Cyberonics Inc. shares fell nearly 12 percent on Tuesday, a day after the maker of an implantable device to control epileptic seizures reported a wider quarterly loss and revenue that fell short of Wall Street expectations.

The Houston-based company, which failed to gain Medicare reimbursement for use of the device to treat depression, reported fourth-quarter revenue down 13 percent from the previous year and about 6 percent shy of analysts' estimates. A loss of 42 cents per share was also wider than analysts had anticipated.

Lazard Capital Markets analyst Alex Arrow said in a research note that clients should sell their Cyberonics shares in advance of further recognition that the depression market will continue to disappoint relative to expectations.

Arrow's Cyberonics share price target of $16 is below the current share price.

We believe the main reason for the revenue and earnings misses is the continued disconnect between the belief of some (investors) that the depression market for the company's implantable neurostimulator is real and growing, and the reality that most psychiatrists believe the device works by the placebo effect, Arrow said.

He said the greatest risk to the sell recommendation is the possibility that recent activist shareholder actions could lead to an acquisition.

Cyberonics shares were down $1.52, or 8.5 percent, at $16.42 in late morning trading on Nasdaq after falling as low as $15.82 earlier in the session.