NeuroMetrix Inc. (NURO-NASDAQ)
April 27, 2012 Issue
The Most Powerful Name In Corporate News and Information
Targeting the $2 Billion World-Wide Diabetic Peripheral Neuropathy Market with their Diagnostic Test for DPN called NC-stat DPNC that was Launched in the Fourth Quarter of 2011, NeuroMetrix Inc. is Well Positioned for Future Growth
NeuroMetrix is a medical
device company focused on the diagnosis and treatment of the neurological
complications of diabetes. The Company currently markets products for the
detection, diagnosis, and monitoring of diabetic neuropathies such as
diabetic peripheral neuropathy and median neuropathy (carpal tunnel
Senior Vice President and Chief Financial Officer
Interview conducted by: Bud Wayne, Editorial Executive, CEOCFO Magazine, Published - April 27, 2012
Mr. Higgins: I have been with NeuroMetrix for a nearly three years. I was attracted to the company by the opportunity to expand its presence in point-of-care nerve testing, a market created by NeuroMetrix and which had previously been the exclusive domain of specialists. NeuroMetrix had rock-solid technology, financial resources, and a strong CEO, Dr. Shai Gozani. It was a great combination. We’ve had some ups and downs over the past few years but I feel we’ve done an excellent job in shifting strategy to the fast growing diabetes sector of healthcare.
CEOCFO: What is the focus of NeuroMetrix?
Think of us as a well-established medical device company addressing a large
diabetes market opportunity. We’ve been in business since 1996 and publicly
traded since 2004. Our “sweet-spot” is developing proprietary medical
devices that are used to stimulate and measure nerve conduction. Our
technology is proven and we have products in the marketplace. A little over
a year ago, we shifted our strategic focus to diabetes. Specifically, we are
focused on diabetic peripheral neuropathy or DPN. This is a significant
healthcare problem because over 50% of the 26 million diabetic in the U.S.
have DPN. It can lead to loss of sensation in the feet, foot ulcers, and
ultimately to amputation. If you are a diabetic, you are concerned about
loss of limbs due to amputation.
CEOCFO: What products do you have, and what is your business model?
Mr. Higgins: We operate a classic razor/razorblade business model. The medical devices that we sell are used with consumable biosensors, so each time that they are used a consumable must be purchased from the company. Let me give you an example: in the fourth quarter of 2011, we launched our initial diabetes product. It is called NC-stat DPNCheck and is a diagnostic test for DPN. The device is used with a biosensor, which must be replaced for each patient. We sell the biosensors for $15-$20, depending on volume. Given the scope of the diabetes problem, as well as the number of people here and abroad that have diabetes, we are addressing a large market opportunity.
The American Diabetes Association recommends that diabetics have a foot exam
at least once a year and more often if their doctor sees a change in their
condition. Our diagnostic device, the NC-stat DPNCheck, should be a logical
part of that foot examination. We feel it is one of the most important parts
of the exam because it gives you quantitative data on how fast your sural
nerve is conducting electric signals and the strength of those signals. It
gives you a quantitative assessment of the condition of that nerve which is
considered to be the “gold-standard” biomarker for DPN. The test is low-cost
and we believe it will have broad appeal. Over time, it should become the
standard of care in the diabetes world.
CEOCFO: How large are the markets and can you tell us where the products are in use today; are they clinical, hospital based, are they in-home use?
Mr. Higgins: Let me address your last question first. The test is designed to be performed by a healthcare professional at the point-of-care. It is administered using a hand held device, takes 20-30 seconds and gives results immediately. It is elegant in design and usability.
Regarding the markets, they
are very large indeed. In the United States alone, there are about 26
million persons with diabetes. Internationally, the number of diabetics
exceeds 300 million. The disease is growing rapidly, particularly Type 2
diabetes, which is directly influenced by lifestyle.
We are targeting a $2
billion world-wide diabetic neuropathy market. From a sales or sales channel
standpoint, we break down the device aspect of the DPN market into four or
five market subsets. The first is US endocrinology and podiatry market,
which consists of about 15,000 physicians who are at the leading edge of
providing medical treatment to diabetics. This is a market where we are
focusing the attention of our 11 person direct sales force. It is crucial to
establishing product credibility which we hope will eventually lead to
adoption of our diagnostic as the standard of care. Moving beyond our
initial target market, US primary care doctors are a very large opportunity.
There are well over 100,000 in the US treating persons with diabetes as a
part of their practice.
Beyond that, we see
attractive opportunities in retail medicine, such as pharmacies, pharmacy
clinics, and independent clinics. There is a very large number of US
pharmacies, probably in excess of 50,000, and over 1,500 pharmacy clinics. .
