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Biotech / Medical : Cyberonics (cybx) epilepsy therapy recommonded -- Ignore unavailable to you. Want to Upgrade?

To: mopgcw who wrote (450)	3/4/2006 7:38:26 AM
From: mopgcw	Respond to of 471

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 ----------------------------------------------------------------------------- Analyst Certification - Thomas J. Gunderson, Sr Research Analyst The views expressed in this report, incl...