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EnteroMedics to shed 40% of workers

The Roseville firm said it will have 33 employees as it assesses options.

By JANET MOORE, Star Tribune

Last update: October 27, 2009 - 9:37 PM

In the wake of disappointing results from a key clinical trial assessing its anti-obesity device, EnteroMedics Inc. said Tuesday it will lay off 22 people, or roughly 40 percent of its workforce.

The Roseville-based company said the workforce reduction will help preserve capital and streamline operations. As of Nov. 15, the company will have 33 employees.

EnteroMedics has developed a pacemaker-like device to treat obesity. But last month, the company revealed that results from a pivotal clinical trial failed to meet primary and secondary endpoints, or goals. The news sent the company's stock into a spiral.

Company executives say they continue to pore over results from the study, which enrolled 294 patients nationwide. But the news has derailed the company's plan to apply for U.S. Food and Drug Administration approval to sell the Maestro obesity system in the United States. The company had hoped to begin selling the device by 2011.

Last Friday, EnteroMedics said it lost $12 million in the third quarter, missing Wall Street's estimates. It also received a deficiency letter in October from the Nasdaq stock market, where its shares are listed. The letter indicated the company is in danger of being delisted if it does not maintain a market value of listed securities totaling $50 million. The company has until Jan. 19 to regain the Nasdaq's listing compliance.

The workforce reduction announced this week "while difficult, is necessary to ensure that we have the resources in place to support our ongoing clinical trials and that the company remains well-equipped to provide support for these studies as we continue our evaluation of the one-year data" from the clinical trial, president and CEO Mark Knudson said in a news release.

The reduction in force is expected to trim operating expenses by about $3.2 million in 2010. The company said it expects to incur a charge of about $500,000 related to the workforce reduction in the fourth quarter, and individuals affected by the layoff have been offered severance agreements.

In its earnings release last week, the company said its cash position -- which totaled $27 million as of Sept. 30 -- gives it operating flexibility "well into 2010." The figure does not include an additional $4.9 million infusion from an institutional investor.

EnteroMedics' shares closed Tuesday at 63 cents, down 12 cents, or 16 percent.

Janet Moore • 612-673-7752

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