Q4 2020 Intersect Ent Inc Earnings Call
Good morning, and welcome to the intersect Ent's fourth quarter and full year 'twenty 'twenty earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference call over to intersect Ent's CFO Randy Meier. Please go ahead.
Thank you and good morning, everyone.
Welcome.
For participating on today's call joining me today is Tom West President and CEO of intersect Ent's.
Before we begin I would like to remind you that we will be making forward looking statements within the meaning of the federal Securities law.
Actual results and timing of events could materially.
For 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.
This 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, which we file with the SEC.
Disclaim any obligation or undertaking update or revise any forward looking statements contained here at.
Now I'll turn the call over to Tom.
Thanks, Randy and thank you all for joining the intersect Ent's Q4, 'twenty 'twenty earnings call today.
As we discussed with many of you at various investor conferences over the past eight weeks, what a difference a year makes.
A year ago, we were a single technology innovator with the propel family of sinus implants accounting for the vast majority of our revenues.
At the beginning of 2020 propel could also be seen as a relatively mature business that had shown limited growth in recent quarters.
A year ago, So I knew because business model was still largely unproven a full two years after launch.
So despite the inherent difficulties surrounding the pandemic 2020 was a year in which intersect ent's had something to prove and work to be done.
Through the course of the year, we were able to demonstrate the resiliency of our core business in the face of the pandemic.
While also making significant progress on multiple fronts towards reestablishing the basis for sustainable growth for the years ahead.
We enter 2021 with positive momentum.
Fourth quarter revenue was solid at $28.2 million slightly ahead of what we reported on a preliminary basis in January and.
It sounds given the evident impact of Covid in the latter part of December.
However, rather than take you through the details of the fourth quarter I'd like to take you through the key elements of our 'twenty 'twenty transformation debt burden.
Moving to the comment what a difference a year makes.
In turn Randy will take you through the detail of the numbers with a focus on the fourth quarter.
Importantly, this year, we can see more clearly than last year.
Stable growth potential in both of our core product platforms propel on site in Dubai.
And the additional opportunities for growth in adjacent E N T segments, with our acquisition and integration of Vietnam.
Our core propel hospital business recovered quickly from the first wave of Covid and the near complete shutdown of elective procedures in Q2 2020.
The business proved resilient through the back half of the year, despite reduced procedure volume in office visits and an environment, where our reps could not easily access the positions they intended to call upon.
We expect this core propel business in the surgical setting to rebound further once procedures return behind an increasingly vaccinated population and with the benefit on some pent up demand.
In addition to the resiliency and potential of the core business, we identified and pursued incrementals on incremental revenue drivers in the office setting of care with propel enabled localized drug delivery as an adjunct to office based balloon dilation.
We also positioned ourselves for future expansion behind propel in Europe by building and then adding to a leverage of all commercial beachhead in Germany.
The opportunity for propel in Western Europe will add modestly to 'twenty 'twenty, one growth, but more significantly in the years to come.
Perhaps most importantly for propel over the long term, we are investing and health economic evidence for propel.
We believe that longitudinal real world evidence holds the potential to expand coverage for the propel family with specific reimbursement for the implant.
And its current reimbursement as a supply within the overall coverage payment for a fast functional endoscopic sinus surgery procedure.
We are working with the American Academy of Otolaryngology real word real real world evidence data.
To establish the longitudinal health economic benefit of localized drug delivery following sinus surgery.
We are encouraged by preliminary findings and believe that the issuance of the new S code for propel plays perfectly into this strategy of expanding specific propel implant coverage.
Propel is on more solid footing today than a year ago with clear areas for growth in the office in Europe and behind the longer term potential for improved coverage and access.
Our son, Uva business has transformed dramatically over the course of the last year as well achieving consecutive record record revenue quarters in the third quarter and then again in the fourth quarter of 2020.
This acceleration in growth is driven by expanded sign new payer coverage now at more than 75% of private lives and over 90% of public lives and an enhanced go to market model, enabling coverage benefit verification distribution and payment to physicians who are initiating drug.
Therapy in the office, which I knew that.
As we have noted before we are continuing to remove the sand from the gears as we establish buy and bill and specialty pharmacy assignment of benefit as viable and attractive avenues for product access in the E&P space.
We believe that <unk> is now positioned to meaningfully contribute to ongoing corporate revenue growth something we could not say with nearly the same degree of competence a year ago.
Furthermore, our back half 'twenty 'twenty acquisition of C. A gun provides us with additional corporate revenue growth drivers.
All acquired then short sinus balloon cleared by FDA in August 2020 offers immediate entry into the adjacent balloon sinus dilation market with a competitive offering.
Moreover, balloon sinus plastic is a clinical procedure that can be enhanced with the complementary application of localized drug delivery to reduce inflammation, while maintaining patency with approached procedure use of propel contour.
The figure on acquisition also expands our portfolio to include differentiated navigation capabilities with attendant consumable single use surgical tools.
Taken together these wood products important product portfolio additions expand our relevance among our existing called on audience of physicians and allow for efficient incremental growth on top of the anticipated gains and propel and signed mover.
With the addition of balloon dilation and simple sure surgical navigation, we are afforded the opportunity to reinvent our organic internal innovation pipeline.
We remain committed to expanding our portfolio and platform of localized drug delivery products that leverage our bio absorbable polymer and drug formulation knowhow, but we are fortunate to be able to reassess priorities looking at both near term line extensions as well as customer insight driven new platforms.
Drug coated balloon subcutaneous delivery of Manhattan on that as a theory and products for surgically naive patients as well.
We also see an opportunity to invest in additional clinical and health economic evidence as we aim to deliver a steady cadence of product platform and evident in evidence based innovation.
Our innovation pipeline and the options available to us are stronger today than a year ago.
Taken together, we believe our 'twenty 'twenty actions position us well for sustainable growth we.
