Medical Device Daily Executive Editor

Cyberonics (Houston), already dealing with a variety of negatives, was hit with more bad news this week as the company reported that the Centers for Medicare and Medicaid Services has issued a preliminary ruling rejecting its request to expand coverage for its Vagus Nerve Stimulation (VNS) Therapy.

CMS has provided full coverage of VNS Therapy for pharmacoresistant epilepsy since 1999, and the company on July 26 of last year submitted a request for expanding coverage of its VNS implant system to include coverage for patients with treatment-resistant depression (TRD). These patients are defined as having been either unsuccessfully treated with or refused treatment with electroconvulsive therapy (ECT) or previously hospitalized for depression.

After a long and contentious battle with the FDA, the agency in 2005 approved the company's VNS system as an adjunctive, long-term treatment for chronic or recurrent depression for patients, 18 years of age or older, who are experiencing a major depressive episode and have not had an adequate response to four or more adequate antidepressant treatments. The company said that since that approval, 2,200 patients have been treated for TRD with VNS, and some 280 insurers have provided coverage for the treatment. It said that those approvals have been made on a "case-by-case basis."

But other insurers have rejected coverage, citing a weakness in the company's trial data. And despite the FDA approval, critics have claimed that VNS for depression has been shown to be no better than placebo.

George Parker, Cyberonics interim COO, expressed disappointment with the rejection of expanded coverage "to include a small subset of patients. This subset of patients is experiencing a devastating illness associated with extremely high healthcare utilization costs and disability, and currently VNS Therapy is the only treatment option specifically developed and approved for TRD. We will not rest until all eligible patients have full parity in access to VNS Therapy."

He added: "Published peer-reviewed data demonstrate that VNS Therapy provides unparalleled, long-term benefits for many patients who have been unable to experience relief from depressive symptoms with other available treatment options. We encourage all who seek parity in access to treatment for those with mental health disorders to make their voices heard during this public comment period."

Parker said that it provided CMS with "solid evidence" of value for Medicare beneficiaries. "A recent study has shown that annual medical costs associated with the subset of patients with TRD identified in the submission to CMS average approximately $47,000."

The proposal is subject to a 30-day public comment period to conclude March 7.

Last year, the company came under federal scrutiny concerning its stock option practices and Skip Cummins, its CEO, and other executives left the company in November (MDD, Nov. 21, 2006). Other problems include shareholder suits filed against the company and a recent "going concern" notice by the company's independent auditors (MDD, Jan. 17, 2007).

Analyst Andrew Arrow, of Lazard Capital Markets, in a report called the CMS determination a serious setback for the company, saying that the final determination is likely to be the same — rejection of VNS implantation for depression. "Hence, we believe the already-modest market for the company's implantable neurostimulator is likely to get smaller still," Arrow said.

He noted the company's failure to reach forecast revenue projections — $2 million below Lazard's forecast and $3 million below the $34.9 million consensus — calling that "another indication that the depression indication, now six quarters after its July 2005 FDA approval, is unlikely to flourish without a major change in circumstances."

Arrow also predicted that a post-approval patient registry being pursued by the company may not be completed on schedule, largely because of sites declining to participate — another fallout from the absence of reimbursement.

Cyberonics recently made changes in its board, agreeing to place on it three members nominated by a dissident group, and Arrow said this could lead to "an acquisition."

Other analysts have predicted near-term staff layoffs by the company.