Intersect ENT (XENT) Q1 2020 Earnings Call Transcript

Intersect ENT (XENT)
Q1 2020 Earnings Call
May 11, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Intersect first-quarter 2020 conference call. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Randy Meier, executive vice president, CFO. Please go ahead.

Randy Meier -- Executive Vice President and Chief Financial Officer

Thank you, operator, and thank you all for participating in today's call. Joining me today is Tom West, president and CEO of Intersect ENT. Before we begin, I would like to remind you that we will be making forward-looking statements within the meaning of the federal securities laws. Actual results and timing of events could differ materially 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, sales 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 risk details from time to time in the reports we file with the SEC.

We disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein. I will now turn the call over to Tom.

Tom West -- President and Chief Executive Officer

Thank you, Randy. Good afternoon, everyone, and thank you for joining today's Intersect ENT Q1 2020 earnings call. Since late February, the COVID-19 pandemic has had an adverse impact on lives globally. I sincerely hope that you, your families and loved ones are safe and healthy.

No business or industry has been immune to the pandemic's effects and Intersect ENT is no exception. With hospitals suspending elective surgical procedures and ENT office visits greatly reduced, Intersect ENT's revenues were materially and adversely impacted in March after a solid start to the year. In January and February, our 2020 top-line revenue performance and other leading indicators such as procedure enrollments, reflected the progress of our strategies to improve commercial execution and market access that we began in the latter part of 2019. By focusing on clinical selling and market development, of our novel solutions for treating chronic rhinosinusitis while also working through excess channel inventory, we felt confident we were laying the foundation for solid year-on-year revenue growth in 2020.

However, the outbreak of COVID-19 in the U.S. in late February and early March reversed the progress we were making. Despite a robust start to the year, first-quarter 2020 revenues ended at $19.8 million, which was consistent with our earlier Q1 pre-announcement and down from $26.7 million in the year-ago period. With that as an introduction, and before I discuss the status of actions we have taken in response to the pandemic and the growth initiatives that formed the basis for my continued optimism in our future, I would like to briefly comment on this morning's announced capital raise.

Today, we successfully closed a $65 million privately placed convertible note financing with Deerfield Management Company. The basic terms include a 4% coupon rate and a conversion price of $15.54 that matures in 2025. While the security contains other features such as callability, I will refer you to the press release and 8-K filing for the full details. We are very pleased we are able to work with one of our largest investors who share our belief that Intersect ENT remains well-positioned to return to growth as a market leader in the ENT space.

The incremental capital provides us with the financial strength, flexibility, and liquidity that enhance our ability to accelerate our growth initiatives while continuing to manage through any remaining challenges of the pandemic without additional capital needs. This capital raise, coupled with the previously announced corporate actions that I will discuss shortly, provide us with the resources and wherewithal to grow the business, build our markets, and invest in our future products. Now let me return to the first-quarter actions we took to address the COVID-19 pandemic. At the start of the pandemic, our immediate response was to ensure the health and safety of all Intersect ENT employees and the customers we serve.

We transitioned nearly all roles, office, and field base to work from home and limited nonessential business travel while greatly curtailing the field team's physician and office visits. We will continue as long as it is appropriate to take the necessary precautions to ensure that all members of the Intersect ENT family are safe. Operationally, we proactively sought to reduce costs, maintain liquidity, and preserve our cash to enable us to navigate the immediate and near-term revenue shortfall. To be more specific, as part of our strategy to reduce our cash burn, we enacted a range of cost-reduction actions in early April.

These actions included reducing our workforce by approximately 25% and furloughing an additional 5% of employees. The workforce reductions were made across the organization and at all levels. Furloughs were primarily in manufacturing. Importantly, in our field-selling organization, we sought to minimize the impact on and coverage of our customers.

We recognize the importance to our business and to our investors of restoring revenue quickly and strongly as elective procedures resume. We have completed the realignment of territories and regions seeking where possible to delayer and broaden spans of control to realize savings while aiming to minimize any impact to local coverage at the physician level. In addition, we reduced discretionary operating expenses and capital expenditures across the company. Of note, we delayed clinical research projects in 2020, given the difficulty in executing our studies in the field in the context of the pandemic.

We also suspended near-term manufacturing with 6 months of inventory versus historical demand, we view our finished goods inventory as a strategic asset that enables us to temporarily halt production while knowing we can quickly meet customer needs as conditions begin to normalize. With manufacturing on hold, we will further preserve our cash position while drawing down inventory. Based on our current expectations, we anticipate limited manufacturing production through the summer. To be clear, we have retained critical operations capabilities, including manufacturing leadership, and a full shift of skilled direct labor who will maintain our production readiness and be in a position to restart production at the required capacity at the appropriate time.

The net result of our cost-reduction initiatives lowered our planned use of cash by approximately $40 million from Q2 through Q4 of 2020. Having successfully accomplished these savings goals in early April, combined with our cash balance of nearly $88 million at the close of March, we believe we were well-capitalized even under modeled downside scenarios of a more protracted impact of COVID-19. However, even though we addressed near-term expense and cash pressures, we determined that an incremental capital raise would better ensure our success and allow us to focus on our future and invest where needed. During the last month, we engaged with Goldman Sachs and evaluated a variety of potential capital options, resulting in the convertible debt structure we announced today.