We established the resilience of propel in the surgical suite. Despite the pandemic, we identified propel in office opportunities.
Few additional growth.
We cultivated an expanded president could propel outside of the U S with a focus on Germany.
We initiated and invested in a longer term plan for propel growth behind improved access by a greater health economics at our visits and our benefit attached to new coding.
We also established and validated the go to market model per se mover unlocking that's important products as a source of sustained growth.
In addition, the <unk> sinus balloon acquired in the figure on transaction recorded its first sales in the fourth quarter of 2020 and adds a highly complementary offering to the portfolio going forward.
We increased our relevance with E N T surgery community with the addition of Thea gone developed cube sinus navigation and its associated consumable tools portfolio and lastly, we have a rich new product and clinical pipeline to fuel new news and growth for the years to come.
We are poised with a rich array of innovation opportunities what a difference a year makes.
As we looked at 'twenty 'twenty, one there is obvious opportunity as I have already outlined some near term challenges and more work to be done.
I'll start with the near term challenge.
Although we have no fear of returning to the national locked down environment. The industry experienced in Q2 of 'twenty 'twenty. When the pandemic first appeared there's little doubt that the significant rise in Covid case rates that began in mid December and carried into the first quarter adversely impacted E N teeth procedures.
Through January and into February.
We are seeing a recovery as we speak and they even see some pent up procedural demand as we witnessed in July and October of last year.
However, it is clear that Covid has impacted Q1, and even with the benefit of a vaccine and the potential for further waves associated with various COVID-19 variance does provide the basis for some caution as we enter 2021.
While we still feel some pressure on physician access and E. N T procedure case rates today, particularly in the hospital setting the increasing availability of vaccines the procedure market's ability to recover last year and our greater experience in managing both operationally and commercially we continue to believe we are in.
Solid position to drive meaningful revenue growth in 2021 spin.
Specifically, we believe the current consensus revenue for 'twenty 'twenty, one is appropriate even with COVID-19 headwinds and uncertainty and our revenue outlook at 116 million to $120 million for 2020 is consistent with our prior statements regarding regarding growth realm.
2019.
Between 5% to 10% versus 2019 and up 42% to 49% purchased 2020.
In addition, we expect quarterly growth rates relative to 2019 will strengthen as the year progresses with COVID-19 carrying a lessening impact and our new products building momentum inclusive of the late Q2 full national launch beyond our measured and evaluated launched today even.
Sure sinus balloon and tube navigation.
On the importance, we believe that the recently announced CMS coding changes for both propel and <unk> will contribute further overtime to our positive revenue growth momentum.
In January 2021, CMS approved at our request a revised coding application parade distinct code put propel and the consolidation of the two side NEVA codes into a single product code.
You will recall that since November of 2019, propel and signed new bus share day billing code J, seven 401, creating confusion and uncertainty in the marketplace. The.
A single code for both products was inappropriate and confusing to physicians and payers alike.
F D. A had designated propel as a device and so I knew that as a drug.
Moreover, propelled carries approximately one quarter the amount of drug at <unk> contributing further to uncertainty over the extent and nature of reimbursement for two distinctly different products under a single code.
The recent approval of new coding application establishes a separate escrow for propel and updates the current J code for side Yoga only.
In addition, you will also recall that in July of 2020, CMS granted signed yoga and additional C code for pass through status for use in the AFC and outpatient environment for Medicare patients.
This additional code has been consolidated into the new single code with pass through status reaffirmed through July 2023.
As a result of the recent CMS coding changes propel has a single distinct code for use in all settings of care.
1091, and so I knew that has a single and distinct code for all settings of care J 740 too.
Admittedly these changes will likely lead to diminished reimbursement in some plants porcine Lowe.
However, in all cases, we expect sales to provide incremental economic value to the physician as reimbursed under the new codes. This on top of the existing procedure codes from which the positions can bill.
In no case, do we expect as I needed to be quote underwater.
The new CMS a S. P pays $10 went to five two units.
Per unit of drug and there were 135 units per implant.
Therefore, minimal reimbursement will be $1384 per implant.
$2769 per bilateral procedure for the implant only.
This minimum will apply to Medicare Medicaid and government patients. It is the same amount of coverage. This population machines under the previous C code.
Commercial payers will typically reimbursed at the published see him that's a S. P.
With a markup of between 6% to 20%.
Again, and importantly, additional reimbursement on sign Lowe is available to providers by existing procedure codes, such as those for nasal endoscopy Polypectomy and debridement.
These procedure codes can add as much as an additional $1700 to the procedure.
As to propel where it is covered as a separate implant will on average be at a premium to where it is today with commercial pricing typically at WAC, plus 6% or $1431 per implant in 2862 bilaterally.
We believe this level of reimbursement and the specific attachment to propel will further strengthen our efforts on propel and both the ASC and office setting.
In our view the overall gain for both products the relative ease clarity and certainty ability, but the new codes will offer our customers and payers over the long term greatly outweigh any near term risks and select plans would say labor.
The new propellants I knew the codes are scheduled to take effect on April 1st 2021.
Importantly, payers can now more accurately delineate and reimbursed based upon the specific use of each product.
As I noted earlier, we are investing in additional clinical and longitudinal health economic data to support the application and use of the new distinct codes.
To that end in the fourth quarter of 2020, we initiated a propel real world evidence trial using the American Academy of Otolaryngology Registry database that comprehensively covers the treatment and health care utilization of 2500 E N T.
<unk> over six years.
Using real world evidence enables a longitudinal benefit analysis of propel measuring outcomes on health care expenditures nine to 12 months beyond the period of our original clinical trials.
We believe this health economic analysis will further demonstrate the benefit to payers, a greater position coverage and access for use of propel following sinus surgery.
If successful this will allow the company to seek separate cupboard under our new and distinct propel S code.
Preliminary data will be available in late Q2, 'twenty 'twenty, one with a low.
