Analysts start Obalon Therapeutics at buy

Analysts at Stifel and BTIG initiated coverage of Obalon Therapeutics (NASDAQ:OBLN) with “buy” ratings and price targets of $18 and $20, respectively. The stock closed at $13.80 on Friday.

“Obalon appears poised for dramatic top-line growth with its highly-differentiated intragastric balloon system, already FDA-approved to treat 30-to-40 body mass index range obese patients,” writes Rick Wise of Stifel.

“The Obalon Balloon’s procedural ease-of-use, best-in-class patient tolerability, and excellent clinical data are likely to be compelling adoption-drivers,” he added.

Dr. Sean Lavin of BTIG agreed, noting that technologies, surgeries, and pharmaceuticals prior to intragastric balloons have either been ineffective, unsafe, too costly, or irreversible.

“We believe Obalon’s balloon technology addresses many of the issues and will see strong adoption in the fight against obesity. The safety profile, minimal invasiveness, and reversibility all should be favored by physicians and patients,” he added.

With a U.S. launch slated for early 2017, Mr. Wise said Obalon is still in the earliest stages of commercialization. “Over the next five years, assuming a solid launch and commercial execution, we project a near triple-digit sales CAGR and ultimately about 80% gross margins,” he added.

Dr. Lavin believes the device will be used both for weight loss, leading to significant medical benefits, and by patients seeking small cosmetic benefits. “Obalon really has shots on goal at two markets and, we think, will succeed at gaining traction in both. We see Obalon as targeting a multibillion-dollar market opportunity,” he added. 


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