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Here's Why LivaNova Rose as Much as 13% Today

Maxx Chatsko, The Motley Fool

What happened

Shares of medical device developer LivaNova (NASDAQ: LIVN) jumped 13% today after the company commented on the U.S. Centers for Medicare & Medicaid Services (CMS) reconsideration of whether or not to cover the technology provider's Vagus Nerve Stimulation Therapy (VNS Therapy) for treatment-resistant depression (TRD).

That's a mouthful of acronyms, but today's development can be distilled down pretty simply: One of the company's best-selling products may be eligible to be covered by Medicare in the near future. It would mark the first time in over 10 years that VNS Therapy for TRD would be covered by Medicare, which could significantly expand the product's market opportunity.

As of 12:43 p.m. EDT, the stock had settled to a 12.4% gain.

A cartoon showing growth of a bar chart, with the last column represented by a red arrow pointing up and sitting on a spring board.

Image source: Getty Images.

So what

LivaNova is a $4.5 billion healthcare company that develops medical devices for cardiac surgery and neuromodulation. The company reported $250 million in total revenue in the first quarter of 2018, including $156 million from its cardiac surgery segment and $94 million from its neuromodulation segment.

The former segment is mostly driven by sales of cardiopulmonary machines used during surgery and heart valves inserted into patients. The latter is comprised almost entirely of sales of the VNS Therapy system to treat seizures, but is also approved for TRD. The device is similar to a pacemaker and sends electric pulses to the vagus nerve to help control various brain functions that may be misfiring.

If CMS decides to cover the medical technology for TRD, then it could open up an important new market for LivaNova, which played a central role in asking CMS to reconsider its decision of non-coverage.

Now what

While there's still a long way to go before CMS finalizes a decision and puts a process in place for covering VNS Therapy for TRD with Medicare, today's news marks an important step forward for patients and the company. There will be a 30-day comment period and then several months of discussions with all stakeholders. But in a best case scenario, LivaNova shareholders and TRD patients might know whether or not CMS's coverage policy will change by the end of 2018.

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Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.