Likely impact on the business in 2022.
We have also initiated in Q1 of 'twenty 'twenty, one a prospective clinical trial with our bench or balloon followed by our propel contour implant to establish the benefits of combined use of our propel localized drug delivery following balloon dilation.
We are confident in the study's endpoint of improved patency and reduced inclination based upon data from our original propel contour trial, where there was a small cohort of patients that received only balloon dilation and a subsequent propel contour implant.
<unk> improved by over 40% in this cohort.
The current trial named expand well recruit approximately 100 patients over the course of 'twenty 'twenty, one with preliminary results reading out and back half 'twenty 'twenty, two and full results with long term data in 2023.
Now, let's turn to an update on the integration that see a guy on in the addition of the <unk>.
Then sure sinus balloon and tube navigation system and tools.
With the integration activities nearly complete we are beginning to transition to a normal operating environment and focus on driving adoption of our newly acquired products.
We are pleased with the preliminary soft launch a bench or as we began a targeted approach to a handful of customers that had familiarity with the CAGR on products.
The balloon and navigation system are performing well and are being embraced we are now ramping up production and are on track to formally launch then sure and tube navigation across our sales force in late Q2 of 2021.
We are also developing a number of line extensions, which we expect to bring to market over the next few years, we are particularly excited about the 2021 release of the virtual <unk> Gen. Two our next generation revolutionary no contact high precision flow to a registration tool for navigated.
Nicole procedures broached.
Virtual igen too will register patients facial construct in conjunction with a C. T scan to enable accurate and more efficient use of surgical tools and any procedure, whether they are lying on their backs or seated in a chair as they would be in the office setting.
We will continue to upgrade debenture balloon enhanced cube imaging guidance and add additional navigable surgical tools to further enhance customer satisfaction and our competitiveness.
In summary, we believe our solid performance in the second half of 2020 will continue into 'twenty 'twenty, one and accelerate as the year progresses, while the challenges of the pandemic remain our proven operational flexibility and learnings from 2020 give us confidence that we can quickly adapt in the event of a.
Future Covid surge.
From a strategic standpoint, we intend to build on the momentum of propel achieved record results on site, Uva and integrate and expand our then sure sinus balloon and chewed navigation product lines.
With numerous value drivers in place for 2021, we are well positioned to capitalize on our expanding product portfolio and increasing market presence to achieve long term sustainable growth.
What a difference a year makes.
At this time I will now turn the call over to Randy to take you through our financial results.
Thanks, Tom and good morning, everyone I would like to start the financial overview with a summary of our top line results and then provide a little more detail on our financial statements.
In the fourth quarter of 2020 intersect Ent's reported net sales of $28 2 million compared to 31 8 million.
<unk> period of 2019.
A decrease of 11% from the prior year.
On a sequential basis, our sales increased approximately 24% third quarter levels. As we saw continued recovery in propel record strength and sign Uva and initial sales of our newly acquired figure on products.
For the full year 2020, net sales were $80 6 million, a decrease of 26% compared to the $109 1 million.
On the same period of 2019.
The decrease resulted from the impact of hospitals, suspending elective procedures and reduced E. N T office visits related to the COVID-19 pandemic.
For the fourth quarter of 2020 propel product family revenues were $24 7 million, a 19% decrease compared to the fourth quarter of 2019.
I never generated record revenues of 26, or $22 6 million, representing a 93% increase from the fourth quarter of 2019.
<unk> from continued improvements in reimbursement and our market access model.
Matching of our distributor relationships and ongoing shift to office based procedures.
You got products generated revenues of <unk> 9 million in the quarter.
Product mix for propel was consistent with recent quarters with propel at 29%.
How many at 34%.
Contour at 37%.
Overall propel family Asps for the fourth quarter of 2020 was $836 per unit up 2% from a year ago is stable from the third quarter 'twenty 'twenty.
I knew about Asps in the fourth quarter was $1332 per unit up 10% from a year ago.
Gross margin for the fourth quarter of 2020 was 69% compared to 77% in the same period a year ago.
But continue to trend to higher sequentially.
Up four percentage points from the third quarter.
For the 2020 full year gross margin was 62% compared to 80% last year.
The year over year decrease in both periods was driven by higher per unit manufacturing costs associated with lower volumes.
During the year, we incurred Idaho facility charges, and an inventory position revision related to the impact of Covid, representing a negative effect on our gross profit margin of approximately 9% for 2020.
That said our gross margin recovered in the second half of the year as we resumed our production anticipation of continued revenue growth.
Total operating expenses for the fourth quarter of 2020 were $36 8 million versus $33 1 million in the same period, a year ago increase of 11%.
The increase in operating expenses was due to the figure on acquisition and integration costs.
This consisted largely of professional fees.
Operating expenses for the full year 2020 were $117 9 million a decrease of 11% over the $132 8 million in the same period from 2019.
Reduction in full year operating expenses was a direct result of our cost reduction measures put in place in response to the COVID-19 pandemic.
Actions taken in early 2020 in response to the pandemic and the better than expected recovery in the second half of 'twenty 'twenty.
Abled us to meet our cash burn rate objectives for the year and enabled us enable our ability to acquire figure.
Going forward, we expect to improve our operating cash burn rate as a result of our cost management efforts anticipated revenue growth as well as strength at our financial position.
For the fourth quarter of 2020, we recorded an operating loss of $17 3 million and net loss of $20 2 million or a per diluted share loss of 62 sets.
Compared to an operating loss of $8 5 million Inc.
Net loss of $8 million.
<unk> per diluted share loss of 25 cents in the fourth quarter of 2019.
The adjusted net loss, excluding the impact of fair value of embedded embedded derivatives.
Costs associated with the acquisition of figure on is $17 6 million or 54 cents per share.
Details of the adjustments are included in our reconciliation table in our press release.
For the full 2020, we recorded an operating loss of $67 7 million, a net loss of $72 3 million or a per diluted share loss of $2.22.
