that in the coming weeks, which is normal course of business on the drug side of things. And we would anticipate -- we'd update you all on that on the call or potentially -- on our next call or potentially earlier.

[Brad Mas:]

Okay, thanks Lisa. And then on guidance, quickly just Q2 obviously is a lot narrow than Q1. I know there is changes in your outlook on the reimbursement, but I'm just curious the thought process on the Q2 guidance? And what you’ve seen since the end of the quarter that gives you that confidence of that narrow range?

[Jeryl Hilleman:]

Yes, hi Brad this is Jeryl. I think what we're doing is really returning to our usual guidance patterns just typically do you have that sort of a range. We allowed ourselves a little more room as we enter the year because we were at a higher period of uncertainty. And so that that range reflected that the questions around Medicare reimbursement were on the table and also anticipation of timing of approval of Contour. So we feel with those two elements with more data around also to the point including the approvals of Contour we are returning to the range we've previously relied upon for guidance.

[Brad Mas:]

Okay. And then last one from me, just on the reimbursement, as I know on the last call you've talked about kind of getting to the mid-year and having a better outlook and you obviously provided that. But can you just talk a little bit more about what you've seen and what gives you that confidence that going forward you still don't expect to see much of an impact from this Medicare change?

[Lisa Earnhardt:]

Yes and as we commented in the call we certainly are encouraged with our experience today where we have not yet seen an impact either in terms of hospital purchasing patterns, nor how we heard of sort of flow through with the private payers. As you know we will take a couple of cycles and so we do think mid-year it will be time for us to sort of revisit and reflect on those. But we certainly are encouraged to-date so far in terms of the change that was made as of the beginning of this year.

[Brad Mas:]

Okay. Thanks, guys.

[Lisa Earnhardt:]

Thanks, Brad.

[Operator:]

Okay, our next question comes from Michael Weinstein from JPMorgan. Please go ahead.

[Unidentified Analyst:]

Thanks for taking our question. This is Andrew [indiscernible] in for Mike. Can you hear me.

[Lisa Earnhardt:]

Yes, hi Andrew.

[Unidentified Analyst:]

Hey how are you. Congrats on the quarter. I wanted to first start on Contour and understand what the contribution was in the quarter and any additional color other than what you have given already in your prepared remarks around the introduction. And how you expect this to sort of ramp throughout the year?

[Jeryl Hilleman:]

Yes Andrew those are very good questions. We don’t typically breakout product revenue, what we have described is Contour is certainly going to be a significant driver of growth for this year and it’s a big part of the calculation of our guidance and outlook for the year. We sold Contour just in the last few weeks of the quarter. And we did see some meaningful contribution in the quarter as reflected in the gross margin. Order of magnitude, again we don’t normally break this out, but orders of magnitude it was about $1 million of revenue in that range just to characterize it and certainly consistent with the guidance we gave and the way we set guidance at the beginning of the year we did anticipate a number of scenarios, which included Contour approval.

[Unidentified Analyst:]

Okay. And just to follow-up on that real quick. So do we assume that there was some type of stocking that might not happen in the second quarter or how do we think about this cadence?

[Jeryl Hilleman:]

We really just began launch with very few focused customers, we are continuing our launch and we expect to continue to build traction with the product sales, rather than seeing an initial stocking and fall off we expect to continue to build sales and usage of that product.

[Unidentified Analyst:]

Great. And then on the gross margin side. So if we exclude the Contour contribution in the quarter, I think it’s in around 410 bps year-over-year improvement and it was definitely above where the street was at which is 82.7. So how do we think about the guidance of 84%? I mean what is that cadence sort of look like throughout the year given the fact that you will have some contribution from Contour throughout as well.

[Jeryl Hilleman:]

I think it will be relatively even as we go through the remaining quarters of the year. Some slight variation, but we did add overhead in the first quarter which we’ll start seeing that impact in Q2. As we have to expand our production to accommodate the ramp of Contour. So that’s why even though we did achieve the 85% without Contour in the first quarter looking forward we felt the appropriate guidance was 84% to accommodate the overhead we need for Contour.

[Unidentified Analyst:]

Alright. One last one if I may, in regards to the absolute dollar sequential dollars revenue from the fourth to first quarter. It looks like you came in down 15% and I was just wondering in terms of just broader market dynamics, are you seeing any incremental changes in seasonality as we go from the fourth to first quarter? And then what do you expect for the third quarter in terms of seasonality?

