Updated from 8:44 a.m. EST

Cyberonics

(CYBX)

shares soared Thursday after the medical device company said federal regulators had reversed an earlier decision and approved its experimental treatment for depression.

Shares jumped $10.47, or 38.1%, to $37.95 in early trading.

The FDA's approval contains a number of conditions, prompting Cyberonics to say that the device wouldn't be available until at least late May.

Nevertheless, the decision is a major victory as well as a reversal of fortune for Cyberonics, whose shares swooned last summer when the FDA rejected the treatment, which had already been endorsed by an advisory panel -- an extremely rare occurrence. The decision also triggered an unsolicited takeover offer by an industry rival.

The FDA's ruling, announced by Houston-based Cyberonics Wednesday night, reversed the agency's Aug. 11 rejection of the device called VNS Therapy. The pacemaker-like device, which is surgically implanted into a patient, has been available in the U.S. since 1997 as a treatment for epilepsy. VNS Therapy delivers mild electrical shocks to a nerve in the brain.

The FDA's decision in August overturned a recommendation by an agency advisory committee, which voted 5-to-2 in June in favor of using VNS Therapy as a treatment for depression.

When Cyberonics' stock plunged,

Advanced Neuromodulation Systems

(ANSI)

bought just under 15% of its shares and later offered to acquire the rest of the company. Cyberonics repeatedly rejected its rival's offer, and Advanced Neuromodulation Systems finally withdrew the offer.

Thanks to the FDA's ruling Wednesday night, "Cyberonics expects that third-quarter sales and earnings will likely beat our guidance of $25 million in sales and a net loss of $3.3 million, or 13 cents per fully diluted share," said Pamela B. Westbrook, the company's chief financial officer. The consensus prediction of analysts tracked by Thomson First Call is for a third-quarter loss of 11 cents a share.

The third-quarter results -- for the three months ended Jan. 31 -- will be announced Feb. 8, at which time the company will provide guidance for the fourth quarter.

The FDA's decision caps a remarkable comeback by Cyberonics, which vigorously pressed its case with the agency after the FDA's rejection in August. If Cyberonics had been unable to convince the FDA to change its mind, the company probably would have had to conduct additional expensive and time-consuming clinical trials.

Still, Cyberonics said it must meet several conditions before marketing the device as a treatment for people who haven't responded "to at least four adequate antidepressant treatments."

These conditions include negotiating with the FDA the wording on a label, which is an important consideration in how Cyberonics can market the product for depression.

The company and the FDA also must agree on a study to see how well patients respond to therapy and to establish a patient registry. Cyberonics also must correct certain manufacturing plant deficiencies that the FDA had cited from previous inspections.

"Cyberonics and FDA have already made good progress towards resolving the approvable conditions, and based on that progress, Cyberonics is building its organization to support a potential late May 2005 launch," said Robert P. "Skip" Cummins, the company's chairman and CEO.