Compared to an operating loss of $45 4 million.
Net loss of $43 million or a per diluted share loss of $1 37 for.
For the 2019 full year.
Adjusted net loss for the 2020 full year also excludes the impact of embedded derivatives as well as transaction and restructuring costs.
With $66 8 million or $2 <unk> per share.
Now turning to our balance sheet, the balance of cash and equivalents short term investments and restricted cash as of December 31 2020.
$105 5 million.
As of December 31, 2019, cash cash equivalents and short term investments was $96 million.
As of December 31, 2020, the restricted cash balance was $17 5 million compared to no restricted cash as of the prior year.
As a result of the figure on acquisition, our current and non current deferred acquisition related considerations as of December 31, 2020 photos.
Total was $54 2 million.
We believe our cash position combined with our ongoing cost management initiatives.
<unk> revenue growth provides the company with adequate capital to operate well into 2020.
Looking ahead to 2021, we are reiterating our outlook from our January 12 preliminary announcement as we expect to grow revenues in 2020, one relative to the 20th 19 period, despite continuing uncertainties related to the impact of COVID-19.
For the full year 2021.
Revenues are expected to be in the range of $116 million to 120 million.
Gross margins are expected to return to the low to mid Seventy's range.
As we previously stated we believe we have adequate capital to operate well into 2022.
Now I will turn the call back to Tom.
Okay.
Thank you Randy.
We had a productive 2020, and we believe that we are in a much stronger position today compared to this time last year notwithstanding the challenges of the pandemic.
Supported by the rebound in elective procedures and increased office based opportunities continued records results from China and meaningful contributions from our navigation and balloon products, we expect to return to growth in 2020 one.
Longer term, we believe that we will achieve sustainable growth by expanding our markets. Our strategy centers on further penetration among existing E. N T positions across all sites of care capitalizing on a broader and complementary crs portfolio and generating clinical evidence to support Unencumbered Act.
<unk> and expanded use.
The integration of <unk> has progressed smoothly and.
And with the planned Q2 national launch and deployment of bench or balloon and cube navigation, we expect meaningful contributions from our navigation on balloon products in the second half of 2021.
Furthermore, we plan to invest and expand internationally, while extending core technology to new platforms and line extensions.
In sum we've laid the foundation to establish intersect E N T as a predictable double digit grower year after year.
Before closing I would like to thank our employees patients customers and shareholders.
Now I'd like to turn the call back over to the operator and open the call for your questions. Operator would you. Please open the lines.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
The first question is from Robbie Marcus from JP Morgan. Please go ahead.
Oh, great. Thanks for taking the question and congrats on a nice quarter.
You know maybe starting off with the <unk> announcement yesterday, you gave a lot of great detail on the call.
Wondering if you could help us break out what percentage of plans are going to have to lower reimbursement and you know how that compares now to what the E. S. P is of the product and versus commercial plants.
Sure.
Thanks, Rob and good to hear from you as well, let's let's start with a simple one which is for Medicare Medicaid patients, who previously were under the C code, which represents between about 10% to 15% of volume there's no change whatsoever, essentially the same prices now applied under the J code and that's how all.
Kind of government customers.
Customers will be reimbursed.
Relative to the commercial Payors.
Theres a mix from summer some plans that we're paying very generously and and again, we don't yet know how they will manage the plan, but likely it will go down.
So the highest payers, we will see an adverse impact, but maybe it's easiest just to look at it as the average payer.
Today, they they pay about $4100 bilaterally on average for commercial payers.
Our expectation is that on average commercial payers will drop to about $3000 bilaterally pretty implant alone. So that's about $1000 a reduction and the total value of a procedure net gain for the position will remain at about $2000. That's inclusive of the implant.
Plus the procedure code. So it is a significant hit no. There's no doubt about it but what we think is important is recognizing the level of uncertainty that we had around adjudication. The timing that it took this now pretty much enables any of any client or any account to be able to look up and have with certainty and understood.
Of the level of reimbursement that they will have as we have much clearer coding going forward.
Great and maybe just a follow up you talked about how you feel comfortable with where the street is sitting that's at 120.1 million. According to Bloomberg now versus guidance of $1 16 to $1 20. So I was hoping you could just reconcile that difference.
How much is conservatism how much.
Is maybe something else just just wanted to get a better clarity of the reconciliation between the comments on where the street's at thanks.
Yeah.
Go ahead.
We're just going to jump in you know last week. When we were looking at all of this the consensus we look we weren't looking at Blue bird, but we were at 119.6. So we've you know that we were comfortable with consensus sort of at the higher end of our range, but again, we feel pretty comfortable with where the range is right now.
The next question is from Richard <unk> from SVP Leerink. Please go ahead.
Alright, thanks for taking the questions.
Congratulations on making the <unk>.
Yes, especially in a challenging year.
And Randy one of the things that struck me in your opening comments on what you've done you've created more vectors of growth for the organization.
I guess I'm also detecting though it feels like you might be a little less reliant as a result of that on <unk> for the growth acceleration story are you re emphasizing.
Things that I think investors had had lesser debt a little bit like propel and that might not be a bad thing given some of the reimbursement changes we've seen around those two on a relative basis. It looks like you can make more money on propel on office and you can't upside moving now.
From a doctor perspective, So I guess my question. My first question here, Tom Am I am I am I hearing the messaging correct is this you know a little bit more you got more ways to win.
We're still going to get to the same place double digit growth, but maybe.
Maybe a little less reliance on <unk>, and we should be thinking of the propel kind of acceleration.
Happening sooner and there will be a little more gradual.
Yeah. Thanks rich.
Great question.
I'm going to agree and disagree with you. So here's the here's what I mean, I'll talk a little bit out of both sides of my mouth, you're absolutely correct that we deliberately created.
My language more shots on goal by.
