Two medical device companies have joined forces to tackle obesity, an epidemic that the Centers for Disease Control and Prevention estimated to affect nearly 79 million U.S. adults, more than one-third of the adult population.
BarioSurg Inc. in Lake Forest was recently acquired by St. Paul, Minn.-based EnteroMedics Inc. in a cash-and-stock deal for $2 million in cash, plus 1.38 million shares of common stock at $0.01 per share and 1 million shares of newly created conditional-convertible stock at $0.01 per share, according to Securities and Exchange Commission filings. The 1 million unregistered shares of conditional convertible preferred stock will be converted into 5 million unregistered shares of common stock.
Shares of EnteroMedics traded at $4.50 per share on May 22, and shot up about 30% to $6.10 per share the next day when the deal was announced. The company recently traded at $5.01 per share for a $34 million market cap.
BarioSurg Chief Executive Raj Nihalani said BarioSurg will remain in Lake Forest. It plans to hire additional talents with clinical, regulatory and quality-control expertise as the company moves toward clinical trials.
BarioSurg, formerly known as Onciomed Inc., develops the Gastric Vest System, a long-term medical implant that aims to alter the size of the stomach to reduce food intake. The procedure, inserted through a small incision, is less invasive than gastrectomy, which surgically removes all or part of the stomach.
Nihalani said that while gastrectomy is the current gold standard of surgical treatment for patients with life-threatening obesity—defined as having a body mass index of 35 or above—the procedure compromises patients’ well-being.
“You have to remove 80% of the stomach or more, and you have really poor quality of life [including problems such as] hair loss and malnutrition.”
Nihalani added that another option for patients is the weight-loss balloon procedure, which inserts a gastric balloon inside the stomach. The shape and volume of the stomach balloon takes up enough space in the stomach and helps reduce meal portion sizes. The setback, however, is that the balloon lasts only six months.
Working Together
In connection with the acquisition, Nihalani has been named chief technology officer of EnteroMedics, reporting directly to EnteroMedics Chief Executive Dan Gladney. Nihalani will earn an annual base salary of $300,000 with a potential cash incentive payment of up to 32% of his annual base salary, according to SEC filings.
Nihalani said the merger provides synergy and ability to better target obesity and diabetes.
EnteroMedics makes the vBloc Neuromodulation system, a vagal blocking therapy that consists of a rechargeable neuroregulator device implanted into the chest wall. The device is placed around the vagus nerve—which controls the heart, lungs and digestive tract—to intermittently block signals and thereby limit expansion of the stomach and help control feelings of hunger between meals. The device received FDA approval in early 2015.
BarioSurg and EnteroMedics’ devices are similar in their targeted patient group—patients with BMI 35 or greater—as well as delivery. Both are implanted through a small incision.
EnteroMedics reported revenue of $787,000 last year, up nearly 170%. Units sold increased from 25 to 62.
Nihalani said he does not rule out the possibility of combining the two systems in the future.
BarioSurg’s device has been started in clinical trials in Latin America and Europe over the last 12 months. Nihalani said the company plans to start a clinical trial in the U.S. this year.
