If the stock market were anything like the TV show ER, there'd be a well-coiffed doctor laying a pair of defibrillator paddles on CardioDynamics' (Nasdaq: CDIC ) chest right about now.
While the company has by no means flatlined, results for the second quarter were once again anemic for this maker of noninvasive cardiac monitoring equipment. Revenue fell 9%, ICG (impedance cardiography) sales slid 17%, and sensor revenue growth was once again feeble.
Making matters worse, gross margins seem to be suffering from a bout of syncope. Having dropped by more than 15% from the year-ago quarter, margins are being pressured by the lack of sales and price competition in the marketplace. With lower sales and margins, CardioDynamics reversed a year-ago profit and posted a small loss for the quarter.
Long-suffering investors shouldn't expect the cavalry to be arriving anytime soon. A clarification from Medicare on its policy relating to using ICG on hypertension has taken away sales by essentially restricting reimbursement to only the most resistant patients. That's bad, since hypertension patients made up a promising market.
Worse still, the company is depending on distributors to do the sales work. I mean no disrespect to Physician Sales & Service or Henry Schein (Nasdaq: HSIC ) -- the company's two primary distributors -- but I can't immediately recall a single small-cap medical device company that really thrived with that sort of distributor-based sales model. In my view, that doesn't bode particularly well for CardioDynamics -- especially now that pushing the company's technology seems to require an above-average level of physician hand-holding.
It was notable that management gave a pretty frank discussion of the merger-and-acquisition possibilities for the company. Suggesting that a large company like GeneralElectric (NYSE: GE ) or Philips (NYSE: PHG ) wouldn't be interested in a company at CardioDynamics' state of development, management seemed more interested in the possibilities of merging with other small companies involved in noninvasive monitoring and medicine.
I feel as though I've seen this sort of situation play out before with companies you've probably never heard of, such as Integ, Innovasive Devices, and EndoSonics. If all goes according to form, CardioDynamics will continue to struggle a bit and then get bought out at a pretty low price by a company that wants the technology or patents for itself.
I hope I'm wrong about that. I'd like to see CardioDynamics get in gear, find a way to drive sales, and achieve some real growth on its own so that investors can get some reward. That's what I'd like to see -- but at this point, I'm not really holding my breath.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.
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