NeuroMetrix Inc (NURO) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 NeuroMetrix Inc. earnings conference call. My name is Angelique and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Brad Smith, CFO. Please proceed, sir.

Good morning. Before we begin I would like to briefly discuss the use of forward-looking statements on this conference call. Statements we make on this call may include statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions that include words such as believe, may, will, estimate, continue, anticipate, intend, expect, plan, hope or other similar expressions are forward-looking statements.

Any forward-looking statements reflect current views of NeuroMetrix about future results of operations and other forward-looking information. You should not rely on forward-looking statements because our actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors including those set forth in Item 1a risk factors of our annual report on Form 10-K for the year ended December 31, 2006 and our other SEC filings. NeuroMetrix does not intend to and undertakes no duty to update the information disclosed on this conference call.

With that, I would like to turn the call over to Dr. Shai Gozani, our CEO.

Thank you, Brad, and good morning, everyone. I would like to welcome you to the NeuroMetrix fourth-quarter 2007 conference call. I am joined today by Gary Gregory, our Chief Operating Officer; Brad Smith, our Chief Financial Officer, and Mark Doucette, our Controller.

NeuroMetrix is a medical device company advancing patient care through the development and marketing of innovative medical devices and products used to diagnose and treat diseases of the nervous system and neurovascular disorders and to provide regional anesthesia and pain control. Our focus to date has been on detection of neuropathies which are disorders of the peripheral nerves and parts of the spine frequently caused by or associated with diabetes, disk disease, spinal stenosis, carpal tunnel syndrome, chemotherapy and other clinical disorders. Our neuropathy diagnostic technology currently embodied by the NC-stat device is used in over 5500 physician practices and clinics representing approximately 16,000 physicians throughout the United States. Over one million patients have been evaluated with the NC-stat.

After a year of study by an AMA CPT workgroup, the AMA CPT editorial panel considered reimbursement coding for nerve conduction studies with automated features such as the NC-stat at its February 2008 meeting. We went into the meeting hoping for clarity on coding for nerve conduction studies performed using devices such as the NC-stat. We believe this clarity would take the form of a category 1 CPT code, either the existing code or a new code set.

To our disappointment, we emerged from the meeting without this clarity. During the meeting, a new category 1 code set was put forth by the three chairman of the aforementioned workgroup. This new category 1 code was endorsed by the American Academy of Family Medicine, the American Association of Clinical Endochrinologists, the American College of Rheumatology, and the American Society for Surgery of the Hand.

These societies represent over 100,000 physicians; however, at the request of several neurology and physiatry medical societies, a motion to vote on a category 3 code was put forth by and supported by several panel members. The motion was seconded and a vote on a category 3 occurred with no further discussion of nerve conduction codes following the vote. The result of the vote was not generally announced at the meeting and has not yet been released. In the advent of an adverse result, NeuroMetrix and professional medical societies may appeal the AMA's CPT editorial panel decision although there is no assurance that a more favorable result could be obtained upon appeal.

Alternately any new code relating to the NC-stat System will not become effective until after it is published by the AMA. Should a category 3 CPT code be published that describes nerve conduction studies performed with the NC-stat System, then it would likely result in limited Medicare reimbursement for nerve conducted studies performed using the NC-stat System since there is a potential that no specified reimbursement values will be assigned to these codes. And it could also adversely impact reimbursement by the third-party payers.

As such, until the AMA CPT editorial panel finalizes and publishes their position, we will not comment further on the outcome of the February 2008 AMA CPT editorial panel meeting. Further, we are not going to delve further into specifics of our strategies relating to the AMA CPT process at this time other than to note that we have met with the AMA CPT staff and those physician societies who support the right of physicians to perform nerve conduction studies with devices such as the NC-stat.

ADVANCE is a brand-name for the traditional neurodiagnostic platform we have been developing for the past several years. ADVANCE is not an upgrade to the NC-stat but rather a new diagnostic -- a new product platform with different FDA indications and technological features. ADVANCE is unique in that will offer a broad spectrum of diagnostic functionality that will allow a wide array of physicians including neurologists, orthopedic and neurosurgeons, endocrinologists, rheumatologists, and other physicians to perform nerve conduction studies and needle electromyography procedures in accordance with their clinical judgments -- their judgment and the needs of their patients.

ADVANCE will be backwards compatible with most of the existing line of NeuroMetrix electrodes. Furthermore, we also expect to release additional electrodes and EMG needles specifically for ADVANCE following its market release. We have already outsourced production of branded EMG needles to a leading high-volume needle manufacturer.

We submitted an FDA 510(k) filing for ADVANCE during the first quarter of 2007. We recently submitted our response to a second additional information letter from the FDA. We anticipate launching this product on receiving FDA clearance.

With our a recent acquisition of EyeTel Imaging, we have expanded the opportunity for sales of the DigiScope and have improved gross margins. The DigiScope is an innovative in-office digital retinol imaging system. It has been shown in clinical studies to be effective at detecting diabetic retinopathy, one of the most common chronic complications of diabetes in endocrinology and primary care offices.

We are in the process of launching the DigiScope into the optometry market. In this effort, we are building on successful pilot trials by EyeTel in major vision centers such as Wal-Mart. We believe the annual optometry retinal imaging market is over $200 million and is incompletely penetrated.

