Management

Presentation

November 2010

Free Writing Prospectus Disclosure

Issuer

Free

Writing

Prospectus

Filed

Pursuant

to

SEC

Rule

433

On

November

10,

2010,

the

issuer,

EnteroMedics

Inc.,

filed

a

Registration

Statement

on

Form

S-1

(Registration

No.

333-170503)

with

the

Securities

and

Exchange

Commission

(the

“SEC”)

with

respect

to

the

offering

to

which

this

presentation

relates.

A

copy

of

the

preliminary

prospectus

for

the

offering

is

included

in

that

registration

statement.

Before

you

invest,

you

should

read

the

prospectus

in

that

registration

statement

and

other

documents

the

issuer

has

filed

with

the

SEC

for

more

complete

information

about

the

issuer

and

this

offering.

You

may

obtain

these

documents

for

free

by

visiting

EDGAR

on

the

SEC

web

site

at

www.sec.gov.

Alternatively,

copies

of

the

preliminary

prospectus

and,

when

available,

the

final

prospectus

relating

to

the

offering

may

be

obtained

from

Craig-Hallum

Capital

Group

LLC’s

prospectus

department

at

222

South

Ninth

Street,

Suite

350,

Minneapolis,

MN

55402

or

by

phone

at

(612)

334-6300.

Safe Harbor Statement

This

presentation

contains

forward-looking

statements

about

EnteroMedics

Inc.

Our

actual

results

could

differ

materially

from

those

discussed

due

to

known

and

unknown

risks,

uncertainties

and

other

factors

including

our

limited

history

of

operations;

our

losses

since

inception

and

for

the

foreseeable

future;

our

lack

of

regulatory

approval

for

our

Maestro®

System

for

the

treatment

of

obesity;

our

preliminary

findings

from

our

EMPOWER™

pivotal

trial;

our

ability

to

comply

with

the

Nasdaq

continued

listing

requirements;

our

ability

to

commercialize

our

Maestro

System;

our

dependence

on

third

parties

to

initiate

and

perform

our

clinical

trials;

the

need

to

obtain

regulatory

approval

for

any

modifications

to

our

Maestro

System;

physician

adoption

of

our

Maestro

System

and

VBLOC®

vagal

blocking

therapy;

our

ability

to

obtain

third

party

coding,

coverage

or

payment

levels;

ongoing

regulatory

compliance;

our

dependence

on

third

party

manufacturers

and

suppliers;

the

successful

development

of

our

sales

and

marketing

capabilities;

our

ability

to

raise

additional

capital

when

needed;

international

commercialization

and

operation;

our

ability

to

attract

and

retain

management

and

other

personnel

and

to

manage

our

growth

effectively;

potential

product

liability

claims;

potential

healthcare

fraud

and

abuse

claims;

healthcare

legislative

reform

and

our

ability

to

obtain

and

maintain

intellectual

property

protection

for

our

technology

and

products.

These

and

additional

risks

and

uncertainties

are

described

more

fully

in

the

Company's

filings

with

the

Securities

and

Exchange

Commission,

particularly

those

factors

identified

as

"risk

factors"

in

the

Company's

Registration

Statement

on

Form

S-1

filed

with

the

SEC

on

November

10,

2010.

We

are

providing

this

information

as

of

the

date

of

this

presentation

and

do

not

undertake

any

obligation

to

update

any

forward-looking

statements

contained

in

this

document

as

a

result

of

new

information,

future

events

or

otherwise.

3

Offering Summary

Issuer:

EnteroMedics Inc.

Ticker / Exchange:

ETRM / NASDAQ

Offering Size:

12 million shares (100% primary)

Warrant Coverage:

100% Coverage (25% premium to offer price)

Over-Allotment:

15% (100% primary)

Use of Proceeds:

Continue work toward US regulatory approval

International commercialization efforts

Clinical and product development activities 

Working capital and other corporate purposes

Sole Underwriter:

Craig-Hallum Capital Group

Expected Pricing:

Mid-December

Management:

Mark Knudson, PhD (CEO)

Greg Lea (CFO)

4

Background and Investment Highlights

Founded in 2002 to create  neuroblocking

“pacemaker”

for obesity (Maestro®

System) that

would:

–

Target

the

shortcomings

of

existing

treatments

by

addressing

the

unmet

needs

of

26

million

eligible

surgical candidates

–

Control the co-morbidities of diabetes and high blood pressure

~400 Patients have used the Maestro System

–

20-30% excess weight loss (EWL)

–

Excellent safety profile

–

24 month data continues to demonstrate increased EWL

–

294 patient EMPOWER pivotal trial launched in July 2007

•

Efficacy endpoint missed because safety and system checks created unexpected therapeutic block and weight

loss in the placebo arm

–

FDA encouraged re-submission and granted IDE approval for second pivotal trial (ReCharge)

Broad IP portfolio protects vagus

nerve blocking in the gastrointestinal tract

Experienced board of high-profile medical device venture capitalists participated in $6.3

million financing in September 2010

Proposed equity raise expected to fully fund second FDA approved

US pivotal trial and

Australian commercialization

5

The Obesity Epidemic

1/3 of US adults are obese (2/3 of Australian adults are overweight or obese)

–

More than 72 million people in the US (Body Mass Index “BMI”

>30)

–

1 in 8 deaths in the US are caused by an overweight/obesity related illness

–

CDC estimates an overall economic cost of obesity of approximately $150 billion

Approximately 26 million surgical candidates in the US (BMI>35)

About 1% of eligible patients seek surgery

–

220,000 bariatric procedures completed in the US (13,900 in Australia) in 2008

High priority for US government and major strategic players

6

Current Treatments

Less Invasive

More Invasive

Pharmaceuticals

Bariatric Surgery

Serious safety concerns

Less effective for morbid obesity

–

Limited weight loss

–

Unsustained effect

Adverse side-effects

Duration of use restrictions

Bypass & sleeve surgery irreversible and risky

Adjustable gastric bands have long-term follow-

up burdens (e.g. vomiting, quarterly adjustments)

All result in major lifestyle changes including side

effects, dietary restrictions and food intolerances

7

Role of the Vagus Nerve

Vagus nerve controls:

–

Sensation of hunger

–

Expansion, fullness and emptying

of stomach

–

Digestive enzyme secretion

Severing the vagus nerve

(vagotomy) causes:

–

Reduced appetite

–

Delayed stomach emptying

–

Prevention of weight gain

The effects of vagotomy are not

sustainable

–

The body accommodates for, or

“works around”, the permanent

interruption

80% of vagus

nerve fibers

send messages

to the brain

20% of vagus

nerve fibers send

instructions from

the brain

8

The implantation procedure and usage of the Maestro System carry some risks, such as the risk generally associated with

laparoscopic procedures and those related to treatment as described in the EMPOWER clinical study informed consent. 

VBLOC Therapy

Delivered via the Maestro System

VBLOC Therapy

–

Intermittent neuroblocking

technology

–

Pacemaker-like device (Maestro System) including leads laporoscopically

implanted on the intra-abdominal vagal

trunks

–

Vagus

nerve controls hunger; VBLOC Therapy blocks vagus

nerve signals, therefore

reducing hunger feelings and promoting earlier fullness

9

RC

Planned Commercial

Device

Protein

Carbohydrates

Fat

0

250

500

750

1000

1250

1500

1750

2000

2250

Pre-implant

(n=10)

4 weeks

(n=10)

12 weeks

(n=8)

6 months

(n=9)

20%

43%

37%

20%

44%

36%

23%

41%

22%

40%

38%

Reduced Portion Size

(40%)

(35%)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

30%

% EWL from

Implant

Calories

(kcal %)

Reduced Calories

Pre-implant

4 weeks

12 weeks

6 months

36%

Source: VBLOC-I Sub-study., Flinders UMC, Adelaide, Australia

Compelling Clinical Results

Earlier Fullness and Less Hunger

(90)%

(60)%

(30)%

0%

30%

60%

90%

Reduced

hunger

Therapy

Initiation

4 weeks

12 weeks

6 months

Earlier

fullness

Significant impact on hunger and fullness drives successful weight loss

10

Study

Location

# Patients

~400 Overall

Study

Duration (yrs)

Efficacy

%EWL

First Generation Maestro  RF System

VBLOC-1

OUS

31

0.5

14.2 (6

months) 