Emphasizing and focusing on the opportunities for propel in the office, which youre right our enhanced with the new coding the opportunities we have O U S on adding the fee Aegon assets. So that we have an opportunity to participate in the balloon dilation market as well as navigation with consumable tools. So more shots on goal war.
Basis for growth.
You're absolutely correct, but I wouldnt minimize the Chinese opportunity the feedback that we get from physicians clinically.
And from patients as well patient testimonials is that there is absolutely a low placement opportunity for that product and as we look at what is hindered US you know a lot of that has been the confusion in the marketplace around reimbursement.
On the level of reimbursement the availability of reimbursement, we now have a very attractive procedure in which a position on average I can make about 2000 bucks between the implant code and the procedure code.
For what will be a 40 minute procedure that offers real benefit to the tradition.
And to the patient in an environment, that's with the Green, which is in the office setting of care. So I still think that's I knew that is a substantial source of growth for us, but we've diversified as you noted by adding other shots on goal.
Okay, that's really helpful and maybe just a follow up.
Tom on onsite, you've I know a lot of these changes are somewhat out of your control CMS makes us states at their own on their own timetables, but just to prepare investors too.
I'm sure we're going to continue to get updates on the side you've.
Reference price each quarter, because it's a J code are there is there any potential downward bias to the $10 two five.
Per microgram unit basis, and the reason I ask that is just to prepare investors just in case that fluctuates around a little bit what the magnitude could be and I know I know CMS uses a rolling kind of.
Two quarter basis of data points to make their pricing decisions. So.
I'm, assuming that this round of price and captures.
Old invoice pricing that was using higher higher rates with the insurance private insurers paying more generously well there'd be downward bias as we move into.
On a rolling two quarter period that captures this reduced rate.
On another great question actually just the opposite is true we would expect the rate to actually go up.
In the coming quarters, because we recently took a price increase and that is not reflected in there.
Two quarter look back the way they do it so.
So we would expect when the.
The price issues in July that it will be up slightly and then again when it issues in.
In October it will be up slightly again because of the two quarter look back which does not reflect our January price increase so.
I think there's there's a slight positive there, but I don't think that's meaningful enough to change physician appetite, but it should be a slightly positive move in our direction and thats, what I think investors should expect.
And Tom if I could squeeze one more follow up and just.
Whenever you have a code shift the J code is changing doctors had been accustomed.
Accustomed to submitting under the old Jacob they may not have to learn a new J codes.
Just to help us gain confidence that that transition go smoothly. What are you doing just to ensure that debt.
Theres no hiccups in it in the transition period here with yet another code coming from the government.
Yeah. Another good question, we are all hands on deck to ensure that smooth transition as.
As we move to the new J code in and have the new S code.
Essentially our corporate account directors are working directly with each of the payers are and and we have a we have a daily or weekly dashboard that we go through with our market access team.
To ensure that.
We're progressing that and that everybody's anticipating the April one change then we have our regional reimbursement directors.
Out in the field you may recall, we added dose, which I knew the to help with.
The the payer adjudication and the office staff and we have again on a day.
Dash Board and Punch list of every Doctor, it's writing shy, new but it make sure that that's implemented and changed at a at a local level with our providers. So it is front and center for us I feel confident.
And that our team is doing everything that is necessary, but as I said, we as a leadership team have a weekly meeting in which we go through those dashboards and look at every single payer every single account to make sure that we have covered that off and that there is no hiccup.
Thank you Todd.
The next question is from Chris Pasquale from Guggenheim. Please go ahead.
Thanks.
Maybe switch over to keep it on the reimbursement theme, but switching over to propel could you just walk through that $14 31 number that you quoted.
How consistent is that going to be how much variability across different types of payers do you expect for in office propel and that's obviously, a pretty generous rate compared to the a S. P for that product. So how should we think about debt evolving over time.
Yeah, So and S code. Unlike a J code, we don't report a S. P. So you basically that the methodology by which that's derived is looking at you know compendium or Red book, where we have list price at $13 50, and then generally its debt 13, 50, plus 6% pretty consistently applied.
That's what brings you to the 14th 31 relative to where we are today.
With the former blended rate.
Again, with some very high variability under the dual J code and the kind of weighted average per microgram, we were coming in on average at about 900 Bucks. So it's a substantial increase in the level of reimbursement, where where there is individual implant reimbursement.
And that's particularly in the in the office environment. It gives an opportunity for us to get further behind propel in the office setting of care and also gives us a usable code to be able to begin to start to do implant carve out reimbursement in the particularly on the ASC are something that we gave up when the old.
S code back in October of 2019 went away. So we think there's upside around that it will take time to build and rebuild.
But again attractive pricing based on WAC plus 6%.
That's helpful. Thanks, you talk a little bit about how you plan to position then sure you know the balloon society of plastic category as a number of our competitors already established there.
You guys had initially taken an approach of trying to enter that market with a really clinically differentiated offering by incorporating drugs onto the balloon.
Now, you're making your entre with a more traditional offering so how do you intend to sort of carve out a space in that field.
Are there ways for you to leverage the rest of the portfolio to try and gain share on the balloon side.
Yeah.
Great question.
Our our differentiated value proposition and the balloon space comes on the front end from the the virtue I photo registration, which allows for a faster registration of the kind of the patient's anatomy on the with the C T scan and onto the screen for navigation.
It makes it easier faster and we ultimately hope to have a greater accuracy claim as a function of that navigation capability, but more importantly on the backend we think there's a real opportunity for us to demonstrate differential clinical value with the use of propel contour following balloon sign up last week again.
In our earlier propel contour trial, there was a cohort.
Folks, who only had balloon sign on Plasty, and then had a propel placed afterwards and that delivered a an improvement of 40% in patency. The size of the opening which is exactly what you're aiming to do with balloon dilation.
