Cyberonics soars on FDA OK
Shares up 30 percent after firm gets conditional approval to sell
anti-depression implants.

Reuters | February 3, 2005
<http://money.cnn.com/2005/02/03/news/midcaps/cyberonics.reut/>

LOS ANGELES - U.S. regulators have given conditional approval to
Cyberonics Inc.'s bid to sell an implanted device to treat chronic
depression, the company said Wednesday, sending its shares up over 30
percent.
Houston-based Cyberonics (Research ) said it expects full U.S. Food
and Administration approval by May.
The VNS Therapy System is a pacemaker-like device implanted in the
chest that delivers electrical impulses to the brain through an
electrode attached to a nerve in the neck. Cyberonics already sells
the implant for reducing seizures from epilepsy.
It costs about $20,000, including surgical and hospital expenses,
said Cyberonics Chief Executive Skip Cummins.
The FDA said approval was conditional on final labeling, protocols
for a post-marketing dosing study and patient registry as well as
resolution of manufacturing issues and any outstanding clinical trial
issues.
"The conditions are straightforward. We are making good progress on
resolving them," Cummins said.
The device is the only product Cyberonics sells. Annual sales are
about $110 million. Some analysts estimate the device's market for
depression -- about 4.4 million Americans are estimated to suffer
from treatment-resistant depression -- would be as much as ten times
larger than the one for epilepsy.
Last June, an FDA advisory panel voted 5-2 to recommend approval of
the device for chronically depressed patients who had failed other
treatments. The agency, however, turned down the company's
application in August.
Cyberonics then submitted an amended application, hoping to overcome
FDA concerns about the device's safety and effectiveness for
relieving severe depression.
The conditional FDA approval is for patients who have failed at least
four other treatment regimens, Cummins said.
Side effects of the device include hoarseness and throat tingling.
Shares of Cyberonics were up $9.19, or 33 percent, higher at $36.67
on the Nasdaq.
The company said it is building its organization to support a
potential late May launch of the product for depression.
Cyberonics also said its sales and earnings for the fiscal third
quarter ended in January will likely beat previous guidance of $25
million in sales and a net loss of $3.3 million, or 13 cents a share.
Analysts on average expect a quarterly net loss of 11 cents a share,
according to Reuters Estimates


Rewiring The Body
Businessweek | March 7, 2005
<http://www.businessweek.com/magazine/content/05_10/b3923001_mz001.htm
>

First came pacemakers. Now exotic implants are bringing new hope to
victims of epilepsy, paralysis, depression, and other diseases

Reed S. Kohn has donated his brain to science. An epileptic since he
was 8 years old, Kohn has tried everything from experimental drugs to
harrowing surgery to control his seizures. Time and again,
neurosurgeons have taken out bits of his brain that spark his
hallucinations, or auras, and have severed nerves that enable
aberrant electrical impulses to arc from lobe to lobe and generate a
full-blown seizure. They have also run filaments to a nerve in his
neck and to the core of his brain to microshock the disease into
submission. Inevitably, though, the illness reemerges, corrupting a
new clump of brain cells, and he is disabled once again. A college
grad and certified computer programmer, Kohn lives with his parents
at age 34 and has never had a job. Since his first seizure in 1978,
he figures he has had 10,000 more.
His life may get better. Last fall, Kohn underwent his 12th
operation. First, doctors scrutinized images of his brain as it
malfunctioned. Then, guided by these scans, they wired electrodes to
eight "hot spots" deep in his brain, and implanted under his skull a
pacemaker-like device from NeuroPace Inc. in Mountain View, Calif.
About the size of a microcassette tape and only a bit heavier, it
houses a microprocessor programmed to detect the brain-wave pattern
that precedes a seizure. Whenever this pattern arises, it immediately
zaps the trigger sites with tiny jolts of electricity. The goal is to
override his abnormal synapses and restore normal brain activity
before Kohn is even aware that a seizure is brewing.

Since the operation on Oct. 14, Kohn has been averaging 10 to 15
seizures a month, down from 50 to 70. As a veteran guinea pig, Kohn
knows that it takes at least six months before anyone can truly gauge
how well a treatment works, so he doesn't want to rush to
judgment. "I'm feeling pretty good," he says. His doctors, who
believe they can lower that rate by tinkering with the device's
settings, are less guarded. "We've been looking for solutions for a
long time," says Dr. Richard W. Byrne, a neurosurgeon at Rush
University Medical Center in Chicago who installed the device. "This
could be it."

