Cyberonics Investor & Analyst Meeting

Transcription

1 Cyberonics Investor & Analyst Meeting December 4, 2009 The Westin Copley Place Boston, Massachusetts MDSym US

2 Dan Moore President & Chief Executive Officer MDSym US

3 Safe Harbor Statement This presentation includes forward-looking statements. Forward-looking statements may be identified by the use of forward-looking terminology, including may, believe, will, expect, anticipate, estimate, plan, intend, and forecast, or other similar words. Statements in this presentation are based on information presently available to us and assumptions that we believe to be reasonable. Investors are cautioned that all such statements involve risks and uncertainties. Forward-looking statements in this presentation include statements concerning: Delivering game changing technologies for improved efficacy, more treatment options, greater ease of use, and better patient management, including new generations of generators, leads, programmers, and wands, new stimulation algorithms and parameters, seizure detection and prediction through EKG and EEG sensing, closed-loop therapy, VNS Therapy efficacy predictors, higher capacity batteries, rechargeable batteries and new power management technology, wireless communication, reduced-size devices, RF-powered technology, leadless electrodes, MRI-safe leads, nerve over wrap, and electronic seizure diaries, and obtaining patent protection for the new technologies; Maintaining leadership in treatment and management of patients with epilepsy; Doubling revenues in 5 years to $320+ million in FY 2015 with a CAGR of 15% and driving adjusted EPS at a higher rate; Growing revenue through end-of-service generator re-implants, new patient growth in the U.S., Japan, and BRIC and other countries, with customer focus and new products, and price increases annually and with new product introductions; and Projections through FY 2015 for revenue and new patient growth in the U.S., Japan, and BRIC and other countries, and for annual ASP increases. Our actual results may differ materially. For a detailed discussion of the factors that may cause our actual results to differ, please refer to our most recent filings with the SEC, including our Form 10-K for the fiscal year ended April 24, 2009 and our Form10-Q for the periods ended July 24, 2009 and October 23,

4 Cyberonics Solutions for people affected by epilepsy. 4

5 Goal Enhance shareholder value by doubling revenues within 5 years and increasing adjusted EPS at a higher rate. 5

6 Meeting Objectives Provide overview of epilepsy, current treatments, and the future role of medical devices Highlight achievements that have resulted in the significant turnaround of Cyberonics Show global market potential and discuss VNS replacement trends, new patient forecasts, development priorities and timelines Make the case for sustaining growth 6

7 Progress Returned the company to profitability and positive cash flow Established consistent and growing operating profitability Restored growth to our core epilepsy business Strongly improved our gross profit margins Restructured the organization, both domestically and internationally Stabilized the balance sheet and reduced debt 7

8 Progress Launched several new products, including the Demipulse generator, two new Perennia leads and the Generator Field Upgrader Significantly enhanced the R&D effort to bring new medical devices to patients with epilepsy Found the best development collaborators and executed several agreements Made significant progress in resolving legal issues Improved company reputation with all stakeholders Well positioned to continue the development phase 8

9 Agenda Angus Wilfong, M.D., Associate Professor, Pediatrics and Neurology, Baylor College of Medicine; Medical Director, Comprehensive Epilepsy Program, Texas Children s Hospital Steven Karceski, M.D., Associate Clinical Professor of Neurology, College of Physicians and Surgeons, Columbia University Break Milton Morris, Ph.D., Vice President, Research & Development James Reinstein, Vice President, Sales & Marketing, General Manager, International Q&A 9

10 Angus Wilfong, M.D. Associate Professor, Pediatrics and Neurology, Baylor College of Medicine Medical Director, Comprehensive Epilepsy Program, Texas Children s Hospital MDSym US

11 My Personal Experience with VNS First implants 1998 (post-fda approval) Milwaukee : 100 patients Houston 2001 present: >300 patients VNS is an important part of my clinical practice in providing a comprehensive approach to patient care in order to maximize quality of life for patients living with epilepsy Relationship with Cyberonics 11

12 What is epilepsy? MDSym US

13 Seizures Versus Epilepsy A seizure is the clinical accompaniment of an abnormal electrical discharge in the brain A single seizure does not indicate a diagnosis of epilepsy 1 Epilepsy is a neurologic disorder characterized by recurrent, unprovoked seizures that may result from many different causes, including congenital malformations, brain tumors, traumatic brain injury, intracranial hemorrhages or strokes 1,2 1 Kandel ER, et al. Principles of Neural Science. 4th ed. 1991: ² Semah F, et al. Neurology. 1998;51:

14 Types of Seizures in Epilepsy Localization-related (focal/partial) Affects limited area(s) of the brain, only part of cerebral hemisphere 1,2 Most common seizure type (62%) 3 Can be complex or simple (ie, with or without loss of awareness) 1 Can evolve into a generalized seizure (secondarily generalized) 1 that is most often a convulsion Generalized Affects both hemispheres of the brain 1,2 More common in children 1 Loss of awareness/consciousness occurs 1 Includes tonic-clonic seizures (convulsions, grand mal), absence seizures, myoclonic seizures 1 and atonic seizures 1 Kandel ER, et al. Principles of Neural Science. 4th ed. 1991: International League Against Epilepsy (ILAE) Classification. 3 Semah F, et al. Neurology. 1998;51:

15 What is refractory epilepsy? Seizures that persist despite adequate trials of at least 3 AEDs 1 Overall remission* rates with subsequent treatment trials are dramatically decreased 2 46% with the first treatment 10.1% with the second treatment 2.3% with the third treatment Only 0.8% of patients responded optimally to further trials Diagnosis of refractory/intractable epilepsy becomes apparent within a few years of starting treatment 2 1. Brodie MJ and Kwan P. Neurology. 2002;58(suppl 5):S2-S8. 2. Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13: *Remission is defined as seizure freedom until last follow-up 15

