Will NeuroMetrix Inc. Win Back the Hearts of Investors?

When I first learned of NeuroMetrix (NURO), it was love at first sight. The company’s NC-stat System made it possible for physicians to diagnose neuropathies at the point of care, leading to faster diagnosis and earlier, more effective therapy.

At the time, the company believed in-office testing could expand the market for nerve conduction studies to as many as 9.5 million procedures annually, creating a $1 billion opportunity. The cash-generating consumables, mainly disposable electrodes, are the stuff medical device dreams are made of.

But like many relationships, my love affair with NeuroMetrix devolved into a heightened dramatic episode. Questions were raised about the marketing of the NC-stat System and about the potential for misuse by unqualified personnel. These issues prompted some insurance carriers to alter their categorization of the procedure, disrupting reimbursement. Sales at NeuroMetrix have stagnated and declined.

In the wake of this disaster, the company has launched the Advance System. Advance is a platform for performing nerve conduction studies and invasive electromyography procedures. Advance distinguishes itself with its low cost, small size, high capacity lithium-ion battery, and embedded amplification and digitization hardware, which reduce the potential for electrical interference.

In the post-coital aftermath of Advance’s 510(k) approval, the company’s share price nearly doubled to a high of $3.06. This excitement has faded as investors look for earnings to justify the share price. Such justification might be on its way.

According to an announcement released Wednesday, initial sales of Advance have begun to materialize, supported by a direct U.S. sales force of 35!

Shai Gozani, President and CEO of NeuroMetrix, is “pleased with the initial response from neurologists, physical medicine and rehabilitation (”PM&R”) physicians, and hand surgeons.”

With that said, I’ll wait for next quarter’s results. Even with a promising product, in this economy, an investor’s love is not unconditional. NeuroMetrix will need strong earnings to support its sizable sales infrastructure. The company lost $10.8 million in its most recent quarter.

Disclosure: None

Comments

[drbob]

Your first paragraph is incorrect: "physicians to diagnose neuropathies at the point of care, leading to faster diagnosis and earlier, more effective therapy." The problems are: 1) many primary care physicians don't understand what a neuropathy is and 2) there is not much in the way of treatment. You can diagnose diabetic neuropathy with a history, reflex hammer and tuning fork. No need for an NC-stat or even a full fledged EMG by a neurologist. So the NC-stat and similar devices basically become cash cows for NeuroMetrix and the primary care physician and do nothing in terms of fostering good health.

[Doug]

1) Let's assume, for arguments sake, that physicians diagnosing neuropathies know what a neuropathy is.

2) I said therapy, not treatment.

[jeffgate45]

A very important "mis-statement&qu... of yours is that marketing and potential misuse "prompted some insurance carriers to alter their categorization of the procedure".

This is the same basic mis-understanding that "kool aid" drinking analysts and investors just never took the time and use of minute due diligence to discover.

Insurance carriers NEVER "altered" their categoriaztion. They never approved the billing codes used by NURO for NC-Stat in the first place. In fact, they were never asked. NURO just told MD's to submit billing falsely under a set of codes that were only approved for an invasive procedure. When insurance carriers discovered the billing for these codes increased dramatically from MD's that had never submitted them before (vs. neurologists that were qualified to submit), they "shut down" these fraudulent billings.

The business model of NURO was built on the false hope that insurance carriers would accept the premise of a hand held surface technology being eqal to an invasive needle technology.

If they had submitted this premise "before" marketing or going public, the answer would have been a resounding NO from insurance carriers.

The investment community completely dropped the ball and chose to see the naked King clothed in an imaginary robe.

One simple call or investigation by a CPT code specialist would have revealed that the submission of these codes would result in an ultimate denial. NURO either never asked for this independent opinion or failed to acknowledge it.

[jeffgate45]

A few questions for Mr.Cress:

I am still curious about why the underwriters obviously never did due diligence on the insurance carrier reimbursement of the NC Stat.

1. How could an analyst or underwriter ever just accept NURO's assertion that the NC Stat would be reimbursed under existing codes when it is oobvious to any neophyte that their surface test differed dramatically from the accepted technology?

2. How could a Red Herring ever be issued that did not include a confirmation from just one insurance carrier or the AMA CPT Board that the NC Stat qualified a for the same reimb.?

3. How could the whole basis for income for a "new" medical device go unquestioned when it is standard knowledge that many products get FDA 510 K but very few qualify for a new or existing CPT code?