As I mentioned earlier, we are already selling our first diabetes product, NC-stat DPNCheck, into these markets. This diagnostic device was launched in the 4th Quarter of last year. We have about two quarters worth of experience and are seeing a positive response in endocrinology and podiatry. We are making early inroads in the managed care and retail medicine markets which typically corporate-to-corporate sales. Today we have a second product that is under development called SENSUS, which is a therapeutic device that would be used to deal with the painful affects of diabetic neuropathy. Our timing for that product is to begin the regulatory process in Q2 by filing a 510-k application with the FDA which we recently accomplished, and at the end of that regulatory process to launch this commercially. Our commercial launch target is by the end 2012.
CEOCFO: What is the revenue mix between device and consumables at this point?
Mr. Higgins: That is an important question. Regarding our diabetes products and not our historical general purpose devices, we are in the initial placement stage for NC-stat DPNCheck. Customers are making their first purchase which consists of a device and a box of biosensors. We have been able to lower the cost point of our diagnostic device a level where we are able to give the device away free with the initial consumables purchase. Because the device is given away, nearly 100% of our diabetes revenue is from consumables. Remember we are only two quarters into the launch. Down the road, this may change. However, the device percentage of sales will always be a very small number. The mix will change from initial biosensor purchases to reorders and, because those reorders will not be burdened with the cost of a device, our margins will improve dramatically.
CEOCFO: Are you making progress in these markets that we talked about earlier?
Mr. Higgins: Yes we are doing quite well. Following our launch, we had over a hundred and thirty device orders in Q4. This was above our expectations. We have not wrapped up the accounting from the second quarter but I can tell you that our goals for the year include growing device placements quarter after quarter and growing diabetes revenue quarter after quarter.
CEOCFO: What are your key milestones for 2012?
Mr. Higgins: The first is its device placements. We are targeting the placement of over a thousand devices with physicians. This is an important goal to us, because we believe that once a thousand plus doctors are using NC-stat DPNCheck we will hit an inflection point. This user community will be available as reference points for our sales reps and we will begin to get user to user or doctor to doctor sales. One thousand device placement is important. The second important milestone area for this year concerns Sensus, our therapeutic device that addresses painful diabetic neuropathy. We have three important milestones. The first is to file our 510-k application in the second quarter this year, which we achieved on April 17. The second is to achieve marketing launch of the product at the American Diabetes Association annual meeting in June of this year. The third is to achieve commercial launch before year end. In terms of revenue for our diabetes products, we are looking to achieve quarter on quarter growth. We are also looking to make reportable progress in the retail area and the managed care area by announcing placements with large, strategic accounts. Finally, we are looking to initiate clinical studies that help expand the foundation for our technology among physicians.
CEOCFO: What are your funding sources?
Mr. Higgins: Our funding comes from two sources. The first is traditional equity raises - offering equity securities to investors. We also generate positive margins from our legacy neurodiagnostics business, which supplies systems, and consumables for general purpose nerve conduction studies. Going into 2012, we had about $10 million in cash. In the 1st Quarter we successfully completed a securities offering raising $8.5 million and netting after expenses about $7.5 million. The equity raise was important because it contributed enough cash to take us well into 2013 at our expected cash consumption rates. It also broadened our shareholder base. We have the resources necessary to achieve our 2012 milestones.
CEOCFO: You have some big goals; will you be able to achieve those goals without bringing in a partner?
Mr. Higgins: We have a small sales force that we have focused on the endocrinology and podiatry market. A very large part of the overall market opportunity is in primary care and we do not expect to build our sales force to address that market sector. Rather to hope partner with distribution companies who have an established medical sales practice and work with them and their sales forces to get our products into primary care. That is the key area of attention for us, to put together that distribution network using independent distributors for the primary care market.
CEOCFO: What about product inventory and manufacturing?
Mr. Higgins: All our product design and development is done in-house. We have an excellent R&D team that has been together for nearly a decade. We are an industry leader in product development. In terms of manufacturing our devices and biosensors, generally speaking, we outsource to US based contract manufacturers. Manufacturing expertise lies with long-standing vendors while product development, sales and marketing are our internal competencies.
CEOCFO: Why should investors consider NeuroMetrix today?
We should be interesting to potential investors from several perspectives.
Most important is our emerging franchise in diabetic peripheral neuropathy.
DPN is one of the most significant complications of diabetes and yet there
is no other medical device company in this space and no other medical device
company with our expertise. We believe that we will be able to develop a
very attractive and growing franchise in DPN. The diabetes market itself,
its size and accelerating growth is an important aspect of our story.
Another important factor is for an investor is that we come to this market
opportunity with a proven technology and technology platforms that have been
field-tested for over ten years. As a result, there is virtually no
technology risk associated with our products. Finally, investors are
concerned with valuation. Many analysts and investors who have taken a close
look have concluded that we are undervalued, perhaps dramatically so. In
fact, today we are trading below our cash position. Given the combination of
a great franchise opportunity, overall market size, proven technology and
depressed stock valuation, there is reason for investor appeal.
We are targeting a $2 billion world-wide diabetic neuropathy market. - Thomas T. Higgins
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