Wednesday, November 22, 2006

Cyberonics' Top Leaders Forced Out Over Back-Dated Stock Options

We had previously posted about the curious way in which Cyberonics' vagus nerve stimulator device was assessed as a treatment for severe depression by a US Food and Drug Administration (FDA) panel. Although a randomized controlled trial failed to show any improvements due to the device that could not be explained by chance alone, after some emotional patient testimonials, the panel voted to approve the device. One panelist later said it was "nuts."

We also posted about questions regarding the authors of an article sponsored by the company about the vagus nerve stimulator. These questions revolved around undisclosed conflicts of interest, and the extent a ghost-author was responsible for the article.

Cyberonics also came to our attention because of questions about stock-options granted to its top executives. Now, according to the Houston Chronicle,
Two top executives have exited Cyberonics, after it disclosed that its stock options problems are much broader than previously reported.

On Monday, investors bid up shares of the Houston-based medical device maker, which said Chairman and CEO Robert Cummins and Chief Financial Officer Pamela Westbrook resigned.

The duo was replaced, on an interim basis, by three people: Tony Coelho as chairman, Reese Terry Jr. as chief executive and John Riccardi as chief financial officer. George Parker was appointed as interim chief operating officer.

The personnel changes came as Cyberonics reported widespread stock option problems in a filing Friday with the U.S. Securities and Exchange Commission.

Before Friday, the company had acknowledged only one instance where stock options were at issue. Those options were given to top executives in June 2004, on the day before the stock market had a chance to react to positive news about a Cyberonics product. Some analysts have described the 2004 options activity as 'make-your-own-luck' grants. Others have called it springloading. On June 9, the SEC began an informal investigation into the two-year-old options.

On Friday, Cyberonics said a board committee that reviewed the company's stock option grants concluded that 'incorrect measurement dates were used for certain stock option grants made principally during the period from 1999 through 2003.'

Cyberonics estimates its financial statements from that period would need to be adjusted to reflect about $10 million in additional 'noncash compensation charges' because of the backdating activity.
It's funny how questionable financial practices seem to go hand-in-hand with dodgy marketing and strange science. In my humble opinion, cases like this suggest the urgent need for better governance of health care organizations, meaning governance that is transparent, accountable, and ethical. But given the way many helath care organizations are currently run, should it be any surprise that costs constantly go up, access constantly goes down, quality is constantly questioned, and health care professionals are increasingly miserable?


Nancy Bowling said...

I am not sure just who are the bigger idiots. The people at Cyberonics who actually believe this piece of crap gadget works, or the morons at the FDA for approving it. Wait. I take that back. The FDA did set "Conditions for Approval" trying to look out for the rest of us. You know, the 1,000 patient out-come registry and a 450-patient post-market dosing study? Do you mind explaining that little QuarterEnd 01/23/09 Earnings Call Transcript where Anthony Petrone asks Daniel Moore for the update on asking the FDA to change the structure of the TRD post approval study and change the enrollment from 460 patients to 330? Are you kidding me? This device has been out for how many years and they haven't even met the conditions for approval yet? Isn't that doing things a little backwards? If you go to the FDA/CDRH website you can look up the well over 500 deaths and 1,600 serious injuries, not to mention suicides, that this device has caused, and it still is being used without the original conditions being met? Maybe the people in the FDA and the CDRH should get themselves hooked up to one of these gadgets. I'll tell you what, if anyone needs a little "brain stimulating" around here, it's them!!!!!

Nancy Bowling said...

Just wanting to keep you all posted. I just got off the Maude Data Base and now the death toll from Cyberonics VNS Device is 1,850, serious injuries well over 5,000. I'm starting to wonder if the FDA or the CDRH even look at that data base, or if it's just there to pacify the rest of us. Oh, and get this. There is another device coming up for approval. MEDTRONIC DBS THERAPY for EPILEPSY. Come on, why do they even bother with all this approval crap? Why don't they just stick that famous little sticker we have all grown to know and love, the little FDA APPROVED thing-a-ma-jig, on it and put us all out of our misery. By the way, isn't that the same lable they put on Vioxx??? And let's not forget that Gideon thing. You know, that little heart device that was suppossed to keep it beating but was actually stopping it? I would really like to know who trained these people anyway. After 9/11, I thought our biggest enemies were the terrorists. Now, I do believe it's the FDA and the CDRH.

Anonymous said...

Not that anybody from the FDA or the CDRH is going to read this, but I'm going to post it anyway. I just got off the Maude Data Base and typed into the search bar: Cyberonics vns device causing death and the number is now up to 3,290. That means that THREE THOUSAND TWO HUNDRED AND NINETY people are dead because of this CYBERONICS VNS DEVICE! Why do I feel like I'm talking to deaf ears?