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Leading neuromodulation company, Cyberonics Inc. (CYBX - Analyst Report) recently entered into an exclusive technology licensing agreement with Minnesota-based Magnetic Resonance Imaging (“MRI”) electrophysiology tools developer Imricor Medical Systems, Inc.

Imricor develops the world’s only ablation catheter named the Vision catheter for use with MRI systems in EP procedures. The deal will enable Cyberonics to develop MRI safe Vagus Nerve Stimulation (VNS) Therapy System. 

Cyberonics’ deal with Imricor came on the heels of the earlier approval from the US Food and Drug Administration (FDA) (received in October 2011) for expansion of MRI option. The expanded MRI options enabled VNS Therapy System patients to get faster and higher resolution imaging available with 3.0 Tesla MRI scanners.  

This latest agreement combined with the FDA approval is expected to provide expanded imaging options for epilepsy patients. However, the Vision catheter of Imricor has yet to receive sale approval in the U.S. and in the international markets.

Cyberonics’ VNS system is a non-drug, surgically implanted medical device that stimulates the vagus nerve by sending electrically pulsed signals. It is specially used for treatment-resistant depression when all other anti-depressant treatments fail.

VNS therapy system is the first implantable medical device to receive FDA approval for the treatment of epilepsy. The device has the potential to treat other neurological disorders, such as depression, Alzheimer’s disease, anxiety, bulimia, fibromyalgia, obesity, obsessive-compulsive disorder, multiple sclerosis and traumatic brain injury.

The device is widely accepted amongst neurosurgeons, as reflected by the sales of the company. As of now, more than 60,000 patients worldwide have been implanted with the VNS therapy system for epilepsy and many more have used it for depression.

During the fourth quarter of fiscal 2012,epilepsy sales in the US market increased 10% year over year on the back of both new patients and replacements. Over the last 4 years, epilepsy revenue in the US increased 97%.

Cyberonics enjoys a strong position in the neuromodulation market. We are encouraged by its improvement in the international business. With the presence of players such as Medtronic (MDT - Analyst Report) and St. Jude Medical (STJ - Analyst Report), the company faces stiff competition. We are also concerned about the reimbursement related issues faced currently by the company.

Presently, Cyberonics retains a Zacks #3 Rank (Hold) in the short term, in line with long-term Neutral recommendation on the stock.

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