Now with a more prudent overall cost structure, sound existing cash balances coming out of March, and as of today, an additional $65 million in new capital, we believe we have the financial and investment strength to drive our business while ensuring liquidity through at least 2022. We are now singularly focused on driving commercial success, innovation, and growth. Intersect ENT, like most organizations across the country, quickly transitioned to working virtually. We genuinely embrace this unprecedented circumstance as a unique opportunity to transform and retrain so that we emerge as a leaner, stronger, and better-equipped organization.

I am proud of the commitment and drive exhibited by the entire organization. But this spirit of possibility and advancement was especially true in our commercial and market access organizations where we use the opportunity to better integrate and train compliantly against commercial and payer efforts for the benefit of our patients and customers. We also instituted XENT University, Intersect ENT University, and built a robust virtual curriculum to elevate the effectiveness of our field sales team. On the innovation side, we have strengthened our new product development processes by better aligning key contributing functions and workflows in research and development, regulatory, clinical, and manufacturing.

We have not been idle despite sheltering in place. As we look at the market today, we see clear signs that elective procedures are opening, albeit at different rates in different geographies across the country. We will, of course, continue to ensure the safety and well-being of our employees as practices and procedures open up. But we intend to aggressively invest in our market development initiatives to take advantage of the eventual rebound in elective procedures with the goal of achieving renewed revenue growth quickly, first month to month as we're seeing in May versus April, then quarter to quarter, as we expect in Q3 versus Q2 and eventually, year-on-year growth consistently going forward.

Prior to the pandemic, our customers were realizing the value of PROPEL and SINUVA and the strong clinical evidence that underscores each product's significant clinical utility. As noted, our revenues through February were tracking ahead of prior year and in line with our expectations in 2020 guidance. It was clear that our commercial execution and market access improvement actions were beginning to yield meaningful benefits. In the back half of 2019, we strengthened our market development infrastructure and improved our analytical and selling insight while expanding key sales force capabilities, such as in-office reimbursement support to meet the unique market needs of our products.

These strategies resulted in positive data points such as heightened enrollments for SINUVA in January and February. As the market rebounds in elective surgeries and office-based procedures resume, we are encouraged by the traction we are gaining early in 2020, and we'll aggressively look to redouble our efforts against these strategies using our talented and knowledgeable sales force, which is among the largest and most respected in the ENT industry. What adds further to my confidence in the ability of Intersect ENT to rebound is the near to midterm elective sinus procedure landscape. Given the chronic nature and persistence of sinusitis for many sufferers and their otherwise unmet medical needs, it's not surprising that our field surveys indicate that approximately 70% to 80% of sinus procedures were postponed or delayed rather than canceled.

We estimate that the market will meaningfully reopen for elective sinus procedures at the end of the second quarter and beginning of the third quarter with a backlog of untreated patients awaiting care. We anticipate office-based procedures, such as the SINUVA implant will return earlier ahead of hospital-based procedures such as the PROPEL implant. We are also already seeing and preparing for a shift from traditional hospital OR surgeries toward procedures in smaller ambulatory surgical centers, or ASCs. The post-COVID landscape represents an excellent opportunity to drive SINUVA trial, adoption, and penetration while expanding PROPEL side-of-care use.

We are confident that PROPEL hospital and ASC surgical procedures will return as the clinical benefit of PROPEL remains compelling, though access to the OR may be more limited in the near term. We expect to return to historic and expanded levels of SINUVA use in the near to midterm and achieve PROPEL's full recovery by year end. Importantly, as we go forward, we see an increasing role for health economic evidence to support our portfolio. As we stated in last quarter's call, we want to ensure unencumbered access to our products via appropriate payer reimbursement that makes it easy for physicians and institutions to procure and use our products.

We will continue to capitalize on increased commercial payer use of the J code for in-office use of both SINUVA and PROPEL. In fact, in January and February, we received favorable fee scheduled treatment from several national commercial payers for use of the J code, which was showing early benefits. We intend to draw upon the improved market coverage as elective sinus procedures resume. In addition, we also see emerging opportunities to carve out reimbursement for PROPEL in the expanding ASC environment.

While our efforts to gain traction will take some time to be fully realized on a national scale, there are immediate emerging opportunities in key markets such as Texas and Illinois. Lastly, we are preparing health economic studies to influence future reimbursement. Our initial view is to use registry data and real-world evidence to expedite the proven sources supporting appropriate reimbursement across the portfolio. We are also assessing potential prospective studies as the reimbursement framework and evidence of long-term health economic benefits are central to our vision for sustained long-term growth.

