Short Ideas

[gfp927z]

Hi Haysaw, >> Enteromedics <<



Looks interesting, though probably will need to see how fast the revenues ramp up this year and whether insurances will cover it. But at least it got approval, so that's a key milestone. Looks like a sizable short position, so some of the pop on the approval may have been short covering.



>>> Enteromedics Garners FDA Approval For Obesity Device: What's Next


Jan. 16, 2015



http://seekingalpha.com/article/2826806-enteromedics-garners-fda-approval-for-obesity-device-whats-next



Summary

•Maestro device is pacemaker type device for obesity.

•FDA approved device for people with BMI of 35 or more with co-morbid condition.

•Device slated to cost about $15,000.


Enteromedics (NASDAQ:ETRM) has finally received the long awaited FDA approval for its VBLOC anti-obesity device, the company announced this past Wednesday. Many retail investors felt that FDA approval would be a catalyst that sent the stock skyward. Unfortunately, the pop was very short lived and the stock currently trades in the same area it did throughout the last several months. I was personally invested in the company for the purpose of playing the approval, and due the fact that I was in meetings could not participate in the approval news pop in the stock. That leaves the equity trading where it has been. What is next, and is there a play in this equity?

Enteromedics is in a much better place today than it was 2 weeks ago. It now has an FDA approved device for obesity. With that news, why is the equity seeming to languish? There could be several answers to that question, but in my opinion the main thing holding the company back was contained in the press release announcing the approval

"EnteroMedics anticipates that the device will be available, on a limited basis, at select Bariatric Centers of Excellence in the U.S. this year."

The use of the term limited puts a ceiling on things. Simply stated, do not expect many procedures to transpire in 2015. Some investors are looking for over 10,000 procedures in short order. In my opinion such thinking is more of a dream than a reality. This device could eventually get there, but it will take quite some time to build up to that type of pace.


The second big hurdle is cost and insurance. It is estimated that the cost of the VBLOC device will be about $15,000. This is not something that people will simply run out and do. A $15,000 lump sum is not something that most people have simply sitting in their checking account. Until insurance steps up to the plate, it will be challenging getting people to buy into the idea of VBLOC. That being said, someone that has been saving up for a procedure such as full blown lap band surgery may find the idea of VBLOC and a much less invasive surgery quite appealing.

With these types of hurdles, what can drive this equity? One simple answer is that, with an FDA approved device, Enteromedics becomes a much more attractive company. Could a potential suitor be waiting in the wings? It is certainly a possibility. Enteromedics did the grunt work of getting this device approved. Now a potential buyer, or even a partner, could be in the cards. If Enteromedics was worth about $1.30 prior to approval, it is certainly worth a bit more with approval.

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