We are also pleased with the development of our NAVIGATOR technology. The NAVIGATOR system is a product platform for perineural injections of anesthetics and therapeutic drugs. This productline is designed to allow physicians to deliver pharmacological agents in very close proximity to a peripheral nerve by using the electrical responsiveness of the nerve to guide in needle. There are multiple potential applications for this technology including implementation of nerve blocks during regional anesthesia and pain control and in the treatment of focal neuropathy such as carpal tunnel syndrome. We hope to file a 510(k) on the NAVIGATOR system in 2008.

Our initial NAVIGATOR product introduction will target the regional anesthesia market. The use of nerve localization instrumentation needles is a standard of care for nerve block procedures which are increasingly the preferred form of anesthesia for many surgical procedures, particularly within orthopedics. While the current generation of technology is generally effective, it is limited with respect to both accuracy and usability. Based on discussions with anesthesiologists, we believe there is a need for improvements in nerve localization products that may be provided by our proprietary technology.

After establishing our technology in anesthesia, we plan to proceed into the broader market for select clinical conditions such as the treatment and management of carpal tunnel syndrome and common pain syndromes. We expect that the NAVIGATOR system will resemble our neurodiagnostic products and that there will be three key components, consumables that will include proprietary nerve localization and drug delivery needles, electrodes and other disposables and an electronic instrument linked to our onCall Information System for data storage and our port generation. We are also studying the possibility of distributing related pharmacological agents.

We have identified a manufacturing partner for our proprietary nerve localization drug delivery needles. All of the aforementioned goals depend on the successful completion of certain product development efforts, clinical studies and obtaining relevant FDA clearances, which we believe will be through the 510(k) process.

The final element of our product pipeline relates to our strategic partnership with Cyberkinetics Neurotechnology Inc. Cyberkinetics has developed a novel neuro stimulation platform called Andara OFS which promotes nerve repair and regeneration using low-level electrical fields. We are close to finalizing a joint venture and signing a collaboration agreement with Cyberkinetics to pursue the development and commercialization of an Andara OFS based product for the treatment of peripheral nerve injuries.

We also have certain rights of first negotiation for the commercialization of Andara OFS for the treatment of acute complete spinal cord injuries. This product is currently under a Humanitarian Device Exemption review by the FDA.

I will now turn it over to Gary Gregory who will outline our performance as reflected in certain key operating metrics.

Thank you, Shai, and I want to thank all of you for joining us on the call today. As Shai has noted and is evidenced by many key indicators, we are coming off a quarter which marks the continued utilization of our technology by customers and also reflects the difficult reimbursement environment and issues that are challenging the business.

In Q4 2007, we maintained the customer count of over 5500 active customers who utilize the NC-stat and its clinical benefits. Testing with the NC-stat System in the fourth quarter of '07 declined year-over-year by approximately 26% to 228,000 biosensors compared with 310,000 in the fourth quarter of 2006. Testing declined by 11% from Q3 2007 levels of approximately 258,000 biosensors.

Our average customer delivered approximately 5800 in annual biosensor revenue based on their usage during the fourth quarter of 2007 which represents just under one patient per week per practice. This is a modest contraction from the previous quarter and it also illustrates that our customers continue to utilize our technology for their patient care.

The distribution of our testing by our customers in the fourth quarter of 2007 was as follows. 68% of total testing was perform by the primary care market which we define as internal medicine and family medicine physicians, and 32% came from within our specialty care segments. Here 39% of testing came from within the orthopedic market which represents 13% of our total testing volume; endocrinologists and rheumatologists represent 28% of our specialty care physician testing and 9% of our total testing; and 33% of testing was perform by all other specialty care physicians including those in pain management, occupational medicine, neurology and physiatry as well as corporations who use our technology and research entities that use the NC-stat System in clinical trials.

Testing within the primary care market was 155,000 biosensors in Q4 '07; testing within the specialty care physician segment which includes all other physician specialties represented 74,000 biosensors in Q4 2007. So to summarize, the overall testing declined by 11% sequentially in the fourth quarter to 228,000 biosensors.

Based on their usage in Q4, new NeuroMetrix customers delivered annualized revenue of approximately $11,000 per account. This details that our new customers continue to adopt and utilize our technology within their practice.

On an organizational front, we have approximately 50 experienced regional sales managers, five sales directors, one national director, all dedicated to selling the NC-stat System to DigiScope and to supporting our existing base of customers. Of important note, to our knowledge, this represents the largest sales force in the physician office arena outside of distribution in pharmacologics and represents a key asset and ability for our Company to deliver clinically directed products to the market.

I also wanted to provide an update on the reimbursement landscape. As background, the NC-stat is an FDA cleared technology supported by the strong language held within our FDA clearance and I quote, "Clinical data submitted in the 510(k) demonstrates that nerve conduction measurements obtained using the NC-stat are comparable to those obtained using conventional nerve conduction measurement equipment. As detailed, the NC-stat System performs standard nerve conduction measurements and holds the same FDA equipment classification as other leading NCS EMG equipment."

This is further supported by over 50 published medical journal articles, abstract and scientific posters which detail the accuracy, validity and utility of the NC-stat System. Today all Medicare carriers allow for all licensed physicians to perform NCS tests; most Medicare categories do not restrict the use of any FDA cleared NCS equipment including the NC-stat while select Medicare carriers specifically cover the use of the NC-stat in their LCDs or articles under a miscellaneous code. And as reported by our customers, many workers' compensation and commercial insurers continue to reimburse physicians for NCS tests performed with the NC-stat System.