Forty-five years ago, doctors successfully implanted a cardiac
pacemaker for the first time in the U.S., providing long-term hope
for millions of people with heart disease and creating what has
become a hugely profitable -- and still fast-growing -- $10 billion-a-
year business. Now, electrical therapy may be approaching an historic
transition. Using advances in pacemaker technology, researchers and
doctors are finding that rapid-fire bursts of low-voltage electricity
can alleviate symptoms in an astonishing number of illnesses in many
other parts of the human body. Scourges such as depression, post-
stroke paralysis, migraines, sleep apnea, angina, obesity, tinnitus,
and digestive tract disorders all may be treated with
neurostimulators by the end of the decade. If early-stage experiments
pan out, Alzheimer's disease, obsessive-compulsive disorder,
Tourette's syndrome, bulimia, and other brain ailments could be next.

Mysterious Ways
Many doctors are thrilled by this emerging vision of the body
electric because it provides fixes beyond the ken of the medical
mainstream. Life sciences today are heavily swayed by recent advances
in molecular biology. The Human Genome Project and other well-funded
efforts have cracked some of the inner workings of genes and the
biochemical pathways of disease. In contrast, science has paid less
attention to the role of electricity, which governs everything from
the ethereal transmission of thought to the rhythmic music of the
heart. The race to design and test new implantable devices could help
correct this imbalance.

The high-tech implants are neither cheap nor risk-free. For one
thing, they must be replaced every 5 to 10 years. Why they work is
also still something of a mystery. What's more, neurostimulation
won't cure most diseases, even though it eliminates or alleviates
some symptoms. Doctors note that much of the research is in an early
stage. It could be 10 years before they can say for sure if some
devices are a fix -- or a flop.

But the potential upside is great. Unlike most drugs, these implants
produce few side effects. And while they might be a burden on
insurers initially, studies show that they should save big bucks on
hospitalization over time. The devices also are aimed at prevalent
diseases that can't always be treated with drugs. As a result,
medical-products executives and their surgeon partners predict that
such implants could one day become as common as cardiac devices,
which are currently helping 2 million Americans.

Little wonder, then, that some of the biggest names in health care
are in a scramble to get into the market. Most recently, in December,
Johnson & Johnson ( JNJ ) bought implant-maker Guidant Corp. ( GDT )
for $23.9 billion. "Any organ that a nerve can influence -- and
that's every organ in the body -- can be affected using this
technology," says Dr. Ali R. Rezai, who is director of functional
neurosurgery at the Cleveland Clinic. "It's a new era in neurology."

The use of implantable mini-generators is more widespread than you
probably think. Already, 190,000 patients are wearing electrodes in
their heads to control Parkinson's disease tremors or spinal-cord
stimulators to relieve pain or prevent urinary incontinence. Some
30,000 have wires threaded to the vagus nerve in the neck to treat
epilepsy, while 60,000 have microtransmitters in the inner ear
enabling them to hear. These numbers are likely to grow -- and
quickly. One of the most promising devices is a $15,000
neurostimulator for chronic depression from Cyberonics Inc., which
the Food & Drug Administration conditionally approved on Feb. 2.

Candy Bradshaw can testify to the power of neurostimulation. She had
a gastric pacemaker implanted in her abdomen in 1999 at Tufts-New
England Medical Center in Boston as part of an early-stage trial
sponsored by Transneuronix Inc. Today, Bradshaw, 47, weighs 200
pounds, down from 280 before surgery. She still has to watch her diet
and exercise regularly. But the device makes her feel full sooner
than before, so she eats less. "What it has done is fantastic," says
Bradshaw, an office manager in Worcester, Mass. Executives of
Transneuronix in Mt. Arlington, N.J., say the implant, now in a
pivotal trial, could be available as a less-invasive alternative to
stomach stapling within three years.