16 Consequences of refractory epilepsy Seizure-related injuries 1,3 Increased seizure severity 3 Adverse effects with long-term AED use 1,3,5 Depression 1,4 Anxiety 3 Cognitive and memory impairment (from seizures and AEDs) 1,3,5 Impaired ability to obtain education, to work, to drive, to establish families, and to develop and maintain social relations 3,8 Poor health status 1,3 Increased mortality and morbidity 1,6,7 Increased healthcare utilization (eg, ER visits, hospitalizations) 9 1. Schmidt D. Epilepsy Res 2002;50: Wheless JW. Epilepsy Behav 2006;8: Fisher RS, et al. Epilepsy Res 2000;41: Gilliam F. Neurology 2002;58:S9-S Meador KJ. Neurology 2002;58(suppl 5):S21-S Lhatoo SD, et al. Postgrad Med J 1999;75: Annegers JF, et al. Epilepsia 1998;39: Van Ness PC. Arch Neurol 2002;59: Griffiths RI, et al. Epilepsia 1999;40:

17 Treatment costs for patients on 3 AEDs are almost twice those of patients receiving only 1 AED 1 Other Costs includes Medications, Laboratory and Other combined. 1. Griffiths RL, et al. Payer costs of patients diagnosed with epilepsy. Epilepsia 1999;40(3):

18 Management of refractory epilepsy should balance several considerations Maximize long-term efficacy Maximize patient control Minimize nonadherence Minimize drug-drug interactions Mitigate healthcare utilization and cost Minimize side effects Maximize continuation rates 18

19 Available treatment options for refractory epilepsy MDSym US

20 Epilepsy Treatments Treatment Age Indication Efficacy Side Effects AEDs Children Adults Specific AEDs for specific seizure types ~65% Vary by AED, typically sz freedom 1 CNS- and endocrinerelated Refractory <5% sz freedom Ketogenic Diet Primarily children All seizure types; adjunctive ~86% with >90% seizure reduction after 6-12 years 2 Lipid disorders, kidney stones, abnormal growth, ketoacidosis Epilepsy Surgery Children Adults Refractory or localization-related epilepsy; adjunctive ~70% in select patients sz freedom 3 Cognitive effects, surgery-related risks VNS Therapy 12 and older Refractory epilepsy, localization-related seizures, 12 years of age; adjunctive ~Up to 43% of patients showed 50% frequency reduction over 3 years4 Voice alteration, hoarseness, cough, pharyngitis, dyspnea, infection 1 Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13: Groesbeck DK, Dev Med Child Neurol Dec;48(12): Van Ness PC. Arch Neurol. 2002;59: Morris GL III and Mueller WM. Neurology. 1999;53:

21 Suggested treatment sequence Wheless JW. Neurostimulation Therapy for Epilepsy. In: Wheless JW, Willmore LJ, Brumback RA, eds. Advanced Therapy in Epilepsy. Hamilton, Ontario: BC Decker, Inc

22 Treatment outcomes AEDs Surgery VNS Therapy MDSym US

23 8% to 51% responder rates with new add-on AEDs % patients with 50% seizure reduction 100% 80% 60% 40% 20% 0% Minimum and Maximum responder rates reported in adult patients (add-on therapy for partial refractory epilepsy) 36% 20% 50% 27% 43% 25% 26% 8% 34% 20% 51% 27% 40% 22% TGB (1,2) OXC (1,2) ZNS (1,2) GBP (1,2) LTG (1,2) TPM (1,2) LEV (1) Note: Patient follow up in these studies varied, but the maximum follow up period studied was 3 months. 1. French JA, et al. Neurology 2004;62: Nadkarni S, et al. Neurology 2005;64(Suppl 3):S2-S11 23

24 1% to 13% seizure free rates with new AEDs 100% Seizure free (SF) rates in adult patients 1 (averaged over the studies; 6-month SF rate) (add-on therapy for partial refractory epilepsy) 90% 80% 70% % patients 60% 50% 40% 30% 20% 10% 0% 13% 8% 1% 4% GBP LTG TPM LEV 1. Zaccara G, et al. Acta Neurol Scand 2006;114:

25 Less than 40% of the patients on new AEDs remain on therapy > 2 years Drugs Gabapentin Lamotrigine Levetiracetam Topiramate Continuation rates after 2 years 1 2y: 6.6% to < 10% 3y: 29% 5y: 40% 8y: 38% 3y: 37% to 58% 5y: 32% 3y: 30% to 38.4% The main reasons for discontinuation of a new AED 2 Lack of efficacy: 29.5% Sedating side-effects: 20.5% 1. Zaccara G, et al. Acta Neurol Scand 2006;114: Chung S, et al. Seizure 2007;16(4):

26 AED nonadherence is associated with worsened patient outcomes and increased strain on hospitals Nonadherence Significantly Increases Healthcare Utilization 1 100% 90% 80% 70% p < % 76% % Increase 60% 50% 40% 30% 20% 10% 0% 16% 16% Emergency department visits 39% 39% Hospitalizations 33,658 patient records were collected and studied from January 1997 to June 2006 Inpatient days Nonadherence is associated with 3-fold increased risk of death (HR, 3.32; 95% CI, ; P<0.001) 1 Annual increase of over $2000 per patient in emergency department and inpatient costs (P=0.001) 2 1. Faught E, et al. Epilepsia 2009;50(3): Davis KL, et al. Epilepsia. 2008;

27 Seizure relapses may occur after resective surgery 1 Of 175 patients that were seizure free one year after lobectomy, 37% relapsed during the 10-year follow-up surgery patients 1 10 years follow-up 51% seizure-free the 1 st year n = patient included in the analysis 37% relapsed within 10 years n = 65 Total of 110 (29.6%) of the 371 surgery patients were seizure free after 10 years 1. Yoon HH, et al. Neurology 2003;61(4):

