<< CYBERONICS
“Our technology is a lot less invasive than deep
brain stimulation,” another common neuromodulation technology, says president and CEO Dan
Moore. “We are able to have an impact on the brain
without doing brain surgery. Instead, our technology
makes use of the vagus nerve in the neck.”
VNS Therapy works by delivering stimulation via a device, which looks and acts a bit like a pacemaker, implanted
just under the skin in the left chest area. The device sends
mild, intermittent electrical impulses through a lead to the
left vagus nerve, which then sends signals to the brain. Each
device is programmed for the individual patient, and the
patient or a caregiver can initiate or abort stimulation with
the use of a hand-held magnet.
Zabara, a professor at the Temple University School of
Medicine in Philadelphia, hit upon the idea in 1971 while
watching his wife control labor pains during childbirth via
breathing exercises. He hypothesized that her breathing was
making a connection to the brain via the vagus nerve, and
that if this was so, then the vagus nerve could serve as a pathway to the brain to control conditions such as seizures.
Unfortunately, no one took his research seriously until
the mid-1980s, when he met Terry, the holder of several
patents related to pacemakers and then the vice president of
technology at Intermedics. He looked into the technology
on behalf of Intermedics. The company declined to pursue
The Demipulse, which received
approval in July 2007, is smaller
than previous models. Releasing an
upgraded part helped the company
recoup some losses.
“The final frontier is the electrical
system of the brain. We’ll be seeing
major advances in that area in the
next 5–15 years.”
—Dan Moore, president and CEO
it, but when Terry left as a result of restructuring, he decided
to license the technology and develop a product himself. He
and Zabara incorporated Cyberonics in December 1987 and
rounded up start-up funding.
An initial public offering in 1993, just a few months before
the firm filed to get FDA approval for VNS Therapy to treat
epilepsy, raised $24 million. But that looked like it wasn’t
going to be enough after the agency told Cyberonics that
a second, confirmatory clinical study would be required.
Board member Robert “Skip” Cummins, a general partner
in a venture capital firm that was an early investor, took over
as CEO and convinced St. Jude Medical to invest $12 million
to complete the trial. (St. Jude Medical had an option to buy
the company for $72 million but declined to exercise it.)
Finally, in 1997, VNS Therapy received FDA approval
to treat epilepsy. Two years later, CMS granted reimbursement for the procedure. The technology had success in that
field, but Cummins viewed the technology as a platform that
could be used for many indications. He was so confident in
its potential that he and the board rejected a $480 million
buyout offer from Medtronic in 2000.
Cummins was particularly optimistic about the technology’s potential for treating depression, so that became the
focus of Cyberonics’s R&D efforts. Early studies were positive, but preliminary results for a pivotal trial in 2002 were
not. The company made changes to the ongoing trial and
went before FDA in 2003 with positive results. The agency
overruled an advisory panel recommendation for approval
and rejected the application in 2004, but Cyberonics did
not give up. It spurned another buyout offer—this one from
Advanced Neuromodulation Systems for $524 million—and
continued to press its case with FDA. In 2005, after receiving positive two-year study results from the company, the
agency reversed itself, setting off a huge controversy in which
consumer groups and some members of Congress accused
the agency of improper conduct. (A Senate investigation
concluded that CDRH director Daniel Schultz had overruled
his scientific staff, but the decision was allowed to stand.)
But the projected windfall from the approval never happened. In early 2007, CMS denied coverage for the depression indication, meaning there would be no reimbursement
for its use on Medicare or Medicaid patients. That meant
that after all the efforts the company put forth and the controversy it endured, revenues from the depression indication
would be minimal.
That was not the only adversity Cyberonics found itself
up against. In 2006, it was revealed that Cummins and two
other executives had been given stock-option grants just
hours after the firm received positive regulatory news. The
next day, after the news was made known, the value of the
stock jumped. Critics again went after the company, accusing it of backdating or spring loading its option grants.
The company was hemorrhaging cash, having lost about
$100 million in two years, and was left with just $85 million.
In the company’s quarterly financial reports, its auditors expressed concern about whether the company would be able
to survive. In November 2006, Cummins and CFO Pamela
Westbrook resigned. Wall Street presumed the company was
going to be sold, possibly to Icahn, who had begun to buy up
shares. Terry agreed to take over as CEO until a permanent
replacement could be found.
