Epilepsy: Technology to the Rescue

The rise of public health services, improvements in sanitation and access to clean drinking water have led to a huge improvement in human life expectancy, which has jumped from only about 30 years five centuries ago to more than 75 years in most industrialized countries today.

Advances in medical science have also played a major role, such as the development of antibiotics to treat once deadly infections, surgical interventions to correct once fatal injuries and medications to treat chronic conditions.

We have yet to reach the limit of human ingenuity and today the trend is towards harnessing technology to break the reliance on long-term medication usage to treat chronic conditions. One area where huge strides are being made in that direction is the treatment of epilepsy.

Epilepsy is the fourth most common neurological disease in the world, affecting more than 9 million people in developed countries alone, and epileptics have a mortality rate more than 25 times higher than the general population. The costs associated with dealing with the disease run in excess of $13.5 billion in the US alone.

The disease is typically treated using a drug regime that includes several pills a day, including anti-convulsants and sedatives which can have unpleasant side effects. Drug therapy is typically successful in controlling seizures in about 70 percent of patients, but about a third of those who don’t respond to medication find themselves undergoing surgery to essentially remove the area of the brain triggering the seizures.

Cyberonics (NSDQ: CYBX) is making headway into an alternative treatment for the disease, called vagus nerve stimulation (VNS) therapy, which can reduce the number or even eliminate the need for the drugs epileptics depend upon and requires only minor surgery.

During an outpatient procedure conducted under general anesthesia, two small incisions are made, one in the upper chest area and the other in the neck. At the chest site a pulse generator, similar to a pace maker, is implanted. Electrodes are then run under the skin to the site of the next incision where they are attached to the vagus nerve.

After about a two-week recovery period, the generator is turned on and it begins applying occasional pulses to the vagus nerve as prescribed by the patient’s neurologist, interrupting the nerve signals between the brain and the body which trigger seizures. Patients are also given a magnetic device which they can apply to the generator themselves when they feel a seizure coming on or are experiencing one.

VNS treatment was first approved for difficult-to-treat-epilepsy in 1997 and since then more than 75,000 patients have received implants in the US alone. Numerous studies have shown that more than half of patients treated with VNS therapy respond within the first year, with more than two thirds showing improvement within five years.

Since 2008, Cyberonics has developed several new iterations of its VNS therapy, most recently its AspireSR device. Using sophisticated sensors it is capable of detecting abnormal heart rhythms associated with seizures and responding automatically. The device uses an algorithm to adjust automatically to the patient and their activity and can be programmed to trigger at certain levels.

The device isn’t fully approved yet, released on a limited roll out in Europe and still under study in the US. One study has shown that seizures where unaffected in about 38 percent of activations; in the successful responses the seizure was typically diminished if not entirely terminated.

Thanks to those positive results, the company has experienced year-over-year sales growth of better than 9 percent annually, with a 15 percent average over the past five years. The average sales price of the company’s generators has nearly doubled from about $10,000 in 2009 to just under $20,000.

At the same time, Medicare reimbursement rates for such treatments in the US have been steadily improving, up from about $23,000 in 2011 to $27,000 this year. The economics of the devices are also extremely attractive, saving an estimated $60,000 in treatment-related expenses relative to patients treated by other means.

All of that has added up to steadily growing earnings. In 2012, the company posted earnings per share (EPS) of $1.28, rising to $1.66 in fiscal 2013. For this fiscal year it has forecasted net sales of between $281 million and $285 million with adjusted EPS of between $2.00 and $2.05.

The company is also exploring other potential uses for its technology, including use in patients with treatment-resistant depression, obstructive sleep apnea and chronic heart failure. While approvals in those areas are likely still at least a few years off, positive progress has been made.

Cyberonics is a buy up to 75.