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Did EnteroMedics Open Up More Potential Or Paint Itself Into A Smaller Corner?

|Includes: ReShape Lifesciences Inc. (RSLS)
Summary

Company announced that its anti-obesity device was used in patients with gastric sleeve patients.

Company has had severe trouble commercializing its product.

VBloc device is a niche product.

Enteromedics (ETRM) investors have been holding onto hope that somehow the stock will turn around. Either by seeing sales increase, or through an outright sale, many investors find themselves in a position of massive losses and hold on only in hope that some form of miracle will at least give them a chance to recoup at least some of the losses. Many investors have already sold and walked away. Those that have not sold waited with anticipation for what was billed as a "commercialization Update" on June 1.

June 1st came and what those investors got could well be a double edged sword. The "commercialization update" was essentially an announcement of two procedures completed on patients with previous gastric sleeves installed. The headline certainly hyped things up.

EnteroMedics Announces First-of-its-Kind Procedure with vBlocĀ® Therapy Used as Adjunctive Rescue Treatment for Failed Gastric Sleeve in Patients with Obesity

The term "First-of-its-kind" sounds great, but pretty much anything to do with vBloc therapy at this stage will be "first-of-its-kind". The term "Rescue Treatment" also sounds great. It has a way of creating the impression that this was "life-saving". The problem I have with this announcement is that it was billed as a commercialization update, but spoke to just two treatments which could be argued place the vBloc device in an even smaller niche than it was prior.

In my opinion vBloc has always been in a niche between the phonological treatments and more invasive surgery. The problem that I have always seen for this product is that trial results show a small weight loss benefit over the pharmacological treatments, but a big gap between the vBloc weight loss benefits and those delivered by bypass or sleeve surgeries.

It could be argued that the niche is expanded by creating a subsequent treatment for those that chose the more invasive surgeries, but the reality is that this data could just as easily be viewed as a pathway for patients to skip the potential vBloc step and only if that fails, revert back to the Enteromedics product. The fact of the matter is that many more bypass and sleeve patients may choose a pharmacological solution instead of vBloc if they are still at a BMI that is too high.

Set aside all of the discussion about what works and does not work for a moment. The business facts regarding Enteromedics remain the same. The company is not delivering enough sales volume to bring about profits and the company is desperately thin on the cash needed to market this product. The Enteromedics story has been a virtual catastrophe. So much so that even a buyout would not make most investors whole.

Enteromedics is a speculative play that give only the most recent speculative investors a shot at seeing a decent return, and even that is more of a long-shot than not. Enteromedics is once again in the realm of conducting a reverse split. This time the terms of any capital raise will be even more harsh that we saw in the prior deal. The company owes $25 million in the near term, and very modest sales are not helping the situation along. In Q1 sales were $72,000. The math is very simple and unfortunately this "miracle obesity cure" needs a miracle to stay viable. Stay Tuned!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.