ConforMIS: Lockup Expiration Provides Exciting Shorting Opportunity

ConforMIS, Inc. (NASDAQ: CFMS) - Sell or Short Recommendation - $17.40 PT

December 28, 2015, concludes the 180-day lockup period on ConforMIS, Inc. We previewed this event on our IPO Insights platform.

At this point, its pre-IPO shareholders, directors and executives will have the chance to sell their 30.06 million shares.

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The potential for a sudden increase in stock available in the open market may cause a significant decrease in ConforMIS shares, opening a short opportunity for aggressive investors.

Business Summary: Medical technology company that makes and sells custom joint replacement implants

ConforMIS is a medical technology company that has developed a propriety platform called the iFit Image to Implant technology. They utilize this platform to design, create, manufacture and market customized joint replacement implants to better fit a patient's individual anatomy. The company offers a wide product lineup of customized knee implants that restore the natural shape of the knee.

Its customized products include the iDuo GS, a biocompartmental partial knee implant; iTotal CR, a cruciate-retaining implant; and iUni GS, a unicompartmental implant that treats the lateral or medial section of the knee. The company is developing iTotal Hip, a customized hip replacement.

In late August to early September, ConforMIS initiated a recall of four of its knee replacement models after complaints of moisture accumulation on the instrumentation for the iTotal PS, iTotal CR, iDuo and iUni. The company estimated that approximately 950 sets of the devices were affected by the recall. Of those, approximately 650 had already been implanted in patients, while the remaining 300 had been shipped but not used in surgeries.

Despite the recall which resulted in some production changes, ConforMIS reported an increase of 17 percent in product revenue year-over-year on a constant currency basis. The company also reported an expansion in its surgeon user base, indicative to loyalty to the product despite the setback.

As a result of the recall, the custom 3D joint replacement implant maker saw its share price drop from a high close of $26 in early August to below $15 by mid-September, lower than its IPO price of $15. Currently, the stock trades at $18.91.

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(Nasdaq.com)

ConforMIS owns or exclusively in-licenses approximately 470 issued patents and pending patent applications that cover customized implants and patient-specific instrumentation for all major joints.

Competition: Johnson & Johnson, Microport, Biomet, DePuy, Stryker, and Smith & Nephew

ConforMIS faces direct competition from several large, well-established manufacturers of joint replacement systems, including Biomet Group, DePuy Orthopedics, Johnson & Johnson (NYSE:JNJ), Stryker Corporation (NYSE:SYK),MicroPort and Synthes.

Fortunately, impressive management appears to be rising to the challenge.

Conclusion: Short CFMS Ahead of Its IPO Lockup Expiration

Following a solid IPO and early market performance, CFMS' major pre-IPO insiders are likely ready to take initial profits. Five firms and 15 individuals currently hold 3X the amount of shares currently trading.

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We expect declines of at least 3% in a two-week window surrounding the event and suggest experienced investors short CFMS ahead of its IPO lockup expiration on December 28 for full gains.