Two health care "stocks under rocks"

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4/17/2012 @ 4:58PM

Two health care "stocks under rocks"

The first is Cyberonics Inc. CYBX/NASDAQ), a Houston-based company that makes a medical device for the treatment of epilepsy. The tiny device, implanted in the shoulder of patients, delivers a pulse of electricity to the brain, and it’s been found to be remarkably effective for the treatment of refractory epilepsy. Patients need to exhaust other treatment methods first, but when they do the device is fully covered by insurance. Cyberonics is profitable based solely on its current U.S. business, so as the company continues to expand its international presence, I think earnings will improve.

Another upside for Cyberonics is in an entirely different line of business: depression. Research has shown that the device also produces positive results for patients with treatment-resistant forms of depression. The FDA approved the device for the treatment of depression in 2005, but when it comes to medical devices and treatments, the question isn’t just, “Does it work?” It’s “Will insurance pay for it?”

Fortunately, there’s reason to believe reimbursement for the use of the device to treat at least some forms of depression is possible, and if that happens, Cyberonics will be staring at a potential market that could far exceed the size of the epilepsy market. Cyberonics has also made an investment in Imthera Inc., a company developing a device for the treatment of sleep apnea, and when you add to that the fact that the company is also researching the use of the device to treat chronic heart failure, you have the makings of what could be a really terrific story.

The company is run by some very smart people, and at $37 a share, it appears attractively priced. Our analysts with Burkenroad Reports have a target price of $40. This growth stock sells at about 32 times our expected earnings for 2012 and represents an interesting investment based solely on the epilepsy market. If reimbursement is approved for the device’s use in the treatment of depression, it could really attract Wall Street’s attention.

http://www.forbes.com/sites/peterricchiuti/2012/04/17/two-health-care-stocks-under-rocks/