EnteroMedics Inc (NASDAQ:ETRM) Just Made A Clever Pitch For Insurance Coverage

EnteroMedics Inc (NASDAQ:ETRM) has just published its third quarter 2016 numbers, and markets have traded up on the stock to the tune of 32%. A combination of better than expected sales, a reduction in costs and some pretty positive forecast for the forward quarters have all fed sentiment, but we're looking at another recent development as potentially having far more of a long term impact ETRM's valuation.We'll get to that shortly, but first, let's recap the numbers and introduce ETRM for those readers that didn’t catch our previous coverage.ETRM is a healthcare company with a weight loss focus.We'll take the numbers directly from the release, as we want to focus our attention more specifically on another update and not spend too much time pouring over the figures:

"For the three months ended September 30, 2016, the Company reported sales of $296,760 with gross profit totaling $150,129. Selling, general and administrative expenses for the quarter were $3.4 million, and research and development expenses were $1.3 million. Combined, these two operating expenses decreased 23.7% from the third quarter of 2015. The Company reported a net loss for the quarter of $6.5 million, or $0.17 per share.""On September 30, 2016, the Company's cash, cash equivalents and short-term investments totaled $6.8 million."

Getting to operations, ETRM has an approved treatment called VBLOC, which is a minimally invasive surgery designed to serve as an alternative to the more traditional weight loss related surgeries – gastric band, gastric bypass, sleeve, balloon etc. device is an electronic impulse tool that acts on what’s called the vagus nerve to control a patient’s appetite. It temporarily blocks the nerve, which simulates satiation and reduces appetite, and helps a patient to curb and control food intake.The FDA approved it for sale in January 2015, but here's the thing: as yet, it's not covered by mainstream insurance companies. This means that individuals who want a VBLOC have to put up the cash themselves (and it's not cheap, with an average cost of surgery of $18,500) when there are options available that are covered by insurance companies and produce similar end results.In our previous coverage, we noted that the key to driving value for ETRM is getting the insurance companies on board. We highlighted the fact that while end results are similar (in terms of mean weight loss on the back of the surgery, when compared to alternatives) recovery time is far shorter, and the insertion is far safer. In turn, we pointed out that this could be a swaying pint for insurers, who want to minimize spend on hospital stay, return visits, out of work compensation, that sort of thing.That's only one side of the picture, however.If ETRM is going to get insurers to cover VBLOC, it's going to need support from the industry. Specifically, physicians, surgeons, weight loss publications, professionals etc. This, in turn, requires education and – to put it simply – getting VBLOC in front of those that are charged with inserting it, or recommending it.On November 1, the company put out a press release detailing what we see as a big step towards this aim. Entero announced that Dr. Sachin Kukreja, M.D., Director of Bariatric Surgery, VA North Texas Health Care System, would be performing a live installation of the VBLOC system, replacing a failed gastric sleeve, at ObesityWeek 2016. The procedure took place on Friday 4, and completed successfully.So why is this a big deal?ObesityWeek is one of the hottest dates on the calendar in this arena. It's attended by 5,000 (as of 2015) visitors, which doesn’t sound like a huge number, but here's the kicker: 83% of these are surgeons, physicians and clinicians, with (as inferred by their presence at the event) an interest in the application of weight loss developments to their respective fields. The VBLOC live surgery was one of only three live surgeries broadcast at the event, meaning exposure was likely very high.Physician education, especially in surgical fields, is tough, time consuming and costly. This is a low cost method of bringing the product to a large number of highly targeted eyeballs, and we expect there to be some degree of fallout from this event when next quarter numbers hit press.There's still a long way to go before coverage is achieved, but smart marketing like this is a great way to get maximum results with as little outlay as possible, and we think that at its current price, the company looks good as a punt on medium term acceptance of VBLOC as a viable (and in turn, redeemable) alternative to current weight loss options.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.