[Jeryl Hilleman:]

Yes, no we haven’t really been seeing any new dynamic in seasonality there is definitely a marked dip from fourth quarter, which is quite busy to the first quarter which has seasonal effect and also the resetting of deductibles. And so I think what we are seeing this year is very consistent and I think we would expect the similar seasonal flow to the revenue than we have seen in the past as an underlying factor to our revenue.

[Unidentified Analyst:]

Great, thank you.

[Operator:]

Our next question comes from Matt O'Brien from Piper Jaffray. Please go ahead.

[Unidentified Analyst:]

Hi, thanks very much, this is Matt [ph] in for Matt today. So my first question is I apologize if you guys had said this earlier, but what was the contribution for price versus volume in the quarter?

[Jeryl Hilleman:]

We have not broken that out. What I can tell you is that we did do a price increase typically as cost of living increase a few percent couple of percent. I think if you think about last year’s ASP we were in the neighborhood of 750 this year with that price increase we’d go up to around 775 as a target selling price. So I think that can you give some sense to address your question.

[Unidentified Analyst:]

Okay, thanks, that’s good. And then also with regards to operating leverage this year and in the 2018 with additional products coming, are you guys going to be able to leverage the existing sales infrastructure where you have any material increase in cost as you sort of move into the office setting.

[Jeryl Hilleman:]

No, and I think it is important to understand we do expect to leverage the sales force it’s calling on the same doctors. We are already visiting doctors in an in office setting of care. So we will continue to see leverage on the SG&A line. Although of course we will also be continuing to ramp the size of our sales force as we add products and continue to grow our business.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

Our next question comes from Richard Newitter from Leerink Partners. Please go ahead.

[Richard Newitter:]

Thank you. Thanks for taking the questions and congrats on the quarter. Wanted to start on Contour, it sounds like you guys are assuming Contour is all incremental or the vast majority is incremental not really cannibalization relative to mini. I just wondered does that mean that as we build our models we should think of kind of average spends per case should be going up is that the right way to think about it as you’re going to be more per case that are being done if they're already doing a mini for example in the frontal.

[Lisa Earnhardt:]

Yeah Rich, good questions about Contour, I just want to clarify, we actually see Contour as being complementary to and really broadens our portfolio of PROPEL to allow for options for the physicians. We did talk about an incremental opportunity that Contour presents specifically for patients that might be treated with the balloon technology in both the OR and in the office setting so we think that is a way to think about that opportunity. But we do think with time there could be some physicians who choose PROPEL Contour over mini for certain patients or certain sinuses. And as we’ve talked before we're really agnostic to that, we want to make sure those physicians get the best outcomes as possible. And if that means choosing one product versus the other. We're agnostic given the gross margin profile. So we figured one of the probably the biggest driver of growth for us this year as well as the continued expansion and adoption in the frontal sinus broadly, which we initiated last year, those are really the two big drivers of growth. And then your second question was about the number of devices per procedure -- implants procedure. We still think for planning purposes to per procedure or one on each side is still a very good place for planning purposes. Really what this allows us to do is just to continue to work with physicians and say gosh is there a place in a given patient or given surgery that PROPEL could potentially play a role and now that we have indications for the ethmoid the frontal and now the maxillary really is a nice broad swap of choices for them to make sure their patient gets the best outcome.

[Richard Newitter:]

Okay, that's helpful. Thank you. Turning to the pipeline, RESOLVE, you're going to be probably in a position where you're going to have an approval. And then you're going to in first quarter of '18 and you're going to have hopefully the J-Code 3490. But you're still going to have the coverage decision situation a little bit more biased towards investigational status. So I guess could you describe how we should think about the ramp while you're on the market with the product with a submittable code, but with the coverage decision maybe not in your favor. Is the appeal process or do you have any experience with the appeal process thus far with PROPEL to see just how often it gets passed kind of appeals decisions. And how should we think of this potentially gating the first year of launch? Thanks.

[Lisa Earnhardt:]

Yeah, I mean I think first of all it's important to note that RESOLVE is being approved as a drug and patient -- payers often times will be using different criteria as they assess whether or not they'll pay for that. You're right we will have that unclassified J-Codes the J-3490 that will be applicable that first year of launch. And we have got incredible conviction around the value proposition of RESOLVE and do recognize there are some differences there to what we offer with the PROPEL product. So we do feel like we are in a very good position to drive adoption of this product even given sort of where we are from a coverage standpoint. You would ask specifically around the appeals process and that is an important thing to understand. And I think it's almost -- it starts even before that Rich as you think about when physicians might decide to use this product, they're using in the office setting, they typically will do what’s called the preauthorization. So they will get sort of that payer input even before they do these implants and then once that is done they will use the existing codes then to secure payment on that. And we do have some experience with PROPEL specifically in the office setting where we have worked with accounts and they have had some success using on existing codes and being able to get paid in the office setting for that work. It really comes down to the very, very strong value proposition we’re bringing to the table with RESOLVE and the fact that at the time of March we should have knock on wood four published articles around the benefit of this technology.

