Cyberonics Reaffirmed at Neutral - Analyst Blog

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We recently reiterated our Neutral recommendation on Cyberonics ( CYBX ) with a target price of $34.00, following our assessment of its second quarter 2012 results.

Cyberonics reported second quarter 2012 EPS of 32 cents, surpassing the Zacks Consensus Estimate of 30 cents and 28% higher than the year-ago quarter's adjusted EPS.

Cyberonics develops and markets Vagus Nerve Stimulation (VNS) Therapy System, which is approved by the US Food and Drug Administration (FDA) for the treatment of refractory epilepsy and treatment-resistant depression (TRD). During the quarter, Cyberonics witnessed significant top-line growth, attributable to the company's pioneer product, VNS Therapy System, especially indicated for the treatment of epilepsy.

During the reported quarter, notwithstanding the withdrawal of two models of its Aspire platform generators, Cyberonics exhibited strong result in the US (up 11.3% to $45.1 million). The company reported 4.3% year-over-year growth in epilepsy unit sales to 1,081 units on the back of both new patients and replacements.

The year-over-year growth was also driven by higher volume and increased average selling prices. The company continues to expect US replacements to increase 10% to approximately 4,500 units in fiscal 2012. Over the last four years, epilepsy revenue in the US increased 97%.

The company is currently emphasizing on its international business by expanding its epilepsy portfolio through direct sales force and distributors in Canada and Europe. Cyberonics also intends to extend its epilepsy business in Latin America (including Brazil), Russia, Australia and Asia (including Japan, China, India and Taiwan), where it foresees huge growth potential.  The regulatory bodies in these countries have approved VNS Therapy for the treatment of epilepsy without any age restrictions or seizure-type limitation.

The persistent rebound in Cyberonics' overall international business was backed by excellent performance in Europe. Increased investment in the European market along with changes in the organizational structure enhanced the company's performance in this region.

The company generated record revenues in Europe, especially UK, France and Germany, all showing improved performance. This growth marked the significant return from the company's investment in human capital and market development in Europe.

Further, Cyberonics' several market development efforts yielded positive results in Japan. Presently, there are 36 hospitals in Japan, out of which 29 have been certified by the VNS Certification Board. The company is also focusing on physician training and fulfilling patient registry requirements with its official partner Nihon Kohden Corporation.

In the second quarter of fiscal 2012, Nihon Kohden completed its first physician symposia for the neurologists and targets six more symposia in 2012. Both the companies are also planning a significant marketing effort at the Japanese Epilepsy Society meeting in January 2012.

Moreover, the company is focusing on research and development in the field of VNS Therapy for patients with refractory epilepsy specifically, seizure detection, responsive stimulation and associated technology.

Presently, Cyberonics retains a Zacks #2 Rank (short-term Buy rating). The company faces mounting third-party reimbursement issues along with stiff competition in the neuromodulation space from the likes of Medtronic ( MDT ) and St. Jude Medical Inc. ( STJ ). Both Medtronic and St. Jude Medical are Zacks #3 ranked peers with Neutral recommendations.

CYBERONICS INC ( CYBX ): Free Stock Analysis Report
MEDTRONIC ( MDT ): Free Stock Analysis Report
ST JUDE MEDICAL ( STJ ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: CYBX , MDT , STJ

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