Q2 2020 Intersect Ent Inc Earnings Call
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Thank you.
[music] welcome everyone for participating in today's call joining me today, it's Tom West President and CEO intersection PMT.
Before we begin I would like to remind you that we will be making forward looking statements within the meeting of the federal Securities law.
Actual results and timing of the events could differ materially condos 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 gross clinical studies.
Cool, new products and indications and procurement reimbursement codes are coverage, which are based upon our current estimates and assumptions as well as other risk details.
Time to time.
Reports, which we filed with the FCC.
We disclaim any obligation or undertakes no duty to update or revise any forward looking statements contained herein.
Now I'll turn the call over to Tom.
Thanks Randy.
Do you all for joining the intersect Yeah, Ti Q2, 2020 earnings call today.
During the second quarter. The Cobiz 19 pandemic was unfolding across the nation, resulting in hospital suspending elected surgical procedures and significantly reducing empty office visits.
At the beginning of the quarter, we estimated and shared our view that the second quarter revenues for intersect you had to you would be lower by approximately 85% to 90% relative to the same period a year ago.
As a result, we undertook significant action to reposition intersect yen tea in the face of these uncertainties well determining a path forward in the challenges of the pent up demand.
Well, our business was meaningfully impacted by the unprecedented conditions, we achieved stronger than expected second quarter revenues.
Good point, Eightmillion down, 63% compared to the prior year period agile elective procedures gradually resumed during the quarter.
Importantly, Q2 witnessed progressive month to month revenue improvement, but its carried into Q3 and through July.
After working remotely for much of the quarter, we have returned motivated and better trade. We're capitalizing on our unique clinically proven portfolio building upon our previous commercial and market access momentum well benefiting from pent up sinus surgery demand attributable to the Colgate related suspension.
Good luck in surgical procedures.
We believe we're on sound footing and we are confident in our future.
On today's call I will first provide an overview of how the quarter evolved before discussing our continuing market development strategies and outlook.
Then I will turn the call over to Randy will deliver our financial overview.
The pandemic began to impact demand for our products in the latter half from March with a modest adverse effect in our Q1 results.
April was the first full body that our company like much of the rest of the country began working remote remotely under shelter in place rules.
It wasn't very difficult months from a surgical procedure and revenue perspective.
We focused on the protecting the health and safety of our employees, maintaining our customer focus and preserving our capital and liquidity.
We continue to take the necessary precautions to ensure that all members of the intersect family are safe and the company remains fully committed to helping patients who suffer from chronic sinusitis and its physician customers who care for them.
Additionally in April we proactively took action to reduce costs maintain liquidity and preserve our cash to enable us to navigate any revenue shortfall, resulting from the impact of the Kobin pandemics through the remain grew up in Europe and into next year.
As we stated previously in April we implemented a plan to reduce our cost for the remainder of 2020 by approximately $40 million.
Keeping and slightly ahead of that plan in the second quarter, we realized cost savings of approximately $15 million.
In May we began to see meaningful change and the business environment with select areas of the country beginning to open sinus surgeries and office procedures return.
Revenue began to pick up with it if incremental uptick in electric procedures in each successive week.
Most of the incremental business was related to propel and a rebound in the hospital market how poor business.
By the end of May say, Newport, referrals, which constitute physicians seeking to understand patient coverage for a site procedure, a leading indicator for us we're also starting to rebound.
Well said Newport referrals lag propel cells. These word the green shoots we had hoped to see.
Well the financing standpoint in May we successfully raised $65 million in convertible notes from Deerfield management group our largest shareholder.
Do you feel shared our confidence that we will emerge as a market leader in the empty space.
With their support we now have the financial capacity to drive our business by focusing resources on commercial execution market development innovation and other growth initiatives, while ensuring our liquidity through at least 2022.
As the company transition to working virtually we implemented a set of targeted activities designed to strengthen salesforce execution and to allow our team to pivot quickly to maximize interactions with customers and they do cobot environment.
We developed a regular rigorous daily curriculum, our so called Xsix M.T. University to improve field sales clinical knowledge and enhanced selling skills, well elevating our analytic rigor to improve physician targeting and tailored messaging in the field.
In addition, the company hosted regular well attended Webinars Webinars and teach ins for physician customers and their staff leveraging our virtual meeting platform to support education and procedure excellence.
It's helped us maintain contact and focus in the states with access and travel restrictions that prevented in person connections.
We continue to support our physician customers laboratory, beating market access and payer team build our brand recognition and remain comfortable with how we repositioned our sales and marketing organization to support commercial execution.