Taken together, expanded and unencumbered access and payer coverage are central to our vision of making PROPEL and SINUVA standard-of-care therapies centered on clinical benefits and available to the vast majority of patients. With regard to innovation and new products in the quarter, we had a positive meeting with the FDA in January regarding our drug-coated balloon program. We believe we have a clear and aligned path forward with an established clinical endpoint for our PMA submission that is informed by the strength of our earlier ASCEND trial. We expect to meet again with FDA in June thereby enabling us to lock down our remaining clinical requirements.

However, as I noted, part of our cash preservation initiatives look at delaying clinical research for new products through the remainder of the year. It would be imprudent to initiate a pivotal clinical trial supporting the drug-coated balloon submission until we are certain we are clear of the associated risks of the pandemic. We expect to begin the clinical work on the drug-coated balloon closer to year-end 2020. This would, in turn, equate to a launch in the second half of 2023.

Overall, we believe reinitiating our commercial execution and market access improvement strategies, which are already showing signs of progress and aggressively deporting our resources to support market development actions will enable us to achieve sound revenue growth in 2021 relative to 2019 revenues. While this is subject to risks related to the length and depth of the pandemic, we are taking decisive action now so that the company can be in a strong position to reengage with our key customers once elective procedures resume. Prudent cost and cash savings, a solid capital position at the end of March, and an additional infusion of capital announced today solidify our financial position as we manage through the challenge of COVID-19 and have us well-positioned to drive renewed revenue growth. The strength of our product and pipeline offerings, the talent in the organization, the early positive results of our commercial strategies and the actions we have taken to strengthen the company's financial position combined to give us confidence in our future prospects and our role as a market leader in the ENT space.

Let me now turn the call over to Randy to take you through our financial results.

Randy Meier -- Executive Vice President and Chief Financial Officer

Thanks, Tom, and good afternoon, everyone. I'd like to start with an overview of our top-line results and then provide a little more detail on our income statement. In the first quarter of 2020, Intersect ENT reported net sales of $19.8 million, compared to $26.7 million in the same period of 2019. The decrease resulted primarily from the impact of hospitals suspending elective surgical procedures and reduced ENT office visits related to the COVID-19 pandemic.

As Tom mentioned, we believe most procedures were delayed and not canceled. And that approximately 70% to 80% of these procedures that did not happen as a result of the pandemic will occur in the future as elective procedures resume. Our first quarter of 2020, PROPEL product family revenue was $19.1 million, a 26% decrease compared to Q1 2019. And SINUVA revenue was $0.7 million, representing a 22% decrease over Q1 of 2019.

Product mix for PROPEL was similar to recent quarters with PROPEL at 33%, PROPEL Mini at 35%, PROPEL Contour at 32%. Overall ASP in the first quarter of 2020 was $858, an increase of 3.3% compared to the first quarter of 2019. Volumes declined by 28% from 2019 levels. Gross margin for the first quarter of 2020 was 67.7%, compared to 82.6% in the period a year ago.

While the gross margin for our products through the end of February 2020 was relatively consistent with our expectations, the decrease in gross margin was primarily attributable to charges related to the impact of COVID-19. These charges included idle facility expense due to the inability to use our manufacturing facility under the shelter-in-place order and additional charges for excess and obsolete inventory as a result of the disruption of our business. The amount of these charges was approximately $1.9 million, which negatively impacted gross margin by approximately 9.6% for the 3 months ended March 31, 2020. Total operating expenses for the quarter 2020 were $31.3 million versus $33.5 million in the same period of 2019.

The decrease is related to the following: lower sales commissions and decreased R&D expenses associated with the drug-coated balloon work. For the first quarter of 2020, we recorded a net operating loss of $17.9 million, a net loss of $17.5 million or a per diluted share loss of $0.54, compared to a net loss of $10.7 million or a per diluted share loss of $0.35 in the first quarter of 2019. Now turning to our balance sheet. Cash, cash equivalents, and restricted cash at the end of the first quarter totaled $87.7 million, compared to $90.6 million at the end of 2019.

As Tom has already mentioned, we have reduced our expected annual cash burn by approximately $40 million for the balance of 2020. The actions we took reduced our workforce by approximately 25% or almost 100 employees. In addition, we furloughed an additional 5% of the workforce, primarily in manufacturing. While these actions impacted all functional areas of the organization, we placed an emphasis on retaining critical skills and customer-facing functions in an effort to maintain our ability to return to growth as our markets begin to reopen later this quarter and in the second half of 2020.

Additionally, we have suspended manufacturing activities until later this year, enabling us to utilize and monetize our existing inventory. Furthermore, we have repositioned or delayed some of our clinical and R&D spending, as well as reprioritizing existing projects. And finally, we reduced G&A expenses and discretionary spending. While these actions improved our financial flexibility, we decided to further enhance our liquidity by raising capital.

As Tom mentioned and as we announced this morning, the additional $65 million significantly increases our cash levels and provides both liquidity and operating flexibility to pursue as elective procedures resume. As a result, we believe that we have the cash and the financial runway to manage through the next few years and are comfortably positioned to manage through any near-term challenges. As previously announced, on April 13, 2020, we withdrew our annual guidance for 2020 due to the rapidly evolving environment and continued uncertainties resulting from the COVID-19 pandemic. As the COVID-19 situation is expected to continue and causes strain on hospital resources, coupled with recommended deferrals of elective procedures, we do not expect a meaningful amount of revenue in the second quarter of 2020.

