Intersect ENT: Maintaining Leadership as the Pioneer of Bioabsorbable Steroid-Eluting Sinus Implants Amid Strategic and Market Challenges

On May 6, 2019, Intersect ENT’s stock price fell by 17%.

Intersect ENT is the world’s first developer of bioresorbable sinus drug-eluting stents, dedicated to developing innovative therapeutic solutions for otolaryngology, and has experienced rapid growth since its inception.

The direct cause of this share price decline was Intersect ENT CEO Lisa Earnhardt’s announcement that she would resign as CEO of Intersect ENT to join Abbott as head of its medical device division—stepping down from a senior leadership role to take on a mid-level management position at an established medical device manufacturer.

“The Six Armies Cannot Be Without a Commander.”

More than a month later, Thomas A. West was appointed to take on the challenge and officially assumed the roles of President and Chief Executive Officer of Intersect ENT, effective July 22, 2019. In the interim, Kieran Gallahue, the Company’s Lead Independent Director, served as Acting Chief Executive Officer.

Intersect ENT took notice of Thomas due to his strong business acumen. In October 2014, Thomas joined Hologic, a medical imaging and diagnostics company, as President of its Diagnostic Solutions segment. Under his leadership, Hologic reversed the decline in product sales and achieved revenues exceeding $1.1 billion. He previously served as President of LifeScan EMEA, where he doubled the scale of the company’s European operations during his tenure.

Thomas is set to take the helm at the company, but personnel changes at Intersect ENT are not yet complete. The company’s Chief Financial Officer, Jeryl Hilleman, will also step down in early 2020, and a successor is currently being sought.

Personnel turbulence may signal underlying issues in Intersect ENT’s development, as its performance over the past year has been mixed. Operating costs have risen, while revenue growth has steadily slowed, and competitors are beginning to emerge in its niche segments. What challenges will Intersect ENT face, and how can it defend its authoritative position in the otolaryngology field?

Intersect ENT is renowned for developing PROPEL, the first biodegradable sinus drug-eluting stent that releases steroid medication. The company has been granted more than 20 patents in the United States and holds a total of over 80 patents and patent applications worldwide. Yet the innovative technology that has paved Intersect ENT’s smooth path in fundraising actually originated from a casual gathering among friends.

In 2003, Don Eaton had a breakthrough idea while dining with surgeon Mary Lynn Moran, conceiving the first product of Intersect ENT—the biodegradable sinus drug-eluting stent PROPEL—which he simply sketched on a napkin. This simple sketch offered the possibility for patients with chronic rhinosinusitis to completely break free from inflammation. After being implanted during sinus surgery, the PROPEL biodegradable stent continuously releases anti-inflammatory medication and eventually dissolves entirely within the nasal cavity, significantly reducing the need for postoperative interventions and the risk of recurrence.

In the same year, Don Eaton founded Sinexus, the predecessor of Intersect ENT, in Palo Alto, California, USA.

In 2006, Sinexus completed its Series A financing and used the funds to build a team and begin product development. In June 2008, the company announced the completion of a $20 million Series B financing round and appointed Lisa Earnhardt as President and Chief Executive Officer.

In November 2009, Sinexus was officially renamed Intersect ENT, signifying the company’s mission to connect physicians and patients with corresponding needs to appropriate drugs and devices.

In April 2012, to expand its business, Intersect ENT relocated its headquarters to a new 32,000-square-foot facility in Menlo Park, California, which serves as its operations and manufacturing base.

2013 was a landmark year for Intersect ENT. In February of that year, the company announced the completion of a $30 million Series D financing round, led by Norwest Venture Partners, with participation from Medtronic, Kleiner Perkins Caufield & Byers, and other investors. One day later, Intersect ENT secured an additional $18.3 million in venture financing. Since then, the company has continued to accelerate its hiring and product commercialization efforts, with product sales experiencing steady growth. In the same year, Intersect ENT was named by FierceMedicalDevices as one of the 15 most competitive medical device and diagnostics companies of 2013.

Intersect ENT continues to be favored by investors for its innovative technology and vast market potential. In 2014, Intersect ENT went public on the Nasdaq, raising $55 million. Within a year of its IPO, the company’s stock price doubled.

