EnteroMedics Inc (NASDAQ:ETRM) Splits: Here's What's Next

EnteroMedics Inc (NASDAQ:ETRM) was a tough one to hold throughout 2016. Having been one of the most promising young biotech companies on the market a few years ago, it's now clouded in negative sentiment, and this split has just served to compounded this sentiment. At a market cap of just $3.9 million, however, there's potentially an opportunity to pick the stock up cheap. The reverse split is in the rear window, and 2017 should be easier without the threat of delisting hanging over the company (that is, of course, so long as the company can hold its price above $1).There's are a couple of things that need to happen near term, however, if this suggestion is to be proved valid. Here's what we're looking at.First, a quick look at the company. Regular readers will likely already be familiar with EnteroMedics – it's a stock we've covered on a number of occasions here at Insider Financial. For those that are not yet familiar, however, it's a healthcare and medical device company that has developed (and has carried through to commercialization) a device called vBloc. The device is 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.It stimulates what's called the vagus nerve, which is the parasympathetic nerve that controls certain elements of the nervous system and some major organs. One of these organs is the stomach, and vBloc takes advantage of this 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.It works, and there's plenty of evidence in place that it can be an improved alternative to current standard of care options. There's one major problem, however, and that's that it's not currently covered under most insurance policies. Gastric band is, and so is a gastric bypass (in most cases). This means patients have to pay for the procedure themselves – around $18,000 at current rates – and while there are some advantages to having vBloc therapy instead of those aforementioned, these advantages don't really justify the cost savings of going with an insured option.So, that's the first thing we need to see happen. vBloc needs to get insurance coverage. Without it, EnteroMedics has no chance of recovering. The good news is, that there's been a few recent developments that point to an improved chance of coverage. The therapy has been featured at a number of conferences over the last couple of quarters, and word is getting out. The bad news, is that these things take time, and EnteroMedics doesn’t really have the luxury of time. Its price is declining, and necessitating measures like the split to maintain the company's listing.Our second key point for the year ahead, therefore, is gaining some stability (above minimum bid) and no longer having to dilute shareholders. EnteroMedics split already in July, and if the company is going to pick up some positive sentiment, it needs to stop decimating the holdings of its shareholders.There's also the potential for a buyout here. The technology that underpins vBloc is strong, and there's the argument that even without coverage, it's worth more than Entero's current market capitalization. Exactly who would be a suitor is unclear, but there are plenty of big names out there that would be happy to spend a bit on an asset like vBloc, and then wait for coverage to kick in.Looking briefly at the numbers, at the end of the third quarter, the company's cash, cash equivalents and short-term investments totaled $6.8 million. For the nine months ended September 30, 2016, the EnteroMedics reported sales of $644,760 with gross profit totaling $302,690, and a net loss of $18.9 million.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.