We cannot reliably estimate to the extent to which the COVID-19 pandemic will impact the second quarter and beyond. While we generated some revenue in April and expect to see improvements in May and June, our overall belief is that the second-quarter revenues will be down by approximately 85% to 90% from the same period a year ago. That said, we also believe the third quarter will see a marked improvement sequentially as elective procedures return to normal, and the backlog of patients begin to receive treatment. Looking further out, we believe that 2021 revenue should return to or exceed 2019 levels.

With that, I'll turn the call back over to Tom.

Tom West -- President and Chief Executive Officer

Thank you, Randy. In closing, we expect to end 2020 with sound liquidity that will position us well to get back to normal revenue levels and return to growth in 2021. During this time, we will remain financially flexible and aggressively manage costs to ensure business continuity. We are positioning Intersect ENT for the anticipated rebound in elective procedures and are prepared to invest where appropriate.

Based on our current visibility, we expect procedures to gradually resume at the end of Q2 and at the beginning of Q3 with office-based procedures returning ahead of hospital-based procedures. I would like to thank all employees, patients, customers, and frontline workers during this time. Now I'd like to return the call back over to the operator and open the call for questions. Grant, would you please open the lines?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Robbie Marcus with JP Morgan. Please go ahead.

Robbie Marcus -- J.P. Morgan -- Analyst

Great. Thanks for taking the question, and I appreciate you laying out so clearly the sales and financials here. I was wondering, it's still fluid and you talked about it, but how are you thinking about balancing your resources on hospital where much of PROPEL is done versus the office where SINUVA and the significant future growth driver is? Arguably, like you said, that should pick up faster because you're further away from the hospitals but it's still much earlier on. So how are you thinking about balancing the resources and positioning the company's focus for the balance of 2020 here?

Tom West -- President and Chief Executive Officer

Yes. Great question, Robbie. I appreciate it. I think you hit the nail on the head, which is hospital procedures are clearly going to be slower to return and that the hospital environment itself is still heavily occupied with COVID activity and as well as the patients' own trepidation to have a procedure conducted in the hospital.

So it will be slower to recover. But in terms of how we allocate resource, the highest prospect SINUVA customers are the same folks who believe in the product -- in the PROPEL product and the value proposition of localized drug delivery and the mechanical expansion of the stent. And so many of those same physicians that we call on as regular customers for hospital-based procedures are now going to be looking to do more work within the clinic environment given that they can't get into the hospital. So it really is about the data mining associated with understanding the highest prospect customers that we do through the use of our TMs, but then being even better coordinated in how we open that up for greater use of SINUVA by deploying our in-field reimbursement capabilities.

So it's an extension of what we have done before, but now using the time out of the field in order to do stronger analytic work to be able to identify those prospects and then a better job of coordinating among our different teams to make that transition to close SINUVA sales. Did that make sense?

Robbie Marcus -- J.P. Morgan -- Analyst

Yes. That's really helpful. Maybe as a follow-up. Randy, you've made the really tough choice to furlough and cut the employee base here, I guess the financial pain that's being inflicted in second quarter and beyond here, and you're doing a good job cutting expenses, $40 million for the balance of the year.

But how are you thinking about how this positions the company coming out? The cut seems fairly deep. How does this leave you able to recover here? Should we think of you're starting from a much lower capability spot coming out of COVID, given the reductions to the workforce here?

Randy Meier -- Executive Vice President and Chief Financial Officer

Thanks, Robbie. I think Tom said it very well. As when we looked at how we were going to take the organization and reposition it for the future, it really was with an eye toward how do we recover, how do we think the markets are going to open up. And I think as you heard what Tom said about the sales organization and how we look to deploy those resources, I think we took the same approach with the balance of the organization, what were the resources we were going to need to scale up and get back to our full potential by 2021.

And I think as we looked at the individuals and the skill sets we needed to move forward, that was really the guiding principle we have. So we feel pretty comfortable in our ability to manage the organization through the summer. But also as we begin to scale up the business, we think we have the productivity to, again, get back to where we were.

Robbie Marcus -- J.P. Morgan -- Analyst

Great. Thanks a lot. OperatorOur next question will come from Richard Newitter with SVB Leerink. Please go ahead.

Richard Newitter -- SVB Leerink -- Analyst

Hi. Thanks for taking the questions. Yeah. I wanted to maybe just start off on the comment that you made about the insurers or some private insurers that are starting to adopt a reimbursement policy that I think you said it was offering attractive economics.

Can you maybe just give us a sense as to what exactly those economics are or how they're arriving at their methodology? Is it similar to kind of what you had hoped to get from a calculation standpoint from CMS on these quarterly CMS reevaluations for pricing? And if you could give us any color there, I think that would be helpful.

