EnteroMedics Inc. (NASDAQ:ETRM) Acquires ReShape Medical

EnteroMedics Inc. (NASDAQ:ETRM)

Shares of EnteroMedics Inc. (NASDAQ:ETRM) gained 12.3% after the developer of minimally invasive medical devices announced the acquisition of ReShape Medical. The acquisition of the privately held medical technology company will expand the company’s addressable market and revenue stream.

EnteroMedics Inc. (NASDAQ:ETRM)

ReShape Acquisition

The acquisition will likely compliment the company’s EnteroMedics Inc. (NASDAQ:ETRM) existing products at a time when the company is in dire need of new catalysts. ReShape Medical is the owner and marketer of the FDA-approved ReShape Dual Weight Loss Balloon, designed to treat obese patients with body mass index of between 30 and 40.

Investor confidence in EnteroMedics Inc. (NASDAQ:ETRM) hit at all-time lows as the stock slumped to multi-year lows. ETRM is down by more than 80% for the year after coming under immense selling pressure. Tuesday’s rally did little to strengthen investors’ confidence on the stock as it continued to trade in a strong downtrend.

EnteroMedics Inc. (NASDAQ:ETRM) is in dire need of new products if it is to reinvigorate its growth prospects in the industry. The company has long struggled financially as sales and profits continue to drop. Much of the company’s troubles stem from its flagship device vBloc which lacks coverage from major insurers despite showing promise.

The Chief Executive Officer, Dan Gladney, is however confident about the company’s prospects especially with the acquisition of ReShape Medical.

“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. We look forward to combining the complementary expertise and capabilities of both companies for the benefit of our customers, patients, employees, and stockholders,” said Mr. Gladney.

Acquisition Terms

Under the terms of the acquisition agreement, EnteroMedics Inc. (NASDAQ:ETRM) is to add two designees of ReShape Medical to its board of directors. ReShape Medical is also entitled to 2.36 million shares of EnteroMedics common stock, 187,772 shares of series C convertible preferred stock as well as $5 million in cash.

The $5 million cash is to be used to pay ReShape’s outstanding senior secured indebtedness among other transaction expenses. EnteroMedics Inc. (NASDAQ:ETRM) is to hold a special meeting of shareholders on December 31, 2017, to seek approval of the conversion of Series C convertible preferred stock.

I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.

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About the author: James Marion is a University of Houston student studying Business with a concentration in Finance. James has interned with several investment professionals and hopes to pursue a career as a professional stock analyst after graduation.