CHICAGO, June 9 (Reuters) - Medical device maker Cyberonics Inc. < CYBX > denied allegations that certain stock options were timed to create a windfall for its executives, but analysts on Friday said the issue will weigh on the company and its shares fell more than 4 percent.
Chief Financial Officer Pam Westbrook told investors in an e-mail, dated June 8 and made public on Friday, that the allegations were "inaccurate and without merit" and that the company fully followed securities laws in granting the options.
Robinson Humphrey analyst Amit Hazan, in an investor advisory, said the options were granted by the board of directors just hours after the company received positive news about the regulatory prospects for a product. According to Hazan, the options were granted after a U.S. medical advisory panel recommended approval of a Cyberonics device for depression, but before Cyberonics shareholders got to trade on the news.
The next day, Cyberonics shares jumped 78 percent. Cyberonics Chief Executive Robert "Skip" Cummins reaped an "overnight paper profit" of $2.3 million, and two of his lieutenants also benefited, Hazan wrote in his advisory.
In recent weeks, about 30 public companies have disclosed criminal, regulatory or internal probes into possible manipulation of stock options.
"At the end of the day, we believe they followed the letter of the law," said William Plovanic, an analyst with First Albany Capital. "The perception of investors is obviously negative and this may increase scrutiny and will be a headline risk and an overhang on the stock."
The shares were down $1.09 to $22.50 in afternoon Nasdaq trade. They remain near 18-month lows.
"The only appropriate action for management to take is to turn in the options," analyst Steve Brozak of WBB Securities said.
Paul Foster, an analyst for theflyonthewall.com, said, "This company has a lot of integrity issues in the Street's view, and this is just another one. It discourages investors from trusting the company down the road."[Quite an understatement!]
Cyberonics executives could not immediately be reached for comment.
Analysts said the main catalyst for the shares will continue to be incremental policy decisions about reimbursement from insurance companies and other payors for the company's implantable device to treat severe depression . Quarterly financial statements will provide investors with a sense of how well the device is selling under the current system under which insurers make payment decisions on a case by case basis, they said. <<
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