28 Reductions in seizure frequency with VNS Therapy improve over time and are sustained long-term Patients with at least a 50% reduction in seizure frequency (n=440, last observation carried forward) 100% 90% 80% 70% % Patients 60% 50% 40% 37% 43% 43% 30% 23% 20% 10% 0% 3 months 1 year 2 years 3 years 50% reduction in seizures Morris GL, et al. Neurology 1999;53:

29 Long-term reimplant rates show high tolerability of VNS Therapy 1 VNS Therapy 71% Initial Reimplantation Rate 1 VNS Therapy (US) Model 100 reimplantation rates (n=6,092) 71% % Reimplantation Rate 1. Data on file. Cyberonics, Inc. Houston, TX

30 What impedes VNS adoption? Market Research AES survey The most important reason why physicians would not consider VNS 32% Not very effective/no more effective than AEDs 24% Most VNS Therapy candidates are good epilepsy surgery candidates 20% Patients refuse because it requires surgery 9% Doesn t make the patient seizure free 5% Expensive / poor reimbursement 3% Prevents future MRIs 30

31 VNS Helps to Maximize Quality of Life Seizures are bad and medications don t always work Disability associated with epilepsy is due to seizures and drugs The sooner refractory patients are identified, the better After 3 AED failures, nonpharmacologic treatment must be considered If not a suitable craniotomy candidate, then I implant with VNS In my experience, VNS works better in younger patients and those with shorter duration of epilepsy 31

32 Steven Karceski, M.D. Associate Clinical Professor of Neurology College of Physicians and Surgeons Columbia University MDSym US

33 My Personal Experience with VNS First implant in 1997 (after FDA approval) More than 200 patients implanted Vagus Nerve Stimulation is unique treatment for refractory epilepsy Patients have direct control over seizures (magnet) Side effect profile Relationship with Cyberonics 33

34 What is Vagus Nerve Stimulation?

35 What is VNS Therapy? The VNS Therapy System consists of an implanted pacemaker-like generator and nerve stimulation electrodes, which deliver intermittent stimulation to the patient s left vagus nerve that sends signals to the brain 35

36 VNS Therapy programming system components Handheld Computer Platform for Programming Software Programming Wand Accessory to programming handheld computer Communication tool between Programming Software and Pulse Generator 36

37 Vagus Nerve Stimulation Action Potentials continue to brain Negative Electrode Action Potentials are blocked Positive Electrode Action Potential = and Vagus Nerve Some Action Potentials are not blocked 37

38 VNS Therapy U.S. indication for use The VNS Therapy System is indicated for use as An adjunctive therapy in reducing the frequency of seizures In adults and adolescents over 12 years of age With partial onset seizures that are refractory to antiepileptic medications 38

39 VNS Therapy CE Mark indication for use The VNS Therapy System is indicated for use as An adjunctive therapy in reducing the frequency of seizures In patients whose epileptic disorder is dominated by partial seizures (with or without secondary generalization) or generalized seizures that are refractory to antiepileptic medications without limitation of age 39

40 Effectiveness of VNS

41 Refractory Epilepsy and VNS 25-year-old with epilepsy since she was 12 Frequent seizures that cause loss of consciousness and injuries (she burned her arm on a radiator) Medications have either not helped, OR Medications have caused side effects Brain surgery is not an option Other treatment options must be considered! 41

42 Epilepsy Treatments Treatment Age Indication Efficacy Side Effects AEDs Children Adults Specific AEDs for specific seizure types ~65% Vary by AED, typically sz freedom 1 CNS- and endocrinerelated Refractory <5% sz freedom Ketogenic Diet Primarily children All seizure types; adjunctive ~86% with >90% seizure reduction after 6-12 years 2 Lipid disorders, kidney stones, abnormal growth, ketoacidosis Epilepsy Surgery Children Adults Refractory or localization-related epilepsy; adjunctive ~70% in select patients sz freedom 3 Cognitive effects, surgery-related risks VNS Therapy 12 and older Refractory epilepsy, localization-related seizures, 12 years of age; adjunctive ~Up to 43% of patients showed 50% frequency reduction over 3 years4 Voice alteration, hoarseness, cough, pharyngitis, dyspnea, infection 1 Mohanraj R and Brodie MJ. Eur J Neurol. 2006;13: Groesbeck DK, Dev Med Child Neurol Dec;48(12): Van Ness PC. Arch Neurol. 2002;59: Morris GL III and Mueller WM. Neurology. 1999;53:

43 Reductions in seizure frequency with VNS Therapy improve over time and are sustained long-term Patients with at least a 50% reduction in seizure frequency (n=440, last observation carried forward) 100% 90% 80% 70% % Patients 60% 50% 40% 37% 43% 43% 30% 23% 20% 10% 0% 3 months 1 year 2 years 3 years 50% reduction in seizures Morris GL, et al. Neurology 1999;53:

44 Average VNS Therapy responder rate is ~50% % patients responding to VNS Therapy in settings (adult patients with at least a 50% reduction in seizure frequency) 100% 90% 80% % Responders 70% 60% 50% 40% 50% 51% 57% 59% 30% 20% 10% 0% Vonck (n=118) Renfroe (n=120) Labar (n=269) DeHerdt (n=138) MeanF/U 33 mo MeanF/U 3 mo MeanF/U 12 mo MeanF/U 44 mo 1. De Herdt V, et al. Eur J Paediatr Neurol 2007;11: Labar DR. Seizure 2004;13: Renfroe JB and Wheless JW. Neurology 2002;59(suppl 4):S26-S Vonck K, et al. J Clin Neurophysiol ;21:283-9.

