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Here's What Markets Have Missed From The EnteroMedics Inc (NASDAQ:ETRM) Conference Call

Here's What Markets Have Missed From The EnteroMedics Inc (NASDAQ:ETRM) Conference Call
Written by
Chris Sandburg
Published on
August 14, 2017
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EnteroMedics Inc (NASDAQ:ETRM) had a rough week last week. The company put out second-quarter 2017 earnings and, almost immediately subsequent to the release, reported its intentions to carry out a public offering that will see it pick up somewhere in the region of $20 million through the issue of units comprised of Series B Preferred stock and a seven-year warrant. Both announcements, and in particular the offering announcement, have hit sentiment pretty hard, and EnteroMedics is entering this week at circa 50% discount to the price at which it opened last week. ETRMConcurrent to the earnings report, however, management held a conference call detailing the quarterly earnings and offering some degree of insight into what to expect going forward. We sat in on the call and, while the company covered quite a lot, one element stood out to us as being something that shareholders and potential investors should really be keeping in mind near term. Concurrently, the same input is something that we feel could really get this stock going as and when it plays out to completion and beyond.For those that missed it, here is what we are looking at.The program is called vBloc Now. Many might not be familiar with this company, so it's worth bringing those that aren't up to date before we go into the program in any detail. EnteroMedics has developed is now executing on a commercialization strategy for a product called vBloc. It is a weight loss product designed to stimulate the sensation of being full in patients and – in doing so – reduce an overweight person's desire to consume food. We won't go into the technical side of things right now, but there is a neat description of the technology at the company's website here.Anyway, there is plenty of evidence to suggest that the product can be safe and effective in patients but, as yet, it's missing out on a large portion of its potential market because it's not covered by the major insurers in the US. As a product that is comparable in price to some of its alternatives (gastric band, gastric sleeve etc.) but that necessitates patients pay the majority of the cost themselves (as opposed to insurers covering the cost, as is the case with competing products), vBloc is at an immediate disadvantage.It is this issue that the above-mentioned vBloc Now program is in place to overcome.Details vary from patient to patient but, essentially, it involves physicians offering one of a handful of different products to patients as weight loss therapy treatments. If they choose vBloc, they will pay a co-pay and the company will foot the bill for the rest of the out of pocket cost.This is obviously going to be expensive, so why do it?Because, on the back of discussions with some of the major payers in the US, management knows pretty much exactly what it needs to take to these payers as supportive of an argument for coverage. Specifically, payers are looking for 125 to 150 patients implanted in a commercial setting with 6-month follow-up data on both weight loss and co-morbidity improvements to compare well with the results from the company's previous ReCharge PMA study.The vBloc Now program is a way for EnteroMedics to accelerate uptake of its product and, in turn, a way for the company to collect the data from 150 patients required by the payers as quickly as possible.And it's given us a substantial near-term catalyst to watch.EnteroMedics expects to have the data in hand during the first half of 2018 and it can then approach payers to accelerate coverage decisions. As company CEO Dan Gladney said on the conference call:

"Once insured, we believe that market demand for vBloc will be unleashed."

This is why we think the latest raise isn't too much of a big deal. We think a large portion of it will go towards covering the cost of the vBloc Now program, which if completed successfully, will quickly return cost in added value for the company. Think of it as a clinical trial, funded by EnteroMedics, but in a live, commercial setting.There are also other key inputs in place, including an ongoing diabetes study and a collaboration with Galvani Bioelectronics, as well as the veterans' program that the company has been running for a while.For us, however, it's all about vBloc Now, at least until the 150 patient data hits press next year.We will be updating our subscribers as soon as we know more. For the latest updates on ETRM, sign up below!Image courtesy of Hamza Butt via FlickrDisclosure: We have no position in ETRM and have not been compensated for this article.

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