Tom West -- President and Chief Executive Officer

Yes. Great question, Richard. And as we had hoped and anticipated, commercial payers have begun to adopt the J code for themselves, which greatly simplifies the ability to process any claim and makes it easier on office staff with less risk of subsequent adjudication. And that certainly eases the system by which buy-and-bill can be done for commercial payers.

And what we found in really the January, February time frame with the implementation of our J code in October by January, February, commercial payers were indeed beginning to assign a fee schedule against that J code, such that when there was a opportunity to look up coverage, we saw favorable reimbursement coverage. That coverage policy varies obviously across each of the various plans and even the subsets of the plans. So a universal statement is a little bit at risk. But basically, what it does provide for is commercial payer reimbursement that is financially attractive to the ENT physician for an office-based implant using the J code, whether that is SINUVA or in fact, PROPEL as well.

At the highest level, you're getting that kind of blended average that we've talked about before that really looks at the per milligram weight and the reimbursement level against that for the blended average of PROPEL and SINUVA. And we're seeing that in some cases but minimally, we're seeing pretty attractive rates that, again, as I said, make it a lucrative and worthwhile procedure for the physician in the office environment. And if we think about it, this is a physician community, for the last 8 weeks, has been idled and without its regular levels of return and with patients that are suffering and perhaps reticent to go into a hospital-based environment. So the combination of having a backlog of patients who desire to have an office-based procedure, physicians who are eager to get back and work through that backlog and now economics that are clearer and more favorable, I think it's the combination that we want to capitalize on for the service of the patients who've been waiting.

Richard Newitter -- SVB Leerink -- Analyst

That's helpful. And maybe just one follow-up on the comment that you made about the shift to ASCs. I know that in the past, it's been challenging to facilitate increased adoption in that care setting. I guess maybe you could just explain a little further why you're confident now that you'll be able to steepen up that adoption curve in that care setting today.

Or what makes you better position today versus yesterday, pre-COVID?

Tom West -- President and Chief Executive Officer

Yes. So we're seeing early traction. And again, I intended to communicate that it's not like it's happening all at once nationally. But what we have absolutely seen is that in critical markets, and I highlighted Texas and Illinois too, where you are seeing carve-out opportunities, as well as the use of the J code reimbursement for PROPEL to support an add-on fee for the implant that has been effectively adjudicated and well-received, gives us the basis to have confidence in our ability to extend that.

So among the strategies in our market access team is to continue to work against that so that work with the grain of greater ASC use as they begin to open up and as I also indicated, as we also build additional data and evidence to be able to support that going forward. But the great thing is we've got a strong -- more than a toehold in two highly populous states of Texas and Illinois and a handful of others where we already are building from strength, and that allows us to go after it. The last piece I would say is, and I know I've emphasized the increased analytic rigor in our sales force. It's funny, most times, a leader will hand-wringing over the fact that you're going to have folks out of the field for a week for a national sales meeting and the training that's associated with it.

In a funny way, we've just been given a blessing of 8 weeks of training with our sales force to enable them to better understand the analytic data around what is the coverage policy and the nature and attractiveness of individual office environments or ASC environments so that we're far better equipped to be able to go in and identify the most attractive opportunities in front of us from both a physician interest, as well as a coverage basis. And we think that that's going to serve us well in getting back into gear quickly as offices open up.

Operator

Our next question will come from Matt O'Brien with Piper Sandler. Please go ahead.

Drew Stafford -- Piper Sandler -- Analyst

Hi, guys. This is Drew on for Matt. I appreciate the color and some of the discussions you're having with ENT sort of as we come back online in the next couple of weeks here. And I know you've talked in the past about there being some clinicians who really like to use PROPEL in some of the polyp patients or some of the more extreme sinusitis sufferers.

So just curious if there's a portion in your market beyond this office versus hospital dynamic that you anticipate would come back a little bit sooner from a clinical perspective.

Tom West -- President and Chief Executive Officer

It relates to office versus hospital. Certainly one place that we think will bounce quickly is the combination use of PROPEL particularly in the frontal with balloon sinuplasty as well. Again, while balloon procedures occur in all three settings, frankly, office, ASC and hospital settings, again, I think you're going to see that procedure which is a bit more invasive, begin to migrate more and more toward the office environment. And we've seen great clinical benefit and increased utilization of the PROPEL Contour, in particular, in combination with that.

We see that as an early opportunity as physicians are adapting to the access question of the OR. So that's certainly one. The polyp patient is your instincts are right as well. Again, for a chronic rhinosinusitis sufferer, and as we have just gone into the kind of heart of the allergy season, if they're a polypoid patient, that polyp environment is going to have certainly worsened over the course of eight weeks in access to therapy.

So the claims and the strength that we have around that are really important. I will say though we have to balance that with we don't want to just be a polyp product. Our product works extremely well because of the level of trauma and inflammation even for the non-polypoid patient. So we've got to balance that in being able to talk to docs about how they're using the product in order to expand their usage and understanding beyond just the polyp patient.

