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Current Larry Oakley's Comment:
Date Posted: 12/03/12
NeuroMetrix, Inc. – NasdaqCM: NURO -- Update
Comment
I originally recommended NURO in the 3/16/2012 issue of my “Conservative Speculator” newsletter, & did an update in my “Stock Pick” editorial column on 8/1/2012. Based on the company’s exceptional progress, & its undervalued share price ($0.51 on 11/30/2012), I felt that this is a good time to bring you this second update.
Brief Included in NURO’s News Releases
“NeuroMetrix is an innovative medical device company that develops & markets home use & point-of-care devices, associated consumables, & support software for the treatment and management of diabetes & its complications. The company is focused on nerve related complications of diabetes, called diabetic neuropathies, which affect over 50% of people with diabetes. If left untreated, diabetic neuropathies trigger foot ulcers that may require amputation, cause disabling chronic pain, & increase the risk of falling in the elderly. The annual cost of diabetic neuropathies has been estimated at $14 billion in the U.S. The company’s products are used by physicians & other clinicians in retail health settings such as pharmacies, & by managed care organizations to optimize patient care & reduce healthcare costs. The company markets the NC-stat DPNCheck device, which is a rapid, accurate, & quantitative point-of-care test for diabetic neuropathy. This product is used to detect diabetic neuropathy at an early stage & to guide treatment. The company is in late stage development of SENSUS, a pain management device. The company has additional therapeutic products in its pipeline. For more information, please visit http://www.neurometrix.com.”
My Opinion
I recently interviewed CFO Tom Higgins & learned a bit regarding NURO’s 2013 plans as well as a new way to understand its 2012 accomplishments, which occurred in rather strict adherence to the company’s advance planning.
I like this emerging growth situation. In fact, my opinion is that this is the best time in NURO’s history to incorporate it as an important potential winner in your portfolio. It is not only undervalued, its 2012 progress & its 2013 plans are both impressive.
I believe that NURO has so far laid the groundwork for the kind of growth you will need in today’s rather unique economy, & its plans for 2013 should continue its progress.
Review of 2012 Progress
1. NURO is the only company narrowly focused on one particular aspect of diabetes -- diabetic nerve damage. Its initial product, a device called “NC-stat® DPNCheck” (DPN stands for Diabetic Peripheral Neuropathy) was originally introduced to the market in September 2011. NURO’s goal was to build its production of revenue to close to 1,000 units totaling $1,500,000 by 12/31/2012. By 8/1/2012, NURO had placed 590 devices, & by the end of September 2012, NURO had placed about 800 units into the market, yielding about $1,100,000 of revenue. The company expects to achieve its goal of $1,500,000 of revenue for the DPN by year end of 2012.
That goal is being achieved because the device does such a good job of detecting the amount of nerve damage in the lower extremities of the patient’s legs & feet. It requires only about 30 seconds to provide the doctor with an accurate quantitative number readout showing how good the nerves transmit nerve data along the sural nerve from the foot upwards through the legs. The result is much faster & far more accurate than the antiquated procedure used by doctors who do not as yet have the advantage of using NURO’s DPN device.
2. NURO landed a really big account – Wal-Mart Canada is deploying the DPN device in all of its pharmacies that have pharmacists with diabetes training – about 100 of them. A second big sale was to Well Med, a large San Antonio based healthcare provider. It operates about 45 of its own clinics & contracts with other clinics in TX & FL to serve a total of about 100,000 patients. All of those patients are Medicare Advantage patients which the company believes is its most attractive market opportunity. These two new accounts represent exceptional progress in accordance with NURO’s business plan. In addition to such large sales, NURO sells directly to endocrinology & podiatry doctors & clinics.
3. In my first update on 8/1/2012, I asked if the company is trying to reach customers in other countries – Tom Higgins said that there has been a small sale here & there, but the focus in on the U.S. – when this market is well covered, the company will begin expansion to Europe, Asia, & other foreign markets.
I also asked questions concerning risk. The primary risk is simply that growth will continue to be uneven quarter to quarter because the sales cycle to large customers is longer than when a company sells to a very great number of small customers. That is understandable & does not bother me, since the company has clearly demonstrated that it can be successful selling to the largest type customers.
Preview of 2013 Plans
In 2012, the company began its market penetration of its DPM device, & is meeting its plans & goals for that product. On November 29, the company announced that the FDA had cleared its second major diabetes product, the SENSUS™ Pain Management System, for the market. Initial shipments should occur before the end of 2012. Its market introduction & the expected increased revenue reflected in its marketing plan should act as still another exceptional development. SENSUS is a therapeutic pain management device. It straps on a patient’s leg & stimulates one’s good nerves in the lower extremities in order to block chronic pain that may be associated with developing DPN in the toes, feet, legs, etc. It has two parts – the device, & a Biosensor.