At Indiana University Medical Center in Indianapolis, researchers
hope neurostimulators might enable paraplegics to walk again. Their
device beams microvolts of electricity through six surgically
installed electrodes to the site of a spinal cord injury. The
electric field reverses direction, or oscillates, every 15 minutes.
In a just-completed experiment on 10 volunteers, oscillating
stimulation helped nerves regenerate after 14 weeks of treatment, say
doctors in the study, a joint venture between Indiana University and
Purdue University. Two patients even recovered some movement in their
legs, and one man who had been impotent regained sexual functions.
Doctors, fully aware that earlier efforts in this area failed to
achieve results, now are screening paraplegics for a second round of
trials.

Infection Risk
As neurostimulators get even smaller and their microchips more
powerful, researchers foresee new uses for these implants. Advanced
Bionics Corp., a startup that Boston Scientific Corp ( BSX ).
acquired in 2004, is testing a rechargeable device so tiny that it
can be injected almost anywhere in the body to treat pain or muscle
dysfunction. Implants also could act as sensors, telling a miniature
pump when to deliver a drug or customized protein to a precise
location in the body. "The body is on fire with electricity," says
Dr. Stephen N. Oesterle, chief medical officer at Medtronic Inc (
MDT ) the No. 1 maker of implantable electrical devices. "If you
start with that concept, then all you need is imagination."

As with any invasive procedure, there are dangers in implant surgery.
When a cardiac device is implanted, for example, the rate of
infection is 3% to 4%, which is twice the average rate for surgery in
general. Batteries in these devices last only 5 to 10 years, which
means patients may need a second implant. (The second operation is
generally easier and less costly, since the electrical leads can be
left in place.) Some device experts have expressed concerns about
airport scanners interfering with implants. And the devices can fail.
Last year, Medtronic had to recall thousands of defibrillators after
discovering that their batteries were running low too quickly. At
least four people died as a result of the product defect. On the
other hand, sick people die after undergoing other therapies, or
doing nothing. All in all, "these are low-risk products," says Dr.
Stuart M. Portnoy, a former cardiac-device specialist at the FDA and
now an industry adviser with PharmaNet, a Princeton (N.J.)
consultant.

The neuromodulation market is potentially enormous. There are up to 3
million Americans with chronic migraines and 4 million with
depression who do not respond to drugs. The number of morbidly obese
American adults is also estimated at 4 million. An additional 5
million Americans have been crippled to some degree by stroke, and
the number grows by about 750,000 each year. Most of these people
won't rush out and have surgery. But if only a fraction get an
implant, executives at medical-device companies project that overall
sales of noncardiac pulse generators should balloon from $1.6 billion
today to $10 billion in 10 to 15 years, depending on how quickly the
FDA approves new uses. "Ultimately," says Todd K. Whitehurst, vice-
president for emerging indications at Advanced Bionics in Valencia,
Calif., "this is going to be as big as cardiac-rhythm management."

The returns for investors may also be substantial. Today, most
neurostimulators don't make money because years of research and
development and marketing outlays overwhelm what are, in the
beginning, only trickling revenue streams. Still, Advanced
Neuromodulation Systems Inc. ( ANSI ), of Plano, Tex., averages gross
margins of 70% on its spinal-cord device for chronic pain. Houston's
Cyberonics, Medtronic, and Boston Scientific -- the other companies
with FDA- approved neuromodulators -- all boast even fatter margins.

As sales grow, device makers will be able to spread their expenses
over a wider base and become more efficient manufacturers. If the FDA
approves their new treatments, says Jan D. Wald, a medical-device
analyst at A.G. Edwards & Sons Inc. ( AGE ) in Boston, pretax
earnings at the smaller companies should rise to 20% to 30% of
revenue, equaling the return on more established products such as
pacemakers. "The market is close to an inflection point," he says.
Mark Landy, an analyst at Susquehanna Financial Group in Bala Cynwyd,
Pa., also sees the market growing by 20% for the next several years.
For now, though, he cautions against buying these stocks, saying the
share prices are already based on outsize returns.

Nevertheless, as more patients request implants for conditions that
drugs can't treat, the creaky health-care system will have to brace
itself for yet more financial strain. Today, a patient with migraines
might get by on $10 a day for drugs. A neurostimulator, by
comparison, typically costs $15,000, or about as much as a heart
pacemaker or defibrillator. The total bill can hit $50,000 with
doctors' and hospital charges. Equipping just 10% of the estimated
500,000 Americans with epilepsy that drugs can't help could cost $2.5
billion. Even amortized over the average 7 1/2-year life of a device,
that $50,000 would cost about $17 a day.