But if you take it all together, again, this comes back to the data and the better mining and understanding of our audience. As we understand how the product is being used, we're in a much better position to promote appropriate incremental use in a broader patient population and realize a greater portion of our total available market.

Drew Stafford -- Piper Sandler -- Analyst

Very helpful. And then just on the training side, you mentioned a couple of different virtual training initiatives, sort of a two-part question here. As it relates to SINUVA, how much of handhold do your sales reps need as far as identifying cases, writing down the procedure, or can a lot of that be done beginning to end virtually? And two, how much appetite from your customers as far as bringing in new product as these surgeons are working through their backlogs?

Tom West -- President and Chief Executive Officer

Yes. So two questions there. Virtual training and getting somebody use it for the first time and counting on a kind of video version to train people, I have to be honest, it's not the most effective tool. But what we have found is teaching someone to ultimately use SINUVA as an office-based procedure is pretty straightforward.

But we're going to want to have the opportunity to work with that physician in that environment if they're new to the procedure. And so that becomes an important part of how we deploy in the field in terms of having our strategic account managers be able to provide that kind of training to the physician and understanding of the clinical benefit while at the same time, we use our field-based regional reimbursement directors to help office staff understand how the reimbursement process works. So it cannot be completely replaced. Really what I was referring to in terms of taking best advantage of the time we have now is the training of our own folks relative to understanding the different segmentation of the available universe out there.

Relative to new products, I don't think this is a time of great adoption of new products as procedure volume has gone down. But I do think that people are going to approach the market differently and look at it differently as sites of care shift and continue to shift. And I think that's where I like our position right now with a very strong office-based product in SINUVA as an alternative to repeat FESS surgery and having the diversity in our portfolio of PROPEL, PROPEL Mini, PROPEL Contour for potential use in a broader array of procedures like, as I said, in combination with balloon sinuplasty.

Drew Stafford -- Piper Sandler -- Analyst

OK. Thank you.

Operator

Our next question will come from Chris Pasquale with Guggenheim. Please go ahead.

Chris Pasquale -- Guggenheim Securities -- Analyst

Thanks. Tom, returning to 2019 levels next year would still represent a hit to the 2021 outlook relative to where expectations were maybe two or three months ago. So first, is that the way you're thinking about it that 2021 needs to be discounted? And then what are the main drivers that you're looking at there for a lingering impact on volumes?

Tom West -- President and Chief Executive Officer

Yes. I'll take a shot at that, Chris, and then I'll invite Randy to comment further, too. Listen, it's still very hard for any of us, which is why we pulled guidance for 2020 to get the clearest read on what 2021 will be. We're not out of this thing yet.

As Randy indicated. While May is clearly better than April, we're, by no means, open yet. We hear items like is New York going to start opening up more broadly in mid-May as Governor Cuomo said? Or are we going to continue down a path of greater sheltering in place and restrictions? And we fall into all of that as well. Are there risks of a rebound? So what I don't want to say is that it's going to go away, and we're going to be running to the races.

I'd love to believe that. And certainly, that's what we're playing for and positioning for, and we think that we've got the right tools and strategies to be able to do that. But it's a greater challenge than that. So where I come back to in my own mind is I think that SINUVA will have the ability to recover and even grow off of a small base within this year because the office-based procedure and having better reimbursement are two things that I think are going to work synergistically.

I have a harder time predicting what's going to happen in the hospital OR other than to say, I do believe you're going to see that shift to the ASC. And I think my best prognostication that we should be back to normal by year end on the PROPEL side of the business and perhaps better than that if we continue to see the opening up in progress. A long-winded way of saying, I think I'm giving you a cautious answer on 2021 because there's still more of this drama that needs to play out. Randy, anything you would add?

Randy Meier -- Executive Vice President and Chief Financial Officer

Chris, we pro forma a variety of different scenarios as we were looking at capital and activities and how to position the organization through this challenge and but also into the 2021 time frame. And I think what we sort of have looked, as Tom indicated, at a slow gradual recovery in the beginning with some increased activity as you get toward the end of the year back to potentially a more normal run rate. Next year, obviously, that precludes a sort of second wave as people are talking about right now. But I think, as Tom indicated, nobody has a perfect crystal ball, but I think we're comfortable with sort of a slow beginning of this and then an acceleration through the end of the year that will position us for a more normal 2021.

Chris Pasquale -- Guggenheim Securities -- Analyst

That's helpful. And then just to build on that point, so assuming demand does come back, procedure volumes do come back, one thing that's going to be different is the breadth of your sales organization. I know Robbie asked this, but want to try and ask it a little different way. How do you prevent such a big headcount reduction from impacting customer service to the extent that procedures are there in four, five, six months? And what are you going to be doing differently that would allow a smaller force to be as productive or more productive than the organization was a few months ago?

Tom West -- President and Chief Executive Officer

Yes. So I'll take that. First and foremost, and maybe I wasn't as clear as I needed to be. In terms of how we sought to identify, frankly, cost savings in the sales force was to expand spans of control in the management level and to a lesser degree, impacting the customer-facing side of the business so that we maintain that face-to-face contact with the physician in the community.

