piper: CYBX :Survey Says - Early Indicators As Expected
2005-10-05 04:15 (New York)
CYBX - $29.86)
Outperform Volatility: Medium
Survey Says - Early Indicators As Expected
Thomas J. Gunderson, Sr Research thomas.j.gunderson@pjc.com
Amy J. Sullivan, Research Analyst
amy.j.sullivan@pjc.com
Timothy B. Nelson, Research Analyst
timothy.b.nelson@pjc.com
KEY POINTS:
CYBX has received regulatory clearance and has recently launched a new
product for treatment of severe depression. We conducted a survey of U.S.
psychiatrists to gain a better understanding of the target market for
treatment resistant depression (TRD), the awareness level of VNS therapy for
TRD, and psychiatrist interest level in prescribing VNS therapy in the
future. We received 107 responses (out of 450, or a 24% response rate) to our
questionnaire and have focused our analysis on the 97 responses from
psychiatrists who are treating adult patients for depression (i.e., excluding
10 psychiatrists who treat only children) since VNS therapy is only approved
for patients 18 and older.
Key Takeaways:
* Six percent of respondents have already referred at least one patient for
VNS Therapy for TRD while an additional 10% indicated they have attended
training on VNS Therapy for TRD. Conclusion: CYBX marketing is having an
impact.
* Twenty percent of our respondents believe they will refer a patient within
the next 3 months; 46% of respondents believe they will refer a patient
within the next 12 months. Conclusion: The risk (and cost) reward of VNS is
acceptable for at least some patients.
* Our respondents are treating (or attempting to treat) approximately 6,000
chronically depressed, treatment resistant patients (average of 65 per
respondent). Conclusion: There is a large market opportunity.
* There was a tendency for larger practices to plan on using VNS as a
therapy. Conclusion: CYBX is targeting the largest account opportunities
first.
* We view this survey as a baseline assessment at this early stage. That
said, we believe the early indicators are in line with our expectations for
the launch of VNS Therapy for TRD. Given the limits of our market research
(see page 2), we suggest investors use our first batch of data as just one
measure of CYBX potential.
* Please contact your Piper Jaffray sales representative for a detailed
report of our survey results.
From To Price: $29.86
Changes (Previous) (Current)
52 Week High: $47.77
Rating -- Outperform
52 Week Low: $17.55
Price Tgt -- $50.00
Price Target: $50.00
Shares Out (mil): 29.0
Market Cap. (mil): $865.9
Avg Daily Vol (000): 816
Book Value/Share: $2.04
Cash Per Share: $1.49
Debt to Total Capital: 5%
Div (ann): $0.00
Est Next Rep Date: 11/18/2005
Fiscal Year End: Apr
INVESTMENT RECOMMENDATION:
Our investment thesis remains unchanged. We recommend buying CYBX shares, but
caution investors to be prepared for volatility. We continue to believe that
depression is a significant new market for CYBX and that the company has done
a good job of preparing to succeed; yet psychiatrists are a new customer
target, and reimbursement for the depression indication is not yet
established. We reiterate our Outperform rating and price target of $50/share
based on 3.9x Epilepsy CY06 revenue + 6.0x Depression CY06 revenue. Our
multiple for epilepsy reflects a slight discount to the 4.2 average of the
small cap med tech group, while we use the average of the top tier of this
group for our depression multiple.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks include continued execution on its epilepsy business model,
reimbursement coverage for depression, ability to convert psychiatrists to a
device-based therapy, and plans for heavy spending levels.
COMPANY DESCRIPTION:
Cyberonics, Inc. develops and markets medical devices for the treatment of
epilepsy and other debilitating neurological disorders.
CYBX remains volatile and controversial. Yet, the fact remains: CYBX has
received FDA clearance and has recently launched a new product for treatment
of depression.
To state the obvious: the key to CYBX's future is the adoption rate of the
depression indication. The marketing challenge for this new VNS therapy is
formidable. Psychiatrists must refer their toughest cases to neurosurgeons
(or general surgeons) that then implant the $16,000 product. Post implant,
roughly one out of three of the patients is likely to significantly improve
in their symptom score, according to the early (but arguable) clinical data.
Early in the market development, payors will be skeptical; CYBX is the first
device for treating depression and the payors are at the beginning of the
learning curve for VNS. Our point is the challenge is large—but that should
not be new information for investors. Adoption of new products and tough
reimbursement paths are the rule in medical technology.
Given the size of the challenge, we polled a sample of psychiatrists to see
what their level of knowledge and acceptance was for the VNS treatment of
depression. While 97 questionnaires is small relative to the overall base, it
is a beginning, and the largest poll to date by independent analysis.
With the product on the market officially since August 1, we have surveyed a
random sample of the nearly 37,000 practicing psychiatrists in the US. Of 450
surveys sent out, 107 were returned for a healthy 24% response rate. But
given the limits of our market research, we suggest investors use our first
batch of data as just one measure of CYBX potential. Our intent is to
establish a baseline for future surveys.
The caveats? We are being careful to not over-interpret our first poll. While
the mailing was random, the returns are not. We have not verified the
questionnaire's power, nor have we cross-referenced the quality of the
physicians' responses. This is an informal poll, built for speed of response.
We intend to conduct further surveys as CYBX's market development progresses.
Important Research Disclosures
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Analyst Certification - Thomas J. Gunderson, Sr Research Analyst
The views expressed in this report, incl... |
