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Enteromedics - Looking At The Numbers

Enteromedics (NASDAQ:ETRM) is on the cusp of closing a convertible bond deal for notes that pay 7% and become due in 24 months. The deal is contingent on shareholders approving a reverse split that has not even yet had a ratio established. It has become clear to this author that investors need to comprehend some numbers as they relate to the ability of this company to operate, service its debt, and pay off the bonds 24 months from now.

Before getting into the numbers, I want to be clear that this is not an indictment on the vBloc Maestro device. It is a nuts-and-bolts look at money and the market.

Before getting to the money, I think that it is important to establish the market that the Maestro device will fit into. First and foremost, we all agree that there is a substantial number of obese people in the U.S. This market could be as robust as 30 million people.

I look at and assess the anti-obesity space as one in which there are currently 3 medical treatments. The first is pharmacotherapy. This comes from pills or injections that typically treat the appetite of people and need to be used in conjunction with diet and exercise. Results on this type of treatment vary, but in general those that respond will lose between 5% and 12% of their weight. For a 250-pound person, that is weight loss of 12.5 pounds and 30 pounds.

The second option is something like vBloc from Enteromedics. This is a medical device that requires minor surgery and implants a device under the skin. In general people can expect to lose between 10% and 15% of their weight. For a 250 pound person that represents weight loss of between 25 pounds and 37.5 pounds.

Neither of the solutions above gets the average patient to their ideal weight.

The last option is a much more substantial and evasive surgical process such as a lap band. These procedures can deliver weight loss results of 25% to 30%. For a 250-pound person, that represents weight loss of between 67.5 pounds and 75 pounds. Many that use this treatment get very close to goal weight.

Typically, before a surgery is brought to the table as an option, insurance companies want the patient to have tried less invasive things first. Thus, a vBloc Maestro candidate will...


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