We feel that's a very meaningful differentiation that allows us to go in and talk about our portfolio in a more comprehensive way I think the other thing to remind ourselves is these are the same docs that we've been calling on that we know very well that look at us with a high degree of credibility as an E N T focused company.
Now, we're coming in with a broader offering a broader set of products across the continuum, we're not making new introductions, we're not establishing a new market where in there to provide a broader and more comprehensive approach to how they treat patients.
An extension of the conversations that we've already been in so we feel we're well positioned to be able to capture share and and and present ourselves with a differentiated value proposition on the front end and on the backend.
Thanks, That's helpful. And then just last one from me I was hoping Randy you could talk about what guidance includes for fee again, because you are guiding to growth over 2019, but that's obviously not all organic so just some ballpark of the acquired revenue contribution would be helpful. Thank you guys.
Yes sure.
Characterized a figure on it's kind of be in that $5 million to $7 million range for 2021 are we think it's mostly a back half of the year as we on.
Indicated in his remarks, as we began on a more formal launch towards the second half of the second quarter.
So again, we're fairly confident we were really pleased with the early adoption and.
How the docs are taking in the newer technology and certainly with.
The cube technology and continue to see some nice progress in the first quarter, but again do you expect most of that revenue to be placed in the second half of the year.
The next question is from Adam made her from Piper Sandler. Please go ahead.
Hey, Tom Hey, Randy Thanks for taking the questions and congrats on the progress.
I wanted to start with the propel outlook for 2020. One. So in January you gave US a growth objective of 4% to 6% growth versus 2019 that was comfortably above street expectations at the time. So I guess first does that still hold and can you maybe just speak to your carpet. Its net outlook you know what are the key drivers there and how did you arrive at that mid <unk>.
Digit assumption versus the 2019 baseline thanks.
Yeah.
Good question I think we feel we will certainly returned to growth with propel this year a.
Four to six years is the right range broadly I think the challenge for US and is really understanding what the impact of Covid will be as it relates to the hospital base business.
We think we can manage it we think that we've shown resiliency in the core business, but there remains uncertainty there while things have certainly improved in the last several weeks from where we're encouraged by the.
<unk> vaccine vaccination rates.
You know and expect we will also have some bit of a bounce back that's probably the biggest variable.
We feel good about our ability to drive growth in the in the office setting, it's really back to that surgical suite, both the hospital and ASC.
We had some caution in our minds.
And that's what that's what's really bleeding that low to mid single digit number on propel but broadly we expect that.
Turned to growth for propel were gonna see some headwinds here in the first quarter and we would expect it to progressively improve over the course of the year.
That's really helpful. Tom Thanks for the color there and then just for the follow up was hoping you could talk a little bit more about the roadmap for the R&D pipeline.
You talked about several initiatives initiatives on the in the prepared remarks. So what are you prioritizing is it the surgically naive product is it higher drug just help level set us on those projects and just any rough timelines you can share as we think about.
The years ahead, I mean is this kind of a steady cadence of new launches or are these more kind of longer term initiatives. Thanks. So much yeah, yeah relative to pipeline in terms of prioritization in 2021 are the two clinical trials that we that I spoke of are the number one priority and those are the eventual.
Contour prospective trial on establishing that combination use of balloon dilation and propel contour to improve patency.
In the balloon dilation market and and we've prioritized that as our clinical trial and a significant source of investment in 2021, the others, our real world evidence effort with the American Academy of Otolaryngology to establish health economic benefit for propel in order to continue to ensure that we get appropriate reimbursement.
Behind propel and even the potential.
For a separate coverage of the implant itself.
Relative to product prioritization, right now, where we're focusing in on optimization around the free Aegon assets that we brought in order to have incremental.
Rather than platform innovation, but optimizing our balloon and our navigation capabilities to ensure that those products are a full suite and competitive with us with a steady cadence of modest news over the course of the next several years lastly, where we're doing a step back and reevaluation of what is the.
Next major platform effort that we would wish to have.
Whereas previously we were focused on the drug coated balloon. We now have a very clear balloon option in front of us that we did not have a.
Six months ago with our venture balloon and then with the potential of the claims that we expect out of the combination eventual oppressed propel.
It has us re examining the the prioritization of drug coated balloon relative to a subcutaneous delivery of Mometasone furoate or even a play for the surgically naive. So we're doing work now to reset the prioritization and then then we will reinitiate the.
Primary platform play that we will go after that also gives us more time before we go back into the hospital clinical environment, which.
Somewhat impeded by Covid, whereas our eventual contour trial enables us to execute that primarily in an office based setting which.
Which is clearly a lot easier to navigate.
The pandemic is still in play.
Yeah.
The next question is from Ryan Zimmerman from <unk>.
B T I G. Please go ahead.
Yeah, Thanks for taking the questions guys.
So just wanted to talk about the changes to reimbursement a little bit and you have a variety of partners that help you know physicians utilize line uva such as the distributors on the specialty pharmacy channels.
We saw last year, some uptick in buy and bill with signed new volume so with the changes that you're talking about in terms of reimbursement I'd love to understand your expectations.
For how physicians.
Utilized I knew in their office from a either buy and bill perspective, or using maybe one of the specialty distributors.
Where they may not be able to recoup as much in terms of reimbursement just your expectation for how those dynamics may change given what.
What you see from a coding perspective.
Yeah, I think you will see a bit of a shift more towards the debt greater ease and predictability of using a specialty pharmacy I think this is where our additional walgreens specialty pharmacy will come to play is as there's an easier pathway faster turnaround that is enabled by having better.
<unk>.
And where to.
To your point, there is a bit less of the economic incentive to go to the buy and bill pathway.
But I think the ease of execution there.
Should enable continued high adoption and where the return is still on the pursuit side.
Of the of the of the procedure of the procedure coding and still have a very attractive return the predictability the ease the convenience the certainty and I should also say that the fat much faster turnaround, but we would expect whereas before on buy and bill and cases flow.
