Outset Medical
(Nasdaq: OM)
shares are on the rise after BTIG analysts initiated coverage with a “Buy” rating for the home hemodialysis company.
Shares of OM rose by more than 25% to $2.58 apiece in late-afternoon trading today. MassDevice‘s MedTech 100 Index — which includes stocks of the world’s largest medical device companies — rose slightly.
The optimistic outlook from BTIG’s Marie Thibault and Sam Eiber comes after recent struggles for Outset Medical and its Tablo hemodialysis system.
Tablo is a fully integrated system for use across the care continuum and clinical spectrum, from the ICU to home hemodialysis treatments. It treats patients with acute and/or chronic renal failure, with or without ultrafiltration, in an acute or chronic care facility.
Outset initiated a shipment hold for Tablo systems last August as it dealt with an FDA warning letter for the system. That included an observation asserting that TabloCart with Prefiltration required prior 510(k) clearance for marketing authorization. TabloCart, a Tablo accessory, launched in the third quarter of 2022.
Analysts also noted an impact from the wider medtech panic related to GLP-1s and increased scrutiny of not-yet profitable companies. However, they see opportunities to clear some hurdles in the near term and help lift shares at Outset.
Why analysts are high on Outset Medical
Potential positives in 2024 include a possible FDA clearance for TabloCart with Prefiltration. They also say improved sales and margins could be on the horizon as well.
“With this turnaround underway and a long cash runway ahead, [Outset Medical] is a viable company, and we think shares deserve to trade at a higher valuation multiple,” the analysts wrote.
The analysts say Tablo offers “clear advantages” against competitive devices in the home hemodialysis setting. Those include higher patient retention and more convenient dialysate preparation. Other points of interest include recurring revenue, improved cash burn and an attractive valuation.
Thibault and Eiber concluded:
“The company’s differentiated Tablo Hemodialysis System offers providers and patients simpler and more convenient dialysis treatment, saving time and money. The company is facing near-term regulatory and commercial headwinds, but its technology has been accepted by the largest providers; this acceptance is key to the ‘land-and-expand’ strategy of increasing penetration within existing accounts. The company continues to make progress on its gross margin, is reducing operating spend, and may be able to return to a normal sales growth trajectory after potentially securing FDA clearance for its TabloCart with Prefiltration. With a large market opportunity ahead, we believe OM is relatively early in its revenue ramp and that shares can move higher as the company moves past near-term hurdles.”