As the calendar turned the June revenue momentum for propel in the hospital increased as well as activity with propel mini and propel contour in office based procedures.
At the time this gave us the confidence to publicly ways. Our full quarter Q2 revenue outlook from an 85 did 90% declined with 70% to 75% decrease year on year.
Also in June we generated it further and significant uptick in our site, but referral pipeline.
Our propel insightuba prospects continued would prove week to week throughout you.
Total company rapidly with April was only $700000.
They followed with revenues of $3.1 billion, and we closed the quarter with June revenues of $60 million completing the quarter with a strong revenue recovery growth trend.
For the second quarter, we delivered total revenue of $9.8 million still down 63%.
Versus year ago, but consider considerably better than we had initially foreseen.
Importantly, the positive monthly growth trend has continued into Q3 with preliminary July sales of approximately $8.2 million up plus 16% versus July a year ago.
Well, we are continually moderately increase of Tobin cases across various regions of the U.S. and around the world. We are encouraged with current demand trends at the start of the third quarter as hospitals or better prepare to manage potential covance flights and are using outpatient sinus surgery as a vehicle to rebuild hospital reps.
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With a marked increase in sinus surgery procedure procedure demand and an easing up restrictions in many areas of the country. We also reopened our Menlo park facilities in June for select activities, primarily in manufacturing distribution and R&D.
Because of incremental <unk> demand beyond our original forecast, we restarted manufacturing earlier than expected without first production run in early July rather than September as previously shared.
You may recall that we sought to use our strong inventory position at the beginning of the second quarter at the beginning of the pandemic as a strategic asset, enabling us to utilize inventory to generate cash.
We will return manufacturing to scale quickly given earlier and more significant demand that was previously anticipated by incrementally returning formally folk furloughed employees and selectively adding others as needed.
Our ongoing commercial actions to further develop our market and infrastructure are yielding positive results.
We increased the capability and efficiency of our son, Uva patient to better support physicians seeking to determine the nature of their patients like Youve a coverage.
Our specialty pharmacy partners are expanding use among various payers Byron authorization, a benefit or he'll be to reduce physician dependency on buy and bill.
At the same time, our field based reimbursement team is better educating physicians and their office staff on the benefits of buy and bill to both the physician onto the payer.
Worked with Mckesson and Betsy two leading specialty distributors are creating an expanding opportunities we buy and bill.
We are seeing an increase in physicians embraced a buy and bill, but it's indicative of the prospect for buy and bill acceptance see other therapeutic categories, such as ophthalmology rheumatology and oncology.
Importantly in the last six months a number of large commercial payers have expanded their use of the J code for office based coverage of signed new but and propel clarifying streamlining and economically strengthening the buy and bill opportunity.
For example, recent fee schedule additions utilizing our unique J code Jay 7.1 have been put in place with United Health care, Aetna Humana, various blue Cross Blue Shield and high Mark among others. We are pleased with the <unk>. That's made to date and look to expand on our commercial market access strategies for both.
Propel and so I do but.
A further highlight for the quarter was our announcement last month that the centered for Medicare and Medicaid services, where CMS approved so I knew was fine its implants for transitional pass through payment status for reimbursement under the hospital outpatient prospective payment system ops and ambulatory surgery center payment.
System.
We are pleased that CMS has recognized so I do but as a novel treatment worthy a pass through status by granting a new C code see nine one to two.
The New code took effect July one and pass through status last for three years to July 2023.
The C code will incrementally expand the market for covered Medicare patients per se, new but in the U.S. like covering an additional 40 million Medicare lives.
In effect physicians can now use I do but with their Medicare population with no risk one coverage for the implants and with a modest incremental would turn beyond the existing billing codes associated with the sign this procedure visit.
Also in June we announced the results are the UK based independent analysis measuring costs and patient outcomes about propelled steroid releasing sinus and plant compared with non drug eluding space are following endoscopic sinus surgery for patients with chronic sinusitis.
Independent study demonstrated that the use of propel following surgery resulted in fewer postoperative complications and created overall cost savings.
Supports effectiveness of the propel family at signage and plants as well as highlighting the potential economic and quality of life benefited benefits associated with propel products.
Well intended to support our expanding efforts in Europe. This type of health economic analysis is indicative of our intention to continue to strengthen evidence based in health economic rationale to support greater coverage and use for propel in prep implants across all markets globally.
And while on the topic of international European markets are recovering faster than the U.S. and have rebounded nicely in a relatively small largely German and UK based business.
With regard to our clinical product pipeline during the quarter, we met again without.
This time virtually and received positive and constructive feedback regarding our drug coated balloon program.
We now have clarity on study design and endpoints as well its safety requirements to support our eventual P. M a submission.
