The Obesity Epidemic - EnteroMedics New Treatment Approach
Scott Matusow | Jan 29, 2013 06:55AM ET
In this write-up, I would like to talk about EnteroMedics (ETRM), which offers a new treatment approach that is currently in Phase III clinical, designed to help morbidly obese people lose weight. EnteroMedics approach might be a better solution for many people who see little or no benefit from current treatments on the market. If the device proves successful, the company might end up being a very good long term investment.
The treatment device, currently in Phase III trials, acts similar to a pacemaker, but in this case for the vagal nerve. The system periodically inhibits the delivery of the message from the stomach to the brain which informs the brain, "I'm hungry." Instead, it sends a message that no more food is needed, suppressing excess appetite. This fully eliminates the need for gastric bypass surgery, diet pills, and weight loss shakes.
I asked my friend, Dr. Dung Trinh, Clinical Assistant Professor of Medicine, University of California-Irvine (UCI) to give us a summary of the current obesity problem we are facing in today's world, and to go over the current treatments being offered in the market.
SM: Obesity seems to be a growing health and appearance issue these days. Can you please explain to us the current scope and magnitude of this problem for us?
Dr. Trinh: Obesity is a huge problem in the United States. Two thirds of Americans fit the definition of overweight or obese. Obesity is associated with a multitude of healthcare problems we see in the office on a daily basis; diabetes (I ) from implant, (17.8% from initiation, Met Life) in the control arm at 12 months.
- Patients that did not meet the prescribed nine hours of daily device use (n=125) averaged 6.9 hours of daily use and experienced a mean EWL of 10.5% from implant in the treatment arm (6.4% from initiation, Met Life) and 8.6% in the control arm (4.6% from initiation, Met Life) at 12 months.
- For all patients (n=253), the average EWL at 12 months was 16.6% EWL from implant (12.1% from initiation, MetLife) for the treatment arm and 16.4% EWL from implant (12.0% from initiation, MetLife) for the control arm.
- For those patients with a diagnosis of hypertension (n=110), a statistically significant reduction of systolic and diastolic blood pressure from baseline was observed, a result that will require follow-up study.
Also from the detailed review, the company stated;
"Based on the analysis to date, the control arm of the trial, which was intended to be inactive, apparently provided a low-intensity blocking signal that introduced VBLOC Therapy in human subjects."
My interpretation of this statement is that the control arm somehow had VBLOC treatment as well which would explain the statistically indistinguishable results between both arms - both groups lost weight. President and CEO Mark Knudson stated,
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The apparent control arm effect, while unexpected, may be a scientifically important addition to our understanding of neuromodulation.
As I began to dig deeper into my due diligence, I found another pr dated November 8th, 2010 on the company's website that seems to back up my interpretation of the company's statements from the detailed November, 2009 report.
In the Australian cohort, a total of 83 subjects were enrolled at two centers, with 61 subjects implanted. Main outcome measures were morbidity, mortality and excess weight loss at 12 months. Results include:
- Mean 12-month excess weight loss was 25% for the treatment group and 17% for the control group;
- Weight loss was linearly related to hours of device use; subjects with greater than or equal to 9 hours/day use achieved 37% and 21% mean EWL (treated versus control, p = .02);
- No therapy-related serious adverse events or deaths were reported across the entire study population.
Based on the data above, it appears my understanding of the company's original suspicion was correct, the control arm of the EMPOWER study was receiving some form of treatment, when they should not have been.
The newly designed Recharge Study:
More often than not, drug companies, after realizing a failure in a late stage clinical study, meet with the FDA to determine the best path forward on how to re-design a study that is acceptable to the organization in order to gain eventual approval of a drug and/or a device. Also, more often than not, companies find success in a re-designed study.
In September 2009, Acadia Pharmaceutical's (ACAD) drug Pimavanserin failed to meet its endpoints in the treatment of PSP on its initial Phase III study.
