It was shaping up to be a banner year for EnteroMedics (St. Paul, Minnesota), a company that develops neuroblocking technology to treat obesity and other gastrointestinal disorders. Earlier this year the company reported a private placement accord that would yield it nearly $16 million (Medical Device Daily, February 23, 2009). It also touted the start of the EMPOWER study, to evaluate the safety and effectiveness of the Maestro System for the treatment of Obesity. But late last week, the company reported disappointing preliminary results from the trial and said that it did not meet primary and secondary efficacy endpoints.

"Thoroughly we're disappointed with today's news," Mark Knudson, PhD, president/CEO and founder of EnteroMedics said in a conference call Friday. "The preliminary results indicate that we did not meet our efficacy endpoints. Again this data is new to us and we're evaluating the next steps for the Maestro system."

The EMPOWER Study is a randomized, double-blind, placebo-controlled pivotal study, that took a look at 294 patients. The trial was fully enrolled at 15 sites (13 in the U.S. and two in Australia). One-third of the 294 patients in the trial have the device implanted but not turned on while two thirds have the device turned on. The study blind remained in place for 12 months after activation of therapy in the experimental arm.

Preliminary data from the study demonstrated was that there were no adverse affects in the trial but rather there wasn't much of a change in weight loss between the two groups. The company estimates that weight loss was about 7% to 10%.

"Results were largely indistinguishable between on and off groups," Knudson said. "Both groups had weight-loss in the mid-teens."

The Maestro was touted to regulate nerves that control digestion and appetite. The company had hopes that the device could serve as an alternative to bariatric surgery.

The device includes two small electrodes that are laparoscopically implanted and placed in contact with the trunks of the vagus nerve just above the junction between the esophagus and the stomach, near the diaphragm.

The electrodes receive electrical impulses from a neuroregulator implanted under the skin in the abdominal region. The major components of the Maestro system include: a neuroregulator that emits electrical pulses through the lead system; a lead system that delivers the pulses to the vagus nerve; a controller that regulates the rate and intensity of the pulses; a transmit coil that delivers RF energy and therapy control information across the skin into the neuroregulator; and a clinician programmer.

As to what the next step is for the device, EnteroMedics played it close to the vest and said that it was going to take a thorough look at the data before it made any decisions about the product. The device has already gained CE mark approval, but Knudson said the company is holding off on any marketing until it can review the data from EMPOWER.

"We haven't made any effort to generate sales [in Europe]," Knudson said.

"If it is not a compliance-related issue then I don't believe there is much hope for the technology," William Plovanic an analyst for Canaccord Adams said in a research report. "If it is a compliance-related issue then they need to go through another pivotal trial, the need to recapitalize the company, restart it and try again."

The company also reported entering into a definitive agreement with an institutional investor to sell 6,161,068 of the company's shares at a price of 80 cents per share, for gross proceeds of nearly $4.9 million, before deducting placement agent fees and estimated offering expenses. Canaccord Adams (Boston) acted as the sole placement agent for the offering.

The company said that it intends to use the net proceeds of this offering to fund clinical studies of VBLOC Therapy in obesity, hypertension and diabetes, as well as for general working capital purposes.

To date the company has $34.8 million in cash on hand with a burn rate of roughly $7 million per quarter. It filed for an IPO in 2007 and raised 40 million through the effort (MDD, May 30, 2007).

Late last year the company closed on a $20 million working capital loan (MDD, Nov. 25, 2008). Silicon Valley Bank, Western Technology Investment and Horizon Technology Management provided the financing. The company still has $20 million in debt.

The company's shares plunged $3.50, or about 78%, to 98 cents, by late afternoon on Friday.

Omar Ford, 404-262-5546;

omar.ford@ahcmedia.com