NeuroMetrix second-quarter total revenues decrease to $3.9 million

NeuroMetrix, Inc. (Nasdaq: NURO), a health care company transforming patient care through neurotechnology, today announced its financial results for the quarter ended June 30, 2010.

“While we made some progress in the second quarter, the pace was not satisfactory”

Total revenues for the second quarter of 2010 were $3.9 million, compared with $6.8 million for the second quarter of 2009. Revenues in the quarter were comprised of 13% medical equipment sales and 87% consumables sales in comparison with 10% and 90%, respectively, for the second quarter of 2009. Medical equipment sales consist of nerve testing devices (NC-stat® and ADVANCE™) and related modules, and service agreement revenues. Consumables sales include single use nerve-specific electrodes, EMG needles, and other accessories. The January 1, 2010 change in Medicare reimbursement for nerve conduction studies using pre-configured electrodes such as those used with NC-stat contributed to the decline in revenue between the two quarterly periods. This decline primarily reflected a 22% reduction in electrode average selling price and a 25% decrease in electrodes sold. Gross margin in the second quarter of 2010 was 63.5% of total revenues compared with 71.4% for the second quarter of 2009. Net loss for the second quarter of 2010 was $4.5 million, or $(0.20) per share. In comparison, net loss for the second quarter of 2009 was $1.8 million, or $(0.13) per share.

For the six months ended June 30, 2010 total revenues were $7.4 million compared with $13.6 million for the comparable period in 2009. Gross margin for the six months was 63.6% of total revenues compared with 71.5% for the six month period in 2009. Net loss for the six month period ended June 30, 2010 was $9.3 million or ($0.40) per share. In comparison, net loss for the comparable period in 2009 was $3.0 million or ($0.22) per share.

The Company believes that physicians are generally receiving reimbursement under the new Category 1 CPT code (95905) from Medicare for medically necessary nerve conduction studies performed using pre-configured electrode arrays. The Company also believes that physicians are receiving reimbursement for CPT 95905 from a small number of commercial insurers. It is working with reimbursement experts to expand coverage for CPT 95905.

Second quarter highlights included:

  • Revenue in the second quarter grew 8% on a sequential quarter basis. This was primarily attributable to higher electrode revenue. Electrode selling prices were stable and the number of electrodes shipped increased by 8%.
  • The installed base of active accounts was 4,167 at the end of the quarter. This was a contraction of 3.3% from 4,309 accounts at the beginning of the quarter and represents a slight reduction in the rate of account erosion as compared to the preceding quarter. The Company placed 77 new systems in the quarter, net of returns, slightly up from 75, net of returns, in the first quarter of 2010.
  • Patient studies performed using NC-stat and ADVANCE devices were 34,638 in the second quarter. This represented a decrease of 5.2% from 36,529 studies in the preceding quarter.

"While we made some progress in the second quarter, the pace was not satisfactory," stated Shai N. Gozani, MD, PhD, President and Chief Executive Officer. "Consequently, we have refined our strategy in several key areas. In our nerve testing business, we recognize that our products need broader market exposure for growth. Today we sell to new customers in the U.S. physician office market through a direct sales force. We plan to supplement that direct sales force with about twenty five independent sales representatives. Our direct sales force will be a smaller, core team assigned to key market areas with the independent representatives covering the remaining geography. In total, we expect to have about 40 sales territories. For the orthopedic and specialty markets, today also covered by our sales force, we intend to use regional distributors to expand coverage. The transition to a hybrid direct/distribution model is underway and will continue in the third and fourth quarters. After sale support for all new and existing customers will be provided by our team of field-based clinical educators. We believe that this team is positively impacting customer testing by providing high quality technical and clinical support, and therefore we plan to slightly increase its size."

"We recently narrowed the focus of our product development efforts. We are implementing several modifications to ADVANCE which are designed to enhance the ability of physicians to customize reporting of test results which we believe will make the device attractive for use in the physician office market. Once the modifications are complete, it is our intention to introduce ADVANCE into that market. ASCEND, our development stage product for therapeutic nerve injections and regional anesthesia, will be de-emphasized in the near term which will postpone completion of its development and the regulatory process leading to product launch."

"We see a significant opportunity to expand utilization of our nerve testing technology in individuals with diabetes. Currently about twenty five percent of the tests performed with our NC-stat and ADVANCE devices are targeted at diagnosis of large fiber diabetic peripheral neuropathy, or DPN, in patients exhibiting clinical symptoms of that condition. Nerve conduction studies, or NCS, are the gold standard for diagnosis of DPN; however, cost and limited access have prevented utilization of NCS for wide spread screening which is essential for early detection of DPN and prevention of its complications, such as foot ulcers. We believe that a rapid, low cost, point-of-care test for DPN represents an attractive U.S. and international market opportunity. We have made development of a low cost version of NC-stat and a low cost disposable electrode for this application, an R&D priority. Assuming that we reach our project milestones, we believe we have the capability to launch this product in the U.S. and several international markets in the second half of 2011."

In order to resource these product and sales initiatives, and to conserve operating funds, NeuroMetrix recently implemented a reduction in force that resulted in the elimination of approximately twenty five positions representing twenty five percent of its workforce, as well as other cost savings initiatives. It is estimated that this should reduce annual spending by $2.5 million. During the third quarter of 2010 the Company expects to record a charge of $0.3 million, primarily related to severance expenses.

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