Clearly this is the reimbursement landscape as it stands today and remains subject to potential change. This diverse base of coverage can allow customers to appropriately utilize the NC-stat System across an array of payers ranging from Medicare to workers' compensation to private payers.

As Shai noted, the AMA CPT panel meeting results did not yield the clarity we were looking for regarding CPT coding, all FDA cleared NCS equipment and what has frequently been referred to as automated nerve conduction testing. Until such time that the AMA finalizes and/or publishes a position, there are no changes to CPT coding for nerve convection studies. However, we do believe what has emerged is clarity towards a physician's ability to perform traditional nerve conduction or traditional neurodiagnostic testing.

Clearly NeuroMetrix has developed robust neurodiagnostic technology platforms. This is founded upon the NC-stat System and will progress with the clearance and launch of the ADVANCE which is presently under review by the FDA and is a traditional NCS needle EMG neurodiagnostic technology platform. Nerve conduction has been and will continue to be a foundation for our Company.

As importantly, our Company has developed several key assets that we look to carry into the future. These include our broad base of over 5500 active customers who utilize our neurodiagnostic technology to advance their diagnosis in treatment of patients. Our base of customers has now grown quarter over quarter for 22 consecutive quarters. We have a proven marketing sales and service organization that delivered neurodiagnostic technology to what is now approaching one in 10 family physicians and internists and approximately one in five orthopedic surgeons, hand surgeons, endocrinologists and rheumatologists.

Our ability to deliver neurodiagnostic technology to physicians and their practice and support advancing their clinical care of patients is another cornerstone for our Company's near- and long-term efforts. For these reasons we believe our Company is positioned to effectively deliver our neurodiagnostic technology platforms to our present base and future base of customers.

On the international front, our research towards the present coverage coding and payment levels for physicians performing NCS tests in key international markets indicates that certain markets such as the UK, Germany and Spain represent potential market opportunities for NeuroMetrix. We have formally launched our international business efforts starting within the United Kingdom.

As background information, the UK represents a market approximately of 60 million in population which is approximately one-fifth of the United States. Today the vast majority of all electrodiagnostic procedures are performed by approximately 125 clinical neurophysiologists who practice within 110 hospital-based clinical neurophysiology departments across the UK. In their system, many patients suspected of having CTS, or carpal tunnel syndrome, must wait six months or longer for an NCS test performed by a clinical neurophysiologist.

Our research indicates that approximately 85% of the population reside within the National Heath Service, or NHS, which is the UK's state-run healthcare program while the remaining 15% fall under private insurance. There are no restrictions toward which physicians can perform NCS tests. Also, our research indicates that the reimbursement levels for performing NCS tests are favorable for physicians under both the NHS and private payer systems.

Most physicians must gain budget approval from the NHS in order to be reimbursed for performing NCS tests. We've seen physicians in both the surgical and primary care arenas gain approval from NHS to perform NCS tests with the NC-stat System and they will reportedly be reimbursed at levels comparable to the clinical neurophysiologist. Through their efforts, we believe our customers have identified the roadmap for other physicians to secure reimbursement from both the NHS and private insurers.

While still in the early stages of our launch, we have formally trained our new distributor salesforce in the United Kingdom. Our distributor has seen the sale, placement, training and testing of our new customers in both the orthopedic and primary care markets. We are encouraged by the opportunities held within this notable market and the international efforts will serve as a compliment to our U.S. market opportunities.

The acquisition of EyeTel Imaging was a major advance for our Company and is highly consistent with our long-term vision. This formally transforms NeuroMetrix into a platform Company where we allow all physicians to diagnose and treat neuropathies and neurovascular diseases. We believe that DigiScope represents a leading edge neurovascular technology, is aligned to our clinical mission, will allow us to further apply our product development capabilities, and fits firmly within our proven marketing and sales practices. We also believe that DigiScope represents a strong business opportunity that will yield consistent results with our long-term financial goals.

We now look to bring the DigiScope to both the primary diabetes care physicians, which we define as endocrinologists, internists and family physicians, as well as eye specialists and most notably optometrists, who are often referred to as the primary care physicians for the eyes. This platform technology allows physicians to detect three of the most prevalent neurovascular and microvascular complications associated with the eye.

These include diabetic retinopathy, which is the leading cause of blindness in working aged adults; age-related macular degeneration commonly known as AMD, which is the leading cause of blindness in adults over 55; and optic disc abnormalities such as glaucoma.

This acquisition now allows NeuroMetrix to take full ownership of the direction, development and profitability of this technology. In particular, our strategy with the DigiScope is centered upon three areas. First, advancing our PCP market efforts. Second, building the optometry market business; and third, utilizing the combined product development expertise from NeuroMetrix and EyeTel to further develop the technology platform.

The first area is to take our ownership position and accelerate efforts within the physician office arena. With our combined to technologies, we now allow a physician to more effectively assess and address the number one and number two fears confronting patients with diabetes, most notably the fear of going blind and the fear of limb amputation. With our platforms, a physician can increase -- can in essence create their own diabetes center of excellence within their practice. This potentially represents a powerful advance to their patient care and allows us to better serve as a clinical consultant to their practice while we have the opportunity to generate expanded revenues and returns on a per practice basis.

