Weeks After Buying ReShape Medical for $38M, EnteroMedics Bags $61M

Medical device company EnteroMedics recently filed with the U.S. Securities and Exchange Commission (SEC) that it had raised $61 million in a new equity financing round. There were 13 anonymous investors.
 
EnteroMedics develops vBloc neurometabolic therapy, which is delivered using a pacemaker-like device called the Maestro Rechardeable System. It is a first-in-class weight loss treatment for obesity and obesity-related risk factors like high blood pressure and high cholesterol levels.
 
On Oct. 3, EnteroMedics acquired ReShape Medical, a privately-held medical device company that develops, manufactures and markets the ReShape Dual Weight Loss Balloon, a device approved by the U.S. Food and Drug Administration (FDA) to treat obesity patients with a body mass index (BMI) between 30 and 40.
 
Under that deal, EnteroMedics paid 2,356,729 shares of common stock, 187,722 shares of series C convertible preferred stock, which will be convertible into 18,777,200 shares of common stock upon the receipt of the required approval of EnteroMedics’ stockholders, and about $5 million in cash. The cash will be paid up front to cover ReShape Medical’s outstanding senior secured indebtedness and some of the transaction expenses. The deal totals around $38 million.
 
“We are pleased to announce this significant transaction, which adds a new minimally invasive, revenue-generating technology to the EnteroMedics portfolio,” said Dan Gladney, president, chief executive officer and chairman of EnteroMedics, in a statement. “The acquisition of the ReShape Dual Weight Loss Balloon, which complements our existing products with a non-surgical weight loss solution, expands our addressable market and gives us yet another touch point along the continuum of care in obesity.”
 
Gladney remains in his executive positions. EnteroMedics is adding two ReShape designees to its board of directors. Michael Mashaal joined effective at the closing of the deal, and another will be added at a later date.
 
EnteroMedics will hold a special meeting of stockholders by Dec. 31, 2017, and vote for approval of the conversion of the series C convertible preferred stock into shares of common stock.
 
“EnteroMedics and ReShape Medical are two innovative companies that share a strong strategic focus on providing proprietary, patient-friendly technologies to address the global obesity epidemic,” Gladney said in a statement. “We look forward to combining the complementary expertise and capabilities of both companies for the benefit of our customers, patients, employees and stockholders.”
 
On Dec. 15, 2016, EnteroMedics released an assessment of real-world, clinical practice weight loss in patients using its vBloc Therapy with vBlock Achieve, which confirmed previous positive results from the ReCharge Pivotal Trial. The data showed mean percent total weight loss through six months, 9 percent, and nine months, 10 percent, compared to the almost identical results from the ReCharge Pivotal Trial. The data were collected from vBlock Institutes across the U.S. vBloc Institutes have integrated vBlock Therapy and vBloc Achieve into their practices.
 
“The patients who received their vBloc Therapy implant at vBloc Institues and participated in the Company’s vBloc Achieve support program achieved total weight loss comparable with the patients in the ReCharge Pivotal Trial, which utilized a very demanding patient follow-up protocol and was used to secure FDA approval,” said Gladney in a statement at the time. “The corroboration of our clinical trial results in an everyday environment provides additional support for vBloc as a revolutionary treatment option for morbidly obese patients who do not wish to undergo anatomy-altering weight-loss procedures.”
 
The SEC filing doesn’t provide much detail about what the company intends to do with the $61 million, although it does indicate it is “made in connection with a business combination transaction, such as a merger, acquisition or exchange offer.” Which suggests it’s likely to pay down the ReShape acquisition, potentially to fund another acquisition, or to fund further commercial development of the merged companies’ products.