In addition, frankly, it allows us to focus in on how we retain the top performers, the most productive players that we have, the best at managing their customer base, and the best at managing their teams for high productivity. So I don't think it's a one-for-one give when you're in a position to be able to keep your best and brightest and most effective and capable. And then I think the other is, and I mean it very sincerely, we were given in a funny way a blessing of eight weeks of intensive training for our remaining sales force and engage them actively in a curriculum and training effort to make sure that we come out and are even more efficient and more effective. And I think, honestly, we come out stronger than we went in.

We have fewer people in the sales force, not the full 25% reduction. But we have perhaps fewer people in the sales force, but we're better trained, better equipped, better targeted, better motivated with a backlog of opportunity to go after. If high demand is there, we can expand back out, but I'm very confident in the team and the players that we've had and their high motivation going out.

Randy Meier -- Executive Vice President and Chief Financial Officer

I'd probably just add a couple of things to that. If you recall, some of the activities that Tom undertook in repositioning the commercial organization at year end and into the first quarter of this year, we had reallocated some resources into the SINUVA market and the office-based market. And so as you heard Tom talk about, that's where we think we have a lot of opportunities. I think we're well-positioned to see a fair amount of productivity improvement.

But I'd also remind you that we're also talking about a product mix shift. We're seeing some lift from the recent favorable reimbursement environment for SINUVA, the opportunity to retrain the sales force, and have them go out really focused on office-based practice. So I wouldn't expect to see total revenue have the same composition as we come back into 2021. So I do think the opportunity to leverage the existing organization and achieve higher productivity is fairly a sound one.

Operator

Our next question will come from Brian Weinstein with William Blair. Please go ahead.

Andrew Brackmann -- William Blair and Company -- Analyst

This is Andrew Brackmann on today. Just one from me. Tom, as you guys are seeing this backlog building up, how should we be thinking about sort of the ability for surgeons to see all of this backlog of patients, and then adding on top of that, sort of the additional new patients that they would historically see? Are there any sort of particular logistical challenges that you guys are considering, and how are you taking those into account for your recovery?

Tom West -- President and Chief Executive Officer

Yeah. Thanks, Andrew. Good question. I think the first thing that I would frame for everybody is while there is absolutely a backlog, it's not like the whole nation opens up at once and all of a sudden, we're going to have this huge bolus in July and August.

It is going to roll out across the country over time, and that's part of, again, the training and tooling of the sales force to see that opportunity. So I think that we're going to have a nice tailwind through the back part of the year that will vary by geography based on when things open up. And again, it will also matter based on the institutions themselves that are open up, how quickly our hospital systems allowing elective procedures, is there capacity to be able to do that. And to the extent that it's not in the traditional hospital surgical suite, are there availability and access to ambulatory surgical centers, and will that take on a new characteristic? But it is a tailwind that will exist across the market and give us the ability to go in.

I think you will see some work where folks are doing a SINUVA procedure in lieu of a more traditional shaving or debridement or other procedure, which will shift some of the volume, and we think gives us an excellent opportunity for initiation of SINUVA in ways that hadn't been true before and is obviously supplemented by improved reimbursement coverage. But I think the key is recognizing that it's going to open up differently in different parts of the market. And that, again, our efforts in training are around how to identify and segment market opportunity to know where and when to go after it, and take advantage of both the opening of a hospital system, as well as understanding how it correlates to the payers and coverage models that are most attractive for us.

Andrew Brackmann -- William Blair and Company -- Analyst

That's perfect. And actually, maybe I could ask a follow-up to that. Could you talk about sort of your data capabilities as it relates to that last point to identify those areas that are going to be opening up?

Tom West -- President and Chief Executive Officer

Yes. So we continue to integrate in more physician-level data than we had before to strengthen our analytic strength, our analytic ability and then to really both train as a stronger directive from our sales operations and marketing teams on giving guidance to our sales force where to go, but also then training our region managers and others on how to use the data within the field. The specific data sets are things like DRG data, which gives us a much better sense of the specific procedures and claims that are happening, as well as who are the high payers and coverers in any given office or with any given doctor so that we're in a better position to say and identify who are the United, Humana, Cigna, Aetna physicians who have a high propensity toward those, where we know that we can efficiently spend our time in places that are going to have the greatest degree of traction in terms of available use of the J code, for instance, or an opportunity for a carve out in the ASC. It's really about being substantially more granular and providing them in an exceptionally user-friendly fashion so that reps can be more productive with their time and more tailored and targeted with their messaging.

And again, this is a place that we've been able, and the curiousness of this, to train more substantially than we would have under normal circumstances.

Andrew Brackmann -- William Blair and Company -- Analyst

Perfect. Thanks, Tom.

Tom West -- President and Chief Executive Officer

Yeah.

Operator

[Operator instructions] Our next question will come from Ravi Misra with Berenberg Capital Markets. Please go ahead.

Ravi Misra -- Berenberg Capital Markets -- Analyst

Good afternoon. Thanks for taking the question. Hope everyone is OK there. So two questions.

