Cyberonics shares climb on raised price target

Shares of Cyberonics Inc. jumped Wednesday after a Lazard Capital Markets analyst boosted his price target for the company, citing a positive physician survey.

The stock gained $1.05, or 7.5 percent, to $15.09 in afternoon trading. Shares of the Houston-based company traded between $9.84 and $28.95 over the last 52 weeks.

Lazard analyst Dr. Sean Lavin increased his price target to $21 from $19 and reaffirmed a "Buy" rating on the market prospects for the VNS Therapy system in treating epilepsy. The system is shaped like a pacemaker and is implanted in the chest, sending electrical signals to nerves in the neck. It was approved by the FDA in 2005 to treat depression and in 1997 to treat epilepsy.

Though approved, the Centers for Medicare and Medicaid Services rejected coverage of the device as a depression treatment in 2007, saying it didn't see a clear benefit from the device's use.

Focusing on epilepsy, though, Lavin said a Lazard survey of 30 neurologists showed 77 percent refer patients to the system. A survey of 12 neurosurgeons showed that 67 percent implant the device.

Overall, he said, the survey showed that most hospitals and physicians haven't changed their use of the device because of lagging Medicare reimbursements.

"We believe the most plausible answer in this survey came from a respondent who indicated that he does not anticipate any changes in his organization to offset decreases in reimbursement for the Cyberonics VNS Therapy System, on the grounds that the procedure is not frequent enough to have a big impact," Lavin said in a note to investors.

The analyst expects a 38 percent replacement rate in the fourth quarter of this year, with that increasing to 45 percent by the end of next year. He also expects new implant growth of 5 percent in 2010.

(This version CORRECTS FDA approval year.)