Since then, Intersect ENT has experienced rapid growth, successively launching PROPEL Contour and SINUVA, thereby forming a comprehensive product portfolio targeting chronic rhinosinusitis in various anatomical regions.

Intersect ENT has developed a series of implantable products for adult patients with chronic rhinosinusitis, centered on its local steroid delivery technology, from 2011 to the present. These products simultaneously dilate the sinus ostia and deliver a potent anti-inflammatory corticosteroid (mometasone furoate) directly to the sinus walls, thereby reducing the need for postoperative interventions such as lysis of adhesions and oral steroid therapy. Detailed product descriptions are provided below:

PROPEL received FDA premarket approval on August 15, 2011. This product is the first sinus stent to combine localized steroid-eluting technology for targeted drug delivery to specific sinus tissues, with clinical trial results achieving a Class I-A rating. The device is 23 mm in length, acts on the ethmoid sinuses, effectively separates mucosal tissues, stabilizes the middle turbinate, prevents adhesive obstruction, and avoids tissue edema.

PROPEL maintains sinus ostial patency while reducing the incidence of postoperative scarring, inflammation, polyps, and lateralization of the middle turbinate, thereby helping patients improve long-term outcomes and avoid revision surgery.

PROPEL Mini received FDA approval on November 6, 2012. This product is a smaller version of PROPEL, with a length of 16 mm, but it offers the same drug dosage and clinical benefits as PROPEL, along with broader indications. PROPEL Mini can be used in ethmoid and frontal sinus surgeries, resulting in smaller surgical wounds. Its miniature size and curved delivery catheter facilitate easy placement and better conformity to the sinus ostium.

PROPEL Contour, the latest product in the PROPEL series, received FDA approval on February 24, 2017. This device features a smaller profile than PROPEL Mini, with a length of only 2.8 mm. Its drip-shaped delivery catheter offers high conformability to fit the sinus ostium, thereby maximizing postoperative recovery for patients undergoing frontal and maxillary sinus surgery.

On November 15, 2018, Intersect ENT announced the analysis results for PROPEL Contour and PROPEL Mini, indicating that intraoperative placement of its PROPEL frontal sinus implant can improve outcomes in frontal sinus surgery compared to standard sinus surgery. By day 30 after implantation of PROPEL Contour, 46.8% of patients required no postoperative intervention.

The SINUVA sinus implant continues to utilize localized steroid release technology for the treatment of adult patients with recurrent chronic ethmoid sinusitis. The product’s innovations lie in its ease of insertion and extended degradation duration. Using a dedicated delivery device, physicians insert SINUVA through the nasal cavity into the ethmoid sinus; once positioned at the target site, it is virtually imperceptible to the patient. This approach effectively avoids the need for surgical intervention, delivering anti-inflammatory steroids directly to the inflamed area for up to 90 days, whereas the PROPEL product line has a degradation period of 30 days.

On June 4, 2019, Intersect ENT announced the results of the RESOLVE and RESOLVE II randomized controlled trials, demonstrating that SINUVA can reduce nasal polyps, alleviate nasal congestion, and decrease the need for repeat surgery. Furthermore, in a study involving patients who had previously undergone sinus surgery, fewer than half required revision surgery after implantation with SINUVA.

ASCEND is Intersect ENT’s latest product, a drug-coated sinus balloon that also delivers corticosteroids directly to the sinuses.

On December 17, 2018, Intersect ENT officially announced the launch of the ASCEND clinical trial, which aims to evaluate whether the ASCEND device can directly deliver corticosteroids to reduce inflammation while opening stenotic sinus passages.

Intersect ENT has steadily established its foothold in the chronic sinusitis treatment market through continuous innovation and product development; yet, beneath this smooth trajectory, undercurrents of turbulence are quietly gathering.

Intersect ENT has expanded rapidly in recent years, carving out new territory in a multi-billion-dollar market. 2018 was supposed to be a promising year following the approval and launch of SINUVA; however, Intersect ENT encountered unexpected obstacles in its clinical promotion. The most significant challenges were the complex reimbursement processes and low physician adoption rates.

