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EnteroMedics Inc (NASDAQ:ETRM) Is This Week's Biotech Runner

EnteroMedics Inc (NASDAQ:ETRM) Is This Week's Biotech Runner
Written by
Chris Sandburg
Published on
January 6, 2017
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At the beginning of the week we highlighted EnteroMedics Inc (NASDAQ:ETRM) as one to watch. We noted that the company could run up on positive news flow, as it moved towards securing some insurance coverage for its lead product, vBloc. Well, the company just put out some of the exact type of news we were looking for, and as predicted, it's running north.The company closed out the session on Thursday at just shy of $8 a piece. At the beginning of the week, price was fluctuating around the $1.70-80 mark. That's a 370% gain in a matter of days.So, what's making the company run, and what's next?For those not familiar with Enteromedics, as usual, we'll kick things off with a brief introduction to the company. It's a healthcare company with a focus on creating medical devices to aid weight loss in the US. It's lead (and only commercially approved) product is the above mentioned vBloc, and it's designed as an alternative to things like a gastric band, a gastric bypass, etc. In our bodies we've got something called the vagus nerve, and it's responsible for a whole host of things, one of which is controlling the stomach's passing of signals to the brain to say whether it's full or empty. vBloc is a device that attaches to the nerve, and disrupts the signal, making the wearer feel as if they are full, even when their stomach is empty. There's a lot of evidence supporting its efficacy, and patients across the US have one implanted right now. There are certain problems associated with the alternative therapies (for example, gastric bands have a very high failure rate) and vBloc has shown it can overcome these problems. It's not perfect, it has some of its own issues, and the weight loss it induces isn’t necessarily higher than its competing products, but it's a safe alternative, and there's plenty of room in the market for a product like it.That noted, the latest announcement details two new implants in two new (what EnteroMedics calls) vBloc Institutes. An institute, as per the company's definition, is a medical center or hospital system that has integrated the EnteroMedics' vBloc Therapy and its vBloc Achieve support program into its practice. In this instance, the two new institutes are MedStar Health in Maryland and Roper St. Francis in South Carolina, and they comprise the twelfth and thirteenth centers to qualify as vBloc institutes in the US.Our take on this is mixed.Yes, that a couple of new centers are setting up to perform vBloc therapy is great news – when it comes to a product like this, getting it into the centers, and training physicians in the benefits, and practicalities, of fitting the therapy is a real uphill battle. EnteroMedics is clearly pushing forward with its rollout strategy, and having a degree of success with said strategy.With that said, rollout efforts are only one half of the equation. We've said it before, and chances are we'll keep saying it until it happens – EnteroMedics needs to get a major insurer to cover vBloc if the therapy is ever going to go mainstream. As yet, it's not managed to do this. It probably will achieve this goal, but the longer it takes, the longer the company has to operate on the fumes of its cash on hand and, beyond that, shareholder capital. The company retired its entire batch of senior convertibles at the end of last year, suggesting it's got shareholders in mind, so that's a positive.The bottom line: EnteroMedics needs these so called institutes in place for when it gets insurance coverage, so yes, this is positive news. There's plenty of short interest here too, and any more news like this could bring about a nice squeeze. We're still positive, but eagerly awaiting the coverage announcement.We will be updating our subscribers as soon as we know more. For the latest updates on ETRM, sign up below!Disclosure: We have no position in ETRM and have not been compensated for this article.

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