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NeuroMetrix Disappoints

Shares decline.

With Tuesday's quarterly update,


(NURO) - Get NeuroMetrix, Inc. Report

failed to calm investors' nerves.

For starters, the marketer of controversial nerve studies missed Wall Street expectations by a large measure. The company's first-quarter revenue, stuck at last year's level of $11.8 million, fell shy of the $13 million consensus estimate. Moreover, the company's net loss of $1.4 million, or 11 cents a share, came in 10 times higher than a year ago. Analysts had been hoping for a modest profit instead.

Shares of NeuroMetrix slid 4.6% to $9.66 on the news.

Still, NeuroMetrix signaled that better times could be on the way. Notably, the company stated that a regional Medicare carrier has issued a favorable reimbursement decision about nerve tests performed by its NC-stat devices. Specifically, the company said that First Coast Service Options will allow healthcare providers to again start billing for NC-stat tests using "traditional nerve conduction codes" -- meant for intensive tests triggering lucrative payments -- rather than problematic miscellaneous codes.

Some other insurers now insist on miscellaneous codes, demanding heavy documentation with no guarantees on reimbursement, for NC-stat studies instead.

"Several commercial payers, including certain Blue Cross Blue Shield regional carriers, have taken unfavorable positions toward the NC-stat, referring to it as experimental and investigational," NeuroMetrix CEO Shai Gozani said Tuesday. "On the other hand ... FCSO has appropriately determined that the issue of nerve conduction is a matter for the American Medical Association.

"We view this as a very positive development for our customers and for NeuroMetrix."

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However, a review of FCSO's new guidance reveals a temporary ruling with stiff restrictions still in place. The Medicare carrier, which covers beneficiaries in two states, will allow doctors to use the generous billing codes only until a specialized healthcare panel weighs in. That panel is scheduled to meet in June and take some kind of action in October.

Specialists have criticized NC-stat tests, while general practitioners -- who have found the studies quite lucrative -- argue about their benefits.

For its part, FCSO seems to be placing considerable faith in the former. The insurer insists that specially trained physicians should be supervising NC-stat tests or carrying them out themselves.

"That's the biggest restriction," one short seller notes. "They really didn't step back very much at all."

Indeed, FCSO further suggests that NC-stat tests alone -- unaccompanied by more-intensive needle exams -- could prove inadequate much of the time.

Nevertheless, company bulls continue to look on the bright side. Piper Jaffray analyst William Quirk, in fact, reiterated his outperform rating on NeuroMetrix shares even after the company badly missed his own first-quarter estimates.

"As expected . . . confusion in markets with recent unfavorable local coverage decisions (LCDs) impacted both biosensor utilization with existing accounts and NC-stat sales," Quirk wrote on Tuesday. "We continue to believe reimbursement uncertainty is priced into the shares but suspect progress reversing unfavorable LCDs is at least six months away and will likely keep NURO shares range-bound in the near term."

Looking further ahead, Quirk believes that NeuroMetrix's stock could reach $20 a share. His firm makes a market in the company's securities.

In contrast, short sellers feel that the worst is yet to come.

"Inventory went up enormously," one short-seller says. "Just look at how the company is doing in terms of biosensors shipped and biosensors used. It turned horrible at the end of the quarter."