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Cyberonics Inc. Reports Operating Results (10-Q)

November 19, 2009 | About:
10qk

10qk

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Cyberonics Inc. (CYBX) filed Quarterly Report for the period ended 2009-10-23.

Cyberonics, Inc. was founded to design, develop and market medical devices for the treatment of epilepsy and other debilitating neurological disorders using a therapy, vagus nerve stimulation. The company's initial target market is epilepsy, the world's second most prevalent neurological disorder, which is characterized by seizures. Vagus nerve stimulation with the Cyberonics NCP System was approved for use as an adjunctive therapy in reducing the frequency of seizures in adults and adolescents with medically refractory partial onset seizures. (PRESS RELEASE) Cyberonics Inc. has a market cap of $444.7 million; its shares were traded at around $16.03 with a P/E ratio of 21.6 and P/S ratio of 3.1.

Highlight of Business Operations:

Net sales for the thirteen weeks ended October 23, 2009 were approximately $40.7 million, which consisted of U.S. net product sales of $33.5 million, international net product sales of $6.8 million and licensing revenue of $0.4 million. Net sales for the twenty-six weeks ended October 23, 2009 were approximately $79.2 million, which consisted of U.S. net product sales of $64.4 million, international net product sales of $14.1 million and licensing revenue of $0.7 million.

Research and Development (“R&D”) Expenses. R&D expenses are comprised of expenses related to our product and process development, product design efforts, clinical trials programs and regulatory activities. R&D expenses were approximately $5.1 million for the thirteen weeks ended October 23, 2009, which represents an increase of approximately $0.3 million, or 7.0%, compared to the thirteen weeks ended October 24, 2008. The increase was primarily due to an increase of approximately $1.4 million in our product development efforts with respect to the treatment of refractory epilepsy, offset by a decrease of approximately $0.9 million for clinical expenses related primarily to the dosing study and our TRD registry. R&D expenses were approximately $10.2 million for the twenty-six weeks ended October 23, 2009, which represents an increase of approximately $0.8 million, or 8.1%, compared to the twenty-six ended October 24, 2008. The increase was primarily due to an increase of approximately $2.8 million in our product development efforts with respect to the treatment of refractory epilepsy offset by a decrease of approximately $1.7 million for clinical expenses related primarily to the dosing study and the TRD registry.

Interest expense consists primarily of interest due on the principal amount of our Senior Subordinated Convertible Notes (“Convertible Notes”) at the rate of 3% per year. Interest expense of approximately $431,000 for the thirteen weeks ended October 23, 2009 decreased by 54% as compared to interest expense of approximately $929,000 for the thirteen weeks ended October 24, 2008. Interest expense of approximately $934,000 for the twenty-six weeks ended October 23, 2009 decreased by 55% as compared to interest expense of approximately $2,091,000 for the twenty-six weeks ended October 24, 2008. The decline in interest expense was due to the decrease in the average outstanding balance of our Convertible Notes during the respective periods. The average outstanding balance during the twenty-six week periods ended October 23, 2009 and October 24, 2008 was approximately $51 million and $105 million, respectively.

Net cash decreased by approximately $5.7 million during the twenty-six weeks ended October 23, 2009 due primarily to the repurchase of approximately $23.1 million principal value of our Convertible Notes at a purchase price of approximately $20.6 million, offset by cash provided by operations of approximately $16.9 million. Net cash decreased by $21.7 million during the twenty-six weeks ended October 24, 2008 due primarily to the repurchase of approximately $40.4 million principal value of our Convertible Notes at a purchase price of approximately $34.9 million, offset by the increase in cash provided by operations of $10.6 million and stock option exercises of $4.3 million.

Net cash used in investing activities during the twenty-six weeks ended October 23, 2009 was approximately $2.5 million, compared to net cash used in investing activities of $0.7 million during the twenty-six weeks ended October 24, 2008. The investment in property and equipment has increased in fiscal year 2010 as compared to fiscal year 2009. We estimate a total investment in property and equipment of approximately $5.9 million for fiscal year 2010, compared to $2.7 million in the prior fiscal year. Planned investment in fiscal year 2010 in property and equipment consists primarily of $2.9 million of computers and software, and $3.0 million of manufacturing and test equipment, to improve business infrastructure and research capabilities. In addition, investments have increased in fiscal year 2010, as compared to fiscal 2009, due to investments in intellectual property consisting of licenses with selected patents of third parties pertaining to seizure detection and prediction. Planned investment in intellectual property in fiscal year 2010 is approximately $2.0 million.

Net cash used in financing activities during the twenty-six weeks ended October 23, 2009 was approximately $20.0 million compared to net cash used by financing activities of approximately $31.2 million during the twenty-six weeks ended October 24, 2008. The primary reason for cash used in financing activities was the repurchase of our Convertible Notes. During the twenty-six weeks ended October 23, 2009, we repurchased approximately $23.1 million of aggregate principal amount of our Convertible Notes at a purchase price of approximately $20.6 million. During the twenty-six weeks ended October 24, 2008, we repurchased approximately $40.4 million of aggregate principal amount of our Convertible Notes at a purchase price of approximately $34.9 million. Additionally, cash provided by the proceeds from stock option exercises during the twenty-six weeks ended October 23, 2009 was $0.6 million, a decrease of approximately $3.7 million as compared to the twenty-six weeks ended October 24, 2009.

Read the The complete ReportCYBX is in the portfolios of Carl Icahn of Icahn Capital Management LP.

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