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Cyberonic Ventures in Germany

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Leading neuromodulation company, Cyberonics Inc. (CYBX) made an initial investment of €2 million in a German privately-held company, cerbomed GmbH. However, the investment can increase afterwards to €5.5 million if cerbomed achieves certain clinical milestones. Cyberonics strongly believes that this preliminary investment in a non-invasive neurostimulation device company like cerbomed is perfectly in line with its goal to expand internationally.

cerbomed’s NEMOS t-VNS device received CE Mark approval for the treatment of epilepsy and depression in 2010 and for pain in 2012. Apart from Germany, this product is also commercially available in Australia.

Per the investment deal, Cyberonics, as a minority shareholder of cerbomed, will serve a worldwide sales distribution agreement for the NEMOS system.  According to the company, this €2 million investment will be used to fund cerbomed's current clinical trial for epilepsy in Germany. Cyberonics expects to conduct a similar trial in the U.S. for FDA approval. 

Cyberonics’ Vagus Nerve Stimulation (:VNS) therapy system is the first implantable medical device to receive U.S. Food and Drug Administration (:FDA) approval for the treatment of epilepsy. With Epilepsy being the second most prevalent neurological disorder in the world, the market is growing in leaps and bounds.According to the U.S. Centers for Disease Control and the National Epilepsy Foundation, between 2.5 and 3.0 million individuals in the U.S. have some form of epilepsy, with 150,000–200,000 new cases diagnosed each year. Thus, the market is growing rapidly and has huge potential.

The recent World Health Organization study on Epilepsy also revealed that there are over 3.0 million individuals with epilepsy in Western Europe, with over 150,000 new cases diagnosed each year. Increased investment in the European market along with changes in the organizational structure has enhanced the company’s performance in this region, which led to double-digit sequential growth in the last-reported quarter. Europe, representing approximately two-thirds of the company’s international business, recorded improved performance in U.K., France and Germany.

International growth prospects have also led Cyberonics to other regions across the world.At present, the company has established businesses in Canada and Europe and intends to expand its epilepsy business in emerging markets with huge growth potential like Latin America (particularly Brazil), Russia, Australia and Asia (including Japan, China, India and Taiwan). We expect the latest endeavor in Germany to prove itself as a fruitful venture for Cyberonics.

However, with the presence of players such as Medtronic (MDT) and St. Jude Medical (STJ), the company faces stiff competition. We are also concerned about the current reimbursement related issues faced by the company.

Currently, Cyberonics retains a Zacks #3 Rank (short term Hold rating). We are Neutral on the stock over the long term.

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