VBLOC-RF2

OUS

38

3

23.0 (2 years)

(1)

EMPOWER

US

294

2/5

19.4 (2 years)

(2)

Second Generation Maestro RC System

VBLOC-RC1

OUS

5

1/5

25.9 (1 year)

VBLOC-DM2

OUS

28

1/5

25.3 (1 year)

(3)

ReCharge

US

234

1/5

IDE Approved

Note: Conducted gastric function study as well in 12 patients

1) 18 patients

2) 159 patients

3) 25 patients

Safety

No deaths or therapy related SAEs; Low SAE rate

Positive safety profile

Low 1-year surgical revision rate

Efficacy

Clinically significant weight-loss

Control of major co-morbidities

–

Diabetes and hypertension

Broad acceptance by surgeons and patients

The Maestro System Clinical Experience

11

Maestro System

Usage equals RESULTS

“Dose Effect”

shows clear

correlation between

average EWL and the

number of hours of device

use

–

Demonstrates efficacy

–

Important to FDA

Placebo group result was

nearly identical due to

unanticipated therapeutic

effect

-40

-35

-30

-25

-20

-15

-10

-5

0

Implant

4 weeks

3 months

6 months

9 months

12 months

More treatment = More weight loss

< 6hr

(n = 25)

6 -

9hr

(n = 61)

9 -

12hr

(n = 63)

>12hr

(n = 16)

EMPOWER Trial Outcome

Mean Excess Weight Loss (EWL) by Hours of Use in Treatment Group

12

EMPOWER Trial Analysis

294 patient US study using the first generation Maestro RF System

An

unanticipated

therapeutic

effect

was

delivered

to

the

placebo

arm

–

Received a low-charge from safety and system diagnostic checks

–

Post-study Rat Model demonstrated low charge effect

Both groups experienced significant, dose-dependent Excess Weight Loss (EWL)

–

EWL greater than 20% in the prescribed use group of both arms

Safety endpoint met

–

No deaths, low 1-yr surgical revision rate and low serious adverse event rate

–

No therapy related serious adverse events

24 month data continues to demonstrate that VBLOC Therapy works

–

Patients using the device for > 9 hours daily have an average EWL of 23% (n=71)

–

Over two-thirds of patients remain in trial

13

US RECHARGE Trial

Pivotal Trial for US Approval

Use next generation implantable

device

–

More convenient

–

Hours of use controlled by device

Placebo group will receive non-active

device (without leads to the vagus

nerve)

–

No charge will be delivered in the

placebo group

234 morbidly obese subjects 

(156 treatment | 78 placebo)

–

Treated group “on”

for ~12 hours per

day

Key trial end points at 12 months

–

Efficacy

–

Safety

IDE approved October 2010

14

VBLOC-DM2 Enable Trial Excess Weight

Loss (EWL) %

Approximate Hours of Use = 14 Hours

Week 1

Week 4

Week 12

6 Months

12 Months

Implant

28

28

26

25

25

28

Significant Promise in Treatment of Co-Morbidities

Diabetes and Hypertension

Clinically significant effect of VBLOC on two major co-morbidities

–

Diabetes

–

Cardiovascular / blood pressure

Improvements were immediate and sustained

–

Diabetes: 

•

HbA1c reduced to below 7.0%

•

Diabetes control level set by the American Diabetes Association

–

Blood pressure: 

•

~10% reduction in Mean Arterial Pressure

•

10 mmHg reduction diastolic blood pressure

The combined effect of weight-loss and reduction of key co-morbidities is a

positive driver for:

–

Adoption and reimbursement

–

Lowering the risk of stroke, heart attack and heart failure

15

Commercialization in Australia 

Australia is expected to be the first market to commercially launch the Maestro

System

–

Historical leadership with new obesity treatments

–

Extensive clinical experience with Maestro in the hands of experienced surgeons and

bariatric follow up teams

•

In an Australian cohort of 83 EMPOWER patients (61 implanted)

o

Mean 12-month EWL was 25% for the treatment group and 17% for the placebo group

o

Subjects with > 9 hours/day use achieved 37% (treated) and 21% (placebo) mean EWL