This has also led to a slowdown in Intersect ENT’s revenue growth since 2018, with the company beginning to show signs of weakness in the stock market in the second half of that year. Over the past two years, Intersect ENT’s stock price reached a high of $42.20, but recently it has remained below $30, reflecting an overall downward trend.

A review of Intersect ENT’s financial annual reports from 2012 to 2018 reveals that its loss per share decreased year over year between 2012 and 2017, but a turning point occurred by the end of 2018. The management’s overly optimistic outlook disconnected from reality, coupled with slowing revenue growth and persistently high operating expenses, led investors to doubt Intersect ENT’s long-term prospects, causing its stock price to continue its decline.

Intersect ENT finally couldn’t sit still.

In late October 2018, the company executed a reshuffle of senior leadership within its operations and sales teams, aiming to recalibrate its marketing strategy to address the current crisis of imbalance between revenue and operating expenses.

The market has not responded favorably to these measures. Intersect ENT’s financial report for the first quarter of 2019 showed: revenue amounted to $26.7 million, with a year-over-year growth rate of only 8%, marking its first drop into single digits; net loss increased to $10.8 million, or $0.35 per share (worse than the analysts’ expectation of $0.31); operating costs were $33.5 million, an increase of $1.4 million from the previous quarter.

Intersect ENT attributed its underwhelming performance primarily to its new product, SINUVA. Compared with the earlier PROPEL product line, SINUVA had a much slower market launch. To drive growth, the company expanded its workforce and increased marketing investments. However, SINUVA’s past sales were less than satisfactory, mainly because it was the first physician-administered ENT (ear, nose, and throat) drug, involving complex reimbursement processes and higher costs, which hindered its promotion.

Although the number of SINUVA customers in the first quarter of 2019 increased by 20% compared to the fourth quarter of 2018, inefficiencies in the drug distribution process caused by product reimbursement issues often led physicians to change their minds at the last minute and cancel purchase agreements. Many physicians are accustomed to using automated drug reimbursement systems, and expecting them to handle prescription-related tasks manually is indeed an unreasonable burden.

Therefore, Intersect ENT began to shift its focus from sales to product reimbursement issues and launched a series of promotional campaigns.

For instance, in April 2019, Intersect ENT launched the SINUVA Professional Education Program. This educational initiative, targeted at physicians and nursing staff, aims to promote adoption by disseminating knowledge on clinical applications and product usage, thereby facilitating greater uptake of SINUVA by healthcare institutions.

Intersect ENT also stated that the Centers for Medicare & Medicaid Services (CMS) had made a preliminary decision to assign a new HCPCS (Healthcare Common Procedure Coding System) code to SINUVA, integrating it into the hospital system and streamlining the reimbursement process. The company expected the code to take effect on January 1, 2020.

Intersect ENT had previously doubled the size of its product reimbursement team, yet the utilization and adoption rates of SINUVA remained suboptimal. Analysts believe that the establishment of HCPCS codes will not significantly impact SINUVA’s sales in the short term.

As the marketing focus shifted toward SINUVA, the sales growth of the PROPEL product line was again impacted. Intersect ENT will next coordinate and balance its portfolio, optimize legacy products, and drive the launch of new products:

1. Intersect ENT will continue to steadily advance the development of its product pipeline and conduct the clinical evaluation of ASCEND, with statistical results expected before 2020. Upon successful trial outcomes, it will submit a Premarket Approval (PMA) application to the FDA. Currently, there are approximately 200,000 balloon sinus dilation procedures performed annually in the United States, suggesting that the company seeks to capitalize on this vast market.

2. Intersect ENT has currently optimized the design of PROPEL Mini and submitted a supplemental Premarket Approval (PMA) application to the FDA, with the upgraded product expected to be launched before 2020. Regarding the promotion of PROPEL Mini, the company stated that it would provide the product to physicians for a nominal fee, thereby reducing medical costs associated with its use and expanding market reach.

In addition, due to revenue contraction, Intersect ENT also plans to reduce its full-year 2019 baseline expenses by approximately $6 million through expense adjustments and a reduction in hiring. However, this reduction will be offset by incremental stock-based compensation expenses resulting from leadership transitions, with full-year operating expenses expected to remain between $135 million and $137 million.