Too Much of a Good Thing?
Beyond the sticker shock, officials at the government's Centers for
Medicare & Medicaid Services (CMS) also worry that, as with other
glitzy treatments, too many of these devices might end up in patients
who don't really need them. Sean Tunis, the agency's chief medical
officer, points out that the nation might get more bang for the buck
if physicians did less expensive things first -- for instance,
routinely screening people for depression and putting them on
medications before their conditions become untreatable. "There's no
end to the numbers of new devices that are being developed, but there
is a limit to how much employee-benefit plans can absorb," warns
Karen Ignagni, chief executive of America's Health Insurance Plans, a
trade group representing the major health insurers.

Over time, however, these devices may restore more than lives; they
could save money, too. In a comprehensive review of spinal-cord
stimulation, a doctor and an economist at Maastricht University
Hospital in the Netherlands reported in 2002 that the cost of
implanting the device was offset by savings on physical therapy and
other expenses in 2 1/2 years. The study's authors, who tracked 54
patients over five years, also extrapolated that over a lifetime,
each patient would save $60,000. CMS and most major private health
plans such as Blue Cross Blue Shield Assn. cover implants for FDA-
allowed devices, although reimbursement rates and prerequisites for
surgery vary.

Neurostimulation has another selling point: Because the implants
alter tissue only at their points of contact, side effects are
generally negligible. In epilepsy patients with electrodes implanted
to pulse the vagus nerve, the most dire side effect is hoarseness,
sometimes accompanied by the desire to clear the throat. Only 3% of
such patients report this minor complication. Most say they can't
sense the stimulation at all. Contrast that with the most common drug
treatment, Dilantin, which can cause dizziness and nausea and can
lead to liver damage. "Think of the device as a smart bomb,"says
Advanced Neuromodulation ( ANSI ) CEO Christopher G. Chavez.

Medical-device executives and surgeons point out that today's
implants are not generally intended to be a first-line treatment.
Someone with heart trouble, for instance, would start off on a
cholesterol-reducing drug and a stricter diet before getting
outfitted with an implantable defibrillator. The same goes for
neurostimulators, which are meant for patients with illnesses or
disabilities for which there are no other treatments. People like
Judith Walsh of Elmwood Park, Ill. In 1999, when Walsh was just 54,
she suffered a stroke that paralyzed her entire left side. Thanks to
aggressive physical therapy, she recovered the ability to speak --
and also learned how to walk again. But her left arm remained
atrophied, with her left hand permanently clenched in an almost-
useless fist.

Last February, Walsh began electrical-stimulation therapy. In a
clinical study sponsored by Northstar Neuroscience Inc., doctors at
Northwestern Memorial Hospital in Chicago implanted a pacemaker in
her chest and tunneled wires up her neck to her head. They drilled
through her skull to place an electrode patch about the size of a
postage stamp on the protective membrane surrounding her brain, close
to the swatch that had been killed by the stroke. The surgery took 90
minutes. For the next six weeks, even though she couldn't feel it,
the device bathed the target site with electricity as she willed her
left arm and hand to move during 3 1/2 hours of supervised rehab
every day. Then the implant and electrodes were surgically removed.

Today, Walsh can make a peanut-butter and jelly sandwich and grip the
steering wheel of her car with her left hand. More gratifying, she
says, she can feed and dress her five-month-old granddaughter, Emma,
things she couldn't do with her three older grandchildren when they
were babies. "It's hard, as a grandmother, not to be able to hold the
grandchildren -- and now I'm able to do that," she says. "It's the
thrill of my life." Executives at Northstar, a Seattle startup
financed by J&J and Boston Scientific, among others, are now
negotiating the parameters of a final-stage clinical trial with the
FDA.

The question remains: How do these devices alleviate symptoms? In the
case of rehabilitating stroke victims, doctors aren't sure whether
the stimulation enables brain cells in proximity to the stroke site
to learn new functions or whether the pulses instead are helping
cells in stroke-damaged tissue regenerate. Similarly, doctors are
baffled as they test pacemakers to treat obesity. They know the
device stimulates nerves in the stomach to tell the patients they are
no longer hungry. But they're not sure which organ is being tricked:
the stomach itself or the brain. "There must be a central mechanism,"
says Dr. Jay B. Prystowsky, chief of gastrointestinal and endocrine
surgery at Northwestern Memorial, "but the bottom line is we really
don't know exactly how this works."

