Seeking Alpha
Value, growth at reasonable price, momentum, special situations
Profile| Send Message|
( followers)  

NeuroMetrix (NURO) has been through a lot since becoming a public company. The share price skyrocketed with the initial success of the NC-Stat testing device only to fall with it over the past five years.

Today, this once highflyer is sitting under two dollars with a market cap of around $7 million, and $11.7 million in the bank. What caused this collapse and what is new today?

NeuroMetrix was once a Robin Hood story: the company stole from the neurologists, gave to the family practitioners, and made awesome margins in doing so. NeuroMetrix took a nerve velocity test; a standard neuropathy test for a neurologist called NC-Stat, and made it less invasive. The company then introduced it as part of GP (general practitioners) office visit. The test helped the GPs make better diagnoses for a broad assortment of neurological problems, as well as increase profit margins; it was a win-win. The problem is, for anything to be successful in healthcare, there needs to be a win-win-win scenario for the supplying company, healthcare professional, and the insurance company. Under the former NC-Stat, the insurance companies lost in the deal since it was costly to their bottom line. It was one of the many products, though beneficial, that have been increasing healthcare costs and not seen as cost-effective; a no-no. The effects of this problem in this once high-flyer can be seen by looking at their continuous revenue death spiral from Q3 2006 until today (see below).

Now why would anyone want to revisit NeuroMetrix as an investment?

NeuroMetrix took the former NC-Stat, which was a win-win-lose, and transformed it into two products, the Advance, which has been around for a few years and makes up most of Neurometrix current revenues, and the NC-Stat DPNCheck. The Advance has its unique features but it is used closer to the standard neuropathy test in a competitive landscape. The Advance adds to the NeuroMetrix business and is cash flow positive, but has barricades and is not the NC-Stat of yesteryear. The company has realized these barricades are not coming down and is doing two things as a result: It is attempting to take the Advance to the international market for a little more juice and it came up with the NC-Stat DPNCheck. The DPNCheck has the potential for the excitement and growth that they once saw. Foremost, NeuroMetrix made it a specialized product that targets neuropathies that result from diabetes. A diabetic neuropathy could result in very costly medical bills due to foot ulcers and potential amputation; insurances don't want that. Secondly, it tapped an unmet need since there is not a quantitative measure that can be used to track DPN (Diabetic Peripheral Neuropathies) and the conditions progression. In addition, the company lowered the complexity and cost of its consumables used in velocity checks ($20 or less) making the test more attractive for private insurance coverage and on a patient pay model. Lastly, it partnered with Nipro diagnostics to target Walgreens (WAG) and other retail medical clinics. More information on the NeuroMetrix current product line can be found at the company website at neurometrix.com/.

The future of NeuroMetrix depends on what it can do with the Advance and the DPNCheck launched this September, which has the potential to tap the unmet need and reverse their revenue decline. Has NeuroMetrix learned from its NC-Stat collapse and now returned with a more marketable product in the NC-Stat DPNCheck and Advance? That is yet to be decided.

Disclosure: I am long NURO.

Source: The Future Of NeuroMetrix