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Here's An Opportunity For A Quick Profit In InspireMD Inc (NYSEMKT:NSPR)

Here's An Opportunity For A Quick Profit In InspireMD Inc (NYSEMKT:NSPR)
Written by
Chris Sandburg
Published on
October 7, 2016
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InspireMD Inc (NYSEMKT:NSPR) is set to report third quarter financials early next month (guidance suggests November 8) and we going to highlight a potential opportunity to get in on a market misinterpretation of what these numbers are likely to show.Here goes.Before we get into the opportunity, it's worth taking a quick look at the company and its offerings so as to fully understand what's going on. For those not familiar with Inspire, it is a cardiovascular focus healthcare company with a couple of products already on the market in Europe, and a fairly robust pipeline seeking approval in the US and internationally. Pretty much all of its offerings right now are rooted in its proprietary technology, called MicroNet.Basically, it is an alternative version of a traditional stent. In individuals who have restricted blood vessels, physicians will often insert a stent into the restricted region in order to provide a certain level of structure and an increase what's called luminal diameter. Simply put, they ensure blood can flow to and from the heart, and other organs, unrestricted. There is a problem, however, and this is rooted in the material and structure of the stents.It is a wide mesh system, and can capture particles, which build up to create blockages. For this reason, stents often need to be replaced after a certain period of time, and it is not uncommon for patients who have received stents to experience cardiovascular events – things like strokes, heart attacks etc. as a result of the particle buildup. MicroNet is an altered structure that narrows the mesh when compared to traditional stents, and this narrowing helps to stop build-up.Now, let's get down to the specifics.Inspire's two primary products are MGaurd and CGaurd.MGuard is designed as a response tool, meaning physicians will generally insert MGuard stents into patients that come in having had heart attacks caused by blood vessel narrowing. In contrast, CGuard is a prevention tool. Physicians fit a CGuard as an alternative to traditional stents as part of a pre-planned surgery.To put this another way, the first goes in as soon as a patient has a heart attack. The second goes in after a patient has made an appointment and waited months for the surgery required.Now, MGuard is quickly becoming something of a legacy product for the company. A new type of stent that dissolves over time is replacing the mesh stents in cardiovascular event patients, and this has translated to a marked decline in revenues for MGuard over the last twelve months:

"Revenue for the second quarter ended June 30, 2016 was $0.5 million compared to $0.7 million during the same period in 2015. The decrease was primarily the result of an expected decline in sales of MGuard Prime EPS associated with the trend of doctors increasingly using drug eluting stents rather than bare metal stents in STEMI patients."

This means that when third-quarter earnings hit, we are almost certainly going to see a further decline in revenues, driven by a concurrent decline in MGuard use by physicians.In its latest earnings (second quarter, from which the above quote derived) the company noted that the decrease in the use of the legacy MGuard was offset by an increase in revenues from the CGuard product. This still has many advantages over current SOC, and we expect it's use to grow substantially over the next few years.However, and herein lies the opportunity, third-quarter stent sales are always down on the other three quarters as a result of patients not wishing to undergo surgery during the summer. In a responsive stent event like that which MGuard addresses, there is no impact. In a preplanned event, however, such as that which CGuard addresses, patients will plan around the summer months, reducing a physician's need for a supply of preplanned stents during these months. It's not just personal preference, either. It's actually safer to have a stent fitted in the winter.What does all this mean for Inspire? Well, when third-quarter earnings hit, MGuard is going to have declined, but a soft summer stent market is going to create a concurrent decline in CGuard sales. This is an expected decline, but wider markets will almost certainly only see the fact that CGuard revenue hasn’t increased to offset MGuard revenue decline, and sell off on the company in response.As markets sell off, it's an opportunity to get in on a pullback that will almost certainly reverse once the company proceeds to explain the stent trends, and markets correct on the misinformed bias.Don't miss out... Subscribe to our newsletter for more unconventional opportunities like this one delivered direct to your inbox!Disclosure: We have no position in NSPR and have not been compensated for this article.

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