45 1% to 13% seizure free rates with new AEDs 100% Seizure free (SF) rates in adult patients 1 (averaged over the studies; 6-month SF rate) (add-on therapy for partial refractory epilepsy) 90% 80% 70% % patients 60% 50% 40% 30% 20% 10% 0% 13% 8% 1% 4% GBP LTG TPM LEV 1. Zaccara G, et al. Acta Neurol Scand 2006;114:

46 VNS Therapy seizure-free rates 50% % Seizure-free patients (Study-defined; adult patients with partial seizures) 40% % patients 30% 20% 10% 6% 15% 12% 9% 8% 7% 6% 5% 5% 5% 4% 2% 0% All (330/5925) Renfroe (18/120) (EAR; 3 m) Helmers (6/51) (12 m) De Herdt (12/138) (= 12 m) Amar (40/481) (Non-CS; 24 m) Labar (61/896) (Group 1; 12 m) Labar (17/269) (12 m) Amar (8/156) (CS; 24 m) Labar (27/511) (Group 2; 12 m) Helmer (16/354) (Late; 12 m) Renfroe (12/2785) (Control; 3 m) Amar (3/164) (15 m) 1. Renfroe JB and Wheless JW. Neurology 2002;59(suppl 4):S26-S Helmers SL, et al. Neurologist 2003;9: De Herdt V, et al. Eur J Paediatr Neurol 2007;11: Amar AP, et al. Neurosurgery 2004;55: Labar DR, et al. Neurology 2002;59: S Labar DR. Seizure 2004;13: Amar AP, et al. Stereotact Funct Neurosurg 1999;73:

47 Many patients are able to stop or decrease the severity/ duration of their seizures using the VNS Therapy magnet 100% 90% Effect of Magnet-Activated Stimulation in 9,482 Seizures 80% 70% 60% 50% 40% 30% 20% 10% 0% 24% 62% Seizure terminated 2,211 seizures Seizure diminution 3,638 seizures Positive impact on seizure activity 5,849 seizures 38% Seizure not effected 3,633 seizures 1. Morris GL, et al. Epilepsy Behav 2003;(4):

48 VNS Therapy patient magnets Can be worn on the patient s wrist or belt Uses Temporarily turn off the device to alleviate possible side-effects Hold over device to immediately stop stimulation Keep in place for 65 seconds or greater After at least 65 seconds and when removed, stimulation resumes after one complete OFF-time period Provide on-demand magnet mode stimulation before or during a seizure Apply or pass the magnet over the generator for >1 sec and <65 sec to initiate magnet mode stimulation 48

49 On-demand magnet stimulation a unique benefit of VNS Therapy Offers more control for patients and their families 1,2 Initiates on demand stimulation May abort or decrease severity of seizures 1-3 May improve postictal period 2 Stops stimulation Acutely manage side effects 3 1. Boon P, et al. J Clin Neurophys. 2001;18: Fromes GW, et al. Epilepsia. 2000;41(suppl 7): Schachter SC and Saper CB. Epilepsia. 1998;39:

50 Quality of life improvements are seen over time and are independent of seizure control 100% Quality of life outcomes (VNS Therapy patient outcome registry; n = 2,229) % patients better or much better 80% 60% 40% 20% 62% 57% 55% 50% 44% 38% 35% 41% 45% 40% 3 months 12 months 34% 30% 24% 26% 0% Alertness Postictal Seizure Clusters Verbal skills Mood Academic Achievements Memory <7% of patients reported worse or much worse outcome by any single measure 1. Data on file. Cyberonics, Inc, Houston, Texas; April 25, Ergene E, et al. Epilepsy Behav 2001;2: McLachlan RS, et al. Eur Neurol 2003:50: Harden CL, et al. Epilepsy Behav 2000;1: Hoppe C, et al. Epilepsy Behav 2001;2:

51 VNS Therapy has a positive impact on healthcare utilization Independent Kaiser study followed 138 patients over 4 years Bernstein A, et al. Epilepsy Behav 2007;10:

52 AED nonadherence is associated with worsened patient outcomes and increased strain on hospitals Nonadherence Significantly Increases Healthcare Utilization 1 100% 90% 80% 70% p < % 76% % Increase 60% 50% 40% 30% 20% 10% 0% 16% 16% Emergency department visits 39% 39% Hospitalizations 33,658 patient records were collected and studied from January 1997 to June 2006 Inpatient days Nonadherence is associated with 3-fold increased risk of death (HR, 3.32; 95% CI, ; P<0.001) 1 Annual increase of over $2000 per patient in emergency department and inpatient costs (P=0.001) 2 1. Faught E, et al. Epilepsia 2009;50(3): Davis KL, et al. Epilepsia. 2008;

53 VNS Therapy side effects are related to stimulation and decrease over time 1 100% Most common VNS Therapy side effects (n = 440) 80% 1 year 2 year % patients 60% 40% 29% 3 year 20% 0% 19% 12% 7% 6% 2% 2% 8% 4% 3% 3% 0% Hoarseness Cough Paraesthesia Shortness of breath 1. Morris GL, et al. Neurology 1999;53:

54 Safety of VNS

55 VNS Therapy has a unique safety profile More than 50,000 patients worldwide have been implanted with VNS Therapy No known interactions with medications No reported systemic neurotoxic effects, rash, renal impairment, or bone marrow suppression No increase in sudden, unexpected death in epilepsy (SUDEP) 1 Gestational outcomes Animal study has shown no evidence of impaired fertility or harm to the fetus due to VNS Therapy 2,3 Pregnancies have gone to term with VNS 4,5 1. Annegers JF, et al. Epilepsia. 1998;39: Physician s Manual. Houston, TX: Cyberonics, Inc.. 3. Danielsson et al. 4. Ben- Menachem E, et al. Epilepsia. 1998;39(6): Husain MM, et al. Ann Gen Psychiatry. 2005;4:16. 55

