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Cyberonics Ventures into Sleep Apnea

Zacks Equity Research

Leading neuromodulation company Cyberonics (NasdaqGS: CYBX - News) recently made an initial investment of $4 million in the obstructive sleep apnea (“OSA”) treatment. The company has invested the amount in San Diego-based early-stage medical devices firm, ImThera Medical, which develops innovative implantable neurostimulation devices to treat OSA.

The company stated that the investment can increase up to $12 million subject to the fulfillment of certain regulatory and clinical criterions. Besides, for a total Series C placement of up to $16 million, ImThera will raise up to $4 million from its private investors.

ImThera is currently pursuing the European CE Mark approval for its Targeted Hypoglossal Neurostimulation (“THN”) Sleep Therapy. This device combines a multi-contact electrode to control certain muscles of the tongue with an implantable pulse generator and an external programmer. The company also aims to commence a pivotal clinical trial of the device in the U.S. shortly.

With millions of people suffering from OSA across the globe, Cyberonics claims this venture will open new treatment avenues based on the company’s core therapeutic neurostimulation technology.

Cyberonics primarily develops and markets Vagus Nerve Stimulation (“VNS”) Therapy System, which is approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of refractory epilepsy and treatment-resistant depression (“TRD”).

In order to maintain its leadership position in the VNS therapy market and expand its sales base, Cyberonics is focusing on pipeline development. The company is upgrading its VNS Therapy for patients with refractory epilepsy. This has resulted in increased investments in research and development (R&D), specifically seizure detection, responsive stimulation and associated technology.

The company has commenced several clinical studies on VNS therapy for patients with refractory epilepsy. Further, the successful launch of new generation products such as AspireHC generator and AspireSR seizure response system are expected to encourage the company to innovate on future generation VNS Therapy System.

These include generators employing new stimulation paradigms, as well as an EEG-based seizure detection devices, products related to rechargeable and wireless technology and recording technology as well as remote monitoring and telemedicine enhancements.

Presently, Cyberonics retains a Zacks #3 Rank (Hold rating) in the short term, which corresponds with our long-term Neutral recommendation. The company faces mounting third-party reimbursement issues along with stiff competition in the neuromodulation space from players such as Medtronic (NYSE: MDT - News) and St. Jude Medical Inc. (NYSE: STJ - News). Both Medtronic and St. Jude Medical are Zacks #3 ranked peers with Neutral recommendations.

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