Burst of Uses
For such basics still to be a mystery is odd, considering how long
science has been studying electrical stimulation of the body. As far
back as the late 1700s, experimenters showed they could make muscles
twitch with shocks from static-electricity generators. By the 1930s,
as engineers perfected how to control the frequency and flow of
electricity, scientists were dabbling with battery-powered pacemakers
to pulse the heart. These early devices were bulky, requiring
patients to be anchored to an external contraption. Then in 1960,
electrical engineer Wilson Greatbatch patented the first successful
implantable pacemaker. Finally, in the mid-1990s, the FDA began
approving pacemakers for uses outside the heart.

Now, after that initial burst of approvals, a raft of new treatments
may be around the corner. On Feb. 2, the FDA cleared Cyberonics'
vagus-nerve stimulator for chronic depression, pending some
clarification on the labeling of the device. Chairman and CEO Robert
P. "Skip" Cummins says Cyberonics analyzed results from 240 people
with long-term depression after two years of neurostimulation. All of
the subjects had failed to respond to drugs. The analysis found that
half the patients were markedly better, with 18% reporting they were
no longer depressed. With the FDA's go-ahead, Cummins says,
Cyberonics will begin pilot studies on Alzheimer's disease, headache,
anxiety disorders, and bulimia. Medtronic also may be closing in on a
number of new therapies. Its products are in clinical tests to pulse
the thalamus to treat epilepsy; another region of the deep brain to
treat migraines, depression, and obsessive-compulsive disorder; the
hypoglossal nerve in the neck to treat sleep apnea; the sacral nerve
to treat bowel disorders; and the stomach to treat obesity. Medtronic
may have a deep-brain treatment for epilepsy in two or three years.

New treatments may become feasible as device sizes shrink and
rechargeable batteries evolve. Advanced Bionics, for example, has
developed a rechargeable implant that is about the size of an ink
tube from a ballpoint pen cut to a one-inch length. Its first use,
already permitted in Europe, is to prevent bladder incontinence by
stimulating the organ directly, rather than through the sacral nerve.
The Boston Scientific subsidiary also has begun a stage-one trial to
see whether the device can alleviate chronic headaches by injecting
it into the base of the skull to stimulate the brain's occipital
lobe. And soon, company executives say, they hope to start testing
the device in the leg and arm as a therapy for pain or carpal-tunnel
syndrome.

The leading cardiac-device makers are packing their newest implants
with enough computing power to sense the environment around them and
alter a patient's treatment as needed. A next step would be to link
sensor-laden neurostimulators to miniature drug pumps. In this way, a
patient could be dosed exactly when needed and at the precise site
where the medication is most effective. Researchers say this could
reduce dosages by a thousandfold and avert side effects. Such systems
would also enable a patient to be treated with bioengineered drugs
and proteins too large to be absorbed by swallowing a pill. The
combined therapy seems most promising in the brain, where many
disorders might be tackled with protein drugs complemented by
electrical pulses.

As these new therapies move closer to reality, the medical-products
companies are putting down their markers. Last June, Boston
Scientific paid $740 million in cash to acquire Advanced Bionics.
Boston Scientific also holds a 14% stake in Cyberonics. Then in
December came J&J's megadeal with Guidant. Although Guidant does not
have any neurostimulators in clinical trials, the Indianapolis
company has been earmarking an increasing share of its R&D budget for
these devices. Some medical-products executives predict J&J or Boston
Scientific could buy Cyberonics or Advanced Neuromodulation next.

Implants won't cure everything that ails us. The Parkinson's
treatment, for one, stops tremors but can't halt the deadly disease.
Yet the list of therapies is growing. And they all benefit from
advances in microelectronics and our deepening understanding of the
brain and nervous system. "These de- vices were science-fiction
dreams 20 years ago," marvels Dr. Robert Levy, a Northwestern
Memorial neurosurgeon who has seen neurostimulation give stroke
victims like Judy Walsh use of their hands and arms again. The body,
as medicine is learning, truly is electric.