NeuroMetrix fourth quarter total revenues decrease to $3.1 million

NeuroMetrix, Inc. (Nasdaq: NURO), a science-based health care company transforming patient care through neurotechnology, today reported business and financial highlights for the quarter and year ended December 31, 2010.

“While we work towards broader coverage, we have restructured this business to more efficiently support our installed base of active accounts while reducing cash consumption.”

On January 4, 2011, NeuroMetrix announced a change in business strategy to focus primarily on diabetes, specifically the detection and monitoring of diabetic neuropathy which is a common complication of the disease. The Company also stated its continuing commitment to the neurodiagnostic business which it had restructured to reduce costs and optimize cash flow. Costs associated with this restructuring totaled $2.3 million including severance and inventory charges.

"Diabetes represents the largest and fastest growing opportunity for our proprietary technology," said Shai N. Gozani M.D., Ph.D., President and Chief Executive Officer of NeuroMetrix. "Neuropathy is a common and serious complication of the disease that may lead to foot ulcers and limb amputation. We have over a decade of experience in neuropathy detection and believe we are uniquely positioned to address the unmet need for a rapid, cost-effective, objective test for diabetic neuropathy. We are working towards a mid 2011 launch of NC-stat-SL, which is a modified version of our NC-stat device designed specifically for assessment of diabetic neuropathy at the point-of-care."

Dr. Gozani continued, "Our product development in this area has been moving rapidly. From product concept in the second quarter of 2010, we have taken NC-stat-SL through product feasibility and now have working prototypes. Our development efforts are being aided by an advisory board of international experts in diabetic neuropathy who unanimously agree that this device has the potential to profoundly improve the management of diabetic neuropathy. Many of these thought leaders are authors of widely followed clinical guidelines, such as those from the American Diabetes Association."

"Uncertain physician economics have made it difficult to return our neurodiagnostic business to a growth track. Although Medicare provides coverage for nerve testing using our proprietary pre-configured electrodes under CPT 95905, most commercial insurance companies have not yet revised their coverage policies despite the abundance of evidence based studies documenting the accuracy and clinical utility of the procedure, particularly for carpal tunnel syndrome," said Dr. Gozani. "While we work towards broader coverage, we have restructured this business to more efficiently support our installed base of active accounts while reducing cash consumption."

The Company reported its financial results for 2010. Total revenues for the fourth quarter were $3.1 million, compared with $6.2 million for the fourth quarter of 2009. 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. Following the Medicare change, electrode pricing as well as the number of electrodes used per patient study were reduced. Electrode average selling prices were 14% lower and electrodes sold decreased 47% in the fourth quarter of 2010 in comparison with the fourth quarter of 2009. Gross margin in the fourth quarter of 2010 was 2.1% of total revenues, after recording $1.8 million in restructuring-related inventory charges. Excluding these restructuring-related inventory charges, gross margin was 62.1% of total revenues compared to 70.5% for the fourth quarter of 2009. Net loss for the fourth quarter of 2010 was $4.2 million, or $0.18 per share. In comparison, the Company reported net income of $0.4 million for the fourth quarter of 2009, or $0.02 per share.

Total revenues for 2010 were $13.9 million compared with $26.1 million in 2009. Gross margin for the year was 49.3% of total revenues, after recording $1.8 million in restructuring-related inventory charges, compared with 71.2% for 2009. Net loss for 2010 was $16.9 million or $0.73 per share. In comparison, net loss for 2009 was $11.9 million or $0.71 per share.

The fourth quarter of 2010 included:

• Cash consumption in the fourth quarter was $1.9 million, an improvement of $0.8 million or 30% from $2.7 million in the third quarter of 2010. The Company ended the year with $17 million in cash resources.
• The installed base of active accounts was 3,875, down 4.2% from 4,044 accounts in the third quarter of 2010. The Company placed 64 new systems in the quarter, net of returns, down 25% from 85, net of returns, in the third quarter of 2010. Patient studies performed using NC-stat NCS and ADVANCE NCS/EMG devices were 28,041 in the fourth quarter, a decrease of 12.5% from 32,064 studies in the preceding quarter.