There are some very interesting facts in Neurometrix (NURO) Form 10-Q. I have picked up the most important parts from this filing.
Form 10-Q for NEUROMETRIX, INC.
We believe the ease of use, accuracy and convenience provided by the NC-stat System position it to become a standard of care for the assessment of neuropathies at the point-of-service.
In the first six months of 2005, our revenues grew 102.8% from the same period in 2004, generating $14.9 million in revenues, of which 88.1% was attributable to sales of NC-stat biosensors. Our gross margin percentage in the first six months of 2005 was 73.7%.
We derive our revenues from the sale of NC-stat biosensors, monitors and docking stations directly to end users, which are generally physician practice groups.
We have experienced and are likely to continue to experience an increased focus from third-party payers regarding the reimbursement of nerve conduction studies performed using the NC-stat System and an increased focus from third-party payers regarding the professional requirements for performing nerve conduction studies in general. Widespread adoption of the NC-stat System by the medical community is unlikely to occur if physicians do not receive satisfactory reimbursement from third-party payers for procedures performed with the NC-stat System.
A successful market expansion will depend upon, in part, our targeting of primary care and specialty physicians who traditionally have not been targeted by companies selling equipment used to perform nerve conduction studies and our ability to alter physicians' practices relating to the diagnosis of neuropathies. In order to successfully implement this growth strategy, we have increased our sales force to 30 regional sales managers as of June 30, 2005 and plan to more modestly increase our sales force.
In March 2005, we entered into an education and development program agreement with Eli Lilly and Company ("Lilly").
Eli Lilly and Company (LLY) is one of the factors to focus on. The agreement with Eli Lilly helps to spread the knowledge about NC-stat system among the physicians.
Through this agreement, our Company and Lilly expect to conduct a broad series of up to 84 educational and development programs across the country during 2005 and 2006. The focus of each program is on educating physicians regarding the treatment and diagnosis of diabetic peripheral neuropathy ("DPN"), nerve conduction studies, our NC-stat System and its application in DPN. During the second quarter of 2005, the first series of programs were conducted as originally planned. Lilly has a significant presence in the diabetes market, including drugs targeted at DPN.
Since our inception in 1996, we have incurred losses every quarter. We incurred net losses of approximately $8.7 million in 2001, $4.8 million in 2002, $3.7 million in 2003, $4.3 million in 2004 and $0.6 million in the first six months of 2005. We do not know whether or when we will become profitable. As of June 30, 2005, we had an accumulated deficit of approximately $58.1 million. We have financed our operations through the public and private placement of equity securities and through debt facilities including a line of credit.
Our financial objective is to achieve and sustain profitable growth. Our efforts in 2005 will continue to focus primarily on expanding our sales and marketing for the NC-stat System and continuing our ongoing program of making enhancements and improvements to the NC-stat System, with the goal of increasing our market penetration.
During the first six months of 2005 we continued efforts on improvements to our biosensors, on the development of new biosensors and on the development of a third generation monitor and docking station. We are also in the early stages of designing a drug delivery system for the minimally invasive treatment of neuropathies by both primary care and specialist physicians. We believe that the accomplishment of these goals will have a positive impact on our progress toward the objective of achieving profitability.
Biosensor units used:
2005 (three months ended June 30): 173,100 (change: 112.4%
2004 (three months ended June 30): 81,500The revenues of diagnostic devices have increased 79.4% and revenues of biosensors 89.9%.
The [revenue] increase was primarily due to an increased customer base for our biosensors, increased frequency of testing by our customers and the introduction of new biosensors.
During the 12-month period ending June 30, 2005, a total of 2,696 customers used our NC-stat System compared to 1,924 customers for the same period ending June 30, 2004. This represents a 40.1% year-over-year increase in the number of customers that used our NC-stat System.
We expect revenues to continue to increase in 2005 as a result of the recent expansion of our sales force.
However, our revenues could be negatively impacted by a variety of factors, including the level of demand for nerve conduction studies, potential for changes in third-party reimbursement for nerve conduction studies, the overall economy and competitive factors. In addition, we may experience seasonality in the third quarter of 2005 due to fewer patient visits and fewer physician working days during the summer months.
lead to a correction in the price of NeuroMetrix shares after the 3Q earnings release. As the potential setback is due to the seasonality issues, it might give a good opportunity to go long in NURO at that point.
Diagnostic device gross margin percentage was 73.0% and 65.8% for the three months ended June 30, 2005 and June 30, 2004, respectively.
The increase in the gross margin percentage in the second quarter of 2005 compared to the same period in 2004 is primarily attributable to an increase in the list price of our NC-stat System from $3,500 to $4,000 effective January 1, 2005.
It seems that NeuroMetrix has found a really nice niche, if they can afford to raise prices but still grow the customer base.
Biosensor gross margin percentage increased to 74.2% for the three months ended June 30, 2005 from 73.8% for the same period in 2004. The small increase in biosensor gross margin percentage is primarily due to manufacturing cost reductions.
We anticipate our overall gross margin percentage will remain relatively consistent for the remainder of 2005. However, if sales volumes do not increase, if the mix of sales shifts further toward lower margin biosensors, if pricing pressures increase or if the cost of biosensors and diagnostic devices through our third-party manufacturers increases, then gross margin may be negatively impacted in future quarters.
Research and Development
R&D expenses increased $187,600, or 22.3%, to $1.0 million for the three months ended June 30, 2005.
As a percentage of revenues, R&D expenses were 12.8% and 19.6% for the three months ended June 30, 2005 and June 30, 2004, respectively. The increase in expenses was primarily due to an increase of $129,000 in employee compensation and benefit costs resulting from the hiring of additional employees in our R&D department, an increase of $112,000 in outside consulting costs and an increase of $92,700 in clinical development costs. These increases are primarily related to efforts expended on the development of a third generation monitor and docking station and improvements to our existing biosensors and the development of new biosensors.
For the remainder of 2005, we expect our spending on R&D will increase due to the hiring of several additional employees to support product development efforts and due to increased clinical study costs. We expect R&D expenses, as a percentage of total revenues, to continue to decrease slightly.
Sales and Marketing
Sales and marketing expenses increased $1.2 million, or 54.5%, to $3.5 million for the three months ended June 30, 2005 from $2.3 million for the same period in 2004. As a percentage of revenues, sales and marketing expenses were 43.3% and 52.7% for the three months ended June 30, 2005 and June 30, 2004, respectively. The change in expenses was primarily due to an increase of $1.0 million in employee compensation and benefit costs. This increase is due to the expansion of the sales force.
General and Administrative
General and administrative expenses increased $492,100, or 41.5%, to $1.7 million for the three months ended June 30, 2005 from $1.2 million for the same period in 2004. As a percentage of revenues, general and administrative expenses were 20.8% and 27.6% for the three months ended June 30, 2005 and June 30, 2004, respectively.
Total general and administrative expenses, as a percentage of total revenues, may increase in the second half of 2005 due to costs incurred in connection with Sarbanes Oxley compliance efforts.
Overall conclusion: things seem to go very well for NeuroMetrix. The stock price is also reflecting it, raising sharply from $10 to $30 in 4 months, and from $15 to $30 in 2.5 months.
Read further:Yahoo! Finance: Form 10-Q for NEUROMETRIX, INC.
See also:Update: Analysis: NeuroMetrix Inc (NURO)Update 5: Live Action: Long NeuroMetrix Inc (NURO)