Source: finance.yahoo.com%2fq%2fks%3fs%3dETRM%2bKey%2bStatistics">Yahoo! Finance
The stock has a very low number of shares outstanding, and even a smaller float with a low market cap. What we like about the share structure above is the healthy but not exaggerated number of shorts in the stock. Additionally, both insiders and institutions hold a significant amount of shares in the company. EnteroMedics has been burning about $5M a quarter which gives it over a year of cash to operate on. However, since the trial is now complete, we expect its Q1 cash burn to be somewhat less than last year's Q1.
Considering the vast potential in the obesity space among its peers, it becomes evident that a market cap for EnteroMedics of $112M is grossly undervalued at this time, especially comparing this to Orexigen Therapeutics, which has a market cap of just over $470M.
In comparison, VBLOC has shown efficacy much greater than Orexigen's Contrave, which has efficacy of 4.2% over placebo, while VBLOC has shown to be well into the double digits in efficacy (based on Australian cohort) with minimal side effects. If EnteroMedics shows the kind of success I believe it will from its current trial design, the stock should have no issues being valued equal to or greater than Orexigen, which would place it over $11 a share based on the 40M shares outstanding.
We believe the company is correct in its assessment about the control arm receiving a low dose of the actual treatment and the current ReCharge study design should accommodate for this.
Positive results from the ReCharge study bring into play an obesity treatment option that does not require anatomically changing surgery, prescription medication weight loss pills, or diet plans that fail once the diet is over with. Additionally, the company has reported positive results in treating obesity related hypertension, and is studying the device for the treatment of diabetes related from obesity as well.
The obesity problem in The United States alone costs insurance companies billions of dollars annually, with a good deal of the money shelled out to cover a variety of obesity related diseases. If EnteroMedic's VBLOC therapy proves to be successful, which we predict it will, this could be a huge game changer in treating morbid obesity, and potentially could save billions of dollars in expenses.
Insurance companies would gladly shell out the cost to cover an effective device that can treat a variety of life threatening diseases, and save them a ton of money in the process which is why EnteroMedics is definitely a company to watch in 2013.
Disclosure: Author Scott Matusow is Long ETRM. His full report can be found at:
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