We feel confident in our path forward based upon the results we achieved in our 2019 ascend one pilot trial, our experience with the met as I'm sure a in the sinus cavity and I'll direct F.D.A. interactions in January and June specific to our drug coated balloon program.
President we are delaying the start of our clinical trial. So that we can complete final development of our commercial delivery device for use in the pivotal trial that will ensure we fully understand that list and constraints of the trial due to the ongoing pandemic.
We expect to begin final clinical work on the drug coated balloon no later than early 2021 and based on the current timeline our goal would be the commercially launch in the second half of 2023.
Despite the many challenges that the pandemic created we are advancing our mission to make intersect DMT, a more comprehensive and integrated player in the empty space.
Goal is to leverage our experience across multiple sites of care hospitals agencies and offices.
Recognize that we uniquely treat sinusitis patients with both devices and drugs.
Based on our current outlook and subject to risks related to the length in depth dependent but we expect to achieve sound revenue growth in 2021 relative to 2019 revenues as well as quarter to quarter sequential growth in the second half of 2020.
Well the global situation, particularly in the U.S. remains dynamic based on the clinical business trends, we have been experiencing over the past quarter and into the third quarter. We're confident in the strength of the propel business and in the acceleration of activity So I knew but.
At this time I will now turn the call over to ready to take you through our financial results.
Thanks, Tom and good morning, everyone I'd like to start the refinery true overview with a summary of our topline results and then provide a little more detail on our income statement.
And the second quarter 2020 intersect DMT recorded net sales of 9.8 million.
Paired to 26.7 million same period of 2019.
Decreased 63% from the prior period, well above our original outlook as Tom noted, we were particularly pleased with the revenue trend line as sales and April were only 700000 may were 3.1 million and June were 6 million.
And on a preliminary basis July sales were approximately 8.2 billion.
Net sales for the first six months of 2020 or 29 point Sixmillion, a decrease of 44% over the 53.3 million and the same period of 29 team.
These decreases resulted from the impact of hospitals, the spending elective procedures.
And reduce empty office visits related to cope with 19 pandemic.
For the second quarter 2020, propel product family revenues were 9.5 million, a 63% decrease compared to Q2 of 29 can and sign new for Robin who was point threemillion, representing a 73% decrease from Q2 2019.
Product mix for propel was similar in recent quarters with propel at 33% propel mini at 35%.
Procol contour at 32%.
Sales in the quarter were positively impacted by 2% price increase.
Overall ASP in the second quarter of 2020, $851 slightly ahead of a year ago.
Gross margin for the second quarter, 2020 was 25% compared to 81% in the period a year ago for the six months of 2020 gross margin was 53% compared to 52% excuse me, 82% and the first six months or 29.
The decrease for both periods was driven by our decision to idle our manufacturing facility due to the cobot 19 Pan clinic, which resulted in us incurring approximately 4.4 million in charges in the second quarter at approximately 6.3 million for the first half 20 twice.
These charges adversely impacted gross margins in the second quarter by approximately 45% and then the first six months of 2020 by approximately 21%.
Excluding the impact of covert 19 at both the second quarter in first half 2020 gross margin was consistent with our original 2020 guidance and the low to mid 70% ranch.
Here again, we expect gross margin to steadily improve in the second half of 2020 as to the extent production volumes improve enabling us to achieve better margin levels in the mid 70% range by yearend.
Total operating expenses for the second quarter of 2020 were 23.5 million versus 33.7 million and the same period of 2019, a decrease of 30%.
Operating expenses in the first six months of 2020 with 54.9 million a decrease of 18%.
Over the 67.1 billion for the same period a year ago.
The reduction in operating expenses in the second quarter, where a direct result of our actions in response to the cobot 19 pandemic and the shelter in place orders.
As we discussed in our last conference call, we targeted approximately $40 million <unk> cost reductions for 2020, which included following and reducing our workforce, reaching new hiring suspending near term production, reducing discretionary operating expenses and capital expenditures and delaying clinical research products.
And the second quarter 2020, we realized approximately $17 million and expense reduction of which about 15 millions it was cash savings.
The second quarter 2020, we recorded net operating loss of 21.1 million a loss of 23.1 million or a per diluted share loss of 71 cents compared to a net loss of 11.4 million, where a per diluted share loss of 36 cents and the second.
Quarter of 2019.
Adjusted net loss, excluding the impact of fair value of embedded derivatives and restructuring costs and which the details are included in the reconciliation table of our press release.
Was 21.1 billion, where 65 cents per share.