[Richard Newitter:]

Okay, that's helpful. And just maybe one follow-up on that Lisa, when you have gone through appeal I’m just curious does it tend to get approved after the first level or does it tend to have to go through all those final levels and finally gets over turned upon the pear-to-pear process?

[Lisa Earnhardt:]

Yes it sometimes can take a turn of two with the payers, but we have seen some very good results once we are able to support that and I do think that will be something with RESOLVE that we feel like there is a very strong value that we’ll be bringing to the payers.

[Richard Newitter:]

Okay. And one last one, anything on the international front, I know you got a lot going out of the U.S. So I’m just curious if any of your initial initiatives outside the U.S. where they stand and if there is anything more to think about? Thanks.

[Lisa Earnhardt:]

Yes, we continue to make progress in Germany Rich, so we just once again had reapply for the NUB process this year and have an expanded group of hospitals that we’ve been -- we are now able to approach because we are able to get that status one indicator once again for our products, our PROPEL product in Germany. So, we just done that process as we talked about that as we really look at Germany and international broadly as a long-term driver of growth, but we’re sort of tracking right where we had hoped to be in terms of that trajectory.

[Richard Newitter:]

Thank you.

[Operator:]

Our next question comes from Chris Pasquale from Guggenheim. Please go ahead.

[Chris Pasquale:]

Thanks. Lisa, I wanted to spend some more time on Contour as well, based on what you are seeing here in the early going, how much do you expect that product to be used in conjunction with balloons versus surgery? And then can you just review the process of getting that product reimbursed in the office setting?

[Lisa Earnhardt:]

So the first question with regards to how much will be used with balloon versus typical. Once again we’re sort of agnostic to what technique that physician uses as long as at the end of the case they use to PROPEL for their patient. I can speak to our clinical trial experience which is really where we’ve track that data so far and we’ll obviously be able to provide more details as we -- as the quarters progressed throughout 2017. In our trials just to give you some perspective about half of the patients had balloons used in conjunction with a traditional surgery. So you just get a sense for the relative -- potential relative mix. So we’ll see how that plays out in commercial usage.

[Chris Pasquale:]

And the reimbursement pathway for that product in the office?

[Lisa Earnhardt:]

Yes and so that is something as well we continue to work on in terms of the making sure we have both the codes and the coverage. We are fortunate we’re in a position now that we do have codes that we know can be as per my discussion with Rich just a little bit ago can be used to successfully garner coverage and payment in the office setting. And we continue to work with payers to move the needle on their view of our products and their medical necessity. So we do think that in particular the Contour study given the strength of that data that is going to be an important part of our strategy as we continue to engage with payers to assure that physicians and patients have access in particular in the office settings.

[Chris Pasquale:]

Okay. And you talked about continuing to assume two implants per case between the frontal indication last year and now Contour, it would seem like that could be conservative. Do you actually have visibility into the average utilization you are seeing today in cases where you guys are involved?

[Lisa Earnhardt:]

We really don’t have that visibility now, we will though as part of the Contour launch providing some more information on coming calls to that end. But we do think for planning purposes two per cases a pretty good place to be.

[Chris Pasquale:]

Okay, perfect. Thanks.

[Operator:]

Our next question comes from Tao Levy from Wedbush Securities. Please go ahead.

[Unidentified Analyst:]

Hi, this is Na [ph]. I am on for Tao. Hello and congratulations on a great quarter. So I just had one question on Contour. Since you’re -- the reception of Contour, do you think Contour can help you sort of get your foot into new accounts or is it more like penetrating deeper into existing accounts?

[Lisa Earnhardt:]

Great question. We’re actually looking at both of those things. I think to begin with, we really are focused on going through to our existing customer base and bringing that product to them. But we do believe it will be a door opener with customers who have not yet found a role for PROPEL in their practice. And so we are early on there and we’ll look forward to updating you as we move forward. But it is -- the data is incredibly compelling, the feedback as we had shared earlier at least anecdotally has been very strong around the benefits physicians are seeing. So we are excited to knock on doors have both existing and perspective customers alike.

