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Market Case Study: Cyberonics' Deep Brain Stimulator

Cyberonics developed and now sells a device that stimulates the peripheral vagus nerve to control epilepsy and is hoping to expand it to other markets such as depression and other chronic neurological diseases. There are 3 million epileptics in the U.S. and out of those about 250,000 are resistant to conventional drugs and are good candidates for the device. Due to the fact that the device has demonstrated savings for insurance companies, Cyberonics was able to get quick insurance approval after their initial FDA approval in 1997. Blue Cross/Blue Shield covered the device in 1998, Medicare covered it in 1999, and other providers soon followed. A Princeton market report states, "Over the entire patient population, including both those patients with greater than 25 percent seizure reductions and those with less significant reductions, Ben-Menachem and colleagues found that intensive care unit costs were reduced by $46,875, emergency room costs by $4,000, and ward stay costs by $129,750. These cost-reductions, coupled with the quality of life benefits reported by VNS patients more than justify the $25,000 total device purchase and implantation cost, based on the 10-12 year battery life of Cyberonics' Model 102 stimulator."

Revenue from this device has been increasing quickly over the past few years. Net sales have gone from $27 million in 1999 to $110 million in fiscal 2004. Their latest company report shows that sales for the 39-week period ending in January 2005 are down 9%, but CFO Pam Westbrook blames this on the sales force being diverted towards an upcoming product launch for a depression treatment. International sales have been rising steadily and contribute about 10% of revenue. To date 30,000 patients have been implanted with this device.

In the world of neural prosthetics Cyberonics would count as a success. They are an example of neural prosthetics being covered by insurance companies if the device has demonstrated savings and improved quality of life benefits.

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Donah Shine

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