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Why the GI Dynamics Inc share price is down 5% today

Junior medical device company GI Dynamics Inc (ASX: GID) has released its half-year earnings report this morning and, as expected, the results were not pretty.

The shares slumped 5% to 3.8 cents after the group reported a 47% decline in revenue to $926 million as a result of a decrease in sales across all markets, although it did manage to cut back its net loss to $20.58 million. That compares to the $21.98 million loss recorded in the prior corresponding period.

Just over a fortnight ago the company announced that it would discontinue its U.S. pivotal clinical trial of EndoBarrier Therapy, otherwise known as the ENDO trial, for the treatment of obese patients with uncontrolled type 2 diabetes.

This followed discussions held with the US Food and Drug Administration after the trial showed an incidence rate of approximately 3.5% for a bacterial infection of the liver known as hepatic abscess, compared to a previously established safety threshold of 2.0%.

The discontinuation of the trial was the major reason behind GI Dynamics’ improved net loss result due to the decrease in operating expenses, including research and development (R&D) – a cost that is typically essential for the long-term success of companies such as GI Dynamics.

Given the uncertainty now facing the company, investors would be wise to give GI Dynamics a miss and could look to take a safer long-term investment in larger medical device manufacturers, such as ResMed Inc. (CHESS) (ASX: RMD) or Sirtex Medical Limited (ASX: SRX).

Alternatively, there are plenty of other outstanding companies that are posing as great value today which could also be worth your consideration.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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