Analyst On Endologix: No Sense In Downgrading Now

Endologix, Inc. (NASDAQ: ELGX) announced on Thursday after the market close that it needs to conduct a confirmatory clinical trial for its Nellix Endovascular Aneurysm Sealing System with the previously updated instructions for use and the Gen2 device design.

This follows the company's meeting with the FDA, The company expects to begin enrolling patients in the study in the fourth quarter and get PMA approval in 2020. The company had earlier targeted a second-quarter 2018 for the approval after a setback in late 2016 precluded an earlier deadline of end-of-2016 or early 2017.

No Sense In Downgrading

Following the development, BTIG said there is no sense in downgrading now, but the firm went ahead and lowered its price target. Recollecting its previous view that the chances of Nellix needing a new trial were 50:50, the firm noted that its previous Buy rating was predicated on more upside than downside on approval or delay.

Analysts Sean Lavin, Paul Kearney, Andrea Alfonso and Ryan Zimmerman said they are taking Nellix out of their model. That said, the analysts expect core Endologix can grow 5–6 percent per year and should trade at around 3.5 times revenue.

No Other Catalysts In Sight

Apart from this setback, BTIG doesn't see anything else that could drive shares further down at this point. With the shares at a long-time low, the firm thinks there could be upside to the price for those with patience.

However, the firm thinks investors are likely to turn over near term.

The firm feels the two-year Nellix data at SVS being presented on June 3 is still relevant. However, given that an entirely new trial will be run on the second-generation device, the firm feels the June 3 data might not provide much upside to the stock. The firm, meanwhile, believes the gen 2 trial is almost certain to have strong results and is derisked.

From the conference call, the firm sought information on what specifically pushed to a new trial, whether it was that the FDA would not accept the retrospective analysis under the new IFU, or did the FDA just feel if gen 2 is better and the IFUs are changed, why not start over.

That said, the firm thinks the growth is going to be halted for some time.

Giving Credit For Nellix In Advance Is Unlikely

"One could argue for upside with Nellix in the future, but at this point, we think giving credit in advance is unlikely," the firm said. The firm believes the company's share could trade around $7 a year from now, though it feels Endologix will grow a bit above market rates at around 5–6 percent.

As such, the firm maintained its Buy rating on the shares of Endologix but lowered its price target to $7.

At the time of writing, Endologix shares were plunging 34.92 percent to $4.38.

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