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BTIG cuts Conformis to neutral

BTIG downgraded Conformis (NASDAQ:CFMS) to “neutral” from “buy” following release of the company’s second quarter results. BTIG does not publish price targets on neutral-rated stocks.

Conformis, which closed at $2.76 on July 31, designs and manufactures customized hip and knee replacements that are made specifically for each patient.

“While we continue to view the Conformis line of products as possessing clinical value, with payer issues negatively impacting revenue and sizable challenges ahead, we see limited upside to shares despite a cheap valuation,” writes analyst Ryan Zimmerman.

He noted an increase in blanket denials by Aetna for all cases related to Conformis’ products, which “began to magnify late in the second quarter and are likely to persist through yearend.”

Mr. Zimmerman said management believes the “denials are an error that can be corrected as Aetna may be confusing patient-specific instrumentation and cutting guides with [its] knee implants … and management noted that the policy is under review, indicating near-term resolution to the issue,” he added..

Even if this is cleared up in the coming weeks or months, he said it would take time to win back physicians.

In addition, the company noted further headwinds that are not factored into its updated guidance, including lower demand for CR products (as cement-less knees grow from other vendors); a longer limited launch of the new iTotal Hip; and continued reimbursement challenges outside the U.S., he added.

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