We're waiting six even nine months before they were getting reimbursed I think all of that is going to still induce people to want to use our products.
To use on it at a at a high rate.
Okay got it and then just a follow up for me you talked about Youre doing some really longer term largest longitudinal studies work for propel just around health economics.
And just help us understand is the intent behind that to maybe come back competitive offerings is it to drive incremental commercial payer adoption, what's the strategic rationale for that.
Investment, particularly given propels business profile today, and where that can can go over time.
Yeah. So it really is around improving our coverage so the greatest impediment to utilization for propel today incidents captured largely in the procedure code.
And therefore any time a physician uses it it eats into the profitability of the institution that impact is probably greatest in the ASC.
Utilization on our first procedure is lower than what we see in the hospital setting.
If we can demonstrate that we improve the payer economics.
By reducing the number and frequency of post operative visits of improving care and reducing health utilization.
You'll have an opportunity to be able to argue for.
A separate implant code in addition to the procedure code.
And providing an overall reduction to the payer.
When they provide access to propel what we hear most often from our physicians as I would use it more often if I were not asked to use it less by the institution or.
For purposes of profitability. So what this will enable us to do is go in and say.
The use of propel overall health care utilization goes down and there is an economic savings overall to the plan to the payer by enabling access to propel.
Got it thanks for taking the questions Tom and congrats on all the progress.
Thanks Ryan.
The next question is from Suraj Kalia from Oppenheimer. Please go ahead.
Good morning, everyone.
Hey, Tom I know a lot of comments from made about the FY 'twenty, one guidance and maybe I can just piggyback on the same sort of figure on contribution is five to 7 million the.
The organic guidance is roughly one to nine to 115 million in that bracket.
So your comments about propel for the last.
Analysts where were interesting Tom propel growth, even if I look at it fine 19, it is roughly flattish over FY 18.
If reimbursement is a critical issue and Yolanda relying on health economics to sort of jumpstart growth, let's say in FY 'twenty two would be on maybe I can ask a different way Tom what is the price elasticity of demand as you all see it if you were to reduce.
Pricing for propel.
Debt more than offset the the the unit uptake.
It's a great question.
They're there.
The manner in which we're attacking price elasticity is by endeavoring to improve the level of reimbursement.
In order to take away the impact of price on the physician.
Youre right. There is a theoretical argument that could be made that you could take our price down and demand would rise with it.
I think that's a pretty precarious path to go on and it undermines the.
The strength that we think that we have in the data that we have already in terms of the real benefit that the product offers debt is not being rewarded.
For instance.
If you look at our contoured studies in particular, we saw a 65% reduction in postoperative intervention, there's an economic value attached to that for which we are not being rewarded and that so I'd much rather go and establish the long term health economic benefit it may take us a bit longer.
Then trying to play a price game that would have an immediate negative impact on the business and certainly on our installed base business.
It's your theory is is plausible, but I'd much rather demonstrate the value to the payer and sustained my pricing and my margins rather than take that risky path and I believe that the underlying data that we have in our more short term studies that we've done will bear bear fruit and the.
Our longer term work that we're doing with the American Academy.
No question that Tom It just seems like you have a heavy lift propel you know if you just look at the numbers it seems that drag on the overall business and it is understandable. You know you guys have been trying to tack on growth. So I don't disagree. It's just interesting to see what are the fundamental drivers that will move propelled to them.
To the next level and I'm not sure I got a handle on it Hey, Randy One quick question for you on a hop back in queue. Forgive me. If you already mentioned this what would new store sales same store sales in the quarter and also could you just.
From a bird's eye view tell us how do you see opex leverage what are the metrics for rep productivity. Currently just so that we can sort of tie FY 'twenty one numbers in terms of operationally how the business is performing gentlemen, thank you for taking my questions.
Yeah.
And just to maybe.
To give a little bit more color on your first question one of the things you have to remember about propel.
Propel in terms of revenue growth and pricing.
Certainly.
The new coding certainly bodes well for office based procedures in a variety of things in the future, but right now I.
Just remember from a pricing perspective.
We are a cost as part of the overall procedure and the CPT code.
So it's really that's part of the reason that you're seeing some sluggishness in the growth rates of propel and I think that's where Tom has been guiding us and certainly with some of the clinical trials. It's an effort to sort of try to open that up over the next couple of years and maybe look at that.
Tension for some carve outs at the ASC or otherwise other ways.
Of differentiating the pricing strategy. So you know right now as Tom indicated I'm not sure I think the price is going to do much to leverage the use of it in terms of the CPT code.
Your other question.
You know we are looking at our Opex.
This year of growing a little bit off of the 2019 base we have generated.
I think spent about $133 million of Opex overall in <unk> and 'twenty.
2019, we'd expect that to rise.
Isn't it really well as we begin to position the company for a number of years of sustainable growth and where.
First thing in a few areas of so there'll be some incremental opex flowing through the income statement in 2021.
And then your other question relative to same store sales are not.
Not really a metric we look at although I think the team at <unk> and our presence in the market.
Has probably one of the best coverages of Docs out there right now.
Early on.
I think the prior management team talked about the number of new docs Trialing. Some of this stuff we're in a pretty good shape with our coverage right now.
On the real area that we're seeing.
Kris is over on the Synovus side is as the commercial team continues to to Reengage docs and certainly the new coding will make it significantly easier to get reimbursed so.
We remain very optimistic about the prospects for revenue growth going forward. So hopefully I gave you enough color there on the Opex side.
Thank you.
The next question is from Kyle Rose from Canaccord Genuity. Please go ahead.
Great. Thank you very much just wanted to ask you one question about international.
And then also about propel bush.
And venture so maybe just help us frame out the international opportunity a little bit more I mean, I realize you know you're talking about modest growth in 'twenty, one and larger growth in 'twenty, two and beyond but I guess, just with respect to where the guidance is now you know how are you thinking about the contribution internationally. This year and then maybe what investments need to take place to really helps the poor.
