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Cyberonics, Inc. Message Board

  • Eggplant101 Eggplant101 Jun 25, 2007 7:32 PM Flag

    CYBX Newbie

    I am new to this name and have been looking at the #'s. I know there is controversy here--and I would rather not get started on that. I am just trying to understand the cost structure. Apparently CYBX has real sales, which convert to cash. Gross margins are very high, nearly 90%. But they seem to spend a significant portion on SG&A and R&D, and, even after stripping out non-cash option and stock related compensation, it appears that cash expenses still exceed cash revenue. How can this be with such a high margin business? Why are operating expenses so high? It seems they could be reasonably profitable if they wanted to be. What am I missing?

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    • One reason their cost of sales is so high is the nature of the two illnesses (and patients) the VNS is approved for.

      Think about it. And wouldn't a Payor be reluctant to pay for surgical implantation of an expensive medical device if they think that the patient should "try just one more drug"?

      These are not pacemakers and defibrillators where there are clear quantitative criteria defining their need.

      This "problem" will haunt them forever. Whenever a new drug of class of drug for epilepsy or TRD is approved, it will reopen the can of worms. Drugs are cheaper than implanted devices.

    • I agree with you, the spending to revenu ratio is very high and the hope is that the new mgt team will cut cost down to the basics and accomplish their mission of making this company profitable so it can become an attractive take-over target. They only have three years left on their Patent so this should be the last chance for them to fix it and sell it. I think this has been the new Board's plan all along, especially when they hired Moore from Boston Scientific with a possible mission of cleanup and assist in a take-over.

    • What's wrong with the culture of the company? What can't be fixed? Also, for what you describe as 'a marginally effective device', it sure seems to sell a lot of units, no? Perhaps 'marginally effective' is good enough?

    • alumnitravel Jul 3, 2007 5:34 PM Flag

      As a former sales rep for the company, I will simply say that the culture of the company is flawed. This along with a marginally effective device and there are your two main problems.

    • I don't really need positive thoughts; i'm more interested to hear the challenges to a positive thesis. I see how the thesis may be right, but I need to understand where it could be wrong.

    • You sound like you've done some homework - do a little more, delving into the history of the company, it's leadership, corporate stewardship and past indiscretions.

      That should give you a good shove in the correct directions.

      Good luck - and I wouldn't be in any hurry to jump just yet!

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