What: Shares of Intersect ENT (XENT), a drug-device company focusing on developing therapeutic solutions for patients with ear, nose, and throat conditions, dropped by more than 26% today on exceptional volume. The apparent catalyst behind this hefty downward move was the company's disappointing third quarter earnings report released after the bell yesterday. Cutting to the chase, Intersect posted a net loss per diluted share of $0.35, which was 20.6% higher than consensus estimates, according to data from S&P Capital IQ.
So what: Although the company's third quarter revenue, stemming mainly from sales of its Propel dissolvable sinus implants, increased by a healthy 56% to $14.2 million relative to a year ago, the Street was expecting a figure closer to $15 million. Complicating matters further, Intersect's expenses shot up by 71% to $21.2 million for the three month period, compared to the same period a year ago. Management attributed this meteoric rise in operating expenses to increased staffing needs, clinical trial costs, and general expenses associated with being a public company.
Now what: Analysts covering this stock think Intersect could cut its net loss per share by roughly 27% next year, paving the way to perhaps turn the company into a profitable operation by 2018 or 2019. To do so, Intersect will need to gain additional FDA approvals for its Propel platform and start to lower its burdensome operating costs.
The good news is that the company reported in its earnings release today that it has submitted a premarket approval supplement to the FDA to potentially expand Propel's use to patients undergoing frontal sinus surgery. Intersect is also apparently making excellent progress toward completing some of its other costly clinical activities.
At this stage, Intersect is starting to generate impressive levels of revenue growth, but it's still a long way from being a cash flow positive medical device company. That's why you may want to remain cautious with this small-cap stock, even after this steep pullback.