Path to product launch

–

Announced cooperation agreement with the Australian Institute of

Weight Control

(AIWC) in October 2010

•

Australia’s largest network of bariatric clinics

•

Performed 1,250 procedures in 2009 (9% of national total)

•

Will drive surgeon training, be initial users of the device and assist with regulatory and

reimbursement approvals

–

CE Mark expected in Q1 2011

–

TGA approval and first revenue in 2H 2011

16

Upcoming Planned Catalysts

17

2011

2012

Begin ReCharge Enrollment

Receive CE Mark for RC Device

Complete ReCharge Enrollment

TGA Approval in Australia (commence sales)

Explore Other International Market Opportunities

Ongoing Clinical Data

Release ReCharge Trial Data

Q1

Q1

2H

2H

Australian Revenue

Premarket Approval (PMA) Submission

Q4

2H

Experienced Board of Directors & Management Team

Name

Role at EnteroMedics

Background

Mark B.  Knudson, PhD

President and CEO and Chairman of the Board

Faculty, University of Washington School of Medicine

Founder and Director of multiple medical device companies

President of J&J Professional Diagnostics

Greg S. Lea

SVP and CFO

CFO and Director of Pemstar

Executive management positions at Jostens Corp and IBM

Adrianus (Jos) Donders

SVP of Operations

Senior positions at Medtronic in R&D,

Headed Medtronic-Europe neurostim development organization

Dan L. Cohen

SVP, Government Relations and Health Policy

VP, Global, Corporate, and Government Affairs, Imamed Corporation

Katherine  S. Tweden, PhD

VP, Research and Clinical

VP of Research at HeartStent Corporation

Research positions at St. Jude Medical and W.L. Gore

Nicholas L. Teti, Jr.

Board Member

Special Advisor to Chief Executive Officer of EnteroMedics

Chief Executive Officer, Inamed Corporation

Luke Evnin, Ph.D

Board Member

General Partner, MPM Capital

Catherine Friedman

Board Member

Independent Financial Consultant

Managing Director, Morgan Stanley

Carl Goldfischer M.D.

Board Member

Investment Partner, Managing Director, Bay City Capital

Chief Financial Officer, ImClone Systems

Bobby I. Griffin

Board Member

Executive Vice President, Medtronic Corporation

President, Medtronic Pacemaker Business

Donald C. Harrison M.D.

Board Member

Managing Partner, Charter Life Sciences

Chief Executive Officer, University of Cincinnati Medical School

Paul H. Klingenstein

Board Member

Managing Partner, Aberdare Ventures

Jon T. Tremmel

Board Member

President of the Neurological Division, Medtronic

President of the Physio Control Division, Medtronic

Highly experienced management team and Board of Directors

18

Financial Summary

Balance Sheet Data

As of September 30, 2010

Cash and cash equivalents             $13.3 million*

Diluted Shares Outstanding

As converted, as of October 31, 2010

Common Shares

10.9 million

Warrants

4.9 million

Options

0.8 million

Diluted Shares Outstanding

16.6 million

19

*Includes $781K of Series A non-voting convertible preferred stock receivable

Value Creation Opportunity

Significant revenue opportunity in the US

Upside

–

Maestro System can attract a larger percentage of the obesity market

–

A metabolic solution with impact beyond obesity

•

Diabetes, hypertension and other GI maladies

Obesity treatment is a major category for large pharmaceutical and medical device

companies

–

Companies are seeking a minimally invasive obesity treatment

•

Allergan

(NYSE: AGN) purchased INAMED for 6.9x revenue in 2006 ($3.1 billion)

•

INAMED

was

the

creator

of

the

LAP-BAND®

System,

an

adjustable

gastric

band

used

to

treat

obesity

20

Investment Highlights

Next generation device to treat obesity

Effectiveness and safety supported by multiple trials and 400+ implants

Clear and significant advantages over current obesity treatments

Controls the co-morbidities of diabetes and high blood pressure

IDE approved for second US pivotal trial

Broad IP portfolio protects vagus

nerve blocking in the gastrointestinal tract

Experienced board of high-profile medical device venture capitalists

participated in $6.3 million financing in September 2010

Proposed equity raise expected to

fully fund second US pivotal trial and

Australian commercialization

21

Enteromedics

22