One on the kind of competitive environment that you're seeing right now and kind of expectations on how you go after some of the biologic technologies that you're going head-to-head up against, especially given that you're pulling sales investments for investments in the business quite significantly. Just curious, I mean, on a head-to-head basis, kind of what's the argument here that you're going with doctors with saying that the SINUVA product is something that they should use ahead of the biologic from Regeneron? And then I have a follow-up.

Tom West -- President and Chief Executive Officer

OK. The most straightforward answer to that, Ravi, is one of economics, the sheer cost of the biologics. The other is in a COVID-like environment. An immunosuppressant is probably not what most people wish to be taking.

And the third is that with stronger reimbursement economics for the physician to be able to get reimbursed for a procedure code is substantially greater than what they might otherwise see in filling a prescription. So we see the entrants of the biologics being thwarted a little bit at this time in this particular space where clinical results and data that they have are not materially different than ours, if anything, they may be a bit beneath. So it is a well-funded tool. So I would be naive not to think of its potential impact.

But the simplicity of the procedure, the effectiveness of our clinical efforts, and the opportunity for both patient and physician, we think we still have a very, very strong value proposition. In addition, it's still a remarkably large total available market that we have yet to grow into nor have they.

Ravi Misra -- Berenberg Capital Markets -- Analyst

OK. Great. And then maybe just one on the kind of commentary on combination use of PROPEL with balloons. I'm curious, so you're putting out a time line if everything goes well for 2023 on a balloon that you've put together, presumably, that will have drug coating on it.

Curious to say, in the near term, how does that kind of work? Like do you go to one of the balloon companies and say, "Hey, do we partner with you?" Is it something that you have to work with them? Or is it something that you target the doctor. And then just tying that into, you said you had talked with a bank around weighing a variety of capital options. Just curious though, what was included in that discussion beyond the convert that eventually came out today?

Tom West -- President and Chief Executive Officer

So two very different questions. The pitch on the use of PROPEL and typically PROPEL Contour in combination with conventional balloons is one that we would make directly to the physician. Again, in segmenting the market, you're most interested and attractive physician for that procedure is going to be somebody who already uses PROPEL in the OR for a more traditional FESS surgery and recognizes that with any procedure on the sinus cavity, you're imposing a great deal of trauma to the cavity. And therefore, healing is greatly improved by having the anti-inflammatory effect of our localized drug delivery, as well as the radial expansion of the stent itself to keep the air passage open.

And obviously, the forced compliance of having an implant rather than a nasal spray, that combination is the selling story that works well with combining PROPEL and balloon sinuplasty and how we message that in general. Switching gears on the instrument choice that we had in going with the convertible. As Randy said before, we did a fair amount of pro forma analysis of what we thought our needs would be, and when and managed that also in the context of our own P&L management that we had, and then worked and looked at a variety of options that would be available to us and decided that, ultimately, the cost of money and the dilution to our existing shareholders of going with a convert while still preserving our opportunity on the equity side was the right move for us. We feel very good about it.

And in the end of the day, Deerfield, who is someone who knows us well, had a proposition that we felt made sense and fit our needs. Randy, I don't know if you would wish to add anything?

Randy Meier -- Executive Vice President and Chief Financial Officer

I think you said it very well, Tom. I think we explored everything from a follow-on equity deal to a straight debt. And I think we looked at both doing something publicly, as well as private transactions. And I think as we explore structures, this private pipe came together and I think gave us the opportunity to position ourselves both strategically for the future but meet our current operating needs while minimizing dilution to our existing shareholder.

And it certainly gives us the flexibility to operate going forward. So I think we feel pretty good about where we ended up.

Ravi Misra -- Berenberg Capital Markets -- Analyst

Thank you.

Tom West -- President and Chief Executive Officer

Thank you, Ravi.

Operator

This concludes our question-and-answer session. I would like to turn the conference back to Tom West for any closing remarks.

Tom West -- President and Chief Executive Officer

Thank you all for joining us today. We really appreciate your continued support and interest in what we're doing here at Intersect ENT. I look forward to speaking with many of you. I know that a few of us will be hopping on the call soon, and I look forward to speaking with you further in greater detail about what we've done.

I remain very confident in the product portfolio that we have, the individuals that we have in the organization, and the plans and strategies that we have. I'm glad we put behind us some of the overhang and concern around liquidity. I think we've got the money that we need to invest in the matters that we need to grow the business. Again, thank you for your interest.

I ask that you continue to be safe and be healthy out there and look forward to talking to you soon. Thanks very much. Take care.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Randy Meier -- Executive Vice President and Chief Financial Officer

Tom West -- President and Chief Executive Officer

Robbie Marcus -- J.P. Morgan -- Analyst

Richard Newitter -- SVB Leerink -- Analyst

Drew Stafford -- Piper Sandler -- Analyst

Chris Pasquale -- Guggenheim Securities -- Analyst

Andrew Brackmann -- William Blair and Company -- Analyst

Ravi Misra -- Berenberg Capital Markets -- Analyst

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