For the first half of 2020, we recorded a net operating loss of 39 million and net loss of 40.7 million or a per diluted share loss of $1.25 compared to a net loss of 22.2 million or a per diluted share loss of 71 cents and.
First half a 29 king.
Adjusted net loss for the first half of 2020 was 38.6 million for $1.19 per share.
Now turning to our balance sheet cash cash equivalents in short term investments at the end of the second quarter totaled 135.8 million compared to 90.6 million at the end of 2019.
Our cash balances benefited from the cost reduction actions. We took early in the second quarter and as we announced in May we raised 65 million an additional capital through the issuance of the convertible note.
In doing so we significantly increased our cash position and believe we have sufficient liquidity to maintain operating flexibility through 2022.
In association with the convertible notes certain features were concluded that to be embedded derivatives that are valued at accounted for separately from the notes. These changes in the fair value estimates were recorded in the income statement is fair value adjustments. Our non operating items that are included in a reconciliation between GAAP.
Okay, and non-GAAP net loss and a net loss per common share each quarter.
Looking ahead and on an elective procedure volumes and referral trends, we expect meaningful sequential revenue growth during the second half of 2020.
And the second quarter from second quarter levels. We also expect gross margins to steadily improve in the second half of 2020, returning to more normal levels in the mid 70% ranch.
While we cannot predict the extent or duration of the impact of cobot 19 pandemic on our financial and operating results. We believed that the recovery and procedures has begun and will continue and the second half the 2020 and that most patients will return per treatment.
Looking further out we believe the 2021 revenue should return to or exceed 2019 levels now I'll turn the call back to Tom.
Thank you Randy.
Before opening the call for questions I would like to comment on our outlook for the market as it relates to intersect ENT tea.
We are seeing an incremental rising business in third quarter to date supported by our commercial and market access execution strength can increase in office based procedures for both propel and so I knew but and the pent up demand for hospital and at sea based procedures with propel.
Outpatient procedures are taking on a greater role at hospitals in response to both patient need and the financial challenges Cogan poses to the hospitals themselves.
We're also encouraged with a broad increase in office based procedures across both of our product lines as our payer coverage position improves and price procedures migrate away from surgical centers over time.
We expect to achieved sequential revenue growth during the second half of 2020 and growth in 2021 revenues relative to 2019, all subject to the risks related to the lake the depth of the pandemic.
The company, it's going to strong financial position, but will remain prudent in managing costs.
Our early and decisive actions helped us navigate through an unprecedented environment and has the company taking advantage of the market rebound.
We believe we're on sound footing and are confident in our future.
I would like to thank all employees patients customers and frontline workers and our shareholders. During this time.
Our commitment and resilience, our inspiring and laudable.
Now I'd like to turn the call back over to the operator and open the call for questions.
Operator would you please open the lines.
Sure. So thank you.
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The first question comes from where it says that shouldn't you.
From SVB Leerink. Please go ahead.
Hi, guys. This is Jamie on for rent. Thanks for taking my question and I just wanted to start on the June July preliminary revenue.
I believe you said it trended at 16% year over year growth. So I just wanted to make sure that I heard that correctly and then b.
Got it correct I'm, just kind of help calibrate us on how we should be actually thinking about that month month improvement.
You going forward into the second half a year and that is it reasonable to think you could see some acceleration off of that Florida. Your your growth rate or potentially moderation, but on a dollar basis higher as you said sequential improvement I'm just trying to gauge what the reasonable way to think about it and potentially be Craig.
There are some color between that you've been at that.
Sure. Thanks, Jamie.
Randy I'll take a first crack at that much let you jumped in yes, you did hear correctly July results are up 16% versus the same period a year ago.
I think you've got a couple of things at work there.
Certainly one element of it is pent up demand.
But we know that a number of procedures were missed in April may timeframe, and obviously as a chronic need state.
Rhinosinusitis does require treatment. So we're seeing patients return on that basis, I think that's driving a fair level of volume that you see in the propel hospital side of the business.
I think the second thing that's it work is that you see hospitals coming back to outpatient procedures quickly in that they don't occupied bed space and they become accustom to how to now manage with the Kogan pandemic.
But I think that the other piece that is going to be more durable in our long term growth is the acceleration that we're seeing in the office setting and that's true for both propel often used in combination with balloon sinuplasty as well as what we're now starting to see in terms of revenue pick up on that so I knew that side of the business to go.
Going forward it would be presumptuous for me to say that we're going to have 16% growth from now through the remainder of the year, but what I will say is I think you're going to see strong sequential growth. That's Q3 will be much stronger than Q2.