56 VNS Therapy has a unique side effect profile Most side effects associated with VNS Therapy Occur only during stimulation 1,2 Generally diminish over time 2 May be diminished or eliminated by the adjustment of parameter settings 2 May be controlled by use of the magnet 3 Similar across age groups 4,5 1. Ben-Menachem E, et al. Neurology. 1999;52(6): Ben- Menachem E. J Clin Neurophysiol. 2001Sep;18(5): Schacter SC. Neurology. 2002;59(suppl 4):S15-S Alexopoulos AV, et al. Seizure. 2006;15(7): Sirven JI, et al. Neurology. 2000;54:

57 Treatment of Epilepsy: Other Potential Devices

58 DBS data from pivotal study Stimulation of the Anterior Nucleus of the Thalamus in Epilepsy (SANTE) Prospective, randomized, double-blind pivotal study to evaluate use of DBS for epilepsy (n=110) Statistically significant median seizure reduction compared with a no-stim control group at end of blinded phase (38% vs 14.5%) 40% (n=87) experienced a 50% or greater reduction from baseline at 13 months 60% (n=86) experienced a 50% or greater reduction from baseline at longterm follow up (12-49 months) 9% (n=86) had no reported seizures from long-term follow up (12-49 months) 1. Medtronic News Release December 8,

59 DBS data from pivotal study Stimulation of the Anterior Nucleus of the Thalamus in Epilepsy (SANTE) 10.9% infection rate 1.3% rate of asymptomatic ICH Significantly higher incidence of (self-reported) depression, memory impairment, and anxiety Most events resolved spontaneously or with changes in medication or stimulation parameters Objective neuropsychological assessment did not confirm any statistical differences between active and control groups 5 deaths 1. Medtronic News Release December 8,

60 Procedure Comparison: VNS vs. DBS Procedure Risks Cost Programming Reimbursement VNS Typically implanted in outpatient setting (~ 1 hr) Surgical infection rate: 1.7% Hoarseness $21-25k for procedure (including device cost) Straight forward programming Widely accepted, established reimbursement Cough Shortness of breath Paresthesia DBS Typically implanted in 2 stages: Bilateral Leads inpatient Surgical infection rate: 10.9% Intracranial $50-70k for procedure (including device cost) Programming is more complex and time consuming Unknown reimbursement for epilepsy setting (~ 4 hrs) IPG outpatient setting hemorrhage: 1.3% per lead implant (~ 2 hrs) Higher incidence of spontaneously selfreported depression, memory, anxiety 60

61 Research & Development Overview: What s NeXT? Milton M. Morris, Ph.D. Vice President, Research & Development

62 Milton M. Morris, Ph.D. Vice President, Research & Development Educational Background Northwestern University Evanston, IL B.S. EE ( 92) Executive MBA ( 04) University of Michigan Ann Arbor, MI MSEE ( 94), Ph.D. EE ( 97) Research Assistant Medical Computing Laboratory Signal Processing Intracardiac Electrogram Signals Algorithm Development Cardiac Rhythm Classification Arrhythmia Detection Professional Background Boston Scientific (Guidant Corp.) ( ) St. Paul, MN Research & Technology Algorithm Development Heart Failure decompensation & hospitalization prediction Sales & Marketing Franchise Owner: Pacemakers & Implantable Defibrillators InnerPulse, Inc. ( ) Research Triangle Park, NC Product Development + Operations Cyberonics, Inc. (2009 to present) Houston, TX Research & Development 62

63 R&D Overview: What s NeXT? Summary Cyberonics has offered a steady cadence of product line extensions that have returned value through maintenance and increase in average selling prices. Cyberonics is currently focused on delivering game changing technologies that offer improved VNS efficacy, more treatment options, greater ease of use, and better management of patients with epilepsy. Cyberonics Medical Device Pipeline will drive continued leadership in the treatment and management of patients with epilepsy through IP-protected points of differentiation. 63

64 R&D Overview: What s NeXT? Agenda Historic Look at Cyberonics R&D Current Focus Product & Technology Road Map 64

65 R&D Overview: What s NeXT? Agenda Historic Look at Cyberonics R&D (Line Extensions) Current Focus Product & Technology Road Map 65

66 R&D Overview: What s NeXT? Historic Look at Cyberonics R&D Model 100 Model 101 Model 102 Model 103 History of continuous improvement in pulse generator design. (4 generators since 1998) Demipulse is latest PG outfitted with significant decrease in footprint (43% smaller than the Pulse) 66

67 R&D Overview: What s NeXT? Historic Look at Cyberonics R&D Model 100 Thickness: 0.52 (13.2 mm) 31 cc Model (10.3 mm) 26 cc Model 102/102R 0.27 (6.9 mm) 14/16 cc Model 103/ (6.9 mm) 8/10 cc History of continuous improvement in pulse generator design. (4 generators since 1998) Demipulse is latest PG outfitted with significant decrease in footprint (43% smaller than the Pulse) Demipulse power management enables longevity similar to the Pulse with smaller battery 67

68 R&D Overview: What s NeXT? Historic Look at Cyberonics R&D Proficient Lead development (4 leads since in 1998) PerenniaFLEX M304: Newly released for full commercial distribution Similar handling characteristics as M302 Designed for improved coil flex fatigue performance Controlled fillet at electrode bifurcation for durability 68

69 R&D Overview: What s NeXT? Historic Look at Cyberonics R&D Intuitive and light programming and communication toolset 5 programmers since 1998 Currently running version 7 of software application 69

70 R&D Overview: What s NeXT? Historic Look at Cyberonics R&D Line extensions support healthy revenue through increases in or maintenance of average selling price. 70

71 R&D Overview: What s NeXT? Agenda Historic Look at Cyberonics R&D Current Focus (Game Changers) Product & Technology Road Map 71