[Unidentified Analyst:]

Great, thank you.

[Operator:]

Our next question comes from Brittany Henderson of Deutsche Bank. Please go ahead.

[Brittany Henderson:]

Hi, Lisa, hi Jeryl. Can you hear me okay?

[Lisa Earnhardt:]

We can Brittany, nice to hear you.

[Brittany Henderson:]

Perfect. So I just kind of wanted to ask more of a longer term question. Now that you have Contour in the bag and we are going into 2018 with RESOLVE. How are you just thinking about your mix of business? And by mix of business I mean, not only from a product standpoint, but also just in terms of sites of care. I know that the physician office segment of the product portfolio is going to increase here. But where do you see that going by the end of 2017 and then into 2018 now that you’ll have Contour as well as RESOLVE?

[Jeryl Hilleman:]

Hey Brittany, this is Jerry. That’s something we do give a lot of thought to and I think with Contour being now something that’s geared more to post balloon usage it’s certainly a product that can be bridged between the OR and the office and be used in office and RESOLVE is certainly designed to be used in office. So, as we build RESOLVE and I don’t want to tie percentages or shift to business necessarily to years, but I think as we RESOLVE launched in the office and starting to be used pretty regularly we could easily see our business at that point of maybe a third in office and two-thirds in the hospital and ASC. So I think it does have a potential to really diversify the portfolio of our business and allow us to work with ENT physicians and to treat patients in a range of settings and a range of stage of the disease.

[Brittany Henderson:]

Okay. And then just also touching on reimbursement here, on the commercial side where do we stand today from a positive coverage decision standpoint I think last we checked it was around 12% or so. And how do you kind of view that number falling over the next 6 to 12 months if you will?

[Jeryl Hilleman:]

Yes Brittany you are right we are just right around the 12% of our commercial covered life have a positive policy on PROPEL and steroid releasing implants we don’t expect a dramatic change in that this year. We do continue to work with regional payers as well as national payers and educating them on the value of PROPEL. We do believe however that the upcoming publications for both RESOLVE and Contour will be really important proof and continued demonstration of the value and will allow us to reengage with payers. So we don’t expect a major change in the next 6 to 12 months, but I would imagine sometime there after we will start to get more movement on the commercial payer side.

[Brittany Henderson:]

Okay. And then just last one, I know that it’s more so of a 2019 event, but has your view on the potential for the J-Code reimbursement to be applicable across the entire portfolio versus just across RESOLVE. Has there been any change in that outlook?

[Lisa Earnhardt:]

Yes, I mean, we continue right now our current code is a generic code for medicine [indiscernible] implants that’s what the f-1090 code is which is what it’s used today of a site whether would be a hospital or an office setting code for the product and we continue to work on the J-Code and what it's more probable that it will be specific for the RESOLVE product, but we certainly are keeping our options open.

[Brittany Henderson:]

Okay, okay perfect. Thank you.

[Operator:]

[Operator Instructions] Our next question comes from Suraj Kalia from Northland Securities. Please go ahead.

[Suraj Kalia:]

Ladies good afternoon congrats on a nice quarter.

[Jeryl Hilleman:]

Thank you, Suraj.

[Suraj Kalia:]

So Lisa few questions and maybe some of these are different flavor of what have been asked so far. Did you talk about the rev productivity annualized exiting Q1? I know Q4 was around $1.3 million per year, any additional numbers on that?

[Lisa Earnhardt:]

Yes so on an annualized basis, Q1 was about $1.1 million per territorial managers. So very, very strong productivity to start off the year.

[Jeryl Hilleman:]

Yes Suraj this is Jeryl, I think as to build on that it's really in line with our expectations because we did achieve a fairly substantial amount of our rev growth in Q1, which reduces or increases the denominator as calculations. So typically we would do highest productivity in the fourth quarter. And then for this year, we are expecting to be based on our guidance and what we have said about sales force growth to be in that 1.1 to 1.2 range.

[Suraj Kalia:]

And exiting FY17, with the 10% increase in the sales force as you all had indicated would the productivity be flattish or you'll think you'll expand productivity also. But if I remember correctly a significant number of your reps are almost two years or over two years close there off.

[Jeryl Hilleman:]

Yeah I think we can see some expansion, but as I said we'll probably for the year be in that 1.1 to 1.2 range.