During Q4 2007, we closed approximately 70 new DigiScope customer agreements with our total base now exceeding 250 active DigiScope customers. This details a solid start to our commercial efforts with the DigiScope as three in every four NeuroMetrix region managers have sold a DigiScope unit to date and that was before we took complete ownership of the productline in technology.

Our second area of business strategy is to bring the DigiScope platform to the eye specialist or optometry arena. This represents an additional market of opportunity of approximately 20,000 physician practices. With this market expansion, we look to capitalize upon what we believe is one of the largest medical device sales organizations in the physician office arena. The optometry market and callpoint is also highly aligned to our proven business, marketing and sales practices that we have employed over the past five plus years.

The optometry market also holds additional characteristics of importance. First, this arena is heavily weighted toward self payment by patients which creates a long-term runway potentially unencumbered by reimbursement concerns. Second, the market has already been benchmarked to be an attractive arena by a competitive company named Optos. According to recent company reports, Optos is in approximately 15% of the U.S. market and has already established an annual base of business of approximately $90 million.

While we recognize the strong work Optos has done in establishing the advanced retinal imaging market within optometry, we believe the DigiScope represents a well-differentiated offering which will now be brought to market by NeuroMetrix.

Last, the optometry [marks] a blend of both independently operated practices as we have customarily seen in the PCP arena along with the number of national regional chains that represent as much as half of the total U.S. market. These regional chains are corporate accounts whose member's practices are either owned or directly affiliated with the chain includes large corporations such as Wal-Mart which has approximately 2800 optometry practices to a regionalized chain of 40 practices held by a single owner. The opportunity here is the potential to accelerate our market penetration while we capitalize upon our best demonstrated business practices.

Toward this, we have formally secured an agreement to become a member of Wal-Mart's AIP, or Advanced Instrumentation Program. This business relationship allows us to offer the DigiScope to all Wal-Mart practices through their well-organized AIP program. Our near-term efforts with Wal-Mart include a joint business planning session with their leadership team, several speaker programs and are exhibiting at their AIP national meeting.

Clearly we are very excited by the prospects held within this relationship. As importantly, we believe the Wal-Mart AIP agreement represents a solid indications of the opportunities our Company holds not only within Wal-Mart and many other corporate accounts efforts already underway, but also across the entire optometry market.

So to summarize, we believe the acquisition of EyeTel Imaging represents an important advance for our Company. NeuroMetrix has significantly expanded its product offering, market opportunities and the clinical value we can now deliver to both primary diabetes care physicians and eye specialists. With our best-in-class market approach and field organization of over 50 sales professionals, NeuroMetrix has already gained solid traction toward delivering this innovative diagnostic solution to our expansive base of physician customers throughout the nation.

As a closing comment, we acknowledge the challenges that are impacting our business and caused our business to contract over the past several quarters. However, we remain confident in our position, remain enthused by the advancements we have made as a Company and look forward to reporting back on future developments as we continue to develop our standards of care within the marketplace.

I will now turn it over to Brad Smith who will discuss our financial results for the fourth quarter of 2007.

Thank you, Gary. Our total revenues for the fourth quarter of 2007 were $10.1 million, down 29% from $14.2 million in the fourth quarter of 2006. Revenues in the fourth quarter of 2007 were down 11% sequentially from $11.3 million in the third quarter of 2007. Our biosensor revenues totaled $9 million or 89% of total revenue in the fourth quarter of 2007 and diagnostic devise revenues totaled $826,000 or 8% of total revenue. This compares with $12.3 million in biosensor revenues in the fourth quarter of 2006 or 87% of total revenue and approximately $1.9 million of diagnostic devise revenue, or 13% of total revenue.

Revenues from the DigiScope used by physicians for the detection of retinal disorders such as diabetic retinopathy were approximately $275,000 in the fourth quarter of 2007 or 3% of total revenue. We acquired EyeTel Imaging Inc. in late December of 2007 and previously had a sales and marketing license from EyeTel to sell the DigiScope into the physician office market. We signed up approximately 70 new DigiScope customers in the fourth quarter although not all of these accounts were installed as of the end of the year.

The total number of active NC-stat customer accounts which is based on a 12 month look back period increased to 5555 in the fourth quarter from 5523 in the third quarter but the average usage per account decreased to approximately 5800 compared with 6500 in the third quarter. We believe that the growth in new accounts slowed and the usage per account declined in the fourth quarter due to reimbursement challenges we have been facing.

Revenues for the 12 months ended December 31, 2007 were $44.6 million, a decline of 19% from $55.2 million for the 12-month period ended December 31, 2006. During the fourth quarter of 2007, overall gross margins were 71.8% compared to 74.9% in the fourth quarter of 2006. Looking at the margins for the sensors and the devices, the gross margin for biosensors was 73.1% in the fourth quarter of 2007 compared to 73.7% in the fourth quarter of 2006. The average selling price was relatively unchanged from period to period at approximately $35 per sensor but our gross margins declined primarily due to lower sales volumes.

Our devise gross margins for the fourth quarter of 2007 were 70.6% compared with gross margins of 82.9% in the fourth quarter of 2006. The decrease in devise gross margin percentage was due to a lower average selling price of the devices approximately $3400 in the fourth quarter of 2007 and due to lower sales volumes.