SENSUS is in the broad category of TENS (transcutaneous electrical nerve stimulation) devices on the market. SENSUS, however, is much more sophisticated that the TENS units. It is designed specifically for lower extremity pain such as that associated with diabetic peripheral neuropathy.
Recent News
11/29/2012 – NURO reported it has received 510(k) clearance from the FDA for the disposable electrode that is used in conjunction with its SENSUS device. This regulatory determination by the FDA gives NURO clearance to market the SENSUS Pain Management System in the U.S. market.
The SENSUS device is a transcutaneous electrical nerve stimulator intended for the symptomatic relief & management of chronic intractable pain in the lower leg & foot. It is a light weight, low profile device worn on the upper calf & activated by the press of a single button. It can be placed in seconds & may be worn under clothing.
“FDA clearance of the SENSUS electrode represents the last step in the regulatory pathway for the SENSUS Pain Management System,” said Shai N. Gozani M.D., Ph.D., President & CEO of NURO. “We believe that physicians treating patients with painful diabetic neuropathy, a severe & debilitating form of chronic pain, will find SENSUS to be a useful therapeutic option. We intend to initiate the commercial launch for SENSUS before the end of the year, in line with the goal that we set over a year ago.”
11/1/2012 -- NURO announced signing a distribution agreement with OneSource Medical Group, LLC (OSMG) of Clearwater, FL for its SENSUS(TM) pain management device. OneSource Medical Group concentrates its sales efforts in the south east & south central U.S. Its primary focus is diabetes testing supplies & it also covers pain management products & urological supplies.
The SENSUS pain management device is a transcutaneous electrical nerve stimulator intended for the symptomatic relief & management of chronic intractable pain in the lower leg & foot. It is a light weight, low profile device worn on the upper calf & activated by the press of a single button. It can be placed in seconds & may be worn under clothing. NeuroMetrix received FDA clearance for the SENSUS device in August & is planning full product launch during the first quarter of 2013. SENSUS may be used to help manage chronic pain in diabetes patients with painful diabetic neuropathy.
"OneSource Medical Group's diabetes focus makes them a natural partner for SENSUS launch," said Shai N. Gozani M.D., Ph.D., President, & CEO of NeuroMetrix. "We are pleased to join with OSMG as our first SENSUS distributor in a planned national network which will provide broad product exposure & patient delivery capability."
"SENSUS fits nicely into our diabetes product suite which today includes blood glucose meters, pumps, syringes, & other products," said Eric Sternberg, COO of One Source Medical Group. "We are particularly impressed with the innovative SENSUS design features & convenience for patient use. We anticipate strong interest from our physician clientele."
10/25/2012 -- NURO reported business & financial highlights for the quarter & nine months ended September 30, 2012. The Company is working to develop a high growth, profitable diabetes franchise focused on diabetic peripheral neuropathy, or DPN, the most common complication of diabetes. DPN affects over 50% of people with diabetes & causes significant morbidity including pain, increased risk of falling in the elderly, & is the primary trigger for diabetic foot ulcers which may require lower extremity amputations. The Company's emerging business currently has two products: a diagnostic test, NC-stat(R) DPNCheck(TM), which was launched into the market at the end of 2011, & the SENSUS(TM) pain management device which is in late stage product development. The Company also sells the ADVANCE(TM) general purpose nerve testing system. Recent highlights include:
-- Regulatory Progress. The FDA cleared the Company's 510(k) submission for the SENSUS pain management device in August 2012. A second 510(k) submission in June 2012 for the Company's proprietary SENSUS electrode is under FDA review. Following FDA clearance for the electrode, the Company plans to launch SENSUS before the end of 2012 (Editor’s Note: that FDA clearance has just
been received).
-- Managed Care Expansion. The WellMed Medical Group of San Antonio, TX adopted NC-stat DPNCheck in the second quarter of 2012 to test its Medicare Advantage patients. WellMed accelerated patient testing during the third quarter with continued product support from the Company. The Company has added other managed care accounts & initiated pilots with additional Medicare Advantage provider networks. The managed care market sector represents the most compelling near term market opportunity for NC-stat DPNCheck.
-- Endocrinology/Podiatry Sales. The Company's direct sales force recorded orders for 102 NC-stat DPNCheck devices during the third quarter which reflects a consistent quarterly pace since product launch.
-- Installed Base Growth. The installed base of NC-stat DPNCheck devices reached 778 by the end of the third quarter. This places the Company on track toward achieving its goal of 1,000 devices by the end of 2012.
"NC-stat DPNCheck sales into managed care & the SENSUS launch continue to command our attention," said Shai N. Gozani M.D., Ph.D., President & CEO of NeuroMetrix. "The interest level in SENSUS from physicians at trade shows & potential distributors has been encouraging. We are working toward a limited launch later this year to be followed by a broader, distributor-led initiative early in 2013. This timetable continues to look feasible."
