Northstar Flickers

Northstar Neuroscience (Nasdaq: NSTR) reported second-quarter earnings after the bell yesterday, and they were anything but bright.

The medical device company, which is developing a cortical stimulation system to treat neurological disorders, revealed that its second-quarter net loss widened to $10.1 million, from $3.4 million a year ago. Before that gives you a migraine, note that this quarter's figure includes $3.7 million of one-time charges attributable to settlement of intellectual property disputes and early repayment of outstanding debt. Stock options granted during the period also increased to $1 million, while research expenses and selling and general expenses climbed $1.9 million and more than $800,000, respectively, year over year. The company boasts a healthy balance sheet thanks to its IPO in May, with $114 million in cash and no debt.

Those figures provide a glimpse of the company's finances now, but it's the story behind the numbers that can make Northstar shine. The company's key product, the Northstar Stroke Recovery System, is designed to deliver targeted electrical stimulation to the cortex to improve hand and arm motor function in stroke survivors. The company's EVEREST study is the pivotal trial related to this product, and now has 70 patients randomized, compared to 40 patients reported in mid-April. This enrollment rate bodes well for the company's chances to get the necessary 151 patients. Data submission is expected by the first quarter of 2008. Additionally, the company believes it will add three testing centers to its existing 15 by the end of the year.

Northstar's business strategy attempts to leverage its cortical stimulation platform across multiple therapeutic areas. The company is also developing applications for aphasia, tinnitus, and depression. Management acknowledges that it has to set priorities and has established target dates for its studies. The company announced in June that it has completed enrollment for its study to treat aphasia, and just last week, it reported that the FDA had granted approval for a study to treat depression. Treatments for movement-related disorders such as Parkinson's will remain on the back burner for now.

Clearly, there's a lot on the line for the company and its investors regarding the cortical stimulation platform. The company has enough financial resources to bring its studies to fruition, and it's making progress with its pipeline. At this point, Northstar is not a sure thing, but it's energetically charting the course that will ultimately determine its position.

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Fool contributor S.J. Caplan has never located the North Star. Most of the time, she can't find her keys, either. She does not own shares in the company. The Fool has a disclosure policy.