Overall gross margins were impacted by a 30.7% gross margin realized on DigiScope revenues in the fourth quarter, up from approximately 25% in the third quarter. With the acquisition of EyeTel late in the fourth quarter of 2007, we expect that gross margins on the DigiScope will increase as we will no longer be sharing revenues with EyeTel although we will be recording depreciation of the DigiScope units as cost of revenues.

Total operating expenses in the fourth quarter of 2007 were $9.8 million compared with $10 million in the fourth quarter of 2006. We had a decrease in third-party sales commissions and other sales and marketing expenses in the fourth quarter offset by an increase in professional fees pertaining to the government investigations and reimbursement matters. Our operating expenses in the fourth quarter of 2007 were down sequentially from the third quarter of 2007 by approximately $2.5 million and that primarily was due to a decrease in professional fees.

Our operating expenses for the 12-month period ended December 31, 2007, increased by approximately $3.9 million, of which approximately $3 million related to general and administrative expenses compared with the same period in 2006 as a result of an increase in professional fees pertaining to the government investigations and reimbursement matters, offset in part by a reversal of sales tax liability.

Our net loss in the fourth quarter of 2007 was $2.1 million compared with net income of $1 million in the fourth quarter of 2006 and compared with a net loss of $3.6 million in the third quarter of 2007. The net loss for the 12 months ended December 31, 2007 was $8.4 million compared with net income of $4.3 million for the 12 months ended December 31, 2006.

Basic and diluted net loss per share was $0.17 in the fourth quarter 2007 compared with basic and diluted net income per share of $0.08 in the fourth quarter of 2006. Basic and diluted net loss per share was $0.66 for the 12-month period ended December 31, 2007 compared to basic and diluted net income per share of the $0.34 and $0.33 respectively for the 12 months ended December 31, 2006.

I'd like to now turn to our financial position as of December 31, 2007. Our cash, cash equivalents and short-term investments totaled $29.7 million as of December 31, compared with $35.5 million as of September and compared with $40.3 million as of December 31, 2006.

During the fourth quarter of 2007, we made a strategic investment of $2.5 million in Cyberkinetics which we are accounting for as an available for sale security and marketing to market each quarter and we had approximately $1 million in cash outflows for the combined purchase price and payment of certain liabilities which were assumed in connection with the EyeTel acquisition. All other net uses of cash for the quarter totaled $2.3 million, primarily related to the net loss incurred.

Working capital was $33.3 million as of the December 31, 2007, compared with $41.9 million as of year end 2006. The decrease in working capital was due to decreased cash and investment balances, partially offset by an investment of inventory of $1.7 million and a decrease in current liabilities of $2.2 million, primarily accrued expenses related to the reversal of sales tax liability.

Total assets were $56.4 million as of December 31, 2007 compared with $55.7 million as of the end of 2006. The increase is related to the acquisition of EyeTel and the tangible assets purchased and intangible assets recorded including $2.8 million in specific intangible assets, principally technology, and $5.9 million in goodwill offset by the decrease in cash and investment balances.

Our days sales outstanding or DSO was 54 days as of December 31, 2007, up from 50 days in the third quarter. However, we did see an overall stabilization in our past year receivables during the fourth quarter of 2007. Our inventory turn rate was 2.2 in the fourth quarter of 2007 compared with 2.4 in the third quarter of 2007 and compared to the range of 2.5 to 3 in the first half of the year. As of December 31, 2007, there was no long-term debt on our balance sheet other than a capitalized lease obligation of less than $20,000.

So to summarize our fourth-quarter 2007 financial performance, revenues totaled $10.1 million; we incurred a net loss of $2.1 million; and we ended the fourth quarter with $29.7 million in cash and investments.

And with that, I'd like to turn it back over to Shai.

Thank you, Brad. The fourth quarter of 2007 continued to present our Company with challenges due to the reimbursement environment for nerve conduction studies performed with NC-stat equipment. We were disappointed at the February AMA CPT editorial panel meeting did not provide reimbursement clarity in the form of a category one code for nerve conduction studies performed with the NC-stat.

However, we remain grateful for the opportunity to provide over 5500 physician practices and approximately 16,000 physicians with NeuroMetrix neurodiagnostic technology. Through our products, they are able to deliver important clinical services to advance their patient care. We are proud that one million patients have benefited from our technology over the past eight years.

We've expanded our product offering with a launch of the DigiScope and continue to advance innovative products through our development pipeline. Due to the uncertainty related to the prevailing reimbursement environment, we cannot accurately predict biosensor usage and new customer acquisition in the near-term. As we transition to the question and answer session, we are pleased to discuss the fourth-quarter 2007 business metrics and -- business details and relative metrics. However, we will not provide any further guidance on future financial performance.

We look forward to your questions. Thank you.

(OPERATOR INSTRUCTIONS) Bill Quirk, Piper Jaffray.

Hey, guys, its Dave Clair here for Bill. Say, just if you could give us some clarity on what is next for you guys. I mean what kind of is the timeline; what do you anticipate going forward just with respect to the CPT panel? I guess just looking for -- do you expect to learn the vote in 30 days and kind of what your plan is?

Dave, I think for the question as we noted, we are -- the meetings obviously just occurred over the past weekend, and this particular vote occurred on Saturday. So we are not going to detail strategy in any significant way. The point I would like to make is that until there is a final publication by the AMA of any new codes, there are no new codes. And the timeline for that is uncertain. It depends on what we do, what professional medical societies who have a similar position do, in terms of appeals and other sorts of discussions that could occur.