As evident from the aforementioned initiatives, Intersect ENT aims to boost revenue by optimizing its PROPEL product series and promoting SINUVA, while penetrating the sinus balloon dilation market with ASCEND, thereby consolidating its leadership in the otolaryngology sector and successfully navigating the current challenges.

Approximately one year after Intersect ENT launched PROPEL, China’s Puyi Biologics was established on October 12, 2012. Although nine years younger than Intersect ENT, Puyi Biologics has refused to lag behind in technological innovation. Currently, worldwide, only Puyi Biologics and Intersect ENT have received approval for their sinus stents, with Puyi Biologics holding a dominant position as the sole player in China’s drug-eluting sinus stent market.

It is reported that Puyi Biologics was jointly established by overseas returnees and medical device manufacturers. The company possesses core technologies in the application and research and development of biodegradable polymer materials, with business spanning multiple fields including biopharmaceuticals, new material R&D, and interventional medical devices. Primarily engaged in the R&D, production, and sales of high-end, minimally invasive implantable interventional medical devices for ENT (ear, nose, and throat) specialties, Puyi Biologics is a biotechnology enterprise characterized by its high starting point and advanced technology.

In early 2015, Puyi Biotech established a production base with an annual capacity of 60,000 units in compliance with the manufacturing requirements for Class III medical devices, so as to expand its R&D and production scale.

One year later, Puyi Bio’s first product, the “Fully Biodegradable Sinus Drug-Eluting Stent System” (brand name: Xiangtong), entered the green channel for special approval of innovative medical devices by the National Medical Products Administration (NMPA). In April 2017, it became the first sinus drug-eluting stent product approved by the NMPA in China.

He Chuan, Sales and Marketing Director at Puyi Biologics, stated that in terms of degradation time, drug loading capacity, and stent braiding technology, Puyi Biologics’ bioresorbable sinus drug-eluting stent offers a longer degradation period, higher drug loading, and a more stable physical structure that provides superior support.

With its high-quality products approved and broad market prospects, Puyi Biotech has successfully attracted the attention of domestic investors.

In May 2018, Puyi Biotech completed its Series A financing, with Aurora Venture Capital and Legend Capital as investors.

In June 2019, Puyi Biologics completed a Series B financing round worth tens of millions of yuan (see VCBeat’s previous report:“Puyi Biologics Completes Tens of Millions of Yuan in Series B Financing, Targeting the Degradable Stent Market for the Perioperative Period Following Chronic Rhinosinusitis Surgery”), with Beijing Zhenghe Huitong Fund Management Co., Ltd. as the lead investor. Industry insiders view Xiangtong as an exclusive product in China, representing a disruptive innovation with high potential for future explosive growth.

According to He Chuan, the application of fully bioresorbable drug-eluting stent technology in rhinology is actually quite extensive. In terms of market size, based on estimates by the investor Zhenghe Huitong, the prevalence of chronic rhinosinusitis in China is approximately 8%, with around 500,000 patients undergoing surgical treatment nationwide each year. On average, each patient may require the implantation of two stents postoperatively, indicating substantial market demand.

Since its market launch and promotional efforts, Puyi Biologics has accumulated over 1,000 documented effective cases. Its products have been adopted by approximately 50 hospitals, with around 130 additional hospitals currently awaiting tendering processes. It is projected that by the end of 2019, approximately 100 hospitals will have introduced its products.

Puyi Biologics does not intend to limit its operations to the domestic market. The company is currently pursuing international patent applications for two of its invention patents in four countries, with approvals already granted in some jurisdictions, laying the groundwork for global expansion. With continued marketing efforts and the development and launch of new products, Puyi Biologics’ fully bioresorbable sinus drug-eluting stent is poised to benefit a broader patient population in the foreseeable future.

In contrast to the rise of Puyi Biologics, Intersect ENT is not only grappling with setbacks in its U.S. market promotion but also facing the challenge of losing its absolute monopoly on bioresorbable sinus drug-eluting stents. Technological progress knows no bounds, and commercial competition never ends; it is precisely this dynamic that serves as a major driving force for industry advancement.

(Compiled by Tang Lulu)