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August 16, 2011
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Recently, the leading neuromodulation company Cyberonics (CYBX) stopped shipment of two models of its Aspire platform generators. The company is currently retrieving the already sold but unused models namely No. 105 and 106. The company has also suspended enrollment in its E-36 clinical trial pending resolution of this hardware related design issue. As a result of this massive set back, the company’s shares plunged more than 11% from the closing price of 12th August.
The company’s decision is based on the realization that stimulation output current delivered to patients can be less than the output current programmed by a physician.
The Vagus Nerve Stimulation (VNS) therapy System was approved for the treatment of medically refractory epilepsy in Europe in 1994 and in the US and Canada in 1997. Cyberonics is presently expanding its epilepsy product portfolio through direct sales force and distributors in the US, Europe, Latin America, (including Brazil), Russia and Asia, including India, Japan and China. Over the last three years, Cyberonic’s continuous investment in product development resulted in two new generators, the AspireHC and the AspireSR.
Presently, about 118 people worldwide have been provided with the AspireHC or AspireSR generators. However, the company plans to provide instructions to physicians regarding management of these already implemented machines.
On July 29, 2011 the company completed its first quarter of fiscal 2012 and expects to report results on August 25, 2011. At the end of fiscal 2011, Cyberonics provided its outlook for fiscal 2012. The company expects revenues and income from operations in the range of $212 – $215 million and $54 – $57 million, respectively. In addition, the company also expects the effective tax rate to be approximately 40% for fiscal 2012 while cash payments for income taxes will not exceed 3% of income before tax for fiscal 2012 and 2013.
Although the AspireHC (Model 105) generator revenues contributed around 9% of worldwide sales in the recently completed first quarter 2012, Cyberonics believes that the availability of alternate models to treat refractory epilepsy will not hamper sales growth in the upcoming quarters.
Currently, we have a long-term Neutral recommendation on Cyberonics.
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