And that we would expect to get closer to normalized levels with modest growth relative to year ago. As we enter into Q4, obviously all subject to Neil dependent can be environment as it unfolds, maybe last comment I would make is I find the 16% growth in July, particularly encouraging when you consider the can.
Renewed impact to about a third of the population in the states in Florida, Texas, Arizona in Southern California.
But again, we've got more to work out there.
Thank you for that was Super helpful. And then I guess just as my follow up can you talk a little bit about sustainability that on higher favorable reimbursement rates that you discussed with any parents like you in age.
And some of the Blue Cross days in light of because what the potential risk that be payment levels are actually quite converge more toward that FICO level ASCII plastics first thanks for taking my question.
Yeah.
Anytime in health care, there's always the risk of you know reimbursement rates being reevaluated and we looked but I think our value proposition is quite strong for the products that we are particularly those falling under the J code.
Are you considering the site as an alternative to either revision fat surgery or you. So they monoclonal antibody.
Clearly there is a strong payer incented to continue to motivate the use of say, new but as an alternative to those other much more expensive treatment paradigm. In addition, what we continue to focus on and I highlighted briefly in my comment around the UK cost effectiveness study is continuing to add to our.
And then Terry of health economic data to demonstrate the value that we provide and again, reducing the likelihood of folks returning for surgery I think that's going to continue to strengthen our position in our dialogue with the payer community enable an end to enable us to maintain.
Our reimbursement and current S.P. environment.
Thank you.
The next question this from the lineup Robbie Marcus from JP Morgan. Please go ahead.
Hey, guys is actually Allen on for Robby I had one quick question on the Salesforce. So I know on the first quarter call you called out like kind of a 25% cut and headcount and I know that you also if all that up by saying that the sales rep base wasn't impacted by as much.
But I guess given like the stronger return to form that you guys are seeing even if some of that as pent up demand how should we think about your plans for the sales force going forward, whether or not you plan to bring back some of those people on so you can better go on the offensive and you know for Q and 2021.
Yeah. Thanks, Alan Good question, and we feel really good about where our Salesforce is right now I think the thing that that I would highlight is.
Under normal circumstances as a general manager you kind of bring your hands. When you have to take your field force out for a week for your annual sales meeting in order to have training. We've just been afforded the luxury of eight weeks of training to really get our salesforce to a new level of performance really by focusing on what I said.
[noise] XC and T. University daily curriculum, but you know getting people much tighter on their clinical knowledge, they're selling skills, they're comfortable their comfort in selling buy and bill and adding to the analytic rigor that enables them to do a better job of targeting and tailoring their message to the needs of an individual doctor.
We probably never been better able to go out and have an impact in the field than we are right now with the talent we have.
In addition is and you touched on it well we did cut back on heads overall, what we tried to do is take out layers of management as opposed to the number of field facing folks that we have so our territory structure and our sales consultants and RF availability of specialty players like our regional reimbursement directors and strategic.
Like account managers remains very robust and we feel good about where we are of course, we are going to look at key opportunities. In fact, I was just on a call about the need to strengthen our coverage in east Houston and didn't Tampa just the other day with my sales lead so we're going to make those kind of incremental adjustments.
As demand and opportunity continue to grow, but I don't see us doing a barge wholesale salesforce change in the immediate future, though obviously as demand is there an opportunity is there we will continue to think about how we go on offense as you said.
Got it and I guess like looking.
At the back half a year when it comes to gross margins I believe you guys highlighted that you guys are expected to return to that kinda like mid 70% range in the back half a year and I understand that you know this quarter was a little bit special because you had that 4.4 million idle facility charge, but I was under the impression that until you get like your manufacturing back up to 100% which to me.
Fair you said you would do pretty quickly there will still be some cost capitalized into inventory is that correct way to think about it. So should we think about getting to like that mid Seventys range. This year and then once you work through some of those costs next year, we're getting maybe get back to that 80% range that we saw last there.
Yeah. Alan this is isn't jointly yeah from a gross profit margin perspective, I think it'll be sort of incremental change on a monthly basis and improving through the end of the year.
As we get back up to full production, we will stop or.
Having the period expenses that we've experienced predominantly in the second quarter, which led to the depressed values of gross profit margin.
So as that occurs you know the run rate and the capitalized costs that go into your inventory.
Will improve.
I think that will probably take you know I.
A gradual.
The improvement throughout the rest of this year, but ending the year.
We will probably be and then the mid Seventys you know once we get back into the next year and depending on where volumes are as confident as VR with with the trends I think that as we look out to next year. It gives us a more confidence about our ability to get to higher revenues and sustainable levels.