So, at this point we are assessing the situation, developing our strategy. We are in discussions with the MA -- we had discussions with the MACPT staff and with the other professional medical societies, and as that develops, we will report back to the investor community.

Okay. I appreciate that. And if you could just maybe let us know what the appeals process involves? Do you guys have any details you could provide there?

At this point, other than the fact that there is a variety of appeals processes that companies as well as other professional medical societies can engage in, there really isn't a lot of other detail we can provide.

Okay. Does this change your -- I mean how do you view your corporate strategy going forward as far as potential merger activity or anything? Can you kind of talk about that? Just --

AS I think I noted and Gary noted, we have always considered nerve conduction studies to be a very important part of obviously our business. And we expect that to continue into the future. And obviously, I'm not in any position to comment on mergers or anything like that at this point.

One add I would offer, the company clearly as a progressive platform based company has looked at other market opportunities and one of the things that came out most clearly for us was the opportunity held within the DigiScope and EyeTel Imaging. And I would note that the acquisition of EyeTel Imaging and bringing that directly into the Company as highlighted by both Shai and Brad and myself, illustrates a very strong and what we see to be a robust market opportunity both in the primary care arena and the optometry arena.

So we view that and that being a very, very fresh acquisition has been a key advance for our company and makes us a platform company and puts us into even broader markets with direct ownership and profitability of the foundation and technology.

Okay, and then just one last question. It sounds like things are progressing pretty well with Wal-Mart with the DigiScope there. Can you just talk about -- kind of you mentioned presenting in front of their AIP Board and everything. What is the timeline there? When do you expect to hear a decision from Wal-Mart?

Sure, I will be happy to. The good news on Wal-Mart is that the work done by EyeTel Imaging over the past year brought them through a successful pilot program. We have now as NeuroMetrix closed that and have formally created the advanced instrumentation program agreement with Wal-Mart. This is exciting because Wal-Mart is one of the largest, if not the largest optometry chains in the United States, 2800 physician practices. And so our launch efforts are actually already underway and we look to accelerate that through this quarter with some of the elements that I mentioned. One, a strategic planning session with the Wal-Mart leadership team, a number of speaker programs that we will be doing in regional markets. And last but not least, attending their advanced instrumentation program national meeting which only members of the program can attend. And that is a very select group.

So the efforts are already underway with Wal-Mart and I might add, they are also underway with some other corporate chains. One final note here is that we are excited about the opportunities in optometry, not only because of the success we've had in working with independent physician practices throughout all of the markets that we have historically served, but also the fact that we can take best practices that we've employed here and even in past lives in working with corporate accounts and bring that to creating very valuable, mutually beneficial business partnerships and relationships with our customers.

So Wal-Mart is on. A few others are very much well underway and yet there are another 50 odd chains out there that can also hold opportunities for NeuroMetrix and further success in our business in the chain portion of the optometry market as well as for lack of other words, the door-to-door approach that we've used very, very successfully with independent physicians, most notably here optometrists throughout the U.S.

So do you have DigiScopes in place at certain Wal-Mart locations right now?

Absolutely, and we've secured customers and brought them on board and they are signed up and now have contracts in place with NeuroMetrix for the DigiScope. And this program just allows us with Wal-Mart to rapidly accelerate their exposure to the technology, the program, and ultimately what we believe will be our business.

Okay, thanks a lot, guys.

Jeff Frelick, Lazard.

Good morning. Shai, maybe can you give us some insight just on -- do you have to wait for the vote to become public before you would start an appeal process?

Not necessarily. I think there may be communications between the AMA and the professional medical societies that put forth the category 1 options and that might occur before any further public pronouncements by the AMA.

And then to your knowledge has the AMA ever overturned a vote? And of course the frequency of that if so.

I really -- I presume that has occurred in the past. I don't have detailed data on that.

Okay. And then as far as you had mentioned about the workgroup's presentations at the panel. Can you comment on what their recommendation was based on?

What their recommendation was based on?

Yes, the workgroup's recommendation to the panel.

The workgroup's recommendation was based on the AMA's definition of a category 1 code which has five elements and I won't walk through it right now but we've outlined that in prior calls and the NC-stat, it was clearly our understanding if you lined up the NC-stat and its utilization, clinical data supporting technology, and so forth, FDA clearance has matched those requirements and that was what the workgroup worked off and that's why they put forth a category 1 code.

Okay. And then lastly, so, if we would assume that you get placed in a category 3, when can you come up for review again? Is that data driven or something like that?

I think that -- I think there is -- like I said, I would say that until such time as it actually gets published, should it be published one would have to look at the language, the process and so forth before I think jumping to making conclusions about next steps and so forth. So I think it is all just premature at this point.

Okay.

Fundamentally medical societies can bring forth new codes, changes to codes, request on codes, essentially in advance of any CPT editorial panel meeting.

Okay, thanks. I will jump back in the queue.

Dave Turkaly, FIG.

Thanks. The Wal-Mart deal, what kind of doctor is going to actually be performing that test?

Dave, that procedure is done by optometrists. So the Wal-Mart practices are staffed either by optometrists who are part of the Wal-Mart Corporation or independent and have an agreement with Wal-Mart and those 2800 locations are manned by -- entirely by optometrists or ODs.

