Playing the Game-Changing FDA News with NeuroMetrix, Inc. (NURO)

Occasionally there comes a time when a singular business development can change the trajectory of a company’s fortunes — for better or worse. On Tuesday, before the market open, NeuroMetrix, Inc. (NURO) released the kind of news that very well could prove to be a positive game-changer for the company, making NURO shares worth monitoring going forward in 2014.

Founded in 1996, NeuroMetrix, Inc., develops and markets products for the detection, diagnosis, and monitoring of peripheral nerve and spinal cord disorders, such as those associated with carpal tunnel syndrome, lumbosacral disc disease, spinal stenosis, and diabetes — with a focus on the diagnosis and treatment of neurological complications of diabetes.

Its current product lines include the SENSUS pain therapy device, a transcutaneous electrical nerve stimulator used for chronic and intractable pain, such as painful diabetic neuropathy; NC-stat DPNCheck, a device used to evaluate systemic neuropathies, such as diabetic peripheral neuropathy (DPN); and ADVANCE NCS/EMG system, a platform for the performance of traditional nerve conduction studies and invasive electromyography procedures for the assessment of carpal tunnel syndrome, low back and leg pain, and DPN, as well as consumables and accessories.

On Tuesday NURO shares ripped higher on news that the FDA cleared the medical device company’s SENSUS Pain Management System wearable technology for over-the-counter use in treating chronic pain. The FDA granted 501(k) clearance for the device, which is in late-stage development. The SENSUS system uses electrical stimulation of sensory nerves to relieve pain, is lightweight and can be worn during the day and while sleeping.

Already cleared for prescription use, the SENSUS device has been well received, according to Shai N. Gozani, M.D., Ph.D., President and Chief Executive Officer of NeuroMetrix. “Patient response to SENSUS, our prescription wearable device for treatment of chronic pain has been very positive since it was launched in early 2013. We believe that there is a substantial consumer market for an over-the-counter version of this technology.”

As you might expect, market participants jumped at the chance to invest in NeuroMetrix in the immediate aftermath of the FDA announcement. Early in Tuesday’s session, NURO surged to an intraday top of $3.15 right out of the gate. Subsequently, however, selling took hold and didn’t let up the entire session.

By the closing bell almost 13.5 million NURO shares had changed hands — more than twice the issue’s entire public float of 5.21 million shares. The final print of the day, which saw the Dow and Nasdaq plunge, was $2.34, still good for a $0.50 price pop from NURO’s Monday close of $1.89. That share price movement is captured in NURO’s six-month chart below.

nuro

The question, then, is aside from the usual bout of fast-money profit taking and bearish market conditions, what kept the price of NURO down when so many other similar low-float plays have been doubling and even tripling in price? The answer may be here, in the FDA announcement press release, in which CEO Gozani stated:

“The ability to offer both prescription and over-the-counter products will give us maximal market exposure and allow us to reach more people with chronic pain. We anticipate a commercial launch in 2015.”

Traders aren’t known for patience, and for many 2015 may seem like an eternity to wait. In addition, large-scale commercial launches in the medical device field require large-scale investments of capital, whether the products are prescription-only or over-the counter. Eventually that may mean NeuroMetrix will need to raise money in a public offering, which almost always dampens buying enthusiasm.

All of that said, given the potential size of the marketplace for the SENSUS device, especially due to a growing epidemic of diabetes in industrialized nations, the long-term outlook for NURO appears to be highly favorable.

Although I wouldn’t be surprised to see NURO’s price continue to “back and fill” until the last of the fast money crowd has been shaken out, this issue is a potentially worthy buy and hold candidate. If and when SENSUS sales begin to accelerate, so too should NURO’s share price, and given the issue’s mini-float, that acceleration may prove to be quite quick and profitable.

Good luck with this and all of your trades!

Warren Gates, Senior Analyst, Normandy Research

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