Yeah. That's one will start to really see what the opportunities are to get back to 80% gross margin I think right now I think we're comfortable with sort of that mid to high Seventys range as we get towards the end of year.
Thanks, guys.
Thank you. Thank you.
The third question comes from Matthew O'brien from Piper Handler. Please go ahead.
Good morning, guys. This is Patrick on for Matt. Thank you for taking my questions. We really appreciate it I just wanted to start more broadly on so many of the itself on the commentary on patient referrals is really encouraging and with cobot 19, and all the work you're doing on the specialty pharmacy side, Yeah, I'd be I'd love to hear thoughts and no longer.
The term shift in the makeup of ups I knew the channels I know you've characterized this previously at 80% via knee in about 20% pharmacy. So I'm curious to see your thoughts on how that kind of changes over time I'm getting kobin in some of the work you do it with the specialty players. Thank you.
Yes.
Yeah first else, let me say, that's we have high hopes for new but and while the company had struggled over the last couple of years to begin to get traction and momentum we really feel that in a very authentic way right. Now in fact in January February we saw referrals at an all time.
Hi, before we hit.
The pandemic and a lot of those procedures did not come to fruition. How we now see a return of the same with the referrals back to that same high level as we came out through June and into July. So we're very encouraged by it I.
I think in terms of that channel mix. The the piece that is evolving right now is a.
Early days Green shoots.
Pattern of docs, feeling more comfortable with buy and bill and the recognition that given the reimbursement levels. So we have that it has an attractive alternatives for them to actually participate whereas before there was a lot of uncertainty whether or not there was adequate coverage because of the J code and b.
Most of the commercial payer coverage against that buy and Bill is now increasingly attractive and with the analytics targeting that I've mentioned, a moment ago, we're able to identify those dots that had good coverage in terms of the composition of their patient universe, and that's where we're focusing in so in some respects.
We're driving some of that channel mix like by calling on and targeting physicians, who have attractive opportunities to be able to use I knew about and who have developed a level of comfort.
That they will get covered and paid appropriately. So we're beginning to Peel back. The you know Peel the onion and open up the business and we think that that's a pattern that will continue into the future and then specific to your comment on coated with.
With the coal that environment, the ability to be able to do a procedure in lieu of revision surgery in the office setting she'd be doubly attracted to both the patient and to the physician and again, we think that's going to be a catalyst for growth overtime.
Thanks, that's it that's really helpful color on that point from my fault. The I'd be really curious to hear you know.
An encouraging element you've been having had some shifting propel into the office setting and we've seen increased flare ups and cases in Texas, which I know, it's a state you called out previously as one of those you know a big advocates early adopters of of that shift where there any impacts to some of them at momentum you were building in that movement due to summer.
These more regional flare ups or is there anything else, we should be thinking about in the back half the year when it comes to propel into the office setting. Thank you for taking the questions.
Yep.
It's an insightful question around propelling the office and our July results, which are still preliminary.
But we saw a marked uptick in propel in the office environment again likely a function of a cold it to some degree.
Folks are looking for procedure activity outside of.
A traditional surgical suite I think that most encouraging part about that and yours you're spot on historically, our office space propelled business has largely been in the state of Texas with relatively little reach elsewhere, but in July we saw significant increase in propel office business, but it was.
On a broader national basis. So it really is the realization of the J code opportunity coupled with the desire for procedures in the office setting that is giving us an extra boost on the propel office piece and as I said before you know a principal driver behind that it's a complementary use of propel.
With a balloon sinuplasty, where you're placing propel after you've done the dilation in order to hold the scientist cavity open and allow for greater healing that combination is it is a source of we take a renewed growth and opportunity for propel.
Thank you.
Again.
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The next question is from the line of Chris Pasquale from Guggenheim. Please go ahead.
Thanks, a couple of questions for me first little surprising has amassed yet but are you willing to comment on recent news reports, indicating that Medtronic submitted a takeover broke proposal to the board has there been an offer.
You know, Chris we can't comment on that.
Okay. So not you won't see anything one way or the other.
No.
Okay.
And then I just wanted to circle back on this this office dynamic a little bit more I would've thought if this was it really significant and move considering the fact that these are all can be done in combination with Sinuplasty. Then we would have seen the mix with maybe median contour stepping up a bit relative to what we've seen previous.
So just wanted to try and quantify the scale of what you're seeing there I can you give us sort of the percentage of procedures in the base business that were office space.
Relative to preclude me levels relative to a year ago, whatever the best comparison is.
Yeah, So where we saw that the uptick in propel office activity, which was very significantly in the month of July so the numbers that Randy and I reported a moment ago would prefer a predominantly Q2 for the full period of the second quarter and therefore propel was largely reflected in the rebounded recovery in the hospitals.