72 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Enhance the Effectiveness of VNS Therapy by Improving stimulation algorithms new Stimulation Schemes Predicting the VNS Responder Closing the loop on therapy seizure Detection and Prediction automatic Magnet Swipe Sample Manual Magnet Swipe From Wang et al. J of the Neurological Sciences

73 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Pulse Generators: The NeXT Family of Devices Key Takeaway: NXT family provides therapeutic options for our customers & IP protected points of differentiation with competition NXT HC HC: Higher Capacity Description: Demipulse capabilities 60% greater longevity Pulse Footprint (14cc) Clinical Workhorse (SR & NP) *Commercialization: CY Q NXT SR SR: Seizure Response Description: HC plus Electronic Diary Auto magnet swipe (closed loop Sz Dtxn) Improves IP position *Commercialization: CY Q NXT NP NP: New Parameters Description: SR plus new stimulation parameters Improves IP position *Commercialization: CY Q *Note: Estimated time frame for commercial release in calendar years. Note: Products shown above are Not Approved for Human Use. 73

74 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Pulse Generators: The Phoenix Platform Phoenix Family of Products Description: Improved SR and NP New Power Management Reduced size vs NXT Family Wireless Communication *Commercialization: CY 2013 Sz Response (SR) II: Head Electrogram (EGRM) Detection algorithm leveraging head EGRM. Power Management: Rechargeable + Nonrechargeable units. New Parameters (NP) II: Improvements to and/or new stimulation parameters. NeuroVista Technologies: Head Electrodes Detection Algorithm Apron for Recharger Power Source Phoenix Stimulator Generic Photo Of stim params NeuroVista Collaboration: Rechargeable System Wireless Communication *Note: Estimated time frame for 1 st family member from Phoenix Platform in calendar years. 74 Note: Products shown above are Not Approved for Human Use.

75 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Pulse Generators: The Griffin Platform Griffin Family of Products *Commercialization: CY 2014 In collaboration with Pedro Irazoqui, Asst Professor, Purdue University Weldon School of Biomedical Engineering, West Lafayette, IN. *Note: Estimated time frame for 1 st family member from Griffin Platform in calendar years. Note: Products shown above are Not Approved for Human Use. 75

76 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Leads MRI Safe Expanded Labeling from: 1.5 Tesla, Head, GE Equip. Only to: 3.0 Tesla, Head, Beyond GE Only MRI Safe Lead 3.0 Tesla, Head + Neck, Beyond GE Only Nerve Over Wrap Improves lead extraction Improves current distribution Key Takeaway: New Lead technologies improve therapy adoption and provide IP protected points of differentiation with competition Unwrapped Wrapped Note: Products shown above are Not Approved for Human Use. 76

77 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Programmer + Wand: Drive Ease-of-Use Programmer: New User Interface Parameter Programming Assist Diagnostics: Electronic Seizure Diary Hand held printing capability Battery life gauge improvements Wand: Smaller form factor vs the 201 Faster communication speed (shorter interrogation times) Less sensitive to orientation above the implanted device No Wand (Wireless Programmer & Generator) Key Takeaway: New Programmer + Wand enhance ease-of-use to increase therapy adoption Note: Products shown above are Not Approved for Human Use. 77

78 R&D Overview: What s NeXT? Current Focus: address the most pressing unmet needs Drive New Product Innovations Electronic Seizure Diary Key Takeaway: CYBX technology ediary Electronic Seizure Diary Description: Conveniently and accurately measures seizure burden. Extensible to future backend telemedicine Commercialization: CY 2011 will drive a broader level of service to physicians and patients CardioBelt ediary Long-term Offering Epilepsy Patient Management ediary Seizure Alert Remote IPG Management Remote VNS patient follow-up Remote IPG diagnostic retrieval Remote IPG system check Remote IPG programming Note: Products shown above are Not Approved for Human Use. 78

79 R&D Overview: What s NeXT? Agenda Historic Look at Cyberonics R&D Current Focus Product & Technology Road Map 79

80 R&D Overview: What s NeXT? Product Cadence Earliest Product A Latest Note: Each box defines an estimated time frame for commercial release. Released Pulse Demipulse NXT HC NXT SR NXT NP PHOENIX GRIFFIN Released 302 PerenniaDURA PerenniaFLEX 3T MRI Labeling Nerve Wrap MRI Safe Next Gen Programmer Next Generation Wand *Electronic Diary I *Electronic Diary II * Electronic Diary I concept without telemedicine backend. Electronic Diary II concept contains telemedicine backend. Note: Products shown above are Not Approved for Human Use. 80

81 R&D Overview: What s NeXT? Moving the Playing Field to VNS 2014 Key Takeaway 1: Key collaborations enable acceleration of product development pipeline and introduction of novel closed-loop VNS therapy. VNS 2014 (VNS of the future) VNS today MRI Conditional System Key Technology: MRI Conditional Tech IP: TBD Collaboration: TBD NXT HC Key Technology: EKG Sensing NXT NP NXT SR Key Technology: Closed Loop Sz Response IP: Cardiac Based Sz Detection (Exp. 2019) Collaboration: Flint Hills Scientific Phoenix Griffin Key Technology: EEG Sensing + Other IP: Head Based Sz Detection (Exp. 2025) Collaboration: MIT & Purdue Key Technology: MicroBurst Stim + Other IP: MicroBurst Stim (Exp. 2028) Collaboration: Barrow Neurological Institute Key Technology: Leadless Electrode IP: Pending Collaboration: Purdue Note: Products shown above are Not Approved for Human Use. 81

