EnteroMedics retools, refocuses to win FDA approval

Someday, in the not-so-distant future, EnteroMedics Inc. officials might look back at late 2009 and laugh. Or cry.

That ultimately depends on whether the Food and Drug Administration ultimately approves or rejects the company’s groundbreaking Maestro device. Approval means enormous financial success, the only implantable neurostimulation device in the United States designed to treat obesity. Rejection means the end of EnteroMedics, not to mention millions of investment dollars and years of painstaking research down the tubes.

But win or lose, October 2009 will certainly be a key date in the company’s history. That’s when EnteroMedics received the results of its key EMPOWER trial. The news was bad: patients receiving the VBLOC therapy lost no more weight than the patients implanted with a dummy device.

“Everyone was completely stunned when the results came out,” CEO Mark Knudson said.

That could have spelled doom for the company as investors dumped the stock. But now armed with fresh capital and encouraging talks with the Food and Drug Administration, EnteroMedics hopes to conduct a follow up study next year, with an eye on FDA approval in 2012.

That, of course, is much later time line the company had originally envisioned. But given its precarious position, 2012 is looking awfully good.

In some ways, EnteroMedics is the perfect case study of how the promise of a breakthrough technology ran smack into the grim financial and regulatory headaches confronting medical device start-ups today.

Several companies have been exploring the idea of using using electricity to control feelings of hunger but EnteroMedics is far ahead of the pack. Its Maestro device shoots currents down the Vagus nerve, interrupting signals between the brain and stomach. Not only could Maestro combat obesity, but the company argued the device could also treat diabetes and hypertension.

But being first in line also has its downsides. First of all, the company must design a randomized, blinded clinical trial that compares the technology being tested to a control group either through an alternative treatment or, if none exists, a placebo. But unlike pharma trials in which patients are given sugar pills, medical device companies must implant something in the patient to act as the placebo. Some experts even argue that implanting a device in a patient with no therapeutic value is unethical.

“It’s very difficult,” Knudson said. “It’s the biggest issue facing medical device companies in Minnesota. With devices, there’s no such thing as a sugar pill.”

Mark Kroll, a medical device engineer and a former top executive at St. Jude Medical Inc., says it’s also tough to enroll the right patients. People who are willing to participate in such a trial are probably “highly motivated” to lose weight and thus more susceptible to believe the dummy device is working, he said, a phenomenon known as the placebo effect. In other words, a patient who is told they have a device to help them lose weight might actually lose the weight.

From 2001 to 2006, the percentage of new pharmaceutical products cut from development after Phase II clinical trials, when drugs are first tested against placebo, rose by 20 percent, according to Wired magazine. The failure rate in more extensive Phase III trials increased by 11 percent, mainly due to surprisingly poor showings against placebo.

There’s also mounting evidence of “an enhanced placebo effect” in medical device trials, especially when “under conditions of heightened expectations,” according to a 2000 article published in the Journal of Clinical Epidemiology. The article noted strong placebo effects involving sham devices have frustrated researchers trying to prove the clinical value of acupuncture and devices that uses electricity to treat pain.

“The evidence for the existence of an enhanced placebo effect for devices and procedures is intriguing but by no means conclusive,” the article concludes. “Most studies on the subject were conducted before the era of obligatory informed consent and suffer from methodological flaws that cast doubt on their validity. Yet, the phenomenon cannot be ignored because its existence has important implications for the interpretation of many influential randomized control trials.”

For EnteroMedics, everything seemed fine until last October when the company dropped the bombshell: Initial results from the EMPOWER studies of more than 400 patients showed people who used the Maestro device just as much weight as patients implanted with the dummy device.

The sham device did contain wires connected to the nerve. Knudson believes the wires released low intensity energy whenever the company performed a safety check on the device. Still, the results were shocking: the Maestro device delivered 10,000 times more electricity to the therapy group but did not perform any better than the control group’s dummy device.

“When you’re the first people to plow the field, you find the boulders,” Knudson said. ‘When you do something new, you always find something unexpected.”

Knudson also noted the study proved Maestro worked. It also took much longer for the control group to achieve the same weight loss as the therapy group.

Investors weren’t comforted. EnteroMedics stock plummeted from $5.40 a share to less than $1 a share in just a few days. The company now trades around 60 cents a share.

“It’s painful when your stock gets hit like that,” Knudson said. “It makes it difficult to move forward.”

But the company had one distinct advantage: timing.

EnteroMedics went public in 2007, well before the economy plunged into the deepest recession since the Great Depression. The idea of investors eagerly buying shares of  a company with nothing yet to sell would be all but impossible in today’s risk averse economy.

In fact, EnteroMedics along with Virtual Radiological Corp. of Minnetonka and AGA Medical Holdings Inc. of Plymouth, are not just the last three local medical device companies to go public but are the last three companies of any kind in Minnesota to go public since the end of 2007.

It’s hard to say what would have happened to EnteroMedics in the fall of 2009 if it was still a private company. Could the company raised more money from wary venture capitalists to conduct another trial? Knudson, for his part, is glad he didn’t have to find out.

“We had enough cash to stay solvent but not for another test because we didn’t think we needed it,” said Paul Klingenstein, a managing partner of Aberdare Ventures and an EnteroMedics board member. “It’s extremely difficult for a young company to gain the financial resources to take to a Phase III study. We didn’t fully understand that but now we do.”

In January, EnteroMedics managed to raise another $4.8 million from selling stock to institutional investors. The company also said the FDA encouraged it to submit an Investigational Device Exemption application to run another clinical trial that would validate the therapy results of the EMPOWER study.

EnteroMedics officials believe they can design the right study. The new trial will still use a dummy device but with no wires connected to the nerve. Patients will also use an updated Maestro device in which the battery pack will be worn around the belt instead of an implant. The company hopes the upgrade will boost patient compliance to 95 percent from just over 50 percent in the original study.

“I’m absolutely confident in the company,” Klingenstein, the board member, said. “But will I predict what the FDA is going to do? No way.”