CardioDynamics' Pulse Fading

Business is still heading in the wrong direction at small-cap medical technology company CardioDynamics (Nasdaq: CDIC  ) . While the company is not out of the game yet, the road to prosperity seems very much an uphill one.

Revenue in the third quarter skidded 21% as core impedance cardiography (ICG) revenue fell 24%. System sales as measured in units dropped 14% sequentially, and sensor revenue was neither strong on a sequential basis nor on an annual comparison. In operational terms, the only real bright spot was that the company reported an 11% sequential improvement in average selling prices for the BioZ monitor. Margins eroded further and the company posted a small loss for the quarter, versus the small year-ago profit.

There's nothing really new to this story, and that's part of the problem. Medicare reimbursement changes have sucked away any momentum in sensor usage. Doctors won't use the product if they can't get paid for it, and most of the likely candidates for impedance cardiography are going to be Medicare customers. Further, as I suggested before, the company isn't getting any juice from its distribution partners.

If CardioDynamics is going to make it, I think it's going to have to change its sales and marketing philosophy. What people unfamiliar with medical devices don't always appreciate is that technology and functionality only get you into the game. They don't automatically drive sales. Doctors often need extensive training and prolonged support from sales and marketing professionals to use new devices. In other words, there's a lot of hand-holding that goes into making a successful product launch, and CardioDynamics needs to get its people to spend more time with clients and really push the technology -- so as to push sensor usage and repurchase.

The question isn't whether CardioDynamics' systems work. They do. And the question isn't about whether there's a provable medical need. There is. The question is whether the company can execute on the "blocking and tackling" aspects that separate research-stage companies from viable, growing medical technology product companies. Since this isn't really new technology, marketing is even more important, and giant competitors like Philips (NYSE: PHG  ) and Siemens (NYSE: SI  ) are generally very good at their marketing.

Can CardioDynamics turn it around? Yes. Will it? I really don't know. Fortunately, the company is still cash-flow positive, and that will buy it more time. Sooner or later, though, the company has to deliver on its potential and establish a solid plan for sustainable growth. That's more of a long shot than I'm willing to take at this point.

For more medical technology Takes:

• Wright Goes Wrong
• GE Brings Good Things to IDX
• Integra Integrates Another Company

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).