EnteroMedics Inc (NASDAQ:ETRM) Needs A Buyout

EnteroMedics Inc (NASDAQ:ETRM) gained close to 100% on its market cap during the Tuesday session, and looks set to strengthen further heading into the Thanksgiving break. The gains come on the back of an update from management, but the driver behind the shift in sentiment is a bit murky. Why? Because the company is trying to get a reverse split and a 300 million share issue past its shareholders, neither of which are particularly good news (at least near term) for the holders in question. That the company should gain so much strength ahead of this potential capital structure shakedown is unusual.That said, we've watched EnteroMedics closely over the past twelve months, and while we recognize that the period in question hasn’t been a great one for shareholders, there have been a number of developments of note, each of which we've addressed in then-relevant coverage.Heading into the close of the year, however, and looking ahead in to 2017, EnteroMedics needs one of two things to happen if it's going to finally return some value to its holders – the holders that have been funding operations.The first is a big insurer to accept its lead asset for coverage. The second is for another company to buy it out; a company that might have a better chance of pushing said asset than current management seems to.So, what are the chances of EnteroMedics hitting on one of these two catalysts?From an insurance coverage perspective, things don't look great near term. The company noted this sentence in its latest SEC fiing:…we expect that most of our sales will come from self-pay patients in the remainder of 2016 and 2017.So that suggests for the next twelve months, the company doesn’t expect to pick up an insurance agreement. It also doesn’t bode well for the recently announced veteran agreement. For those that missed it. EnteroMedics scored a deal with the U.S. Department of Veterans Affairs that sees its vBloc asset become available to veterans at little to no cost. There are 1 million obese veterans in the US, so the market is there, but again, management isn’t confident (and we're not sure why) about its ability to capitalize on this potential.Looking at a buyout, we think this could well be the most likely exit, and if it comes to fruition, it has the potential to be a rewarding one for shareholders. The thing is, vBloc is an excellent product, and there is a market for it. It works, and people want it, but they can't get it right now because insurers won't cover it. We see this as a management issue, and believe that under the guide of a fresh management team (one experienced in getting products under coverage and pushing them to healthcare facilities) vBloc would have an excellent chance of coverage. With coverage, it could be a great revenue generator for company that absorbed it into its portfolio. At a less than $10 million market capitalization, a buyout could be a great move for a mid to large name in the space.Who might fit the bill? We like Medtronic PLC (NYSE:MDT). It's got cash on hand ($12 billion including short term inv. at last count) and has developed, bought and picked up coverage for a whole host of medical and healthcare technologies over the past couple of decades.As far as the upcoming vote is concerned, it's going to be an interesting one. Shareholders have shot down a similar proposition recently, and the chatter suggests EnteroMedics might find it difficult to get this revised proposal green lighted once more.If it can, however, it needs to spend any cash raised on the back of the fresh issue on dressing itself up for a buyout. Management did well to get the product approved, but now its time to hand over to public company leaders, instead of scientists.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.