The Company reported its financial results for the third quarter of 2012. Total revenues were $1.8 million compared with $2.6 million for the third quarter of 2011. Diabetes products contributed revenue of $0.3 million with the balance of $1.5 million in revenue derived from the legacy ADVANCE business now managed to optimize cash flow. Gross margin for the third quarter of 2012 of 55% of total revenues was similar to the gross margin percent in the third quarter of 2011. Operating expenses for the third quarter of 2012 were $3.6 million compared to $3.8 million in the third quarter of 2011. Net loss for the third quarter of 2012 was $2.6 million, or $0.21 per share. The Company reported a net loss of $2.4 million for the third quarter of 2011, or $0.63 per share. NeuroMetrix reported net cash usage of $2.4 million in the third quarter of 2012 & ended the period with cash resources of $10.9 million.
For the nine month period ended September 30, 2012, the Company reported revenues of $6.1 million & a net loss of $8.1 million, or $0.73 per share. In the comparable nine month period ended September 30, 2011, the Company recorded revenues of $8.0 million and a net loss of $7.6 million, or $1.96 per share.
Key Facts
Business: Diagnostic & Therapeutic Diabetic Products
Exchange: NasdaqCM
Symbol: NURO
Founded in: 1996
Price (11/30/2012 @ 3:49 PM EST): $0.50
Volume (on 11/30/2012): 338,820 shares
One Year Target Estimate: $1.80 *
52 Week Range: 0.45 – 1.58
50-Day Moving Average: $0.54
200-Day Moving Average: $0.62
Average Volume (3 month): 84,315 shares
Average Volume (10 day): 137,729 shares
Approximate Market Cap (intraday): $6.54 million
Approximate Shares Outstanding: 12.82 million
Estimated Float: 11.45 million shares
% Held by Insiders: 7.46%
% Held by Institutions: 12.60%
Shares Short (as of 11/15/2012): 53,990
Shares Short (prior month): 52,700
Fiscal Year Ends: Dec. 30
Most Recent Quarter (mrq): 9/30/2012
Price/Sales (ttm): 0.82
Total Cash (mrq): $10,926,000
Total Assets (@ 9/29/2012): $13,200,000
Current Liabilities (@ 9/29/2012): $2,528,000
Total Liabilities (@ 9/29/2012): $2,613,000
Shareholders’ Equity (@ 9/29/2012): $10,587,000
Book Value per Share (mrq): $0.83
Last Split Date (1 new per 6 old): 9/2/2011
Revenue (ttm): $8.41 million
Revenue per share (ttm) $0.90
Gross Profit (ttm): $5.67 million **
* This is the estimate at Yahoo! Finance – my personal opinion is that it will be quite a bit higher.
** Please see my Note below.
NOTE: There was a net income loss available to common shares (ttm) of $10.55 million. As an emerging growth company completing its development phase & commercializing valuable technology in emerging markets, NURO has been generating losses & has been funding development with investments. However, one should rather look at what the future is expected to bring. Based on my quarter century of writing about emerging growth situations, I suggest that you avoid forming your opinion using performance data from the development period of a change in market direction of such companies, which includes this emerging growth situation.
Contact
Call CFO Thomas T. Higgins at 781-314-2761 or email him at neurometrix.ir@neurometrix.com. The corporate office is at 62 4th Avenue, Waltham, MA 02451.
My comments in this column are strictly my personal opinion. At times, I will include forward-looking information as that term is defined in the Private Security Reform Act of 1995. Such information & the related company are subject to many risks & uncertainties. There can be no assurance that actual results, business conditions, business developments, losses & contingencies, local & foreign factors, & other matters will not differ materially from those suggested in any of my forward-looking statements. Such differences are the result of all sorts of factors (some examples: market conditions, competition, advances in technology, acquisitions, mergers, potential litigation, personnel changes, market changes, capital availability, etc., etc.).
Do not run out & buy a stock just because I am enthusiastic about the situation. Call the company before you buy -- satisfy yourself first. I always include a phone number for that purpose. My purpose in this column is to respond to your request for my personal opinion. You have the responsibility of making your own investment decisions. Do not give up that responsibility.
My editorial coverage has always been, is now, and always will be without charge. That includes what I write in Conservative Speculator, and what I write in "Larry Oakley's Opinion, " "Larry Oakley's Stock Pick," "Larry Oakley's Comment," & "Larry Oakley's Bold Ventures" columns. It also includes what I write in such venues as articles submitted to other publications, interviews on radio & television, and at the investment seminars and conferences at which I am a featured speaker. By doing all my editorial work free of charge, I have the advantage of writing about what companies I particularly like. There are occasions when I will write about a company that is a paying participant on WallStreetCorner -- that's because I like the company. I always make it clear to them that editorial coverage is free and is not a part of the fee they pay to have their Profile researched, prepared, & posted at WallStreetCorner.
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