Yesterday, Intersect ENT Inc (NASDAQ:XENT) announced that a phase III pivotal trial for its lead candidate met its endpoints, and that the company is set to put forward an authorization application by way of an NDA for the treatment during the first quarter of 2017. The company gained a bit of strength on the back of the news, hitting highs of 10% on the daily open midday before settling to close at around 3% up on the day. Given the potential market for the application, if approved, we feel that this is something of a muted response to a potentially game changing revenue generator for Intersect, and that there’s some money left on the table to be had here for the speculative biotech investor.

Here’s why,

The drug isn’t really a drug, it’s an implant designed to release a steroid into the system of patients with a condition called chronic sinusitis. Sinusitis is a condition in which the nasal passages become inflamed and swollen, and these factors result in mucus buildup and drainage issues. Chronic sinusitis, the target indication here, is when physicians try to treat the condition but – despite treatment – it lasts for twelve weeks or more.

The current standard of care is surgery, but this doesn’t work for many people, and these patients have to undergo a strong, repeat dose administration course of steroids, and/or repeat surgery.

It’s this latter group that Intersect is targeting.

The company’s, product is called Resolve, and it’s a steroid releasing implant designed as an alternative to secondary surgery. The mechanism of action is relatively simple. It serves as a structure guide for the nasal passage while also delivering a dose of active steroid to aid the opening of the passage in question.

So what did the data show?

The trial was a randomized, blinded, multi-center clinical trial designed to assess the safety and efficacy of the device, and recruited 300 patients in total. Once recruited, patients were randomized to either an active group, or a sham group, with the sham acting as control for the study.

Two primary endpoints were targeted: Reduction in Polyp Grade and Reduction in Sense of Nasal Obstruction and Congestion.

For the former, a surgeon panel (independent, and blinded) rated the polyp grade based on video endoscopies. Basically, they went up a patient’s nasal passage with a camera to see how open or closed it was. The outcome? A statistically significant (p=0.007) difference in mean change from baseline favoring the treatment group was observed, hitting on endpoint one.

For the latter, patients registered their own scores as part of a daily diary. The endpoint used what’s called the Nasal Obstruction/Congestion score, and it was measured from baseline to day 30, and then a mean was taken across the period in question. Again, a statistically significant (p=0.007) difference in mean change from baseline favoring the treatment group was observed. Endpoint two hit.

A bunch of secondary endpoints also hit for the trial, including the proportion of patients still indicated for repeat sinus surgery and improvements in sense of smell, sense of nasal obstruction, and total symptom score.

So, primary and secondaries in the bag, and safety proving no issue, what’s next?

Well, as mentioned, the company is targeting an NDA submission with the FDA at some point during the first quarter of next year, and given the overwhelming bias of the data, we don’t expect it to have any real issues obtaining approval for the treatment.

Beyond that, we’re looking at an effective commercial rollout to underpin Intersect’s market potential going forward. The company believes there are currently around 635,000 patients in the US that would qualify for Resolve, meaning there’s no shortage of target population, and with the drug being rhino specific (as relating to rhinology, not the four legged animal), ad even better, targeting a chronic rhino condition, Intersect has a nice condensed base of physicians to target that would serve a large portion of patients in the US.

Our only real concern is the cost of a commercialization strategy, and the impact this is going to have on share count going forward. Dilution is inevitable, and this might put off some early stage holders.

For us, however, the potential upside outweighs the potential for value loss on dilution, and we think this one’s well worth a look as a speculative, but relatively low risk (when compared to some of its capitalization peers) exposure.