I know specific (inaudible) when you look at that opportunity you've talked about on prior calls in terms of how you'd size it up. But I guess what we'd like to know is how quickly do think you could -- how big could a Wal-Mart deal like this be for you guys? Can you walk us through maybe the economics -- I think you said 2800 practices but could this come on fairly quickly for you guys? And any kind of detail you can give us there would be helpful.

Sure. Obviously we can't provide guidance but what I can give you is a little bit of color here, Dave. One is the relationship is just starting so we've got to get it going. We haven't even launched our salesforce yet for selling into the optometry market. But I will tell you obviously we have the sales force trained in the fundamental messaging, the positioning, and obviously in the ability to approach physicians close them on adopting technology and on utilizing our technology in an appropriate manner.

So we are in many respects ready to roll but we've got to roll out the optometry market to our sales force which we're actually doing later this week. As importantly, if you look at 2800 locations and with our salesforce would not only size but also the support that we will get through this advanced instrumentation program, we have a lot of promise for what this can yield. On a given practice basis, we have yet to really model out what the optometry market is but certainly EyeTel got a good handle of that through their pilot programs and we have seen that as we have commercialized customers.

But what is the average customer to be worth yet is to be determined although we believe it holds promise to be very comparable to what we've seen with nerve conduction. And as importantly, a range of probably $10,000 per account is a solid sound number.

In terms of penetration, Dave, I think we are very optimistic but we are not offering projections yet but we know that in the past in our heyday or NeuroMetrix sales team has been able to acquire and build our base of customers month over month, quarter over quarter and we look to now do that in the optometry space which we see as fairly wide open.

So obviously you can tell we are bullish on it as we should be. We not only have this expanded market opportunity and proven capabilities that we've applied to the market for five plus years but now we own the product and gain full profitability of it and can further advance it from not only a marketing and sales approach but from a technology position. So it is a really exciting market opportunity and that is why we are so excited about the acquisition of EyeTel Imaging.

The revenues in the quarter, as it looks right now today is that under 270 -- 275,000 -- is that DigiScope?

That is, yes, the other is entirely DigiScope, Dave.

And could you just maybe tell us like how many -- I can't remember the economics on it -- but how many were people were tested -- any broad based kind of numbers you could give us in terms of what that might represent in terms of people actually tested in the quarter?

We haven't provided specifics on that yet, Dave. But what I can share with you is that our targeted goal is to have in essence one a day per primary care practice and more than that in the optometry market, the economics vary. And in the primary care practice, the average price per medical scan is approximately $45 and in the OD market, it will be much less because they are doing a screen verses a medical scan most often.

But the net net is in both of those markets, we see a strong opportunity for utilization not only as it is today but where we can go on a growth perspective. So I haven't stated those numbers in the past but I can tell you that one a day in the physician office arena seems viable for us and certainly well beyond that in the optometry market.

Great, thanks.

Juan Sanchez, Punk Ziegler.

Good morning, guys. I want to focus a little bit on the NAVIGATOR. I just want to understand the actual stage of development of this product if there is still any technological breakthroughs to work out? Or the proof of concept is already there and it's just about packaging and final engineering?

I don't think that there are any technological -- let me put his way, there are no scientific questions remaining. We have a working prototype and we are in final stages to finding the final specifications and prototyping and preparing for an FDA 510(k) submission. So we are fairly -- we feel good about where we are. It's a product line and so initial versions of the device much like the NC-stat was would have certain capabilities and then over time we would add more capabilities, primarily through software upgrades.

Thank you very much.

Jonathan Block, SunTrust.

Thank you. I guess just a handful of questions. The first one just deals with DigiScope. I guess I understand the theoretical opportunity with Wal-Mart. But just out of the gate it seems that growth for DigiScope has been pretty modest, I think in 1Q it was just north of $200,000 and roughly $275,000 in the most recent quarter. So can you just help explain what is preventing a faster ramp there? Is it just primarily reimbursement issues? And then does that go away once we get into Wal-Mart because it seems like that is a cash pay environment?

I think the first thing that is really important to note when you look at our results with the DigiScope is very candidly, it was a strategic initiative for us and we certainly invested time and efforts against it but we didn't own the product. We didn't have the profitability that we would have liked and you won't secure unless you have ownership of a technology and therefore we were in a position where we had to balance our efforts against that market opportunity. That is the first thing.

The second thing is that we learned to market this and sell the product as we moved through the course of the year and each and every quarter we saw a rapid progression of our ability to secure new customers with the DigiScope culminating in 70 at the end of last quarter and again, I add that is without owning the product and without having the kind of profitability that we need to really invest time away from our core franchise to run at it.

All of that has changed now and the DigiScope is ours. We expect margins consistent with what we've seen with our other product franchises and it is time to get rolling. So that is what we will be doing with the salesforce later this week. And whether it is Wal-Mart or independent optometry practices, we plan to take the best practices we've instilled and delivered over the past five years in bringing technology to the market and take it to not only the PCP market with ownership of the DigiScope, but also to the optometry space.

And one, John, just to elaborate a little bit on that, two things, one is there is some delay in terms of when we sign customers up. We signed up, as Gary said, roughly 70 in the fourth quarter. And when they actually get implemented and installed and are up and running and testing, the second is there is some revenue deferral. We take a position that the upfront fees should be deferred and recognized over a period of time in the future and that is what we do. So those are two I think important points that also impact it.

I believe his line has disconnected. I do apologize, gentlemen. Charley Jones, Research.