Uli Hacksell, Ph.D., Chief Executive Officer of ACADIA remarked at the time:
"While we obviously are disappointed with the results of this Phase III study, we continue to believe in the potential of Pimavanserin based on our clinical experience to date. We will thoroughly analyze these data along with the data on other secondary and exploratory endpoints over the next month to better understand the outcome of this study. Meanwhile, we are continuing with the second Phase III PDP trial with Pimavanserin."
After engaging in a thorough analysis of the failed first Phase III trial for Pimavanserin, the company obviously got it right the second time around. On November 27, 2012, ACADIA announced successful top-line results from its pivotal Phase III trial.
ACADIA shows here how a re-designed study can produce drastically different results from a former failed one.
In Pimavanserin's 2009 failure, the placebo effect was high from patients in India/Europe who had higher healthcare standards than what is normal for the region. In the Re-designed study, only North American patients were part of the trial, to get more consistent and equal results.
After the newly found positive results for Pimavanserin, the stock has had an incredible rally, trading from a range of the mid-$1 range to where it currently trades today - $6.19 a share.
Study design matters, and more than most people might think. In this case, ACADIA management saw the issue and corrected it to give the trial a better shot at success.
EnteroMedics launched its newly designed Phase III ReCharge clinical trial in 2011. The trial consists of 234 patients that were randomized and placed in double-blind treatment control group. This time around, the study design was adapted to accommodate for the potential "low-dose treatment effect" of the control arm. Inclusion criteria included not only obese patients (BMI>40 or >35 with one or more co-morbid condition), but also patients with well controlled Type 2 diabetes, which is yet another possible benefit from the device in addition to treating morbid obesity.
The primary endpoint efficacy objective in the new trial is to observe a 10% greater excess weight loss with the treatment group compared to the control group based on BMI method and to observe meaningful weight loss of 20% and 25% EWL at 12 months for the treatment arm (not statistically based).
Major Near term catalyst:
According to a company press releases, conference calls, and my correspondence with investor relations for the company, Phase III data from the Recharge study is due to be released around mid Q1, which would be mid to late February. Based on the new trial design and the apparent control group issue that caused the first failure, I expect positive data to be revealed this time around.
Key fundamental information for ETRM:
The stock has a very low number of shares outstanding, and even a smaller float with a low market cap. What I like about the share structure above is the healthy but not exaggerated number of shorts in the stock. Additionally, both insiders and institutions hold a significant amount of shares in the company. EnteroMedics has been burning about $5M a quarter which gives it over a year of cash to operate on. However, since the trial is now complete, I expect its Q1 cash burn to be somewhat less than last year's Q1.
Considering the vast potential in the obesity space among its peers, it becomes evident that a market cap for EnteroMedics of $112M is grossly undervalued at this time, especially comparing this to Orexigen Therapeutics, which has a market cap of just over $470M.
In comparison, VBLOC has shown efficacy much greater than Orexigen's Contrave, which has efficacy of 4.2% over placebo, while VBLOC has shown to be well into the double digits in efficacy (based on Australian cohort) with minimal side effects. If EnteroMedics shows the kind of success I believe it will from its current trial design, the stock should have no issues being valued equal to or greater than Orexigen, which would place it over $11 a share based on the 40M shares outstanding.
Conclusion:
I believe the company is correct in its assessment about the control arm receiving a low dose of the actual treatment and the current ReCharge study design should accommodate for this.
Positive results from the ReCharge study bring into play an obesity treatment option that does not require anatomically changing surgery, prescription medication weight loss pills, or diet plans that fail once the diet is over with. Additionally, the company has reported positive results in treating obesity related hypertension, and is studying the device for the treatment of diabetes related from obesity as well.
The obesity problem in The United States alone costs insurance companies billions of dollars annually, with a good deal of the money shelled out to cover a variety of obesity related diseases. If EnteroMedic's VBLOC therapy proves to be successful, which we predict it will, this could be a huge game changer in treating morbid obesity, and potentially could save billions of dollars in expenses.
Insurance companies would gladly shell out the cost to cover an effective device that can treat a variety of life threatening diseases, and save them a ton of money in the process which is why EnteroMedics is definitely a company to watch in 2013.
Disclosure: I am long on ETRM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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