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Updated from 12:25 p.m. EDT

Shares of



dropped sharply on Thursday, a day after the company revealed that the Senate Finance Committee wants information about an experimental treatment for depression.

Robert P. "Skip" Cummins, chairman and chief executive, emphatically pointed out in a Wednesday press release and even more emphatically during a Thursday press conference that the committee's request is informal and that it focuses on the Food and Drug Administration's review of the device.

There is no subpoena and no formal inquiry, he said. Adding that the committee's letter said "Cyberonics has done nothing wrong," Cummins also said that "we have been assured repeatedly by the FDA" that the Senate committee's request won't have an impact on the agency's review of the device.

Cyberonics is seeking FDA approval for using its VNS Therapy as a treatment for depression. The device was approved by the agency in 1997 for treating epileptic seizures. VNS Therapy is approved for epileptic seizures and depression in some foreign markets.

Disclosure of the Senate Finance Committee request comes two weeks before the FDA is due to decide on Cyberonics' pacemaker-sized device, which is surgically implanted into a patient and designed to deliver mild electric shocks to a nerve in the brain called the vagus nerve.

The company's stock fell $3.95, or 10.2%, to $34.92. It dropped as low as $32.70. Just before noon, trading volume was just over 7 million shares, or more than eight times the average daily trade.

Making His Points

In a rambling 80-minute telephone conference call that mixed anger, passion and poignancy, Cummins lashed out at an assortment of people whom he accused of trying to derail approval of VNS Therapy. They include short-sellers, "keepers of the status quo" in depression treatment, the consumer group Public Citizen, which has petitioned the FDA to reject the device, and "junior, ill-informed scientists" at the FDA who opposed the device.

Cummins has been seeking approval of the device as an alternative to treatment-resistant depression, the type of illness for which traditional therapies -- drugs, psychiatry and electro-convulsive therapy -- don't work. There's a personal link to his efforts: A grandfather and his mother committed suicide.

Because there are no FDA-approved therapies for treatment-resistant depression, Cummins said in his Wednesday press release, "most patients" with this disease say "the only real way out of the treatment-resistant depression status quo is suicide."

Cummins said Thursday that his company would provide information to the Senate Finance Committee only after the committee provided a written guarantee that the data would remain confidential.

The Senate Finance Committee, headed by Rep. Charles Grassley, R-Iowa, has been examining a number of FDA matters in recent months, holding hearings on proposed legislation to improve drug safety, the agency's handling of the withdrawal of



arthritis drug Vioxx, and the agency's response to allegations that popular antidepressants increase the risk of suicidal behavior among adolescents.

Grassley has said that his committee has jurisdiction on these matters because of its role in monitoring Medicare and Medicaid.

The FDA Reversal

Cummins accused the Senate Finance Committee of leaking information to

The Wall Street Journal

. He said he received a call from a

Wall Street Journal

reporter Wednesday afternoon, saying that the paper would be running a story Thursday about a Senate Finance Committee investigation.

Cummins said he told the reporter that the information from an unidentified source was "false and misleading." After the phone call, he said he felt compelled to issue a press release Wednesday night and to hold a conference call Thursday. He cancelled his subscription to the paper this morning.

"Cyberonics and its advisors believe that

the committee's 'examination' will produce no new information and that

the committee's 'examination' will have no bearing on FDA's final ... approval decision," Cummins said in the press release. He didn't release the full contents of the letter. On Thursday, he only would say that Cyberonics received the request "very recently" from the committee.

"All of the 'strong objections' referred to in

the committee's letter were fully considered by a specially chosen FDA Advisory Panel of depression experts that recommended approval in June 2004 and by FDA's Center for Devices and Radiological Health during its rigorous review ... that resulted in the recent approvable decision," said Cummins.

Last June, an advisory panel voted 5-2 to recommend VNS Therapy for treating depression in people for whom traditional treatments didn't work. But in August, the FDA overruled the advisory panel. Then on June 2,

the FDA reversed itself, giving approval to the device as long as Cyberonics met certain conditions.


said last week that his company was making "good progress" in meeting all obligations before the May 31 deadline set by the FDA.

The conditions include improving manufacturing practices, establishing a patient registry, creating a plan for post-marketing surveillance and developing an acceptable label that includes data from all clinical trials. In recent weeks, Cummins has suggested that FDA approval could come as early the American Psychiatry Association's annual meeting starting May 21 in Atlanta.

Criticism of the device, most notably by an FDA staff report last year and by Public Citizen recently, focused on company-sponsored tests, which critics said were inadequate to measure VNS Therapy vs. other treatments.

Wall Street's View

The initial reaction among analysts demonstrated uncertainty about how this latest episode reflects politics or science, and what effect both might have on the device's approval or on the company's stock.

"Over the years, we have come to expect the unexpected from Cyberonics, but this was even a surprise to us," says Jan David Wald of A.G. Edwards in a brief research report Thursday. Wald, who is keeping a hold rating, speculated that Cyberonics "might have ruffled one too many feathers at the FDA or even in Congress because of its lobbying efforts."

Wald expects the device to be approved, but he says the FDA's decision might be delayed in deference to the Senate committee's action. "But we also think there is a chance that this may simply end up being a review of FDA procedures using Cyberonics as a case study." He doesn't own shares of the company. His firm is a market maker, and it intends to seek or receive investment-banking compensation in the next three months.

"Conventional wisdom would assume that the FDA has no reason to stick its neck out at this point and approve the device until the

committee's examination runs its course," adds Keay T. Nakae in a Thursday note to clients at C.E. Unterberg Towbin, which doesn't have an investment banking relationship with the company.

Keeping a buy rating and believing the device will ultimately be approved, Nakae advised clients to treat a stock price decline as a buying opportunity despite "this new political uncertainty." Nakae doesn't own shares.

Another analyst who says science will triumph over politics is Amit Hazan, of SunTrust Robinson Humphrey, who also argues that investors should buy the stock on weakness because "the risk/reward ratio is solid."

Hazan backs up a buy rating with the belief in a "high probability" that the FDA will approve the device "in the near-term" and that the Senate Finance Committee "has no jurisdiction to sway the FDA in one way or another." Hazan doesn't own shares, but SunTrust is a market maker in the stock.