Recently, Cyberonics, Inc. (CYBX) submitted an application to the US Food and Drug Administration (FDA) and its European notified body, DEKRA Certification, B.V. for redesigning its AspireHC generator, whose shipments were discontinued by the company earlier.

Additionally, the company expects to resubmit the AspireSR generator for ethics committee and competent authority approvals for the resumption of the E-36 clinical trial in Europe by the end of fiscal 2012.

In August 2011, Cyberonics decided to withdraw two models of its Aspire platform generators namely AspireHC (Model 105 and 106). The company has also suspended enrollment of its E-36 clinical trial in Europe for AspireSR and a subsequent AspireSR trial in the US due to this hardware-related design issue. The company’s decision was based on the realization that stimulation output delivered to patients was less than that programmed by a physician.

With the AspireHC generator contributing approximately 9% of worldwide sales in the first quarter of 2012, Cyberonics believes that the approval of alternate designs to treat refractory epilepsy will not hamper sales growth in the upcoming quarters.

Cyberonics primarily develops and markets Vagus Nerve Stimulation (“VNS”) Therapy System, which is approved by 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 currently 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.

In October this year, the company 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.

Presently, Cyberonics retains a Zacks #2 Rank (Buy) in the short term. However, over the long term, we maintain a Neutral recommendation on the stock. The company faces mounting third-party reimbursement issues along with stiff competition in the neuromodulation space from players such as Medtronic (MDT) and St. Jude Medical Inc. (STJ). Both Medtronic and St. Jude Medical are Zacks #3 ranked peers with Neutral recommendations.

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