BTIG downgraded Entellus Medical (NASDAQ:ENTL) to “neutral” from “buy,” saying that “something has gone off course” after the company reported Q4 results on Feb. 21. The stock closed at $17.08 yesterday.
“For some time, management felt Entellus was a 20%-plus grower (we agreed) and would not need more capital,” writes analyst Dr. Sean Lavin. But recently, about $40-million of “unneeded” capital was raised at about a $3 discount to the share price.
“We thought this would lead to more reps and/or products in the near term and faster revenue growth,” he said. Instead management guided to 14% to 20% 2017 growth and a larger loss than consensus. “While we feel management is being conservative around the reimbursement change and is not including any benefit from using the new capital, we still believe the business is changing,” he added.
While the reimbursement change should benefit Entellus’ office use, “we wonder if it might slow down procedures in the hospital and if it may create significant pricing pressure in the operating room,” Dr. Lavin said. Entellus’ larger competitors may reduce prices in their ear, nose and throat segment and bundle it with other segments under payer pressure, he added.
“We feel Entellus’ medical advantages, cost and profit advantages, low early penetration, growing sales force, peds indication, outside U.S. expansion, more capital, and new products all should have led to 25%-plus growth, but it does not seem our view is in line with management’s.”