Good morning. A quick question here. There was three proposals provided to the CPT panel, correct?

There were only two options were discussed, there were six options in total that were put forward. Five of those were category 1 and one was a category 3.

And did the AMA workgroup have a specific recommendation?

They led with their recommendation from the three workgroup chairs which was a category 1 proposal and that is what the meeting started with as Shai had indicated.

Okay, great, thanks. And so if you are granted a new CPT 1 code, would physicians be able to reimburse in calendar year 2008 under any code or would you basically have to suspend reimbursement in all states and then wait for the new codes to come out in 2009?

Just to be clear, there was no category -- I don't know if you misspoke, there is no -- there was no category 1 voted on at the panel. There was only a category 3 voted on. So I'm not sure was your question pertaining to if a category 3 was published later this year?

Right.

If -- at the point in time where a category 3 is published, it is essentially depending on how it describes nerve conduction testing, it would eventually be adopted by Medicare and by potentially by commercial insurers and then depending on how that adoption occurs, that would impact reimbursement for nerve conduction testing using the NC-stat.

So, I would actually like further clarification on that. So even though there are six different proposals and five of them are for category 1 codes and the panel -- I'm sorry the workgroup actually was -- had only a recommendation for a category 1 code, they only voted on the category 3 code?

That is correct. What happened was that after the category 1 proposal by the workgroup chairman was put forth, a motion was put forth on behest of several neurology and physiatry societies. It was supported by several panel members and that motion was to essentially after some discussion to vote on the category 3 proposal, the one of the six, with the other five being category 1. And that was the only vote that was taken and then the panel moved onto other agenda items.

So, this is getting interesting. Let's say that they vote no on the category 3, then they basically go back to panel to determine what type of category 1 code you are going to get?

I think that would all be speculation, Charlie. I think at this point there was just a category 3 voted on and then that is why it is our -- it is an important position that one has to wait until the AMA CPT puts out further information and/or publishes any new codes before speculating on exactly where matters stand.

When is the next physician workgroup or when is the next panel meeting?

That would be in June.

So, I guess a follow-up on all that. If they -- whatever happens with the category 3, if it does not get accepted basically you continue under status quo until some code out there changes your existing code, right?

That is correct. Until there are new -- our new category 1 or 3 codes -- there is no change in the coding. The NC-stat as we've made very clear in the past and it's clearly was met the requirements of the existing category 1 code, so unless it is defined under a new code set, whether it be that 1 or 3, the current situation will persist.

That relates to CPT coding and then from there it is a matter of payers potentially picking up on the code and employing it within their coverage policy. So it's a two-step process which none of that has occurred yet.

And so the new CP to codes come out next fall, correct? So let's say this category 3 gets rejected -- I know it's speculation (inaudible) just imagine it does, and you have to go back to panel this summer, would -- and let's say they vote on a new CPT -- on a new CPT 1 code, when could that be instituted for '09 or does that then get thrown into 2010?

2010.

2010. So that is the risk that if you have -- okay -- wow. All right, thank you very much.

Jonathan Block, SunTrust.

Thanks, guys. Sorry about that, I don't know what happened. Just a second quick question. In regards to ADVANCE, I just want to make sure I've got that correct. Upon approval it's going to carry in 0003, 04? Is that right, because I think you said it's going to be deemed traditional neurologist?

The codes 0003, 04, describe nerve conduction testing procedure how it is done not any particular kind of equipment. And ADVANCE, one interpretation of those codes is so-called traditional testing and ADVANCE can support that kind of traditional testing. So it really -- how you code depends on how you perform the procedure not on the equipment you use. ADVANCE is capable of performing the nerve conduction procedure in the most traditional of fashions equivalent to any other instrument on the market widely used in the neurology and physiatry sector. So to that extent, yes, it could be billed under 0003 04 if the procedure was performed in accordance with the definitions of 0003 and 04.

Fundamentally the direction is -- coding direction from the AMA is aligned to the services that our best described by the code or the code as best described in the services. So obviously that is to be determined with the launch of the product but certainly the traditional codes and what they have and what is detailed in the CPT book today is very clear.

Okay and just last one, Gary, for you. I guess with the recent ruling from the AMA, how are your sales guys going to divvy up their time in the coming months in terms of NC-stat, DigiScope? Are we going to be primarily DigiScope prior to ADVANCE and then that switches over? Any color would be great.

Sure. First, just to reiterate what Shai has discovered, there is no ruling from the AMA. And until there is something published, there is no change on CPT coding direction from the AMA on any matter, category 1, category 3, whatever. Our focus will be continue to be a blend of efforts against both the physician office arena with neurodiagnostic testing and the DigiScope and now in this -- as we've described new and for that matter fairly wide open market opportunity in optometry.

So the direction on that is still being established but I can tell you that we plan to get out there and continue to pursue all of the above and that is our ongoing strategy. And now if you will, further expand it with the optometry market and the DigiScope into this brand new arena for us.

Okay, great. Thanks, guys.

Ladies and gentlemen, that was your final audio questioned. I would now like to turn the call back over to your host, Dr. Gozani. Please proceed, sir.

Thank you very much. We appreciate your interest in NeuroMetrix and what we are accomplishing in or markets. We look forward to keeping you updated as we move through 2008. Thank you.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude the presentation. You may now disconnect. Thank you and have a great day.