[Suraj Kalia:]

Fair enough. Lisa I know you talked about two implants per case, but that's if you look at the typical sinus right, whether it's frontal, maxillary, ethmoid whatever. You usually end up putting one implant on each side I get that. Let me ask the question a little differently, now you have Contour you have many the first gen PROPEL and you obviously have across multiple sinus indications. Do you or can you give us some color on the number of implants used per case across all sinuses. Because if it's two what that tells me it’s being used either on this sinus or that sinus. But as we all know there are multiple sinuses sometimes involved, any statistics you can share? And a follow-up to that would be when you'll use it for let's say multiple sinuses are you all giving discounts or eventually will you all be looking to give any bundled discounts?

[Lisa Earnhardt:]

Yes. So when we do look at we think for planning purposes two per patient makes a lot of sense, you're right, physicians at times can be making choices about where they think it would be most beneficial. There are some physicians and we know that are starting to use more than two per case. So it does happen but on average so the median amount would be two and we would expect for some time that to continue to be the point. And from a pricing we really haven't contemplated doing sort of discounts or looking at like a per procedure pricing or something that maybe has been done in other specialty arenas. And so it is something we continue, as you know it is a cost sensitive environment and ENTs are certainly they're doing their part to make sure they're using technology wisely as part of their care delivery. So we are thrilled to be part of that and part of the solutions for them.

[Suraj Kalia:]

So following up on that Lisa, I don’t think so the clinical efficacy is -- can be disputed. But when you talk about the cost effective or the cost conscious environment Lisa, if somebody were devil’s advocate and make an argument, look you guys are getting all these indications but ultimately there is some threshold above which the pain will be a lot more under the current reimbursement environment. How do you counter that in the field? But then I mean if somebody says let's say a 750 or 775 multiplied by 2 that's really the pain I can take in the current reimbursement environment. If you want to give me four implants within those costs I'll use it. How do you all go out and make an argument, the science is obviously there, but how do you make an effective argument in the current reimbursement environment, and say, you need to use it because you’re going to come back and do something else either way. Thank you for taking my questions.

[Lisa Earnhardt:]

Yes I think that’s we continue to come back to the clinical benefits of our product and the fact that we are able to clearly demonstrate that we reduce the need for post operator intervention and improve surgical outcomes. So I think that’s where we continue to spend our efforts to make sure that every patient undergoing sinus surgery who has indicated well half the benefit of PROPEL used in their case. So certainly work-in-progress, but I think that’s a big part of what we do Suraj is talking about the sort of value we are bringing and not just to the patient and their clinical outcomes, but broadly the healthcare system.

[Suraj Kalia:]

Thank you.

[Operator:]

Okay. Our next question comes from Ryan Zimmerman from BTIG. Please go ahead.

[Ryan Zimmerman:]

Thanks for taking the questions. So just want to ask couple follow-up questions here. Just your confidence on the timeline for the J-Code process, we have talked about Q1 or early ‘19 being the timeline for that J-Code process. Just any incremental color to give us some feedback there would be helpful? And then I have a follow-up.

[Lisa Earnhardt:]

Yeah Ryan that is -- there are set guidelines and timelines for CMS on that process. And so assuming we get approval in the first quarter of 2018, which is our expectation we would then have a J-Code in January of 2019, those are set timelines and very clear guidelines from CMS.

[Ryan Zimmerman:]

Okay, that’s fair. And then just given you talked about reimbursement and the fact that you are not seeing an impact through May of thus far this year, just on the changes in the hospital setting. You mentioned that you potentially revisit those expectations in about mid-year this year. Just curious anecdotally what you are hearing in the field, if there is any other push back from a reimbursement perspective beyond your products, I mean, if anything has been push back is it -- what could it potentially be?

[Jeryl Hilleman:]

Yeah obviously Ryan, we’ve focused mostly on our products. The overall economics in a hospital matters and remember that really our sales today are in the hospital and ASC where our products are paid for out facilities. So there always is a question of the value preposition of everything and I think what we are just trying to say is we are not seeing any new or incremental communications from customers based on any recent changes. But the overall cost sensitivity remains the same.

[Ryan Zimmerman:]

Okay, that’s right. Thanks for taking the question.

[Jeryl Hilleman:]

Sure.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Lisa Earnhardt for any closing remarks.

[Lisa Earnhardt:]

Alright, thank you so much Phil and thank you everyone for joining us on this journey. We will look forward to keeping in touch over the coming months. Have a great afternoon.

[Operator:]

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