Conformis Inc. (Nasdaq: CFMS) is a medical technology company that uses its proprietary iFit Image-to-Implant technology platform to develop, manufacture & sell patient specific joint replacement implants. The implants are designed to fit each patient’s unique anatomy.
The Aetna Debacle
On July 31, 2019, CFMS stated in their earnings report the company was updating their 2019 outlook to have “generally flat year-over-year product revenue growth for the full year 2019.” The ‘expected decrease in growth’ is primarily due to denials of coverage from Aetna, the 3rd largest commercial payer.
During the conference call, CFMS said the company had “submitted its clinical and economic data to Aetna and understands that Aetna is currently reviewing its medical coverage policy.” During the conference call, Conformis implied a potential update was to come this September, 2019 from Aetna.
— When asked to elaborate on what Aetna was saying to Conformis- CEO, President & Director Mark Augusti replied with:
“Great question. This is Mark, and that’s the frustrating thing and why we think it is incredibly incorrect policy. They’re actually just denying Conformis. They’re not even getting into the product or anything. So as far as our advisers and we’re aware, this is the first time a payer has ever actually just denied a company by name versus the products. And again, we just think this is a snafu, and it’s incorrect. We are aware that they’re reviewing the policy this month as we speak. And I’d reiterate again, we’re hoping that we’ll see a change or at least get some answer no later than sort of mid-September.”
It is important to recognize the letter denying coverage from Aetna only referred to Conformis as a company, rather than a product denial per usual standard. If Aetna made a mistake as Augusti implies and is willing to give payer coverage just as Cigna did with Conformis; having medicare coverage for custom joint replacements would bring massive upside to the current stock price.
Data as of Aug. 2, 2019; 10-Q
- Market Cap: $137.357 Million
- Cash: $20.66 Million
- Revenues (product and royalty): $19.593 Million
- YoY Product Rev (US): +3%
- YoY Product Rev (Outside the US): +16%
- Operating expenses YoY: -24%**
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52 Week High: $4.83
Ave Vol(10 Day): 628,900
Shares Outstanding: 68.68 Million
Shares Float: 50.01 Million
Last insider purchase was made on July 29, 2019 made by the CLO, Brent Alldredge. Alldredge bought 58,553 shares at $2.70, representing a $158,093 investment in Conformis.
As the end of September approaches, Conformis price has consolidated into a familiar symetrical triangle pattern. As shown in our previous chart, CFMS seems positioned for a breakout. Price has continued to hold the 50% retracement level from the August 28, 2019 high ($2.33). Previous patterns from 1-31st of January 2019 show similar price movement, indicating a potential “new” uptrend in the making.
- Bullish Gartley in tact;
- Aligning Fib time-cycles;
- RSI approaching breakout level;
- Our proprietary indicator showing strong momentum going into tomorrow’s trading session (Flips green = Bullish AF);
- Furthermore, weekly chart flashing bullish signal for a swing or long-term position.
As the baby boomer population grows, the potential of Medicare approval on CFMS total knee replacement being in surgery centers by 2020 is a huge market opportunity. The Aetna reimbursement debacle will pass (as Cigna’s did). Furthermore, the soon to be released total hip system is being undervalued and overlooked by the street. I am forecasting a $6 PT, foregoing CFMS receiving Aetna coverage.
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Disclosure: I am long $CFMS. This is not a recommendation to buy or sell. Please do your homework before investing.