As we noted.
We did not break out the individual numbers for propel I would say again, it's it's not the dominant element, but it is a source of incremental growth that we expect to continue through the back part of the year ended to help us restore propel two ongoing growth going forward.
Okay. That's helpful. And then just lastly from me just wanted to confirm that would that July your growth and there's nothing unusual in the year over year comparison right. It wasn't like July of 19 was an unusually soft period for you guys.
No. The comparable was there was nothing unusual about the comparable period.
Okay perfect. Thank you.
Yep.
Thank you.
The next question comes from the line up.
Ryan Zimmerman from PBH. Please go ahead.
Hey, guys. This is actually Max on for Brian. Thanks for taking my questions. I just wanted to follow up RMB backlog dynamic a little bit I know in the previous quarter, you mentioned that your field surveys indicated that between 70% 80% of sinus procedures that were person postponed or delayed as opposed to cancel I know you mentioned that you saw some benefit from pent up demand driving cars.
Than propel during the recent quarter, but you haven't estimate for kind of what portion of that 70% to 80% of procedures that were delayed what portion of those do you think had been completed is something that we're still kind of in the early end of and how are you thinking about the benefit from pent up demand in the back half of the year.
Yeah. It's a good question and it's a hard one to break out to be honest with you I.
I would say that we still have a fair level of pent up demand in front of us at a minimum from the markets like Florida, Texas, Arizona, California, a we do see that those regions are lagging behind and we would expect to see that continue to unfold overtime as we work.
Our way through you know the hot spots in the challenges within those markets. So I think there's still a further to go in terms of providing relief on the pent up demand.
But it but quite candidly it is a hard number to specifically quantify.
And I would say that we're probably a yield I'm going to call it half way, there and Ah, but that's again, it's an estimate it's a gas and you know where I would would point to in terms of further opportunity is in those states that are slower to recover because they're still managing the of the depth of dependent.
Got it yet very helpful. Thank you and then in terms of margins just kind of looking long term and appreciate your commentary around gross margins, maybe not getting back up to and the 80% level by the end of the year, but just looking then 2021 and beyond I mean thinking about the other cost initiatives that you've implemented in this quarter I was there.
An opportunity as we move their 2021 for net margins actually improve upon where you guys ended up in 2018 or do you think it's still a little bit too early to tell and things of the long term outlook to margins.
You know Max I think from a gross profit margin perspective.
We finished up 29 team you know what with pretty strong our gross margins, we we indicated that up our prior guidance that.
Yeah, we had some higher cost inventory due to some shifting and and focus and lower volumes. So we're still working through some of that that inventory that is still.
Up on our balance sheet.
Well you know, we get out to 2021 and add volumes start to pick up and you start to get out into 2022, and 23, I think there's a real opportunity, particularly with the propellants signed nuva a product mix.
To start to regain some of that that higher margin levels.
It's a little too early to say it might get there and that you know toward the tail end to 2021 or into 2022.
Certainly as as we look out to the future. We think we can within those that product categories, we can get back to the 80%.
Thank you.
Thank you.
The next question comes from the line of probably Miss from <unk>. Please go ahead.
Hi, Thank you for taking the question. So just my first one I guess would be just around what you're seeing from a competitive perspective in the pandemic can you help us understand.
If you had any sort of.
A stronger or weaker.
Impact from some in the <unk> biologics out there or anything else in the space.
Yeah, Robbie its a it's a good question. It's the answer the simple answer is no not really you know that the competitive set is pretty clearly understood in terms of what the biologics are out there and what they can do and as well as you know more.
Routine sinus sprays and otherwise I don't think that impacted our business significantly nor do I think there was a meaningful shift one direction or another towards what the alternatives offer I think our value proposition.
It's fairly unique I'm certainly as it relates to the propel business, there's not an easy alternative.
That would provide the kind of benefit profile that we do I do think from a competitive standpoint, our position on so I knew about remains quite strong in terms of the efficacy that we can deliver relative to biologics as well as the certainty of compliance and the alternatives to Oh.
Revision surgery, I think that value proposition remains quite strong and we'll continue to exploit that as we go.
Back to market in a more meaningful way so that's not a big shift at all.
Okay, Great and then maybe a a second one on I'm just kind of if I step back we go back to January.
Decades ago, almost in this kind of world, but if we go back to January and thinking about the original guidance that we've given for the years about kind of mid to high single digit growth.
How do you reconcile that with some of the comments on on this ramp here I mean.