82 R&D Overview: What s NeXT? Moving the Playing Field to VNS 2014 Key Takeaway 1: Key collaborations enable acceleration of product development pipeline and introduction of novel closed-loop VNS therapy. VNS 2014 (VNS of the future) Key Takeaway 2: Each product contributes to a growing portfolio of Intellectual Property. VNS today MRI Conditional System Key Technology: MRI Conditional Tech IP: TBD Collaboration: TBD NXT HC Key Technology: EKG Sensing NXT NP NXT SR Key Technology: Closed Loop Sz Response IP: Cardiac Based Sz Detection (Exp. 2019) Collaboration: Flint Hills Scientific Phoenix Key Technology: MicroBurst Stim + Other IP: MicroBurst Stim (Exp. 2028) Collaboration: Barrow Neurological Institute Griffin Key Technology: EEG Sensing + Other IP: Head Based Sz Detection (Exp. 2025) Collaboration: MIT & Purdue Key Technology: Leadless Electrode IP: Pending Collaboration: Purdue Note: Products shown above are Not Approved for Human Use. 82

83 R&D Overview: What s NeXT? Moving the Playing Field to CYBX 2014: Epilepsy Management Company Key Takeaway 1: Key collaborations enable acceleration of product development pipeline and introduction of novel closed-loop VNS therapy. CYBX 2014 (CYBX of the future) Key Takeaway 2: Each product contributes to a growing portfolio of Intellectual Property. Key Takeaway 3: New product concepts help to establish CYBX as an Epilepsy Management Company. Electronic Diary CYBX today MRI Conditional System Key Technology: MRI Conditional Tech IP: TBD Collaboration: TBD NXT HC Key Technology: EKG Sensing Sz Alert NXT NP Telemedicine NXT SR Key Technology: Closed Loop Sz Response IP: Cardiac Based Sz Detection (Exp. 2019) Collaboration: Flint Hills Scientific Phoenix Key Technology: MicroBurst Stim + Other IP: MicroBurst Stim (Exp. 2028) Collaboration: Barrow Neurological Institute Griffin Key Technology: EEG Sensing + Other IP: Head Based Sz Detection (Exp. 2025) Collaboration: MIT & Purdue Key Technology: Leadless Electrode IP: Pending Collaboration: Purdue Note: Products shown above are Not Approved for Human Use. 83

84 R&D Overview: What s NeXT? Summary Cyberonics has offered a steady cadence of product line extensions that have returned value through maintenance and increase in average selling prices. Cyberonics is currently focused on delivering game changing technologies that offer improved VNS efficacy, more treatment options, greater ease of use, and better management of patients with epilepsy. Cyberonics Medical Device Pipeline will drive continued leadership in the treatment and management of patients with epilepsy through IP-protected points of differentiation. 84

85 James Reinstein Vice President, Sales & Marketing General Manager, International MDSym US

86 James Reinstein Vice President, Sales and Marketing; General Manager, International Educational Background University of Georgia Athens, GA BBA (1986) INSEAD Fontainebleau, France General Management Program (1999) Professional Background Procter and Gamble Corp ( ) Cincinnati, OH Territory Sales Manager Key Account Manager Boston Scientific Corp ( ) Natick, MA Territory Sales Manager Product Marketing Manager International Marketing: Europe General Manager: Mexico Vice-President and GM: Asia Cyberonics, Inc. (2007- current) Houston, TX Vice President 86

87 Sales Objectives Double Revenues in 5 Years $320+ million FY2015 CAGR 15% 87

88 Topics Global Commercial Team End of Service Analysis and Projections New Patient Growth Geographical expansion Customer focus New products Long-Term Financial Forecast Growth Drivers 88

89 Topics Global Commercial Team End of Service Analysis and Projections New Patient Growth Geographical expansion Customer focus New products Long-Term Financial Forecast Growth Drivers 89

90 Global Commercial Team Transformed FY2008 FY2010 Streamlining Re-alignment Accountability Local Expertise Improved Productivity Customer Engagement Four International Regions 90

91 Globally Structured For Growth Asia/Pacific: 1 GM 1 TPS 7 Distributors VNS Japan: 1 Distributor VNS Canada: 1 Distributor EU Re-organized VNS VNS VNS Headquarters: 1 International Marketing Manager EMMEA: 1 GM 2 TPS 19 Distributors VNS LATAM: 1 GM 1 TPS 12 Distributors Significant progress in global expansion is underway 91

92 Sales Team Alignment FY07 FY08 FY09 FY10 European Sales Head Count Turnover % 5% 4% 28% 14% LATAM, AP & EMMEA Sales HC Turnover % 0% 0% 0% 0% USA Sales Head Count Turnover% 18% 52% 15% 7% 92

93 Sales Team Productivity: USA USA - Headcount / Revenue $140 $120 Headcount $100 $80 $60 $40 $20 Revenue 52 Territories 0 FY07 FY08 FY09 FY10E Fiscal Years Headcount Revenue $0 93

94 Growth Drivers Key Components End of Service (EOS) New Patient Growth Geographic expansion Customer focus New products Price Annual increases New technology Double revenue in 5 years 94

95 Growth Drivers Key Components End of Service (EOS) New Patient Growth Geographic expansion Customer focus New products Price Annual increases New technology Double revenue in 5 years 95

96 End of Service (EOS) End of Service Analysis and Projections Model 100 re-implants Model 101 re-implants Model 102 re-implants Multiple re-implants Projections for FY2012 Methodology 96

97 End of service Model Data Recap Model 100: sold through October 2000 Typical battery life three to eight years Total implant cards received approximately 6,500 Model 101: sold from February 2000 to October 2004 Typical battery life five to eleven years Total implant cards received approximately 9,600 Model 102: sold from July 2002 to date Typical battery life three to ten years Total implant cards received approximately 24,000 (US data only) Note that Cyberonics does not receive all implant cards Investors should exercise caution in using the data above in estimating replacement generator potential 97

98 US Epilepsy Initial Implant & Re-implant Activity for Model Number of Initial Implants Cumulative Re-implants Adjusted Number of Initial Implants Initial Re-implants >100% % Q _OLD Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Model 100 sold through October 2000 Typical battery life three to eight years Total implant cards received approximately 6,500 Investors should exercise caution in projecting future re-implant sales based on historical trends 98

