EnteroMedics Inc. was established to develop and commercialize a new therapeutic platform for treating a wide range of acute and chronic diseases that are mediated by the vagal nerves. Due to the large unmet need for more effective surgical management of obesity and following an in-depth analysis of how the vagus nerve affects food intake and processing EnteroMedics has selected obesity management as its primary focus. EnteroMedics Inc. has a market cap of $59.7 million; its shares were traded at around $1.99 .
Highlight of Business Operations:Research and Development Expenses. Research and development expenses were $3.8 million for the three months ended March 31, 2009, compared to $6.2 million for the three months ended March 31, 2008. The decrease of $2.4 million, or 38.7%, is primarily due to decreases of $1.3 million, $710,000 and $157,000 in professional services, device costs and compensation expense, respectively. Professional services and device cost decreases are driven by the completion of enrollment and implants in our EMPOWER clinical study during 2008. We are currently incurring costs related to follow up visits, which are less expensive than the cost of the implantation procedure, and do not require us to incur new device costs. The reduction in compensation expense is the result of a reduction-in-force completed December 1, 2008. The reduction-in-force also resulted in a decrease of $153,000 in employee stock-based compensation expense compared to the three months ended March 31, 2008.
Selling, General and Administrative Expenses. Selling, general and administrative expenses were $1.9 million for the three months ended March 31, 2009, compared to $2.3 million for the three months ended March 31, 2008. The decrease of $427,000, or 18.3%, is primarily due to a $389,000 decrease in professional services expense. The decrease in professional services expense is made up of decreases of $130,000 in audit, tax and legal fees, $125,000 in marketing and public relations activity and $143,000 related to other general consulting services, including the conversion of consultants to employees.
Interest Income. Interest income was $48,000 for the three months ended March 31, 2009, compared to $496,000 for the three months ended March 31, 2008. The decrease of $448,000, or 90.3%, is primarily due to a decrease in the short-term interest rate environment and a decrease in the average cash, cash equivalents and short-term investment balance from $52.4 million during the three months ended March 31, 2008 to $30.8 million during the three months ended March 31, 2009. The decreased average cash, cash equivalents and short-term investments balance is the result of $32.7 million in net cash used in operating and investing activities from January 1, 2008 through March 31, 2009, offset by $15.0 million of debt funding received in November 2008, of which we received net proceeds of $7.1 million after transaction expenses, facility charges and existing debt pay off and $15.1 million of net private placement proceeds received February 24, 2009.
Interest Expense. Interest expense was $677,000 for the three months ended March 31, 2009, compared to $446,000 for the three months ended March 31, 2008. The increase of $231,000, or 51.8%, was primarily the result of entering into a $20.0 million debt facility, of which $15.0 million was funded in November 2008 that resulted in net proceeds of $7.1 million after transaction expenses, facility charges and existing debt pay off. The effective rate of the new debt facility is approximately 19% compared to the old debt facility containing several outstanding loans with effective interest rates primarily ranging from approximately 15% to 17%.
We have incurred losses since our inception in December 2002 and, as of March 31, 2009 we had a deficit accumulated during the development stage of $108.0 million. We have financed our operations to date principally through the sale of capital stock, debt financing and interest earned on investments. Prior to our IPO in November 2007, we had received net proceeds of $63.2 million from the sale of common stock and preferred stock and $30.8 million in debt financing, $746,000 to finance equipment purchases and $30.0 million to finance working capital. Through our IPO we received net proceeds of $39.1 million after expenses and underwriters discounts and commissions and including the partial exercise of the underwriters over-allotment option. In November 2008, we entered into a $20.0 million working capital debt facility, replacing the existing debt financing. We received net proceeds of $7.1 million from the first draw of $15.0 million after transaction expenses, facility charges and existing debt pay off. On February 24, 2009, we completed the sale of 13,110,393 shares of our common stock, together with warrants to purchase an aggregate of 6,555,197 shares of our common stock, in a private placement transaction with several accredited investors. We received gross proceeds of $15.9 million less a placement agent fee of $617,000 and certain other expenses.
On November 18, 2008 we entered into a $20.0 million debt facility. The initial commitment under the debt facility was for $15.0 million and was funded on November 21, 2008, of which we received net proceeds of $7.1 million after transaction expenses, facility charges and existing debt pay off. The debt facility provided that the additional $5.0 million draw was to be available and automatically fund under the terms of the loan agreement if and when the trading price of our common stock on the NASDAQ Global Market met or exceeded a target amount on or before June 30, 2009. The Companys trading price recently achieved this target amount and therefore, on April 28, 2009, the automatic funding of the additional $5.0 million was made to the Company under the debt facility. The $5.0 million loan requires monthly interest-only payments through June 30, 2009 at an annual percentage rate of 12.0% followed by 30 equal principal and interest installments beginning July 1, 2009 at an annual percentage rate of 11.0%. A final payment fee of $250,000 is due December 1, 2011, the maturity date.
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