It would it be reasonable or just want to hear your take on can you get to that level, giving the improving environment that you're calling out here and the sequential uptake or should we should be thinking about how should we think about the back half a little bit more granularity.
Yeah. It's it's a good question I would say, it's too early to call in full which is why we suspended guidance I look at July and feel.
Gratified that our business is growing but I know that a portion of that as backlog I look at the efforts that we put in place and the fundamentals of the business and I see really positive signs you know say nuva is beginning to take hold and ways that it had not before that's clearly a positive in our outlook the.
Strength of the office space propel business is another positive on our outlook I'm so that.
I think the business is more solid now and yeah.
The challenge is predicting the marketplace environment, and that's makes any estimation of yield growth versus year ago, a challenge in the back part of the year, but what I'm I do feel very confident and saying. We noted is I think you're going to see continued sequential improvement in performance I'm just as we saw a month to month from eight.
All the May may to June June or July I think we'll continue to see that.
Q3 is clearly stronger than Q2, and Q4 will be stronger than Q3.
But I think premature for me to say an attach a specific number in terms of back half year on year growth.
As we continue to come out of the impact of the pandemic other than to say I think our fundamentals are very sound.
Yeah.
Stand out on that a little bit I think as Tom pointed out you've got really Q markets here, you've got the recovery phase, where you're seeing you know fairly significant see sequential growth, but I think that.
Goes to the strength and breadth of the market that we operate in and the uniqueness of our products as as it will recover back to sort of the 2019.
But I also think because as we look at it had some of the things Tom as highlighted its not just a you know the markets that we have been operating and traditionally Toms pointed out some significant opportunities for us to see some.
Some market expansions into the office market with you know that propelled family of products as well as you know we were started again pretty meaningful traction with synovus. So once we reach regain a sort of the market that we.
Sort of already had a I think our ability to get back to the growth rates that we talked about or even expand on that is a very real opportunity for us.
Great. Thank you.
Thank you.
The next question comes from students come from Oppenheimer and company. Please go ahead.
Good morning, everyone.
Hey, Tom can you give me okay.
Yep.
Perfect Tom a lot of questions will be now so I'll just stick to one beat the questions have been focusing on the backlog versus the new patient flow through maybe I can comment that from a different perspective, and you can you can shed some color.
As we look forward to the second half and for fight 21, what does and what has been average patient acquisition time in Q2.
And how does once a patient as acquired what does the conversion time for you guys.
And maybe you can.
Also parlay that into July what are you seeing trends hopefully we can tie all of this together in terms of as we look forward to second half. Thank you for taking my question.
Yep.
Yes, it's an interesting question and one that's probably most relevant and looking at the sign new business in terms of how we acquire folks we treat them through our hub in order to determine appropriate level of coverage. Ultimately then dispense product based on whether medical benefit pharmacy.
Benefit through the appropriate specialty pharmacy.
From start to finish that's about 20 to 25 days, which is longer than we would wish.
As you go through the initial insurance adjudication and obviously part of that is also the scheduling of the patient to come in for the procedure itself.
But it was about 20 to 25 days in Q2 still adversely impacted by unusual office times and availability of because of the coded pandemic, but one of the things that we talk a lot about and maybe is the insight that you're looking for is how do we accelerate that the language. We use just how do we take the sand out of the here.
In order to expedite the period of time problems that initial insurance adjudication to the scheduling to the dispensing to the procedure being conducted in order to accelerate it you know clearly that is you know it's in our interests in our patients interest and and as that.
Improves that will also improve the yield our yields are solid, but they're not where we would like them to be in terms of.
Each what fold, let 100% of the time landing in a patient. So we focus on how many people we can put into the funnel.
What is the conversion rate around the funnel and how do we accelerate to speed through the funnel to improve the experienced a vote at the customer and the patient and again some of that was adversely impacted through called it but I will say that it is absolutely a focal point in terms of how we expect to improve and can.
Continue to grow this I knew the business in the back part of the year.
Thank you.
Thank you.
Ladies and gentlemen, this concludes our question or non profession.
I would like to turn the conference back to Tom West for any closing remarks.
Thanks, everybody I. Appreciate appreciate very much more continued interest in support for intersect TNT as I said, we feel very solid about where were you are right now we're on good footing. We've made good progress we've weathered the challenges of the co depend dynamic.
There are still uncertainty in front of us, but I hope that you've seen that we demonstrated our ability to manage through that and to continue to serve the patients with chronic rhinosinusitis that we have throughout our history as a company. So again. Thank you for your interest and we look forward to speaking with you soon take care Bye bye.
Thank you.
Ladies and gentlemen, the conference has now concluded.
Thank you for attending today's presentation human now disconnect.
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