Obalon plunges on trimmed 2018 sales guidance

Obalon Therapeutics (NSDQ:OBLN) shares took a big hit yesterday and continued their slide today after the weight loss balloon maker said it expected to hit the low end of its 2018 sales guidance.

Carlsbad, Calif.-based Obalon said last year’s revenues are headed toward the low end of its prior outlook for $9.0 million to $9.9 million. The failure of a deal with the Sono Bello chain of cosmetic procedure outlets, renewed during the second quarter last year, was cited for the new guidance.

The lower sales outlook means lower gross margins, which could accelerate when Obalon launches the latest iteration of its balloon navigation system during the first quarter this year, according to a regulatory filing.

“While we have several initiatives intended to reduce the manufacturing costs associated with the navigation system and help improve gross margin, we expect we may experience some decline in our gross margin upon its initial launch,” the company said.

That’s because Obalon has never made the navigation console and accompanying Touch inflation dispenser, both more complex than their predecessors, at scale. The navigation console is also priced lower in a bid to increase adoption, further affecting gross margin potential, according to the filing.

The upside is that the newer Obalon balloons can be implanted without X-ray guidance, the company said.

“We expect commercial launch will initially focus on targeting potential new accounts where X-ray was a barrier to adoption and existing customers whom we believe could benefit by using navigation to drive higher treatment volumes and improved economics. We intend to initially launch with the same number of territories and field structure as we have in place today. Additionally, we initially plan to continue supplying both our current products and the new navigation products, but to transition exclusively to navigation over time,” Obalon said.

OBLN shares closed down -15.7% at $1.94 apiece yesterday and were off a further -1.6% today, at $1.91 each, in early-afternoon trading.

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