FDA rejects Cyberonics device; stock plunges

Thu Aug 12, 2004
By Toni Clarke and Bill Berkrot

NEW YORK, Aug 12 (Reuters) - U.S. regulators refused to approve a pacemaker-like device made by Cyberonics Inc. (CYBX.O: Quote, Profile, Research) to treat depression, a surprise decision that sent the company's stock plunging more than 45 percent on Thursday.

In making its decision, the U.S. Food and Drug Administration rejected the advice of its own panel of experts, which had recommended approving the nerve-stimulating device. The agency almost always follows the recommendations of its panels.

The rejection represents a substantial blow for Cyberonics, which had been banking on approval to help fuel its growth. The company generates $110 million a year from the device as a treatment for epilepsy. Analysts estimate the market for chronic depression could be 10 times bigger.

"It is a devastating blow," said Fariba Ghodsian, managing partner at CCL Partners. "This was the upside everyone was looking for."

Houston-based Cyberonics said the FDA's reasons for rejecting the device, which is inserted in the neck and stimulates neurons in the brain, included worsening depression in some patients in clinical trials.

"Obviously, the FDA has seen something the panel hasn't," said Mark Landy, an analyst at Susquehanna Financial Group.

The FDA also criticized the design of the clinical trial, which compared patients with the device, known as the Vagus Nerve Stimulator, with a control group that took a variety of depression drugs. Typically, trials are conducted on a randomized basis, where patients don't know whether they are being given the experimental treatment.

"There was nothing new in that (FDA) letter, nothing that hadn't been considered and discussed at the panel meeting," Robert Cummins, Cyberonics chief executive officer, said of the rejection notice, received late on Wednesday. "The FDA has inexplicably has chosen to ignore the advice of its panel."

In June, an advisory panel voted 5 to 2 to approve the device for chronically depressed patients who had failed other treatments. The vote pushed the company's shares up 78 percent.

But even at the time, some members of the panel were troubled by what they saw as a lack of substantial clinical data to support the effectiveness of the device.

In its letter to the company, the FDA cited cases of worsening depression as one of its concerns. That came as a surprise to some analysts.

"If that is the case, the FDA saw something in the data that I don't think we were presented with," said Jan Wald, an analyst at A.G. Edwards & Sons Inc.

Cummins said the company is considering all its options, including legal action, to "try to convince the FDA that it made a mistake."

Cyberonics shares fell $9.58, or 40 percent, to $14.37 in early-afternoon trading on Nasdaq after falling to a two-year low of $12.78 earlier in the day. (Additional reporting by Julie Steenhuysen and Debra Sherman in Chicago)

Home Loans Articles, Mortgage Loans Articles, Financial News