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Cyberonics, Inc. (CYBX)

Barclays Global Healthcare Conference

March 12, 2013 1:30 pm ET


Daniel Jeffrey Moore - Chief Executive Officer, President and Executive Director


Matthew Taylor - Barclays Capital, Research Division


Matthew Taylor - Barclays Capital, Research Division

I guess we're on. Thanks for joining me for this session after lunch. We're really pleased to have Cyberonics joining us. And we have Dan Moore, who's the CEO. Cyberonics has an exciting growth story in med tech, and they really dominated the epilepsy space, and they have a lot of exciting growth drivers for treatment of different disease states with their VNS technology. So to hear more about that, I think we're going to do a short presentation, and then follow it up with some Q&A. Dan, take it away.

Daniel Jeffrey Moore

Thanks, Matt. I'm going to begin with just our Safe Harbor statement to let you know that we'll be making forward-looking statements. Those forward-looking statements are based on assumptions that we believe are reasonable. For a full description of some of the risks that are involved in our business, you can refer back to our last 10-K, which was in April of last year, we're on a fiscal year, or any of the 3 Qs from the 3 subsequent quarters as far as fiscal year '13.

So Cyberonics overview. We are a medical device company, primarily focused on epilepsy. But I'll talk about some other areas where we have work going on. We're based out of Houston, Texas. We have international sales in approximately 70 countries, 570 employees and we have about 100,000 implants in 68,000 patients over the years. In the last quarter, we did $63 million, and that's split was about 80-20 -- 81-19, U.S. versus international. So if you look at the history of the company, we are celebrating our 25th year. The first 10 years were largely R&D, product development going for regulatory approval in the area of vagus nerve stimulation for epilepsy. Following that, we got excited about some other areas, depression and some other indications. So there was some work there in the next 10 years in addition to the epilepsy effort. And back in 2007, the new management team came into the company and refocused the company, starting with vagus nerve stimulation for epilepsy, where we believed then and still believe today there is an underserved patient population and a good potential for Vagus Nerve Stimulation Therapy for patients with epilepsy. We evolved that mission to expand it to medical devices for patients with epilepsy. And more recently have talked about VNS for other indications like chronic heart failure and depression and also other neuroscience opportunities in areas like obstructive sleep apnea. So in the future, we expect to become a broader neuroscience company. But today, most of the effort is still around epilepsy.

If we look at the -- just one market, the primary market for epilepsy, about 2.7 million people in the U.S. have epilepsy. It's about 1% of the population. When we look at our potential market, about 1/3 of those patients have refractory or difficult to treat drug-resistant epilepsy, meaning, they're not getting adequate relief of their seizure symptoms with their drugs alone. So that brings the market down about 900,000 patients for us. We treat one type of epilepsy, partial seizures that begin in one area of the brain. And we also are labeled for patients above the age of 12 in the U.S. So that brings the market size down from about 900,000 to 400,000 potential patients. And over the years in the last 10 to 15 years, we've treated 57,000 patients in the U.S. When we look at the incidence side, there's at least 125,000 patients who are diagnosed with epilepsy each year. You'll see numbers as high as 200,000 patients. It goes through that same algorithm, and you end up with 15,000 to 24,000 new patients. The point of this slide is that when you're looking at the pool of patients or new patients who are being diagnosed with epilepsy, there's plenty of opportunity out there. Despite the 5 years of good financial results, the reality is that last year we treated about 3,700 new patients out of this pool. So a lot more work to do. The other market mass for Europe and Japan are much the same. Actually, even more enticing because we have broader labeling in most markets. Our opportunity starts with our replacements. This is a product that will last anywhere from 2 to 11 years. Call it an average of 5 years. Typical patient's implanted on average around age 29 or 30, so they may go through multiple implants during their lifetime.

This was a slide from a recent analyst meeting where we looked out and projected what our replacement activity would be. This year, we expect about $100 million in replacement activity. And you can see as we enter fiscal '14 in the next quarter and then on to fiscal '15, we expect continued growth in that replacement business that we modeled at $100 million, roughly $100 million in fiscal year '13.

We look at what the other things we're doing. We are data-driven. We continue to accumulate more data. We use data in the exercise of market development. We're focused on U.S. market development and invest in U.S. market development. We are also focused on increasing our penetration in markets outside the U.S., which also is a market development exercise. And then from a product development standpoint, we've got a good pipeline of products with the AspireHC, recently being launched in the last year or 2, fully in the U.S. and a limited commercial release in Europe. And the AspireSR product, the seizure response product is in clinical trial in Europe, has a clinical trial approved in the U.S. We hope to implant our first patient in that trial soon.

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