Investors in Cyberonics (NASDAQ:CYBX) could be forgiven for feeling that the market has been a bit manic-depressive with respect to their company.

Shares of this neurology device company have oscillated violently between the low teens and upper 30s, alternately built up and beaten down, as the company has sought FDA approval to use its Vagus Nerve Stimulation (VNS) Therapy System on severely depressed patients who don't respond to other treatment.

The "system" involved is a device akin to a cardiac pacemaker that works by sending electrical impulses through the vagus nerve (a major nerve in the neck) and into the patient's brain. VNS is not a new therapy. Cyberonics has been selling the device to treat epilepsy for almost eight years, and more than 30,000 epilepsy patients have received the device.

Getting to the point of FDA approval of the device for depression has been arduous, to say the least. While the original depression study failed to show statistical significance, the company pushed ahead with a revised data set and received a favorable recommendation from the FDA's Neurological Devices Advisory Panel in mid-2004. In a surprising reversal, the FDA ignored this recommendation and deemed the device unapprovable in August 2004.

Not willing to give up, Cyberonics filed additional information with the FDA and actively engaged the agency in discussions about how to obtain approval for using the device to treat severe depression. Now, at long last, the FDA has given its conditional blessing, pending some final details including a patient registry and a post-approval dosing study.

While everyone has heard of the positive impacts of anti-depressants such as Prozac or Zoloft, few people realize that there still remains a significant number of seriously depressed individuals for whom these drugs do not work. Assuming that the FDA follows through with final approval, Cyberonics can begin to target the roughly 4 million treatment-resistant depression patients in the United States.

While Cyberonics will not be able to sell a VNS System to every patient with treatment-resistant depression, a list price in excess of $15,000 suggests to this Fool that even a small percentage of that total market is worth a lot of money.

Of course, the company will continue to face challenges even if it succeeds in winning FDA approval. It is always difficult to introduce a new product, and the unique therapy represented by the VNS System is unlike anything most psychiatrists are familiar with using. What's more, Cyberonics will have to greatly expand its sales force, and it's not unreasonable to think that there could be quarter-to-quarter variances as the product rolls out.

Cyberonics shares look expensive on trailing ratios, but trailing ratios have limited predictive ability when a company is about to undergo such a major potential change in its business. Capturing just 1% of the target market could mean $600 million in sales for CYBX -- nearly six times the company's current revenue. While Cyberonics' volatile history suggests that only risk-tolerant investors should consider these shares, those willing to do so could find the results stimulating.

Fool contributor Stephen Simpson, CFA, has no ownership interest in any of the stocks mentioned.