EnteroMedics Buys Weight Loss Company to Complement Portfolio
The vBloc System by EnteroMedics

EnteroMedics Buys Weight Loss Company to Complement Portfolio

The medtech company paid for BarioSurg and its Gastric Vest System through a mix of stock and $2 million in cash.

EnteroMedics stock took a nearly 40 percent leap on Tuesday when the company announced its acquisition of Lake Forest, California-based BarioSurg Inc.
Both companies have one minimally invasive obesity management device to their name. EnteroMedics’ vBloc System, shaped much like a pacemaker, is inserted into a patient’s upper chest and uses neuromodulation technology to reduce hunger levels.
BarioSurg’s Gastric Vest System decreases the size of the stomach and its ability to stretch by wrapping it in a silicon vest. Although the product lacks long-term analysis, a 12-month pilot study showed the device could provide a mean percent excess weight loss of 85 percent, a similar (and in some cases better) outcome than what a patient could receive from gastric bypass or sleeve gastrectomy procedures, according to Dr. Scott Shikora, the chief medical consultant at EnteroMedics.
Dan Gladney, the president and chief executive of Roseville-based EnteroMedics, told analysts on Tuesday that the company would pursue long-term studies for the Gastric Vest System. At the same time, he felt the positive short-term results offered a unique complementary potential with the company’s vBloc device, which has been clinically proven to control weight gain for longer than one year.
“There may be some patients that a doctor might want [to have] significantly more lost weight over the six months to a year period of time,” Gladney said. “So he could get the up to 85 percent of the weight off that patient in the first year [with the Vest] and then keep it off with the vBloc for a long period of time, for multiple years, we believe.”
EnteroMedics is aiming for a clinical study of the Gastric Vest System to start sometime next year, Gladney added, as the U.S. Food and Drug Administration has not granted approval of the product.
The company paid for BarioSurg and its product primarily with company shares. Owners of BarioSurg are set to receive 1.38 million unregistered shares of EnteroMedics common stock (worth $6.3 million based on the stock’s closing price of $4.59 on Monday), as well as one million unregistered shares of conditional convertible preferred stock (which will be convertible into five million unregistered shares of common stock upon later approval). Additionally, EnteroMedics will pay approximately $2 million in cash.
The purchase agreement arrived just a week after EnteroMedics reported a $7.4 million net loss in its first quarter. The company has struggled to turn a profit as its vBloc device, despite having FDA approval, has not received full coverage from any major insurers. Out-of-pocket expenses for the device have reportedly exceeded $18,000.
In connection to the BarioSurg purchase, EnteroMedics appointed Dr. Raj Nihalani, the inventor of the Gastric Vest System, to the role of chief technology officer. “I look forward to joining the company and navigating a path toward potential FDA approval and eventual commercialization” of the Gastric Vest System, he said in a statement.