That larger growth that you're you're pointing to in 2022.
Yeah, So let me take that first.
Yeah, we we start with a very modest platform.
In Europe, we have you know.
A small business a two to 3 million Bucks in 2019.
In primarily in Germany.
We see 2021 is in a year in which we may be able to double that value, so adding $2 million to $3 million of growth again on a base of 109 that that represents a one to two points of incremental growth to the overall corporation, so very small, but again, a each movement moves the ball forward, but.
Really the way to think about 2021 is it is a year, where we are preparing for a broader play and specifically we are investing in our E. M. D are to make sure that we're appropriately filed and registered across the board. So that's a level of investment necessary there.
We expect to get approval for propel contour right now we have the propel propel mini approved and CE marked we should get propel contour added to the portfolio in Q2.
In addition, we expect to get here back on guidance from the.
The NHS in the U K, which would give us a clearly a much greater opportunity.
In the U K and that should come also in Q2, so it's really setting ourselves up with a modest level of growth now building from the greater degree of infrastructure that we have as a result of the fee is on acquisition, which is based in Berlin.
And then to be able to expand from there in years to come and again not not try and change suddenly take the market by storm, but really build from our beachhead in Germany to include Switzerland, Austria, and Germany, and then expand out of the U K as.
As we really move into 2022 and beyond I think the key again and all of these and maybe true Suraj. This point propel.
Propel growth in 2021 comes from office based environment comes from a modest level of European activity on propel we start adding those together and we've just got those more shots on goal as we go forward, which I know will probably being the biggest dollar contributor I'm.
Getting incremental value out of the theater on assets getting modest contributions coming from the elements that I just spoke up with propel.
I think all sets us up for continued momentum throughout the year.
Yeah, No I agree with you add a little color to that.
And again to Suraj as question again, as Tom indicated with the number of things that we're doing in Europe to position ourselves for really to see meaningful.
Growth over in Europe in 2022.
We're making some investments this year as Tom indicated E O M D R.
The further improvement and expansion of contour and certainly some of the health economic studies we're on.
Investing in sort of figure on platform to show that we are.
A good position to grow, particularly in Germany, and hopefully in the U K in 2022.
Okay. That's very helpful. I appreciate the color there and then just maybe level set us with respect to.
Where the business is really occurring now when we think about all the moving pieces from the.
The hospital environment, the outpatient and ASC and then also the physician office can you just kind of help us understand you when you're on when I look at your U S business what percentage it is occurring in those specific sites and how we should think about that evolving in 'twenty, one because clearly the office it feels like it's gonna be a larger part of the growth on a go forward basis.
Yeah. The vast majority of our business is still in the hospital setting behind propel Theres no doubt about that and I would say, that's probably about 60% to 65% of our total revenue, which is a hospital based propel our E.
A S C comes in at about 15 or so.
15% to 20%.
The office being an opportunity for growth as we have both <unk> and propel in the office environment expanding from there.
And right now I would say yeah, we're seeing nice year on year growth in the office setting behind both propeller and <unk>, we're seeing a little bit more of the headwinds on.
Covid in the in the hospital setting.
But we feel debt.
We will get all of those on a growth trajectory through the course of the year.
And be able to deliver on expectation in terms of meaningful growth relative to 2019.
Great. Thank you very much for taking the questions.
Again, if you have a question. Please press Star then one.
The next question is from Ravi Misra from Baird. Please go ahead.
Hi, good morning, Thanks for taking the question. So I just wanted to circle back to reimbursement and how it affects the commercialization strategy for <unk>. Just curious number one how you kind of see this impacting the can depth versus breadth argument.
Is it going to be easy given the more standardization to get.
New doctors on to this and kind of if you could help us know where you think your penetration stands amongst your installed base using the device.
How that could affect any changes on the existing users.
Okay.
Yeah sure I mean in terms of penetration, we have a long long way to go.
Our total available market fortunate I knew by our estimation is in the $300 million range and yeah. We did you know $4 million in 2019, we indicated that we would expect it to at least double that this year. So you know.
Call it $10 million on.
On a high side relative to a $300 million market, we've got a long long way to go.
We think that with the ease and simplicity that is implied by having a code the certainty of getting covered the faster turnaround times were gonna see substantially more penetrate penetration across stocks, many docs, who had tried it before and where.
Candidly a little bit burned by the reimbursement environment, we think that represents a very clear and targeted Bull group. They obviously had clinical interest in the product.
And now we can come back and speak with them with certainty that we've got a much faster simpler easier predictable means by which they can get coverage and reimbursement.
Because you have to remember that from for many of those physicians not only did they not get reimbursed. They they may have put out of pocket on the buy and bill basis for the product. So they actually lost money now they can come back and they know that theyre going to get reimbursement on the implant theyre going to make a modest amount of money on the implant theyre going to get.
Paid for the procedure code, it's now a net lucrative opportunity for them with certainty for a relatively low intensity procedure to be done in their office and we think that's going to be the key to really opening substantially greater penetration and a greater realization of that.
Total available market.
It won't happen all over night, but we think that it is a source of sustainable growth that will drive overall corporate growth not just the product growth.
In the years to come.
Great. Thanks that was it for me to have a nice one.
Thank you.
This concludes our question and answer session.
Like to turn the conference back over to Tom West for any closing remarks.
I just want to thank everybody again for your interest in intersect Ent's. We're excited about where we are we feel we've made tremendous progress that will support us not only in returning to growth in 2021, but really to providing sustainable double digit growth into the future.
We have set up our portfolio in a way that diversifies us gives us greater relevance and meaning to the positions that we cover.
We have set ourselves up with the ability to deliver meaningful product news in 2021, and a cadence of new news and innovation in the years to come.
Thank you for your interest in intersect Ent's.
Look forward to speaking with all of you soon thanks very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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