99 US Epilepsy Initial Implant & Re-implant Activity for Model 101 Initial Re-implants Cumulative Re-implants 100% 90% 80% 70% 60% 50% 40% 30% 20% 30% 25% 50% 40% 10% 0% Q _OLD Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Q _Q4 Q _Q2 Model 101 sold from February 2000 to October 2004 Typical battery life five to eleven years Total implant cards received approximately 9,600 Q _Q4 Q _Q2 Q _Q4 Q _Q2 99 Investors should exercise caution in projecting future re-implant sales based on historical trends

100 Model 101 Re-Implant trends Cumulative re-implant % by year of initial implant 50% 45% 40% Cumulative Re-Implant Rate 35% 30% 25% 20% 15% 10% 5% 0% % Reimplant % re-implant % re-implant Model 101: Sold from February 2000 to October 2004 Typical battery life five to eleven years Total implant cards received approximately 9,

101 Multiple Generator Re-implants Number of patients implanted with at least 3 generators Patients FY 2006 FY 2007 FY 2008 FY 2009 FY 2010E Model 100 Model 101 Model

102 Summary of End of Service Model USA All Models Implant Trends 1st Reimplant 2nd Reimplants 3rd and more reimplants Total Reimplants 5,000 4,000 Implants 3,000 2,000 1, E 2011E 2012E Fiscal Year EOS represents a consistent source of long-term growth 102

103 Growth Drivers Key Components End of Service (EOS) New Patient Growth Geographic expansion Customer focus New products Price Annual increases New technology Double revenue in 5 years 103

104 Japan Epilepsy Market Potential Japan Population: 126.8M 1 PREVALENCE 1.0M in Japan suffer from epilepsy 2 INCIDENCE 50,000 patients diagnosed With epilepsy 4 year 189,000 Potential Candidates for VNS Therapy 3, 5 9,500 Annual Potential VNS Therapy Candidates 4, 5 ZERO Patients Implanted 1 Source: Census.gov 2 Source: Epilepsyfoundation.org (% pop w/ epilepsy: 0.8%) Incidence Rate = 0.04% 3 Source: WHO 4 Source: NIH Based on FDA labeling

105 Japan Potential $35 $30 $25 $33m $ millions Revenue $M $20 $15 $10 $18m $27m $5 $0 $5.6m $12m Year 1 Year 2 Year 3 Year 4 Year 5 Assumes: 7,600 implants ASP $11k going to $13k 105

106 BRIC Potential $14 $12 $ millions $10 $8 $6 $4 $2 $4m $6m $8m $10m $12m $0 FY2011 FY2012 FY2013 FY2014 FY2015 Assumes: 3,900 implants ASP $9k going to $11k 106

107 Global New Patients Patients FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 US International Japan 107

108 Global Growth FY2010- FY2015 $350 $300 $250 Double in 5 $0.0 $0.0 $0.0 $ millions $200 $150 $0.0 years $0.0 $320+ $100 $159 - $162 $ US Europe Japan EMMEA LATAM AP

109 Growth Drivers Key Components End of Service (EOS) New Patient Growth Geographic expansion Customer focus New products Price Annual increases New technology Double revenue in 5 years 109

110 Customer Focus Develop framework for consistently capturing VOC Leadership Summits with Key Opinion Leaders 8 events, 88 Neurologists and Neurosurgeons (Adult & Pediatric) 91% MDs report that more than 80% patients have been re-implanted More than half of respondents claim that SR, and the benefits it brings, will make them open to prescribing VNS to more patients Physicians very positive when asked about overall direction of the company Ongoing customer engagement 110

111 New Products $350 $300 $250 Double in 5 $ millions $200 $150 years $0.0 $0.0 $0.0 $0.0 $0.0 $320+ $100 $159 $162 $ Lead Pulse Demipulse HC SR

112 Growth Drivers Key Components End of Service (EOS) New Patient Growth Geographic expansion Customer focus New products Price Annual increases New technology Double revenue in 5 years 112

113 Story Of Success: Demipulse in USA Pulse Generator (Model 102) Demipulse Duo (Model 104) Demipulse (Model 103) 113

114 Story Of Success: Demipulse in USA Pulse Demipulse Calendar List Price Change Calendar List Price vs. Pulse Year Price (YoY) Year Price (Current Year) 2007 $11,999 0% 2007 $15, % 2008 $13, % 2008 $17, % 2009 $13,651 +4% 2009 $17, % 2010 $14,197 +4% 2010 $18, % Getting value from our technology 114

115 Long Term Forecast Global Price Mix +3% annual ASP increase FY10-FY15 FY10-FY15 Price Premiums Perennia lead vs 302 lead = 19% premium Demipulse vs Pulse = 29% premium HC vs Pulse = premium planned HC vs Demipulse = equal or higher price planned SR vs HC = premium planned 115

116 Historical Global Epilepsy Revenues ($millions) $ millions $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 US International 116

117 FY2010- FY2015 Forecast $ millions $350 $300 $250 $200 $150 $100 $50 $0 $320+m FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 US International 117

118 Growth Summary EOS Consistent and strong EOS growth creates an annual annuity Provides growth bridge to new products New patient growth Price Planned initial U.S. new patient growth 2-3% Geographic Expansion Japan: 10% penetration forecasted to be reached in 10+ years Expanding in key new markets: China, Brazil, Russia and India New products will drive new patient growth Annual +3% ASP increase Premium pricing for new technology 118

119 Summary Double revenue in 5 years Sustainable and repeatable growth EOS New patients in existing and new markets New products Upside Faster new patient growth Other new products E-Diary, Nerve Wrap, Phoenix 119

120 Q & A MDSym US