Why Micro Cap Nemaura Medical Skyrocketed 32% Yesterday

What happened

After updating investors on a timeline to submit an application for approval of its sugarBEAT glucose monitor in the United States, Nemaura Medical (NASDAQ: NMRD) saw its shares soar 32.4% by market close on Wednesday.

So what

SugarBEAT is a noninvasive continuous glucose monitor (CGM) in development for diabetes patients. The CGM uses an adhesive patch that's replaced daily, and a rechargeable transmitter to send glucose readings -- taken every five minutes -- to a smartphone or other consumer electronics device.

On Wednesday, management provided an interim update from one of what's expected to be a "number of planned studies" in support of a filing for Food and Drug Administration (FDA) approval.

In 25 patients with either type 1 or type 2 diabetes, the mean absolute relative deviation (MARD) @ 30%/30mg/dL for 1-point calibration was 12.19%, and for the 2-point calibration, it was 10.65%. Nemaura said that the numbers were "in line with the company's expectations, and compare favorably with competitor products." MARD is a measure of a CGM's accuracy; and the lower the number, the greater the accuracy.

Previously, the company reported results indicating "84.3% of the data points had an overall MARD of 10.63%, and an overall nominal MARD of 16.3%." For comparison, the MARD for Dexcom's G5 and its newest CGM, the G6, is about 9%.

Now what

Nemaura Medical plans to launch sugarBEAT in the United Kingdom before the end of 2018. Then, if all goes well, it will roll the product out in other European markets. In the U.S., management thinks it can submit the device for FDA approval by the end of Q1 2019.

If sugarBEAT is commercialized, it could be an intriguing alternative to existing CGMs for non-insulin intensive patients. The company expects to price it similarly to glucose strips and glucose meters. If so, then diabetics unable or uninterested in the high expense associated with traditional CGMs may be attracted to it.

There are over 3.7 million people with diabetes in the United Kingdom, according to Diabetes UK; over 60 million in the European region, according to the World Health Organization; and over 30 million in the U.S., according to the American Diabetes Association. So there's certainly a large addressable market.

However, this is a high-risk stock whose company has limited cash and deep-pocketed competition. Exiting Q2, Nemaura had less than $6 million in cash, cash equivalents, and securities, and no revenue. Competitors like Dexcom, which had $718 million in sales in 2017, are continuously innovating new products. And device makers, including Apple, have been rumored to be investigating how to incorporate glucose monitoring into wearables, including watches.

It's possible that Nemaura outmaneuvers these competitors, but until we get insight into how well the device sells in Europe and see the final data that could support an FDA approval, I would focus on less risky stocks; especially since the company's market cap now exceeds $400 million after yesterday's run-up, and a dilutive stock offering to raise more cash could be on deck.

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