Cyberonics

(CYBX)

said Wednesday that despite setbacks its second-quarter financial results beat Wall Street estimates.

However, the company's expectation that its third-quarter loss will be wider than analysts' predictions drove the stock lower in after-hours trading.

Cyberonics fell almost 5% after the bell; the stock gained $1.01, or 5.3%, to $20.09 in regular trading.

The Houston-based medical device company lost $2 million, or 8 cents a share, on revenue of $25.4 million for the quarter ended Oct. 29. Analysts polled by Thomson First Call had expected on average a loss of $3.3 million, or 14 cents a share, on revenue of $25.2 million.

For the same period last year, Cyberonics earned $3.85 million, or 15 cents a share, on revenue of $29.3 million.

Robert P. Cummins, chairman and CEO, said the company is making "good progress" toward its goals "in spite of the considerable distraction" caused by the Food and Drug Administration's rejection of a medical device as a depression treatment and by a competitor's attempt to acquire Cyberonics.

The competitor,

Advanced Neuromodulation Systems

(ANSI)

, bought 14.7% of Cyberonics shares in August and asked the company to discuss a buyout for the rest of the shares at $22 each. Cyberonics repeatedly rejected the proposal, and Advanced Neuromodulation Systems finally got the message, withdrawing its request on Oct. 1.

Cyberonics makes a device called VNS Therapy, which is surgically implanted in a patient and delivers mild electrical shocks to a nerve in the brain. VNS Therapy is available in the U.S. for treating epileptic seizures. Cyberonics is seeking FDA approval to treat depression in people who don't respond to medications or other depression therapies.

An FDA advisory committee supported the depression application in June, but the FDA, in a rare move, opposed the panel's recommendation and rejected the application.

Cyberonics has been talking to the FDA since receiving the rejection letter Aug. 11. Cyberonics is pursuing an informal appeal to get the agency to reconsider. If that approach doesn't work, Cyberonics says it will file a formal appeal. Cummins said he expects to hear from the FDA by the end of January.

If the appeals are unsuccessful, Cyberonics will have to decide whether it wants to conduct more time-consuming and expensive clinical trials.

"Cyberonics' goals for fiscal 2005 are to maintain our epilepsy business while at the same time obtaining clarity and certainty towards regulatory approval of VNS Therapy as a treatment for chronic or recurrent treatment-resistant depression," Cummins said. "We made good progress towards those objectives in the second quarter. We achieved our sales objective this quarter."

Cyberonics also predicted that it would lose $3.3 million, or 13 cents a share, on revenue of about $25 million in the third quarter. The consensus at Thomson First Call had predicted a loss of $1.2 million, or 5 cents a share, on revenue of $26 million.

"Should we receive a final depression decision from the FDA prior to the end of the quarter, we will revise our guidance appropriately," said Pamela B. Westbrook, the company's CFO.