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Intersect ENT Grows on Product Launch Amid Pricing Pressure

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On Apr 5, 2019, we initiated a research report on Intersect ENT (XENT - Free Report) . This Zacks Rank #3 (Hold) company is currently focusing on international expansion and innovation.

Intersect ENT is a commercial drug delivery company, catering to patients with ear, nose and throat-related ailment. Over the past six months, shares of the company have surpassed the industry it belongs to. The stock has gained 7.4% against a 2.8% decline of the industry.

In the last reported quarter, the company registered a strong year-over-year increase in revenues. This growth was attributable to the higher adoption of the PROPEL family of steroid releasing implants and the commercialization of the SINUVA (mometasone furoate) Sinus Implant. SINUVA contributed to approximately 4% of the company’s revenues in the fourth quarter of 2018.

The company recently completed the ENCORE Study, a small 50-patient open label program, designed to evaluate the safety of the repeat use of SINUVA. It also commenced a clinical trial last December of a new pipeline product, which is the investigational ASCEND drug-coated sinus balloon. By the third quarter of 2019, Intersect ENT hopes to complete the ASCEND Study enrollment and by this year-end, it expects to derive the top-line contribution from the ASCEND technology.

The company is currently making an all-out effort to expand its foothold in the market for chronic sinusitis, which is huge and to a great extent, is underpenetrated across the globe. Per the Centers for Disease Control and Prevention (CDC), approximately 12% of adult population or 29 million people in the United States are affected by chronic sinusitis, thereby making it more prevalent than the heart disease and asthma.

The target market of Intersect ENT’s PROPEL products includes approximately 540,000 patients, who undergo FESS (Functional endoscopic sinus surgery) for chronic sinusitis annually in the United States. Meanwhile, the same space for SINUVA consists of approximately 635,000 patients, who previously underwent FESS but are persistently afflicted with nasal polyps.

On the flip side, a tough pricing scenario and the highly competitive market pose stiff challenges to Intersect ENT.

Per Intersect ENT, effective January 2017, the Centers for Medicare & Medicaid Services (CMS) assigned upper airway procedures (inclusive of sinus surgery) to a comprehensive Ambulatory Payment Classification (APC) for operations conducted in the hospital outpatient department setting. With this, the reimbursement per case was set at a fixed amount regardless of the number of procedures performed during that encounter.

As a result, while payment increased for the Medicare patients’ encounters involving one or two procedures, the same for encounters with three or more procedures (common for those using Intersect ENT product) declined significantly below the prior average reimbursement rate.

Key Picks

Some better-ranked stocks in the broader medical space are Stryker Corporation (SYK - Free Report) , Penumbra, Inc. (PEN - Free Report) and Amedisys, Inc (AMED - Free Report) , each stock currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth rate is projected at 10%

Penumbra’s long-term earnings growth rate is estimated at 20.9%.

Amedisys’s long-term earnings growth rate is forecast at 19.7%.

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