Neal St. Anthony
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Dan Reuvers has faced a challenging welcome from investors since becoming chief executive at Tactile Systems Technology Inc. in June.

After a 15% stock drop on Tuesday, when the company best known as Tactile Medical announced quarterly results that were clobbered by the corona­virus, Reuvers said, “The punishment didn’t fit the crime. I think the difference was that some other medical products companies had created very low expectations.”

Tactile Medical (ticker: TCMD) shares have fallen to half their January high of $70, which gave the Minneapolis-based company a market value of $1.3 billion. Until that drop, the company had been one of Minnesota’s best-performing stocks since it went public in 2016.

Reuvers, 57, succeeded Gerry Mattys, 61, who retired in May after 15 years as CEO.

Under Mattys, Tactile Medical became a national leader in treatment of swelling conditions such as lymphedema and chronic venous insufficiency. It provides pneumatic compression devices, branded Flexitouch, that can be used at home for relatively low cost.

The Flexitouch system has gotten thumbs-up reviews from independent medical studies, insurers and patients, who can avoid expensive clinic visits and hospital stays.

“Our analysis of the U.S. medical claims data that we conducted in December 2019 showed 1.3 million patients diagnosed with lymphedema in the trailing 12 months,” Reuvers said last week after meeting with analysts. “That represents a $5 billion market [at $4,000 per unit]. We only shipped 40,000 Flexitouch systems last year.

“It’s clear that we have a tremendous opportunity remaining to help patients suffering from the symptoms of lymphedema … and we’ve got studies that demonstrate reduction in overall health care costs, fewer infections, less hospital visits. Self-treatment in home fosters compliance. Lymphedema is a chronic, lifelong disease that requires ongoing treatment.”

Reuvers joined Tactile Medical from the much larger Integra LifeSciences in New Jersey. He ran its neurosurgery business, the firm’s largest with about $1 billion in annual revenue.

The company’s stock decline started last spring when Mattys, acting conservatively, pulled its earnings revenue and profit guidance for the year. Executives thought they needed a clearer picture of the impact that the corona­virus would have on medical clinics and treatments. Investors generally don’t like uncertainty.

But Reuvers believes it was the right decision to not set any expectations for investors, other than to say early in the year that Tactile’s management wasn’t sure of the COVID impact, and focus on what it could do to build business.

The second quarter was unprofitable on revenue that declined 22% to $35.1 million from the same period last year.

“The order trends in July provide further support that we’re in the early days of recovery,” Reuvers told analysts last week. “Orders for July represent declines of roughly mid-single digits year over year, consistent with the year-over-year decline we saw in June.”

Still, hospitals, including the Department of Veterans Affairs system, are recovering more slowly than private clinics. Management is withholding judgment on how the year will shake out.

Several analysts came away expecting Tactile Medical, which grew 30% annually from 2017 through 2019, to get back on track once the imminent challenges of the pandemic are surmounted.

“Fundamentally, we do not believe that the Tactile story has shifted,” William Blair analyst Margaret Kaczor said in a report to investors last week. ‘‘As a home-based treatment for a chronic disease with low penetration and potential disinvestment from less-well-capitalized peers, we believe Tactile can return to 20 percent-plus growth as the impact of the pandemic eases.”

Blair expects Tactile to lose 80 cents per share this year on revenue of $185 million, down from a profit of 46 cents per share on sales of $189.5 million last year.

And then things get better, according to optimistic investors. A consensus of analysts surveyed by Yahoo Finance project the stock price will rebound to $64 per share within one year.

“Overall, despite some near-term bumps, we remain positively inclined on [Tactile] given its strong execution and attractive valuation relative to some mid-cap peers, said Matt O’Brien, analyst at Piper Sandler.

Reuvers and his team are betting on an improving future.

Over the last year, Tactile Medical has added about 100 employees ­— including more field sales staff — boosting its total to 640.

And it’s moved to a larger, refurbished leased space in Minneapolis near Interstate 394 and Hwy. 100.

The company educated 3,300 clinicians online in the second quarter, more than it did all last year.

“I think we’re building a body of evidence that’s going to be important for us to be able to convince payers that this is a wise investment and a good, efficacious solutions for patients,” Reuvers said.

Correction: Previous versions of this article misidentified the speaker of a comment from a conference call with analysts. The comment was made by Dan Reuvers, the firm's chief executive.