Cyberonics Attracts a Suitor

Advanced Neuromodulation Systems acquires a 14.9% stake and suggests a 'business combination.'
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Updated from 8:38 a.m. EDT

Cyberonics

(CYBX)

shares surged Friday after

Advanced Neuromodulation Systems

(ANSI)

announced it had acquired a 14.9% stake in the beleaguered biotech company and raised the possibility of a "business combination."

Cyberonics shares have fallen almost 38% since the Food and Drug Administration last week took the unusual step of rejecting an advisory committee's recommendation to approve the company's treatment for depression.

Shares jumped $5.10, or 34.1%, to $20.05 Friday, which is still about half what the stock was worth at its 52-week high. ANS shares fell $1.50, or 4.8%, to $29.95.

In a statement accompanying the announcement, Chris Chavez, CEO of ANS, said: "Late yesterday, we apprised Skip Cummins, the president and chief executive officer of Cyberonics, of our investment and expressed our belief that a combination of our two companies offers potentially substantial benefits to the employees and stockholders of both organizations, as well as to the growing number of physicians and patients who rely on our products. ANS believes that together we could build something truly exciting -- with critical mass, synergies and leverage -- that would add value for both companies' stakeholders."

Chavez added that the companies will "discuss the possibility of a combination, and we look forward to having that conversation soon."

Houston-based Cyberonics said "it is not interested in any combination or merger and remains focused on growing its epilepsy business and gaining clarity and certainty in a revised depression regulatory timeline." The company plans to brief investors and analysts on its efforts in proceeding to win FDA approval as well as provide updated guidance on Aug. 25.

ANS said it had accumulated the stake, which amounts to 3.5 million shares, in open market purchases completed on Aug. 12 and 13. Cyberonics shares fell 40% on Aug. 12, the day it announced the FDA decision, with 27.9 million shares changing hands. The stock slipped further the following day.

The Plano, Texas-based company said it will file the mandatory 13D form with the

Securities and Exchange Commission

to report its stake.

ANS develops, manufactures and markets advanced implantable devices to treat chronic pain. For the six months ended June 30, revenue rose 36% to $57.1 million. Net income rose 50% to $8.3 million.

As of yesterday's close, ANS had a market capitalization of $631.6 million. Cyberonics' market cap had shrunk to $352 million as of Thursday.