NeuroMetrix Leaves Investors Unnerved

OKLAHOMA CITY -- Now, NeuroMetrix >(NURO Quote) is testing its own investors' nerves.

The small medical-device company, which specializes in nerve tests for patients, faces an uncertain future that it refuses to discuss.

Shares of the company have plummeted over the past two days after a panel for the American Medical Association this weekend suggested halting coverage for nerve studies performed by NeuroMetrix's popular NC-Stat devices. While the panel has not yet finalized its decision -- which would end reimbursement next year -- even NeuroMetrix itself seems braced for that devastating outcome.

Meanwhile, NeuroMetrix has tried to change the subject. Despite the serious threat facing its main product, the company spent much of Tuesday's fourth-quarter conference call instead discussing a new addition to its portfolio.

Perhaps sensing doom for its NC-Stat franchise, NeuroMetrix last year inked a deal with Eyetel Imaging to market that company's DigiScope eye-disease detection device to its own customers. NeuroMetrix recently went on to purchase EyeTel outright, just months ahead of the crucial AMA meeting.

Now, NeuroMetrix hopes to focus on the DigiScope and repeat the success that it once enjoyed with NC-Stat. Still, the company has a long way to go.

Last quarter, DigiScope sales accounted for a mere 3% of the company's revenue. Despite reimbursement setbacks, NC-Stat device and biosensor sales still account for the rest.

Fearful of Medicare cuts, Wall Street had hoped for a more pronounced shift.

"I guess I understand the theoretical opportunity" presented by DigiScope, SunTrust Robinson Humphrey analyst Jonathan Block said during Tuesday's conference call. But "growth has been modest (so far). What's preventing a faster ramp?"

NeuroMetrix tried to sell a simple explanation. In the past, the company explained, it felt compelled to focus on higher-margin products that it actually owned. But now, it said, the situation has completely changed.

Going forward, NeuroMetrix plans to aggressively sell DigiScopes and see each buyer perform one DigiScope test -- at least -- per day. For comparison, NC-Stat owners currently perform one test per week.

Meanwhile, those NC-Stat numbers continue to slide and hurt the company as a whole. Overall, NeuroMetrix saw revenue plummet 29% to $10.1 million in the latest quarter. Analysts were hoping for a smaller decline instead.

NeuroMetrix did report a smaller-than-expected loss for the fourth quarter. The company lost $2.1 million, or 17 cents a share, compared with Wall Street's 21-cent-a-share estimate.

All told, NeuroMetrix lost $8.4 million over the course of the past year. That's almost twice as much as the company made the year before that.

"Our business continues to be adversely impacted by policies being implemented by both Medicare and commercial insurance carriers," NeuroMetrix CEO Shai Gozani said on Tuesday. Moreover, "given the potential negative outcome of the recent AMA CPT editorial panel meeting, we expect that we will continue to face significant challenges relating to the reimbursement of tests performed with the NC-Stat system, which will adversely impact our results."

After losing roughly half of its value on Monday, when news of the AMA recommendation first surfaced, NeuroMetrix's stock tumbled another 22% to $4.20 Tuesday.

Pain Control

Several analysts downgraded NeuroMetrix on Monday, potentially sparing investors from another day of pain.

Still, some of those analysts recommended the company's stock right up to AMA's devastating meeting. Indeed, in a particularly ill-timed move, Block actually stepped forward with a new upgrade in expectation of good news.

"At the time of our upgrade, our belief was that NC-Stat would emerge with its own code at a meaningfully lower level of reimbursement," Block explained on Monday. "Under this scenario, we believed the company would still have a compelling business model."